LITONJUA V.

LITONJUA

FACT:

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of
partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the latter is
allowing Aurelio to manage their family business (if Eduardos away) and in exchange thereof he will
be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum was subsequently
made for the said partnership agreement. The memorandum this time stated that in exchange of
Aurelio, who just got married, retaining his share in the family business (movie theatres, shipping and
land development) and some other immovable properties, he will be given P1 Million or 10% equity in
all these businesses and those to be subsequently acquired by them whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an
accounting and the liquidation of his share in the partnership. Eduardo did not heed and so Aurelio
sued Eduardo.

ISSUE: Whether or not there exists a partnership.

HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented by
Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that said letter does not
meet the public instrumentation requirements exacted under Article 1771 (how partnership is
constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property, said letter cannot be presented for notarization,
let alone registered with the Securities and Exchange Commission (SEC), as called for under the
Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of Aurelios
contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not a public instrument and
again, no inventory was made of the immovable property and no inventory was attached to the
Memorandum. Article 1773 of the Civil Code requires that if immovable property is contributed to the
partnership an inventory shall be had and attached to the contract.

AFISCO INSURANCE CORP. et al. vs. COURT OF APPEALS
[G.R. No. 112675. January 25, 1999]
DOCTRINE:
Unregistered Partnerships and associations are considered as corporations for tax purposes Under
the old internal revenue code, A tax is hereby imposed upon the taxable net income received during
each taxable year from all sources by every corporation organized in, or existing under the laws
of the Philippines, no matter how created or organized, xxx. Ineludibly, the Philippine
legislature included in the concept of corporations those entities that resembled them such as
unregistered partnerships and associations.

Insurance pool in the case at bar is deemed a partnership or association taxable as a corporation In
the case at bar, petitioners-insurance companies formed a Pool Agreement, or an association that
would handle all the insurance businesses covered under their quota-share reinsurance treaty and
surplus reinsurance treaty with Munich is considered a partnership or association which may be taxed
as a ccorporation.

Double Taxation is not Present in the Case at Bar Double taxation means taxing the same person
twice by the same jurisdiction for the same thing. In the instant case, the insurance pool is a taxable
entity distince from the individual corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the companies. There is no double
taxation.
FACTS:

The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance policies for
machines. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a Surplus
Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich),
a non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a
pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax for 1975. On the basis of this, the CIR assessed a
deficiency of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68
on dividends paid to Munich and to the petitioners, respectively.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their
appeal.

The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation, and
that the latters collection of premiums on behalf of its members, the ceding companies, was taxable
income.
ISSUE/S:
1. Whether or not the pool is taxable as a corporation.
2. Whether or not there is double taxation.

HELD:

1) Yes: Pool taxable as a corporation

Argument of Petitioner: The reinsurance policies were written by them individually and separately,
and that their liability was limited to the extent of their allocated share in the original risks thus
reinsured. Hence, the pool did not act or earn income as a reinsurer. Its role was limited to its
principal function of allocating and distributing the risk(s) arising from the original insurance among
the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance of incidental functions, such as records, maintenance, collection
and custody of funds, etc.

Argument of SC: According to Section 24 of the NIRC of 1975:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is hereby
imposed upon the taxable net income received during each 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-partnership (compaias colectivas), general
professional partnerships, private educational institutions, and building and loan associations xxx.

Ineludibly, the Philippine legislature included in the concept of corporations those entities that
resembled them such as unregistered partnerships and associations. Interestingly, the NIRCs
inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of
1997 Sec. 27 read together with Sec. 22 reads:

SEC. 27. Rates of Income Tax on Domestic Corporations. --
(A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-five percent
(35%) is hereby imposed upon the taxable income derived during each taxable year from all sources
within and without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and
taxable under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participacion), associations, or insurance companies, but
does not include general professional partnerships [or] a joint venture or consortium formed for the
purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating or consortium agreement under a service contract without
the Government. General professional partnerships are partnerships formed by persons for the
sole purpose of exercising their common profession, no part of the income of which is derived from
engaging in any trade or business.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these
unregistered partnerships and even associations or joint accounts, which had no legal personalities
apart from their individual members.
Furthermore, Pool Agreement or an association that would handle all the insurance businesses covered
under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich may be
considered a partnership because it contains the following elements: (1) The pool has a common fund,
consisting of money and other valuables that are deposited in the name and credit of the pool. This
common fund pays for the administration and operation expenses of the pool. (2) The pool functions
through an executive board, which resembles the board of directors of a corporation, composed of one
representative for each of the ceding companies. (3) While, the pool itself is not a reinsurer and does
not issue any policies; its work is indispensable, beneficial and economically useful to the business of
the ceding companies and Munich, because without it they would not have received their premiums
pursuant to the agreement with Munich. Profit motive or business is, therefore, the primordial reason
for the pools formation.

2) No: There is no double taxation.

Argument of Petitioner: Remittances of the pool to the ceding companies and Munich are not dividends
subject to tax. Imposing a tax would be tantamount to an illegal double taxation, as it would result in
taxing the same premium income twice in the hands of the same taxpayer. Furthermore, even if such
remittances were treated as dividends, they would have been exempt under tSections 24 (b) (I) and
263 of the 1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of the RP-West
German Tax Treaty.

Argument of Supreme Court: Double taxation means taxing the same person twice by the same
jurisdiction for the same thing. In the instant case, the insurance pool is a taxable entity distince
from the individual corporate entities of the ceding companies. The tax on its income is obviously
different from the tax on the dividends received by the companies. There is no double taxation.


Tax exemption cannot be claimed by non-resident foreign insurance corporattion; tax exemption
construed strictly against the taxpayer - Section 24 (b) (1) pertains to tax on foreign corporations;
hence, it cannot be claimed by the ceding companies which are domestic corporations. Nor can
Munich, a foreign corporation, be granted exemption based solely on this provision of the Tax Code
because the same subsection specifically taxes dividends, the type of remittances forwarded to it by
the pool. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
exemption must be construedstrictissimi juris, and the statutory exemption claimed must be
expressed in a language too plain to be mistaken.




Lim tong Lim vs Phil. Gear Industries, Inc., GR No. 136448, 3 November 1999

FACTS
Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing Corporation for
the purchase of fishing nets from respondent Philippine Fishing Gear Industries, Inc. Chua and Yao
claimed that they were engaged in business venture with petitioner Lim Tong Lim, who, however, was
not a signatory to the contract. The buyers failed to pay the fishing nets. Respondent filed a collection
against Chua, Yao and petitioner Lim in their capacities as general partners because it turned out that
Ocean Quest Fishing Corporation is a non-existent corporation. The trial court issued a Writ of
Preliminary Attachment, which the sheriff enforced by attaching the fishing nets. The trial court
rendered its decision ruling that respondent was entitled to the Writ of Attachment and that Chua, Yao
and Lim, as general partners, were jointly liable to pay respondent. Lim appealed to the Court of
Appeals, but the appellate court affirmed the decision of the trial court that petitioner Lim is a partner
and may thus be held liable as such. Hence, the present petition. Petitioner claimed that since his
name did not appear on any of the contracts and since he never directly transacted with the
respondent corporation, ergo, he cannot be held liable.

ISSUE
WON petitioner can be held liable as a general partner.

HELD
The Supreme Court denied the petition. The Court ruled that having reaped the benefits of the
contract entered into by Chua and Yao, with whom he had an existing relationship, petitioner Lim is
deemed a part of said association and is covered by the doctrine of corporation by estoppel. The Court
also ruled that under the principle of estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.
FACTS:

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with him
and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the
money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and
they agreed to purchase fishing nets and other fishing equipments. Now, Yao and Chua represented
themselves as acting in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted with
Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting to more than
P500k.
They were however unable to pay PFGI and so they were sued in their own names because apparently
OQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao
waived his rights. Lim Tong Lim however argued that hes not liable because he was not aware that
Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and
consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats would
be divided equally among them also shows that they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao
and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the
boat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao decided to
form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without
valid existence, are held liable as general partners.

EVANGELISTA, ET. AL. VS. COLLECTOR OF INTERNAL REVENUE, ET. AL.
Facts: The petitioners borrowed from their father PhP59,140.00 which amount together with their
personal monies was used by them for the purpose of buying and selling real properties. From 1943
to 1944, they bought 24 parcels of land (including the improvements thereon) on four different
occasions. In 1945, they appointed their brother Simeon to manage their properties with full power to
lease; to collect and receive rents; to issue receipts therefore; in default of such payment, to bring
suits against the defaulting tenant; and to endorse and deposit all notes and checks for them. In
1948, their net rental income amounted to PhP12,615.35.
On September 1954, the respondent Collector of Internal Revenue demanded the payment of (1)
income tax on corporations, (2) real estate dealers fixed tax, and (3) corporation residence tax for the
years 1945-1949, computed according to the assessments made on their properties.
Because of this, the petitioners filed a case against the respondents in the Court of Tax Appeals,
praying that the decision of the respondent contained in its letter of demand be reversed and that
they be absolved from the payment of the taxes in question.
Issue: Whether the petitioners are subject to the tax on corporations, real estate dealers fixed tax,
and corporation residence tax.
Court of Tax Appeals: The petitioners are liable. (No explanation for such in the case)
Petitioners: They are mere co-owners, not co-partners, for, in consequence of the acts performed by
them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar.
Held: The petitioners are liable to pay the tax on corporations provided for in Sec. 24 of the
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code. According to
Sec. 84 of the same statute, the term corporation includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts, associations or insurance companies, but does not
include duly registered general co-partnerships.
Also, Article 1767 of the Civil Code 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: (1) an agreement to contribute money, property or industry to a
common fund; and (2) intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, the petitioners have agreed to, and did,
contribute money and property to a common fund. Also, it can be said that their purpose was to
engage in real estate transactions for monetary gain and then divide the same among themselves
because: (1) they created the common fund purposely; (2) they invested the same, not merely in one
transaction, but in a series of transactions; (3) the parcels of land that they bought were not devoted
to residential purposes, or to other personal uses of the petitioners but were leased separately to
several persons; (4) the properties have been under the management of one person, namely Simeon
Evangelista, making the affairs relative to the said properties appear to have been handled as if the
same belonged to a corporation or business enterprise operated for profit; and (5) the 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.
Hence, the petitioners herein constitute a partnership, and in so far as the National Internal
Revenue Code is concerned, they are subject to the income tax for corporations.
I. As regards to the residence tax for corporations provided Sec. 2 of Commonwealth Act No.
465
1
, the terms corporation and partnership are used in both statutes with substantially
the same meaning. Consequently, petitioners are subject, also, to the residence tax for
corporations.

II. Lastly, the records show that the petitioners have habitually engaged in leasing the properties
for a period of 12 years, and that the yearly gross rentals of the said properties from 1945 to
1948 ranged from PhP9,599.00 to PhP 17,453.00. Thus, they are subject to the tax provided
in Section 193 (q) of our National Internal Revenue Code, for real estate dealers, inasmuch
as, pursuant to Section 194 (s) thereof:
Real estate dealers include any person engaged in the business of buying, selling, exchanging,
leasing, or renting property of his own account as principal and holding himself out as full ro part-time
dealer in real estate or as an owner of rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year. * * *
AGUILA, JR. VS. CA
Facts: The petitioner herein is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities, while the private respondent and her late husband were the registered owners of a
house and lot, covered by a transfer certificate of title. Sometime in 1991, the private respondent and
A.C. Aguila & Sons, Co., represented by the petitioner, entered into a Memorandum of Agreement. In
this agreement, a deed of absolute sale shall be executed by the private respondent in favor of A.C.
Aguila & Sons, Co., giving the former an option to repurchase and obliging the same to deliver
peacefully the possession of the property to A.C. Aguila & Sons, Co., within 15 days after the
expiration of the said 90 days grace period.
When the private respondent failed to redeem the property within the grace period, the petitioner
caused the cancellation of the transfer certificate of title under the private respondents name and the
issuance of a new certificate of title in the name of A.C. Aguila & Sons, Co. Subsequently, the private
respondent was asked to vacate the premises, however she refused. Because of this refusal, A.C.
Aguila & Sons, Co. filed an ejectment case against her.
The MTC ruled in favor of A.C. Aguila & Sons, Co., on the ground that the private respondent did not
redeem the subject property before the expiration of the 90-day period provided in the MOA. She
filed an appeal before the RTC, but failed again. Then, she filed a petition for declaration of nullity of a
deed of sale with the RTC. She alleged that the signature of her husband on the deed of sale was a
forgery because he was already to be dead when the deed was supposed to have been executed. It
appears however that the she filed a criminal complaint for falsification against the petitioner.
RTC: DENIED. The plaintiff never questioned receiving from A.C. Aguila & Sons, Co. the sum of
P200,000.00 representing her loan from the defendant. Common sense dictates that an established
lending and realty firm like Aguila would not part with Php200,000.00 to the spouses, who are virtual
strangers to it, without simultaneous accomplishment and signing of all the required documents, more
particularly the Deed of Absolute Salem to protect its interest.

1
Entities liable to residence taxEvery corporation, no matter how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and an annual additional
tax, which in no case, shall exceed one thousand pesos, in accordance with the following schedule: * * *
CA: REVERSED. The transaction between the parties is indubitably an equitable mortgage.
Considering that the private respondent (vendor) was paid the price which is unusually inadequate
(240 sq. m. subdivision lot for only Php200,000.00 in the year 1991), has retained possession of the
property and has continued paying real taxes over the subject property.
Petitioner:
1. He is not the real party in interest but A.C. Aguila & Sons, Co.;
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 the parties is a pacto de retro sale and not an equitable mortgage.
Held: The petition is meritorious. 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. Moreover, under Article 1768 of the New
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.
In this case, the private respondent ahs 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 MOA was executed between the
private respondent, with the consent of her husband, and A.C. Aguila & Sons, Co., represented by the
petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any
litigation involving property registered in its name.
We cannot understand why both the RTC and the CA sidestepped this issue when it was squarely
raised before them by the petitioner. The courts conclusion is that the petitioner is not the real party
in interest against whom this action should be prosecuted. It is unnecessary to discuss the other
issues raised by him in his appeal.
Obillos vs. CIR

(Profit merely incidental)
F: This case is about the income tax liability of four brothers and sisters who sold two parcels of land
which they had acquired from their father.
Commissioner of Internal Revenue required the four petitioners to pay corporate income
tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He
assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42%
accumulated interest, or a total of P71,074.56.
The Commissioner acted on the theory that the four petitioners had formed an unregistered
partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code]

I: W/N an unregistered partnership was formed.

H:
No. Their original purpose was to divide the lots for residential purposes. If later on they found
it not feasible to build their residences on the lots because of the high cost of construction,
then they had no choice but to resell the same to dissolve the co-ownership.
The division of the profit was merely incidental to the dissolution of the co-ownership which
was in the nature of things a temporary state. It had to be terminated sooner or later.
Article 1769(3) of the Civil Code provides that "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". There must be an
unmistakable intention to form a partnership or joint venture.

G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS
AQUINO, J.:
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and 963 square meters of
located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the
petitioners, to enable them to build their residences. The Torrens titles issued to them showed that
they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the
Walled City Securities Corporation and Olga Cruz Canada for the total sum of P313,050. They derived
from the sale a total profit of P134, 341.88 or P33,584 for each of them. They treated the profit as a
capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, the Commissioner of Internal Revenue required the four petitioners to pay corporate
income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof.
The petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76
on their profit of P134,336, in addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an unregistered
partnership or joint venture The petitioners contested the assessments. Two Judges of the Tax Court
sustained the same. Hence, the instant appeal.
Issue:
Whether or not the petitioners had indeed formed a partnership or joint venture and thus liable for
corporate tax.
Held:
The Supreme Court held that the petitioners should not be considered to have formed a partnership
just because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided
the profit among themselves. To regard so would result in oppressive taxation and confirm the dictum
that the power to tax involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that isolated transaction.
*Article 1769(3) of the Civil Code provides that "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". There must
be an unmistakable intention to form a partnership or joint venture.*
Their original purpose was to divide the lots for residential purposes. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, then they had no
choice but to resell the same to dissolve the co-ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the nature of things a temporary state.
It had to be terminated sooner or later.
They did not contribute or invest additional ' capital to increase or expand the properties, nor was
there an unmistakable intention to form partnership or joint venture.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are
cancelled. No costs.

All co-ownerships are not deemed unregistered partnership.Co-Ownership who own
properties which produce income should not automatically be considered partners of an unregistered
partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be
to subject the income of all
Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation.
As compared to other cases:
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial
settlement the co-heirs used the inheritance or the incomes derived therefrom as a common fund to
produce profits for themselves, it was held that they were taxable as an unregistered partnership.
This case is different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father
and son purchased a lot and building, entrusted the administration of the building to an administrator
and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil.
140, where the three Evangelista sisters bought four pieces of real property which they leased to
various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed
an unregistered partnership.

HEIRS OF JOSE LIM V. JULIET LIM
FACTS: Petitioners are the heirs of the late Jose Lim (Jose). They filed a Complaint 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 alleged that Elfledo 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.

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 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.

ISSUE: Whether or not a partnership exists.

HELD: YES. 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.

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; (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; (3) all of the properties 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; and
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from
Elfledo during his lifetime.




G.R. No. 143340 August 15, 2001
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.


FACTS
Lamberto Chua alleged that in 1977, he verbally entered into a partnership with Jacinto in the
distribution of Shellane LPG. For business convenience, Lamberto and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER, under the name
of Jacinto as a sole proprietorship. Both Lamberto and Jacinto contributed P100,000.00 to the
partnership, with the intention that the profits would be equally divided between them.
The partnership allegedly had Jacinto as manager, assisted by Josephine Sy, sister-in-law of
Lamberto. Upon Jacintos death in the later part of 1989, his daughter, Lilibeth took over the
operations of Shellite without Lambertos consent. Despite Lambertos repeated demands for
accounting, she failed to comply.
On June 22m 1992, Lamberto filed a complaint against Lilibeth with the RTC. RTC decided in
favor of Lamberto.
Lilibeth questions the correctness of the finding that a partnership existed between Lamberto
and Jacinto. In the absence of any written document to show such partnership between Lamberto and
Jacinto, Lilibeth argues that these courts were proscribed from hearing the testimonies of Lamberto
and his witness, Josephine, to prove the alleged partnership three (3) years after Jacintos death.
To support the argument, Lilibeth invokes the DEAD MANS STATUTE OR SURVIVORSHIP
RULE under Sec. 23, Rule 130. Lilibeth thus implores this Court to rule that the testimonies of
Lamberto and his alter ego, Josephine, should not have been admitted to prove certain claims against
a deceased person (Jacinto).

ISSUE
Whether or not the DEAD MANS STATUTE applies to this case so as to render inadmissible
Lambertos testimony and that if his witness, Josephine.

HELD
No. The Dead Mans Statute provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the surviving party is not
entitled to the undue advantage of giving his own contradicted and unexplained account of the
transaction.
Lilibeth filed a compulsory counterclaim against Lamberto in their answer before the RTC, and
with the filing of their counterclaim, Lilibeth herself effectively removed this case from the ambit of the
Dead Mans Statute. Well entrenched is the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim, Lamberto, may testify to occurrences
before the death of the deceased to defeat the counterclaim. Moreover, as defendant in the
counterclaim, Lamberto is not disqualified from testifying as to matters of fact occurring before the
death of the deceased, said action not having been bought against but by the estate or
representatives of the deceased.
The testimony of Josephine is not covered by the Dead Mans Statute for the simple reason
that she is not a party or assignor of a party to a case or persons in whose behalf a case is
prosecuted. Lamberto offered the testimony of Josephine to establish the existence of the
partnership between Lamberto and Jacinto. Lilibeths insistence that Josephine is the alter ego of
Lamberto does not make her an assignor because of the term assignor of a party means assignor of
a cause of action which has arisen, and not the assignor of a right assigned before any cause of action
has arisen. Plainly then, Josephine is merely a witness of Lamberto, latter being the plaintiff.
Lilibeths reliance alone on the Dead Mans Statue to defeat Lambertos claim cannot prevail
over the factual findings that a partnership was established between Lamberto and Jacinto. Based not
only on the testimonial evidence, but the documentary evidence as well, they considered the evidence
for Lamberto as sufficient to prove the formation of a partnership, albeit an informal one.

Lilibeth in her defense argued among others that Chuas action has prescribed.

ISSUE: Whether or not Chuas claim is barred by prescription.

HELD: No. The action for accounting filed by Chua three (3) years after Jacintos death was well
within the prescribed period. The Civil Code provides that an action to enforce an oral contract
prescribes in six (6) years while the right to demand an accounting for a partners interest as against
the person continuing the business accrues at the date of dissolution, in the absence of any contrary
agreement. Considering that the death of a partner results in the dissolution of the partnership, in this
case, it was after Jacintos death that Chua as the surviving partner had the right to an account of his
interest as against Lilibeth. It bears stressing that while Jacintos death dissolved the partnership, the
dissolution did not immediately terminate the partnership. The Civil Code expressly provides that
upon dissolution, the partnership continues and its legal personality is retained until the complete
winding up of its business, culminating in its termination.