Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
HEIRS OF JOSE LIM,
represented by ELENITO LIM,
Petitioners,

G.R. No. 172690

Present:
CORONA, J.,
Chairperson,
VELASCO, JR.,
NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.

- versus -

Promulgated:
JULIET VILLA LIM,
Respondent.

March 3, 2010

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Civil Procedure, assailing
the Court of Appeals (CA) Decision[2] dated June 29, 2005, which reversed and set aside the decision [3] of the
Regional Trial Court (RTC) ofLucena City, dated April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and their
children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito Lim
(Elenito). They filed a Complaint[4] for Partition, Accounting and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban,
Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto),
formed a partnership to engage in the trucking business. Initially, with a contribution of P50,000.00 each, they
purchased a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in the
partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with
petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his fathers driver
in the trucking business. He was never a partner or an investor in the business and merely supervised the
purchase of additional trucks using the income from the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all registered in Elfledo's name. Petitioners asseverated
that it was also through Elfledos management of the partnership that he was able to purchase numerous real
properties by using the profits derived therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that
respondent took over the administration of the aforementioned properties, which belonged to the estate of
Jose, without their consent and approval. Claiming that they are co-owners of the properties, petitioners
required respondent to submit an accounting of all income, profits and rentals received from the estate of
Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and
Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave
Elfledo P50,000.00 as the latter's capital in an informal partnership with Jimmy and Norberto. When Elfledo
and respondent got married in 1981, the partnership only had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business, Elfledo, together with respondent, engaged in other
business ventures. Thus, they were able to buy real properties and to put up their own car assembly and
repair business. When Norberto was ambushed and killed on July 16, 1993, the trucking business started to
falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to the heirs
of Norberto, as she could no longer run the business. Jimmy suggested that three out of the nine trucks be
given to him as his share, while the other three trucks be given to the heirs of Norberto. However, Norberto's
wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to respondent, who paid for them
in installments.

Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy
and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could
have held in trust. Respondent maintained that all the properties involved in this case were purchased and
acquired through her and her husbands joint efforts and hard work, and without any participation or
contribution from petitioners or from Jose. Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an accounting for the income or profits of their own
business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and
heirs of Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received
by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack
of merit. Undaunted, petitioners filed their Motion for Reconsideration, [5] which the CA, however, denied in its
Resolution[6] dated May 8, 2006.

Hence, this Petition, raising the sole question, viz.:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN THE
TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?[7]
In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was
not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in not giving
that testimony greater weight than that of Cresencia, who was merely the spouse of Jose and not a party to
the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper in a petition for review
on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review, evaluation, calibration,
and re-weighing of the factual findings of the CA. Moreover, respondent invokes the rationale of the CA
decision that, in light of the admissions of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings was fully
justified.[9]
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues an
exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the Supreme Court is not a trier of facts. Generally, we are
not duty-bound to analyze again and weigh the evidence introduced in and considered by the tribunals below.
[10]
When supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the
parties and are not reviewable by this Court, unless the case falls under any of the following recognized
exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific evidence on which
they are based;
(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs
are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed absence
of evidence and contradicted by the evidence on record. [11]

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review of such
findings is warranted.

On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall be a proportionate sharing of the profits and
losses among them. A contract of partnership is defined by the Civil Code as one where two or more persons
bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves.[12]
Undoubtedly, the best evidence would have been the contract of partnership or the articles of partnership.
Unfortunately, there is none in this case, because the alleged partnership was never formally organized.
Nonetheless, we are asked to determine who between Jose and Elfledo was the partner in the trucking
business.
A careful review of the records persuades us to affirm the CA decision. The evidence presented by petitioners
falls short of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2)
all the properties acquired by Elfledo and respondent form part of the estate of Jose, having been derived from
the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against
respondent. It must be considered and weighed along with petitioners' other evidence vis--vis respondent's
contrary evidence. In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate
evidence on either side and is usually considered synonymous with the term "greater weight of the evidence"
or "greater weight of the credible evidence." "Preponderance of evidence" is a phrase that, in the last analysis,
means probability of the truth. It is evidence that is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. [13] Rule 133, Section 1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having
burden of proof must establish his case by a preponderance of evidence. In determining where
the preponderance or superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses' manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses,
though the preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals [14] is enlightening. Therein, we cited
Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such coowners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo
was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as
share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;
[15]
(2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners herein; [16] (3) all of the properties, particularly
the nine trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did

not receive wages or salaries from the partnership, indicating that what he actually received were shares of
the profits of the business; [17] and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18] a
demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired
and registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived
from Jose's alleged partnership with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo
and respondent engaged in other businesses. Edison even admitted that Elfledo also sold Interwood lumber as
a sideline.[19] Petitioners could not offer any credible evidence other than their bare assertions. Thus, we apply
the basic rule of evidence that between documentary and oral evidence, the former carries more weight. [20]
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the partners in
the trucking business, active and visible in the running of its affairs from day one until this
ceased operations upon his demise. The extent of his control, administration and management
of the partnership and its business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners, are indicative of the fact
that Elfledo was a partner and a controlling one at that. It is apparent that the other partners
only contributed in the initial capital but had no say thereafter on how the business was
ran. Evidently it was through Elfredos efforts and hard work that the partnership was able to
acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it was
Jose Lim and not Elfledo who was the partner, then upon his death the partnership should
have
been dissolved and its assets liquidated. On the contrary, these were not done but instead its
operation continued under the helm of Elfledo and without any participation from the heirs of
Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own
concerted efforts and hard work. Elfledo did not limit himself to the business of their
partnership but engaged in other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply supported
by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005
is AFFIRMED.Costs against petitioners.
SO ORDERED.

THIRD DIVISION
PHILEX MINING G.R. No. 148187
CORPORATION,
Petitioner, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Carpio Morales, *
Chico-Nazario,
Nachura, and,
Reyes, JJ.
COMMISSIONER OF
INTERNAL REVENUE, Promulgated:
Respondent.
April 16, 2008
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision [1] of the Court of Appeals in CA-G.R. SP
No. 49385, which affirmed the Decision [2] of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is
the April 3, 2001 Resolution[3]denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
agreement[4] with Baguio Gold Mining Company (Baguio Gold) for the former to manage and operate the latters
mining claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties
agreement was denominated as Power of Attorney and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available
to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such
amounts as from time to time may be required by the MANAGERS within the said 3-year
period, for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the owners account in the
Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is
left with the Sto. Nino PROJECT, shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the
Sto. Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto.
Nino PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in
cash shall be added to the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until
termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the PRINCIPAL to
extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS account has to the owners account
will be determined, and the corresponding proportion of the entire assets of the STO. NINO
MINE, excluding the claims, shall be transferred to the MANAGERS, except that such

transferred assets shall not include mine development, roads, buildings, and similar property
which will be valueless, or of slight value, to the MANAGERS. The MANAGERS can, on the other
hand, require at their option that property originally transferred by them to the Sto. Nino
PROJECT be re-transferred to them. Until such assets are transferred to the MANAGERS, this
Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto.
Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on
their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECT after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the
future, may incur other obligations in favor of the MANAGERS. This Power of Attorney has been
executed as security for the payment and satisfaction of all such obligations of the PRINCIPAL
in favor of the MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding,
inclusive of the MANAGERS account. After all obligations of the PRINCIPAL in favor of the
MANAGERS have been paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month
notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to the
PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case
of the MANAGERS withdrawal.
x x x x[5]
In the course of managing and operating the project, Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years
which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982.[6]
Thereafter, on September 27, 1982, the parties executed a Compromise with Dation in Payment [7] wherein
Baguio Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the
same in three segments by first assigning Baguio Golds tangible assets to petitioner, transferring to the latter
Baguio Golds equitable title in its Philodrill assets and finally settling the remaining liability through properties
that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an Amendment to Compromise with Dation in Payment [8] where
the parties determined that Baguio Golds indebtedness to petitioner actually amounted to P259,137,245.00,
which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as
guarantor. These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio
Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in
two segments by first assigning its tangible assets for P127,838,051.00 and then transferring its equitable title
in its Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as loss on settlement of receivables from Baguio Gold against reserves and allowances.
[9]
However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and
assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad
debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to
be worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio
Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the management
contract, formed part of Baguio Golds pecuniary obligations to petitioner. It also included payments made by
petitioner as guarantor of Baguio Golds long-term loans which legally entitled petitioner to be subrogated to
the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would
not be able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to institute a judicial action for collection
against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enough that a
taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that
the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a

petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty percent (50%) of the projects net profit. [10]
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED
for lack of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income
tax in the amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY
respondent Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20%
delinquency interest due computed from February 10, 1995, which is the date after the 20-day
grace period given by the respondent within which petitioner has to pay the deficiency amount
x x x up to actual date of payment.
SO ORDERED.[11]
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the
nature of a loan. It instead characterized the advances as petitioners investment in a partnership with Baguio
Gold for the development and exploitation of the Sto. Nino mine. The CTA held that the Power of Attorney
executed by petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount
partook of the nature of an investment, it could not be deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio
Gold could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not
in default since its loans were not yet due and demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the
installment and interests due. Moreover, Citibank imposed and collected a pre-termination penalty for the prepayment.
The Court of Appeals affirmed the decision of the CTA. [12] Hence, upon denial of its motion for
reconsideration,[13]petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:

I.
The Court of Appeals erred in construing that the advances made by Philex in the management
of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment
rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto.
Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino
Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to
form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely
disregarding the Compromise Agreement and the Amended Compromise Agreement when it
construed the nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts
write-off.[14]
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should
not only rely on the Power of Attorney, but also on the subsequent Compromise with Dation in Payment and
Amended Compromise with Dation in Payment that the parties executed in 1982. These documents, allegedly
evinced the parties intent to treat the advances and payments as a loan and establish a creditor-debtor
relationship between them.
The petition lacks merit.
The lower courts correctly held that the Power of Attorney is the instrument that is material in
determining the true nature of the business relationship between petitioner and Baguio Gold. Before resort
may be had to the two compromise agreements, the parties contractual intent must first be discovered from
the expressed language of the primary contract under which the parties business relations were founded. It
should be noted that the compromise agreements were mere collateral documents executed by the parties
pursuant to the termination of their business relationship created under the Power of Attorney. On the other
hand, it is the latter which established the juridical relation of the parties and defined the parameters of their
dealings with one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties true intent. The compromise agreements were executed
eleven years after the Power of Attorney and merely laid out a plan or procedure by which petitioner could
recover the advances and payments it made under the Power of Attorney. The parties entered into the
compromise agreements as a consequence of the dissolution of their business relationship. It did not define
that relationship or indicate its real character.

An examination of the Power of Attorney reveals that a partnership or joint venture was indeed
intended by the parties. Under a contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
[15]
While a corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized
by law or its charter, it has been held that it may enter into a joint venture which is akin to a particular
partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. x x x It is in fact hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing of profits and losses, and a
mutual right of control. x x x The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single transaction, and is
thus of a temporary nature. x x x This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. x x x It would seem therefore that
under Philippine law, a joint venture is a form of partnership and should be governed by the
law of partnerships. The Supreme Court has however recognized a distinction between these
two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. x x x (Citations omitted) [16]
Perusal of the agreement denominated as the Power of Attorney indicates that the parties had
intended to create a partnership and establish a common fund for the purpose. They also had a joint interest in
the profits of the business as shown by a 50-50 sharing in the income of the mine.
Under the Power of Attorney, petitioner and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine. [17] In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development and operation of the
mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to contribute equally
to the joint venture assets under their respective accounts. Baguio Gold would contribute P11M under its
owners account plus any of its income that is left in the project, in addition to its actual mining
claim.Meanwhile, petitioners contribution would consist of its expertise in the management and operation of
mines, as well as the managers account which is comprised of P11M in funds and property and
petitioners compensation as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio
Gold because it did not bind itself to contribute money or property to the project; that under paragraph 5 of
the agreement, it was only optional for petitioner to transfer funds or property to the Sto. Nio project
(w)henever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of
the STO. NIO MINE.[18]
The wording of the parties agreement as to petitioners contribution to the common fund does not
detract from the fact that petitioner transferred its funds and property to the project as specified in paragraph
5, thus rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits
petitioner from withdrawing the advances until termination of the parties business relations. As can be seen,
petitioner became bound by its contributions once the transfers were made. The contributions acquired an
obligatory nature as soon as petitioner had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of
advances should not be taken as an indication that it had entered into a partnership with Baguio Gold; that the
stipulation only showed that what the parties entered into was actually a contract of agency coupled with an
interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and
agent.[19] In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the principal under the contract. Thus,
it cannot be inferred from the stipulation that the parties relation under the agreement is one of agency
coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the
parties was one of agency and not a partnership. Although the said provision states that this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account, it does not necessarily follow that the parties entered into an agency contract coupled
with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the Power of Attorney was not to confer a power in favor
of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to manage and operate the latters mine through
the parties mutual contribution of material resources and industry. The essence of an agency, even one that is
coupled with interest, is the agents ability to represent his principal and bring about business relations
between the latter and third persons. [20] Where representation for and in behalf of the principal is merely
incidental or necessary for the proper discharge of ones paramount undertaking under a contract, the latter
may not necessarily be a contract of agency, but some other agreement depending on the ultimate
undertaking of the parties.[21]
In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably
lead to the conclusion that a partnership was formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made
by petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties
business relations, the ratio which the MANAGERS account has to the owners account will be determined, and
the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims shall be
transferred to petitioner.[22] As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon dissolution of the parties business relations. There was nothing
in the agreement that would require Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or accounts payable for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the
Sto. Nio mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor
relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind
and quality.[23] In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the
cash and property that it had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in
which Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of
their business relations over the Sto. Nino mine. The Power of Attorney clearly provides that petitioner would
only be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that the
managers account had to the owners account. Except to provide a basis for claiming the advances as a bad
debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the Power of Attorney.
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds
of millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing
the terms and conditions of such loans. The parties also did not provide a specific maturity date for the
advances to become due and demandable, and the manner of payment was unclear. All these point to the
inevitable conclusion that the advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would
receive 50% of the net profits as compensation under paragraph 12 of the agreement. The entirety of the
parties contractual stipulations simply leads to no other conclusion than that petitioners compensation is
actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the receipt by a person of a share in the
profits of a business isprima facie evidence that he is a partner in the business. Petitioner asserts, however,
that no such inference can be drawn against it since its share in the profits of the Sto Nio project was in the
nature of compensation or wages of an employee, under the exception provided in Article 1769 (4) (b). [24]
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who
will be paid wages pursuant to an employer-employee relationship. To begin with, petitioner was the manager
of the project and had put substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in case the mine had no
income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it were
truly just an ordinary employee.
Consequently, we find that petitioners compensation under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal
share in the income of the mine if it were just an employee of Baguio Gold. [25] It is not surprising that petitioner
was to receive a 50% share in the net profits, considering that the Power of Attorney also provided for an
almost equal contribution of the parties to the St. Nino mine. The compensation agreed upon only serves to
reinforce the notion that the parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a partnership
known as the Sto. Nino mine. The advances were not debts of Baguio Gold to petitioner inasmuch as the latter
was under no unconditional obligation to return the same to the former under the Power of Attorney. As for the
amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no reason to depart from the tax
courts factual finding that Baguio Golds debts were not yet due and demandable at the time that petitioner
paid the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record. [26]
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross
income. Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed
against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.
[27]
In this case, petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio
Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a valid
bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385
dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income
in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10, 1995, which is
the due date given for the payment of the deficiency income tax, up to the actual date of payment.
SO ORDERED.

10

SECOND DIVISION
[G.R. No. 127347. November 25, 1999]
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated November 29,
1990, which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April
11, 1995. The trial court dismissed the petition for declaration of nullity of a deed of sale filed by private
respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private
respondent and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot, covered
by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent,
with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a
Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from the FIRST
PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale shall be
executed by the FIRST PARTY conveying the property to the SECOND PARTY for and in consideration of the sum
of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;

11

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said property within a
period of ninety (90) days from the execution of this memorandum of agreement effective April 18, 1991, for
the amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within a period
of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the possession of the property to the
SECOND PARTY within fifteen (15) days after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or whatever claims
on the property nor shall be cause the annotation of say claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the property
and shall defend the rights of the SECOND PARTY against any party whom may have any interests over the
property;
(6) All expenses for documentation and other incidental expenses shall be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY after the
expiration of the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay an amount
equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per
month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90) days period
above-mentioned, this memorandum of agreement shall be deemed cancelled and the Deed of Absolute Sale,
executed by the parties shall be the final contract considered as entered between the parties and the SECOND
PARTY shall proceed to transfer ownership of the property above described to its name free from lines and
encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale, [3] dated June 11,
1991, wherein private respondent, with the consent of her late husband, sold the subject property to A.C.
Aguila & Sons, Co., represented by petitioner, for P200,000.00. In a special power of attorney dated the same
day, April 18, 1991, private respondent authorized petitioner to cause the cancellation of TCT No. 195101 and
the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed to
redeem the subject property as provided in the Memorandum of Agreement. [4]
Private respondent failed to redeem the property within the 90-day period as provided in the
Memorandum of Agreement. Hence, pursuant to the special power of attorney mentioned above, petitioner
caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C.
Aguila and Sons, Co.[5]
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel
for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt of the letter
and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an
ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a decision,
dated April 3, 1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that
private respondent did not redeem the subject property before the expiration of the 90-day period provided in
the Memorandum of Agreement. Private respondent appealed first to the Regional Trial Court, Branch 163,
Pasig, Metro Manila, then to the Court of Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial
Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of her
husband on the deed of sale was a forgery because he was already dead when the deed was supposed to have
been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for falsification against
petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated February
14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they could not personally appear
before Notary Public Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben Abrogar, died on May
8, 1991 or one month and 2 days before the execution of the Deed of Absolute Sale, while the plaintiff was still
in the Quezon City Medical Center recuperating from wounds which she suffered at the same vehicular

12

accident on May 8, 1991, cannot be sustained. The Court is convinced that the three required documents, to
wit: the Memorandum of Agreement, the Special Power of Attorney, and the Deed of Absolute Sale were all
signed by the parties on the same date on April 18, 1991. It is a common and accepted business practice of
those engaged in money lending to prepare an undated absolute deed of sale in loans of money secured by
real estate for various reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff never
questioned receiving the sum of P200,000.00 representing her loan from the defendant.Common sense
dictates that an established lending and realty firm like the Aguila & Sons, Co. would not part with P200,000.00
to the Abrogar spouses, who are virtual strangers to it, without the simultaneous accomplishment and signing
of all the required documents, more particularly the Deed of Absolute Sale, to protect its interest.
....
WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED, with costs
against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is
indubitably an equitable mortgage. Article 1602 of the New Civil Code finds strong application in the case at
bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The property is
a two hundred forty (240) sq. m. lot. On said lot, the residential house of plaintiff-appellant stands. The
property is inside a subdivision/village. The property is situated in Marikina which is already part of Metro
Manila. The alleged sale took place in 1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter for both
the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is obliged to
deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15) days after the
expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property sold as if they were still the absolute
owners. There was no provision for maintenance or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property sold. It is wellknown that payment of taxes accompanied by actual possession of the land covered by the tax declaration,
constitute evidence of great weight that a person under whose name the real taxes were declared has a claim
of right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil Code is
sufficient to declare a contract of sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has retained
possession of the subject property and has continued paying the realty taxes over the subject property,
(circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil Code), it must be conclusively
presumed that the transaction the parties actually entered into is an equitable mortgage, not a sale with right
to repurchase. The factors cited are in support to the finding that the Deed of Sale/Memorandum of Agreement
with right to repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of the loan
extended by defendant-appellee to plaintiff-appellant. The amount of loan being the same with the amount of
the purchase price.
....
Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase price: the
transaction shall then be considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium
which is clearly prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.

13

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should
be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of
principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of
the thing pledged and mortgaged in the event of non-payment of the principal obligation within the stipulated
period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured by a
mortgage on the property of plaintiff-appellant.The loan was payable within ninety (90) days, the period within
which plaintiff-appellant can repurchase the property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of plaintiff-appellee to pay
the P230,000,00 within the ninety (90) days period, the property shall automatically belong to defendantappellee by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum commissorium. Therefore,
the deed of sale should be declared void as we hereby so declare to be invalid, for being violative of law.
....
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. The questioned
Deed of Sale and the cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant and the issuance
of TCT No. 267073 issued in favor of defendant-appellee pursuant to the questioned Deed of Sale is hereby
declared VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of Marikina is
hereby ordered REINSTATED. The loan in the amount of P230,000.00 shall be paid within ninety (90) days from
the finality of this decision. In case of failure to pay the amount of P230,000.00 from the period therein stated,
the property shall be sold at public auction to satisfy the mortgage debt and costs and if there is an excess,
the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which
this case should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the
complaint for declaration of nullity of a deed of sale in this case; and (3) the contract between A.C. Aguila &
Sons, Co. and private respondent is a pacto de retro sale and not an equitable mortgage as held by the
appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that
every action must be prosecuted and defended in the name of the real party in interest. A real party in interest
is one who would be benefited or injured by the judgment, or who is entitled to the avails of the suit. [7] This
ruling is now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against
a person who is not a real party in interest in the case cannot be executed. [8] Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of action. [9]
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from that
of each of the partners. The partners cannot be held liable for the obligations of the partnership unless it is
shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal
purposes.[10] In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical
entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in
the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co., represented by
petitioner.Hence, it is the partnership, not its officers or agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this rule will result in the dismissal of the complaint.
[11]
We cannot understand why both the Regional Trial Court and the Court of Appeals sidestepped this issue
when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this action should be
prosecuted makes it unnecessary to discuss the other issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against
petitioner is DISMISSED.
SO ORDERED.

14

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA,respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993,
in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission
("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by the
appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on
6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO,
DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the
end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with
regard to the mechanics of liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved soon because it has to do with
my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working
conditions of our employees including the assistant attorneys. All my efforts to

15

ameliorate the below subsistence level of the pay scale of our employees have been
thwarted by the other partners. Not only have they refused to give meaningful
increases to the employees, even attorneys, are dressed down publicly in a loud voice
in a manner that deprived them of their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership
assets plus the profits, rent or interest attributable to the use of his right in the assets
of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use
thereof despite the dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and
expense of litigation in such amounts as maybe proven during the trial and which the
Commission may deem just and equitable under the premises but in no case less than
ten (10%) per cent of the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may
deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the
said law partnership. Accordingly, the petitioner and respondents are hereby enjoined
to abide by the provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in the partnership
interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of
Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that,
being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his
withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar
as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the
parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well as
rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No.
24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada
both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well
as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for

16

receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the
SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993,
(a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and inevitably
caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership which could be computed
and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to the
SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the
partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been
shown to indicate that the partnership assets were in any such danger of being lost, removed or materially
impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following
issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in
bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote,
with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified
period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity of one of the partners, shall be continued by the
surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser
and representative of any individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations; to counsel and advise such
persons and entities with respect to their legal and other affairs; and to appear for and
represent their principals and client in all courts of justice and government
departments and offices in the Philippines, and elsewhere when legally authorized to
do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates, is a specific undertaking or "project"
which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The
right to choose with whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with
each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among

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partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can
subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its
dissolution, the partnership continues and its legal personality is retained until the complete winding up of its
business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the
Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among them and
normally takes precedence to the extent applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing agreements and his partnership participation shall
revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner
or the heirs of a deceased partner, as the case may be. In the event of any disagreement between the
said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of
the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid monthly within the
first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the
dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission on their
common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly,
not against their will. 12Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different
from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

GANCAYCO, J.:

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The distinction between co-ownership and an unregistered partnership or joint venture for income tax
purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28,
1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by
petitioners in 1968 toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale
made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in
1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax
amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were
assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for
the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax
amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970,
petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section
24, both of the National Internal Revenue Code 1 that the unregistered partnership was subject to corporate
income tax as distinguished from profits derived from the partnership by them which is subject to individual
income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the
unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045.
In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and
action taken by respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact
formed by petitioners which like a corporation was subject to corporate income tax distinct from that imposed
on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances
of this case, although there might in fact be a co-ownership between the petitioners, there was no adequate
basis for the conclusion that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent
court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN
UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY
LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista.

In the said case, petitioners borrowed a sum of money from their father which together with their own personal
funds they used in buying several real properties. They appointed their brother to manage their properties with
full power to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various
tenants for several years and they gained net profits from the rental income. Thus, the Collector of Internal
Revenue demanded the payment of income tax on a corporation, among others, from them.

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In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided for
in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, as well as to the residence tax for corporations and the real estate dealers' fixed tax.
With respect to the tax on corporations, the issue hinges on the meaning of the terms
corporation and partnership as used in sections 24 and 84 of said Code, the pertinent parts of
which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by
every corporation organized in, or existing under the laws of the Philippines, no matter how
created or organized but not including duly registered general co-partnerships (companies
collectives), a tax upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participation), associations or insurance
companies, but does not include duly registered general co-partnerships (companies
colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to
divide the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they
did. Upon consideration of all the facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not a property
inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots
for P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real
estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transcations undertaken, as well as the
brief interregnum between each, particularly the last three purchases, is strongly indicative of
a pattern or common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in February,
1943. In other words, one cannot but perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945
to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are
still being so let, for petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of one person,
namely, Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring
suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the
affairs relative to said properties have been handled as if the same belonged to a corporation
or business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was acquired, and over twelve (12) years, since
Simeon Evangelists became the manager.

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6. Petitioners have not testified or introduced any evidence, either on their purpose in creating
the set up already adverted to, or on the causes for its continued existence. They did not even
try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt
on the existence of said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and, hence, those cases
are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute money,
property or industry to a common fund, and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis
of the fact that petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing
that the purpose was not limited to the conservation or preservation of the common fund or even the
properties acquired by them. The character of habituality peculiar to business transactions engaged in for the
purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968
when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The
remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of
habituality peculiar to business transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The business was under the
management of one of the partners. Such condition existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down
the rule for determining when a transaction should be deemed a partnership or a coownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether such coowners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived;
From the above it appears that the fact that those who agree to form a co- ownership share or
do not share any profits made by the use of the property held in common does not convert
their venture into a partnership. Or the sharing of the gross returns does not of itself establish
a partnership whether or not the persons sharing therein have a joint or common right or
interest in the property. This only means that, aside from the circumstance of profit, the
presence of other elements constituting partnership is necessary, such as the clear intent to
form a partnership, the existence of a juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy
certain real estate for profit in the absence of other circumstances showing a contrary
intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the
gross returns of that enterprise in proportion to their contribution, but who severally retain the
title to their respective contribution, are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal proprietors in the business itself
which the proceeds derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed.,
section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor
does an agreement to share the profits and losses on the sale of land create a partnership; the

21

parties are only tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed.,
1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty,
holding as tenants in common, and to divide the profits of disposing of it, the brother and the
other not being entitled to share in plaintiffs commission, no partnership existed as between
the three parties, whatever their relation may have been as to third parties. (Magee vs. Magee
123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same;
(b) generally participating in both profits and losses; (c) and such a community of interest, as
far as third persons are concerned as enables each party to make contract, manage the
business, and dispose of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50
III 470.)
The common ownership of property does not itself create a partnership between the owners,
though they may use it for the purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management, and use of such property and the
application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the
existence of a juridical personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate
basis to support the proposition that they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their
net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to
have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been formed,
since there is no such existing unregistered partnership with a distinct personality nor with assets that can be
held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners
for this unpaid obligation of the partnership p. 7 However, as petitioners have availed of the benefits of tax
amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability
arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of
March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving
petitioners of the corporate income tax liability in this case, without pronouncement as to costs.
SO ORDERED.

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