FIRST DIVISION
Anay having secured the distributorship of cookware products from the West
[G.R. No. 127405. October 4, 2000.]
MARJORIE TOCAO and WILLIAM T. BELO, Petitioners, v. COURT
OF APPEALS and NENITA A. ANAY, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-
G.R. CV No. 41616, 1 affirming the Decision of the Regional Trial Court of
Makati, Branch 140, in Civil Case No. 88-509. 2
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T. Belo,
then the vice-president for operations of Ultra Clean Water Purifier, through
her former employer in Bangkok. Belo introduced Anay to petitioner
Marjorie Tocao, who conveyed her desire to enter into a joint venture with
her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of
marketing the product considering her experience and established
relationship with West Bend Company, a manufacturer of kitchen wares in
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as
president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them
to different branches. The parties agreed that Belo’s name should not appear
in any documents relating to their transactions with West Bend Company.
Instead, they agreed to use Anay’s name in securing distributorship of
cookware from that company. The parties agreed further that Anay would be
entitled to: (1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and (4) two percent
(2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo’s assurances that he was sincere, dependable
and honest when it came to financial commitments.chanrob1es virtua1 1aw
1ibrary
Bend Company and organized the administrative staff and the sales force, the
cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s
name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo
made good his monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the distributor/dealer
meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to
the southwestern regional convention in Pismo Beach, California, U.S.A.,
July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie
Tocao who, as president and general manager of Geminesse Enterprise, even
wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13,
1987. A portion of the letter reads:jgc:chanrobles.com.ph
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West
Bend Co. for twenty (20) years now, acquired the distributorship of Royal
Queen cookware for Geminesse Enterprise, is the Vice President Sales
Marketing and a business partner of our company, will attend in response to
the invitation." (Emphasis supplied.) 3
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the unsatisfactory
sales record in the Makati and Cubao offices. On August 31, 1987, she
received a plaque of appreciation from the administrative and sales people
through Marjorie Tocao 4 for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo 5 entitling her to a thirty
seven percent (37%) commission for her personal sales "up Dec 31/87." Belo
explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao
had signed a letter 6 addressed to the Cubao sales office to the effect that she
was no longer the vice-president of Geminesse Enterprise. The following
day, October 10, she received a note from Lina T. Cruz, marketing manager,
that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices. 7 Anay attempted to
contact Belo. She wrote him twice to demand her overriding commission for
the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still,
that letter was not answered.chanrob1es virtua1 1aw 1ibrary
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages 8 against Marjorie D. Tocao and William
Belo before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly
and severally, the following: (1) P32,000.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as
moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff
also prayed for an audit of the finances of Geminesse Enterprise from the
inception of its business operation until she was "illegally dismissed" to
determine her ten percent (10%) share in the net profits. She further prayed
that she be paid the five percent (5%) "overriding commission" on the
remaining 150 West Bend cookware sets before her "dismissal."cralaw
virtua1aw library
In their answer, 9 Marjorie Tocao and Belo asserted that the "alleged
agreement" with Anay that was "neither reduced in writing, nor ratified," was
"either unenforceable or void or inexistent." As far as Belo was concerned,
his only role was to introduce Anay to Marjorie Tocao. There could not have
been a partnership because, as Anay herself admitted, Geminesse Enterprise
was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as
marketing demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not
with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint
on account of "ill-will and resentment" because Marjorie Tocao did not allow
her to "lord it over in the Geminesse Enterprise." Anay had acted like she
owned the enterprise because of her experience and expertise. Hence,
petitioners were the ones who suffered actual damages "including unreturned
and unaccounted stocks of Geminesse Enterprise," and "serious anxiety,
besmirched reputation in the business world, and various damages not less
than P500,000.00." They also alleged that, to "vindicate their allies," they had
to hire counsel for a fee of P23,000.00.chanrob1es virtua1 1aw 1ibrary
At the pre-trial conference, the issues were limited to: (a) whether or not the
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b)
whether or not the parties are entitled to damages. 10
In their defense, Belo denied that Anay was supposed to receive a share in
the profit of the business. He, however, admitted that the two had agreed that
Anay would receive a three to four percent (3-4%) share in the gross sales of
the cookware. He denied contributing capital to the business or receiving a
share in its profits as he merely served as a guarantor of Marjorie Tocao, who
was new in the business. He attended and/or presided over business meetings
of the venture in his capacity as a guarantor but he never participated in
decision-making. He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her dismissal from the business
venture at the request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership
agreement with Anay. However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant her the following
commissions: thirty-seven percent (37%) on personal sales; five percent (5%)
on gross sales; two percent (2%) on product demonstrations, and two percent
(2%) for recruitment of personnel. Marjorie denied that they agreed on a ten
percent (10%) commission on the net profits. Marjorie claimed that she got
the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo a Singaporean friend-financier who
loaned her the funds with interest. Because she treated Anay as her "co-
equal," Marjorie received the same amounts of commissions as her.
However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of
which is as follows:jgc:chanrobles.com.ph
"WHEREFORE, in view of the foregoing, judgment is hereby
rendered:chanrob1es virtual 1aw library
1. Ordering defendants to submit to the Court a formal account as to the
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of the
Civil Code in order to determine the ten percent (10%) share of plaintiff in
the net profits of the cookware business;chanrob1es virtua1 1aw 1ibrary
2. Ordering defendants to pay five percent (5%) overriding commission for
the one hundred and fifty (150) cookware sets available for disposition when
plaintiff was wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February 5,
1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P
100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00
as costs of suit.
SO ORDERED."cralaw virtua1aw library
The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants," based on the following: (a) there
was an intention to create a partnership; (b) a common fund was established
through contributions consisting of money and industry, and (c) there was a
joint interest in the profits. The testimony of Elizabeth Bantilan, Anay’s
cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact
that a partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was convinced that
with Marjorie’s financial contribution and Anay’s experience, the
combination of the two would be invaluable to the partnership, also
supported that conclusion. Belo’s claim that he was merely a "guarantor" has
no basis since there was no written evidence thereof as required by Article
2055 of the Civil Code. Moreover, his acts of attending and/or presiding over
meetings of Geminesse Enterprise plus his issuance of a memo giving Anay
37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.chanrob1es virtua1
1aw 1ibrary
The trial court further held that the payment of commissions did not preclude
the existence of the partnership inasmuch as such practice is often resorted to
in business circles as an impetus to bigger sales volume. It did not matter that
the agreement was not in writing because Article 1771 of the Civil Code
provides that a partnership may be "constituted in any form." The fact that
Geminesse Enterprise was registered in Marjorie Tocao’s name is not
determinative of whether or not the business was managed and operated by a
sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse
Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him
his due upon the dissolution of the partnership as well as damages or share in
the profits "realized from the appropriation of the partnership business and
goodwill." An innocent partner thus possesses "pecuniary interest in every
existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled."cralaw
virtua1aw library
Petitioners’ appeal to the Court of Appeals 11 was dismissed, but the amount
of damages awarded by the trial court were reduced to P50,000.00 for moral
damages and P50,000.00 as exemplary damages. Their motion for
Reconsideration was denied by the Court of Appeals for lack of merit. 12
Petitioners Belo and Marjorie Tocao are now before this Court on a petition
for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by the Court of
Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously
held that a partnership existed between them and private respondent Anay
because Geminesse Enterprise "came into being" exactly a year before the
"alleged partnership" was formed, and that it was very unlikely that petitioner
Belo would invest the sum of P2,500,000.00 with petitioner Tocao
contributing nothing, without any "memorandum whatsoever regarding the
alleged partnership." ‘ 13
The issue of whether or not a partnership exists is a factual matter which are
within the exclusive domain of both the trial and appellate courts. This Court
cannot set aside factual findings of such courts absent any showing that there
is no evidence to support the conclusion drawn by the court a quo. 14 In this
case, both the trial court and the Court of Appeals are one in ruling that
petitioners and private respondent established a business partnership. This
Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. 15 It may be constituted in
any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto.16 This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a partnership.
The fact that there appears to be no record in the Securities and Exchange
Commission of a public instrument embodying the partnership agreement
pursuant to Article 1772 of the Civil Code 17 did not cause the nullification
of the partnership. The pertinent provision of the Civil Code on the matter
states:chanrob1es virtual 1aw library
Art. 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.chanrob1es virtua1 1aw 1ibrary
Petitioners admit that private respondent had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial
or managing partner. It was through her reputation with the West Bend
Company that the partnership was able to open the business of distributorship
of that company’s cookware products; it was through the same efforts that
the business was propelled to financial success. Petitioner Tocao herself
admitted private respondent’s indispensable role in putting up the business
when, upon being asked if private respondent held the positions of marketing
manager and vice-president for sales, she testified
thus:jgc:chanrobles.com.ph
"A: No, sir at the start she was the marketing manager because there were no
one to sell yet, it’s only me there then her and then two (2) people, so about
four (4). Now, after that when she recruited already Oscar Abella and Lina
Torda-Cruz these two (2) people were given the designation of marketing
managers of which definitely Nita as superior to them would be the Vice
President." ‘ 18
By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of
West Bend Company to Roger Muencheberg of the same company
states:jgc:chanrobles.com.ph
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance
the operations. Marge does not have cookware experience. Nita Anay has
started to gather former managers, Lina Torda and Dory Vista. She has also
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu
Javier. They will continue to gather other key people and build up the
organization. All they need is the finance and the products to sell." 19
On the other hand, petitioner Belo’s denial that he financed the partnership
rings hollow in the face of the established fact that he presided over meetings
regarding matters affecting the operation of the business. Moreover, his
having authorized in writing on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private respondent should
receive thirty-seven (37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in the business.
His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of
future debts of petitioner Tocao under Article 2053 of the Civil Code, 20 he
should have presented documentary evidence therefor. While Article 2055 of
the Civil Code simply provides that guaranty must be "express," Article
1403, the Statute of Frauds, requires that "a special promise to answer for the
debt, default or miscarriage of another" be in writing. 21
Petitioner Tocao, a former ramp model, 22 was also a capitalist in the
partnership. She claimed that she herself financed the business. Her and
petitioner Belo’s roles as both capitalists to the partnership with private
respondent are buttressed by petitioner Tocao’s admissions that petitioner
Belo was her boyfriend and that the partnership was not their only business
venture together. They also established a firm that they called "Wiji," the
combination of petitioner Belo’s first name, William, and her nickname, Jiji.
23 The special relationship between them dovetails with petitioner Belo’s
claim that he was acting in behalf of petitioner Tocao. Significantly, in the
early stage of the business operation, petitioners requested West Bend
Company to allow them to "utilize their banking and trading facilities in
Singapore" in the matter of importation and payment of the cookware
products. 24 The inevitable conclusion, therefore, was that petitioners
merged their respective capital and infused the amount into the partnership of
distributing cookware with private respondent as the managing
partner.chanrob1es virtua1 1aw 1ibrary
The business venture operated under Geminesse Enterprise did not result in
an employer-employee relationship between petitioners and
private Respondent. While it is true that the receipt of a percentage of net
profits constitutes only prima facie evidence that the recipient is a partner in
the business, 25 the evidence in the case at bar controverts an employer-
employee relationship between the parties. In the first place, private
respondent had a voice in the management of the affairs of the cookware
distributorship, 26 including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner Tocao’s
admissions militate against an employer-employee relationship. She admitted
that, like her who owned Geminesse Enterprise, 27 private respondent
received only commissions and transportation and representation allowances
28 and not a fixed salary. 29 Petitioner Tocao testified:jgc:chanrobles.com.ph
"Q: Of course. Now, I am showing to you certain documents already marked
as Exhs.’X’ and ‘Y.’ Please go over this. Exh.’Y’ is denominated ‘Cubao
overrides’ 8-21-87 with ending August 21, 1987, will you please go over this
and tell the Honorable Court whether you ever came across this document
and know of your own knowledge the amount —
A: Yes, sir this is what I am talking about earlier. That’s the one I am telling
you earlier a certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here
and words which I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’ this
means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay
P21,410.50’, what is this?
A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable
Court that there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her
kasi, you know in a sense because of her expertise in the business she is vital
to my business. So, as part of the incentive I offer her the same
thing.chanrob1es virtua1 1aw 1ibrary
Q: So, in short you are saying that this you have shared together, I mean
having gotten from the company P21,140.50 is your way of indicating that
you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh.’Y’ "Overrides Makati the other
one is —
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao
P15,314.25’ the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also
an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two
(2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Emphasis supplied.) 30
If indeed petitioner Tocao was private respondent’s employer, it is difficult to
believe that they shall receive the same income in the business. In a
partnership, each partner must share in the profits and losses of the venture,
except that the industrial partner shall not be liable for the losses. 31 As an
industrial partner, private respondent had the right to demand for a formal
accounting of the business and to receive her share in the net profit. 32
The fact that the cookware distributorship was operated under the name of
Geminesse Enterprise, a sole proprietorship, is of no moment. What was
registered with the Bureau of Domestic Trade on August 19, 1987 was
merely the name of that enterprise. 33 While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao
indicated that it would be engaged in retail of "kitchenwares, cookwares,
utensils, skillet," 34 she also admitted that the enterprise was only "60% to
70% for the cookware business," while 20% to 30% of its business activity
was devoted to the sale of water sterilizer or purifier. 35 Indubitably then, the
business name Geminesse Enterprise was used only for practical reasons —
it was utilized as the common name for petitioner Tocao’s various business
activities, which included the distributorship of cookware.chanrob1es virtua1
1aw 1ibrary
Petitioners underscore the fact that the Court of Appeals did not return the
"unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00." 36 Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court
said:jgc:chanrobles.com.ph
"The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private complainant
remained as co-partners. . . ." 37
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still
received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from
the partnership to reap for herself and/or for petitioner Belo financial gains
resulting from private respondent’s efforts to make the business venture a
success. Thus, as petitioner Tocao became adept in the business operation,
she started to assert herself to the extent that she would even shout at private
respondent in front of other people. 38 Her instruction to Lina Torda Cruz,
marketing manager, not to allow private respondent to hold office in both the
Makati and Cubao sales offices concretely spoke of her perception that
private respondent was no longer necessary in the business operation, 39 and
resulted in a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership into a
sham organization. 40 The partnership exists until dissolved under the law.
Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner.
Thus:jgc:chanrobles.com.ph
". . . 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 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 but that it can result in a liability for damages."
41chanrob1es virtua1 law library
An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the doctrine of
delectus personae allows the partners to have the power, although not
necessarily the right to dissolve the partnership. 42
In this case, petitioner Tocao’s unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9, 1987, no longer the vice-
president for sales of Geminesse Enterprise. 43 By that memo, petitioner
Tocao effected !her own withdrawal from the partnership and considered
herself as having ceased to be associated with the partnership in the carrying
on of the business. Nevertheless, the partnership was not terminated thereby;
it continues until the winding up of the business. 44
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners’ claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual
findings upon which it is based is primarily the task of the trial court. 45 The
Court of Appeals may modify that amount only when its factual findings are
diametrically opposed to that of the lower court, 46 or the award is palpably
or scandalously and unreasonably excessive. 47 However, exemplary
damages that are awarded "by way of example or correction for the public
good," 48 should be reduced to P50,000.00, the amount correctly awarded by
the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00.
Similarly, attorney’s fees that should be granted on account of the award of
exemplary damages and petitioners’ evident bad faith in refusing to satisfy
private respondent’s plainly valid, just and demandable claims, 49 appear to
have been excessively granted by the trial court and should therefore be
reduced to P25,000.00.chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the instant petition for review on certiorari is DENIED. The

partnership among petitioners and private respondent is ordered dissolved,
and the parties are ordered to effect the winding up and liquidation of the
partnership pursuant to the pertinent provisions of the Civil Code. This case
is remanded to the Regional Trial Court for proper proceedings relative to
said dissolution. The appealed decisions of the Regional Trial Court and the
Court of Appeals are AFFIRMED with MODIFICATIONS, as follows —

1. Petitioners are ordered to submit to the Regional Trial Court a formal

account of the partnership affairs for the years 1987 and 1988, pursuant to
Article 1809 of the Civil Code, in order to determine private respondent’s ten
percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent

five percent (5%) overriding commission for the one hundred and fifty (150)
cookware sets available for disposition since the time private respondent was
wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent

overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent

moral damages in the amount of P50,000.00, exemplary damages in the
amount of P50,000.00 and attorney’s fees in the amount of P25,000.00.

FIRST DIVISION
[G.R. No. L-9996. October 15, 1957.]
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA and
FRANCISCA EVANGELISTA, Petitioners, v. THE COLLECTOR OF
INTERNAL REVENUE and THE COURT OF TAX
APPEALS, Respondents.
Santiago F. Alidio and Angel S. Dakila, Jr. for Petitioner.
Solicitor General Ambrosio Padilla, Assistant Solicitor General
Esmeraldo Umali and Solicitor Felicisimo R. Rosete for the respondents.
SYLLABUS
1. TAXATION; TAX ON CORPORATIONS INCLUDES
ORGANIZATION WHICH ARE NOT NECESSARY PARTNERSHIP. —
"Corporations" strictly speaking are distinct and different from "partnership."
When our Internal Revenue Code includes "partnership" among the entities
subject to the tax on "corporations", it must be allude to organization which
are not necessarily "partnership" in the technical sense of the term.
2. ID.; DULY REGISTERED GENERAL PARTNERSHIP ARE
EXEMPTED FROM THE TAX UPON CORPORATIONS. — Section 24 of
the Internal Revenue Code exempts from the tax imposed upon corporations
"duly registered general partnership", which constitute precisely one of the
most typical form of partnership in this jurisdiction.
3. ID.; CORPORATION INCLUDES PARTNERSHIP NO MATTER HOW
ORGANIZED. — As defined in section 84 (b) of the Internal Revenue Code
"the term corporation includes partnership, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture
need not be undertaken in any of the standards form, or conformity with the
usual requirements of the law on partnerships, in order that one could be
deemed constituted for the purposes of the tax on corporations.
4. ID.; CORPORATIONS INCLUDES "JOINT ACCOUNT" AND
ASSOCIATIONS WITHOUT LEGAL PERSONALITY. — Pursuant to
Section 84 (b) of the Internal Revenue Code, the term "corporations"
includes, among the others, "joint accounts (cuenta en participacion)" and
"associations", none of which has a legal personality of its own independent
of that of its members. For purposes of the tax on corporations, our National
Internal Revenue Code includes these partnership. — with the exception only
of duly registered general partnership. — within the purview of the term
"corporations." Held: That the petitioners in the case at bar, who are engaged
in real estate transactions for monetary gain and divide the same among
themselves, constitute a partnership, so far as the said Code is concerned, and
are subject to the income tax for the corporation.
5. ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL
PERSONALITY SUBJECT TO RESIDENCE TAX ON CORPORATION.
— The pertinent part of the provision of Section 2 of Commonwealth Act
No. 465 which says: "The term corporation as used in this Act includes joint-
stock company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or organized." is
analogous to that of Section 24 and 84 (b) of our Internal Revenue Code
which was approved the day immediately after the approval of said
Commonwealth Act No. 565. Apparently, the terms "corporation" and
"Partnership" are used both statutes with substantially the same meaning,
Held: That the petitioners are subject to the residence tax corporations.
DECISION
CONCEPCION, J.:
This is a petition, filed by Eufemia Evangelista, Manuela Evangelista and
Francisca Evangelista, for review of a decision of the Court of Tax Appeals,
the dispositive part of which reads:jgc:chanrobles.com.ph
"FOR ALL THE FOREGOING, we hold that the petitioners are liable for the
income tax, real estate dealer’s tax and the residence tax for the years 1945 to
1949, inclusive, in accordance with the respondent’s assessment for the same
in the total amount of P6,878.34, which is hereby affirmed and the petition
for review filed by petitioners is hereby dismissed with costs against
petitioners."cralaw virtua1aw library
It appears from the stipulation submitted by the
parties:jgc:chanrobles.com.ph
"1. That the petitioners borrowed from their father the sum of P59,140.00
which amount together with their personal monies was used by them for the
purpose of buying real properties;
"2. That on February 2, 1943 they bought from Mrs. Josefina Florentino a lot
with an area of 3,713.40 sq. m. including improvements thereon for the sum
of P100,000.00; this property has an assessed value of P57,517.00 as of
1948;
"3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels
of land with an aggregate area of 3,718.40 sq. m. including improvements
thereon for P18,000.00; this property has an assessed value of P8,255.00 as
of 1948;
"4. That on April 23, 1944 they purchased from the Insular Investments, Inc.,
a lot of 4,358 sq. m. including improvements thereon for P108,825.00. This
property has an assessed value of P4,983.00 as of 1943;
"5. That on April 28, 1944 they bought from Mrs. Valentin Afable a lot of
8,371 sq. m. including improvements thereon for P237,234.14. This property
has an assessed value of P59,140.00 as of 1948;
"6. That in a document dated August 16, 1945, they appointed their brother
Simeon Evangelista to ‘manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefor; in default of such
payment, to bring suits against the defaulting tenant; to sign all letters,
contracts, etc., for and in their behalf, and to endorse and deposit all notes
and checks for them;
"7. That after having bought the above-mentioned real properties, the
petitioners had the same rented or leased to various tenants;
"8. That from the month of March, 1945 up to and including December,
1945, the total amount collected as rents on their real properties was
P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a
net rental income of P5,948.33;
"9. That in 1946, they realized a gross rental income in the sum of
P24,786.30, out of which amount was deducted the sum of P16,288.27 for
expenses thereby leaving them a net rental income of P7,498.13;
"10. That in 1948 they realized a gross rental income of P17,453.00 out of
the which amount was deducted the sum of P4,837.65 as expenses, thereby
leaving them a net rental income of P12,615.35."cralaw virtua1aw library
It further appears that on September 24, 19a4, respondent Collector of
Internal Revenue demanded the payment of income tax on corporations, real
estate dealer’s fixed tax and corporation residence tax for the years 1945-
1949, computed, according to the assessments made by said officer, as
follows:chanrob1es virtual 1aw library
INCOME TAXES
1945. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.P614.84
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.1,144.71
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .910.34
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.1,912.30
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.1,575.90
_______________
Total including surcharge and compromise P6,157.09
REAL ESTATE DEALER’S FIXED TAX
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .P37.50
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .150.00
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .150.00
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The issue in this case is whether petitioners are subject to the tax on
. . . . . . .150.00 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
Total including penalty P527.50 terms "corporation" and "partnership", as used in sections 24 and 84 of said
Code, the pertinent parts of which read:jgc:chanrobles.com.ph
RESIDENCE TAXES OF CORPORATION
"SEC. 24. Rate of tax on corporations. — There shall be levied, assessed,
1945. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . collected, and paid annually upon the total net income received in the
. . . . . .P38.75 preceding taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or
1946. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . organized but not including duly registered general co-partnerships
. . . . . . . .38.75 (compañias colectivas), a tax upon such income equal to the sum of the
following: . . . ."cralaw virtua1aw library
1947. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .38.75 "Sec. 84(b). The term ‘corporation’ includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
1948. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . participacion), associations or insurance companies, but does not include
. . . . . . . .38.75 duly registered general copartnerships (compañias colectivas)."cralaw
virtua1aw library
1949. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .38.75 Article 1767 of the Civil Code of the Philippines
provides:jgc:chanrobles.com.ph
______________
"By the contract of partnership two or more persons bind themselves to
Total including surchage P193.75 contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves."cralaw virtua1aw library
TOTAL TAXES DUE P6,878.34
Pursuant to this article, the essential elements of a partnership are two,
Said letter of demand and the corresponding assessments were delivered to namely: (a) an agreement to contribute money, property or industry to a
petitioners on December 3, 1954, whereupon they instituted the present case common fund; and (b) intent to divide the profits among the contracting
in the Court of Tax Appeals, with a prayer that "the decision of the parties. The first element is undoubtedly present in the case at bar, for,
respondent contained in his letter of demand dated September 24, 1954" be admittedly, petitioners have agreed to, and did, contribute money and
reversed, and that they be absolved from the payment of the taxes in property to a common fund. Hence, the issue narrows down to their intent in
question, with costs against the Respondent. 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
After appropriate proceedings, the Court of Tax Appeals rendered the above- in real estate transactions for monetary gain and then divide the same among
mentioned decision for the respondent, and, a petition for reconsideration and themselves, because:chanrob1es virtual 1aw library
new trial having been subsequently denied, the case is now before Us for
review at the instance of the petitioners. 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 P18,000.000. 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 transactions 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 Evangelista, 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 Evangelista became the manager.
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.
Petitioners insist, however, that they are mere co-owners, not copartners, 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.
This pretense was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships." When
our Internal Revenue Code includes "partnerships" among the entities subject
to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense
of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships", which constitute
precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, "the term corporation
includes partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any
of the standard forms, or in conformity with the usual requirements of the
law on partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. Again, pursuant to said section 84(b), the
term "corporation" includes, among other, "joint accounts, (cuentas en
participacion)" and "associations", none of which has a legal personality of
its own, independent of that of its members. Accordingly, the lawmaker
could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general copartner ships" — which are possessed of the
aforementioned personality — have been expressly excluded by law
(sections 24 and 84 [b]) from the connotation of the term "corporation." It
may not be amiss to add that petitioners’ allegation to the effect that their
liability in connection with the leasing of the lots above referred to, under the
management of one person — even if true, on which we express no opinion
tends to increase the similarity between the nature of their venture and that of
corporations, and is, therefore, an additional argument in favor of the
imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are
taxed differently from "partnerships." By specific provision of said laws,
such "corporations" include "associations, joint-stock companies and
insurance companies." However, the term "association" is not used in the
aforementioned laws
". . . in any narrow or technical sense. It includes any organization, created
for the transaction of designated affairs, or the attainment of some object,
which, like a corporation, continues notwithstanding that its members or
participants change, and the affairs of which, like corporate affairs, are
conducted by a single individual, a committee, a board, or some other group,
acting in a representative capacity. It is immaterial whether such organization
is created by an agreement, a declaration of trust, a statute, or otherwise. It
includes a voluntary association, a joint-stock corporation or company, a
‘business’ trusts a ‘Massachusetts’ trust, a ‘common law’ trust, and
‘investment’ trust (whether of the fixed or the management type), an
interinsurance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known)
which is not, within the meaning of the Code, a trust or an estate, or a
partnership." (7A Merten’s Law of Federal Income Taxation, p. 788; italics
ours.)
Similarly, the American Law.
". . . provides its own concept of a partnership. Under the term ‘partnership’
it includes not only a partnership as known at common law but, as well, a
syndicate, group, pool, joint venture, or other unincorporated organization
which carries on any business, financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. . . . ."
(7A Merten’s Law of Federal Income Taxation, p. 789; italics ours.)
"The term ‘partnership’ includes a syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on, . . . ." (8 Merten’s Law
of Federal Income Taxation, p. 562 Note 63; italics ours.)
For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships — with the exception only of duly registered
general copartnerships — within the purview of the term "corporation." It is,
therefore, clear to our mind that petitioners herein constitute a partnership,
insofar as said Code is concerned, and are subject to the income tax for
corporations.
As regards the residence tax for corporations, section 2 of Commonwealth
Act No. 465 provides in part:jgc:chanrobles.com.ph
"Entities liable to residence tax. — Every 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: . . .
"The term ‘corporation’ as used in this Act includes joint-stock company,
partnership, joint account (cuentas en participacion), association or insurance
company, no matter how created or organized." (italics ours.)
Considering that the pertinent part of this provision is analogous to that of
sections 24 and 84(b) of our National Internal Revenue Code
(Commonwealth Act No. 466), and that the latter was approved on June 15,
1939, the day immediately after the approval of said Commonwealth Act No.
465 (June 14, 1939), it is apparent that 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.
Lastly, the records show that petitioners have habitually engaged in leasing
the properties above mentioned for a period of over twelve years, and that the
yearly gross rentals of said properties from 1945 to 1948 ranged from P9,599
to P17,453. 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:jgc:chanrobles.com.ph
"‘Real estate dealer’ includes any person engaged in the business of buying,
selling, exchanging, leasing, or renting property or his own account as
principal and holding himself out as a full or 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. . . . ." (Italics
ours.)
Wherefore, the appealed decision of the Court of Tax Appeals is hereby
affirmed with costs against the petitioners herein. It is so ordered.
Paras, C.J., Bengzon, Padilla, Reyes, A., Reyes, J. B. L., Endencia and
Felix, JJ., concur.

THIRD DIVISION
[G.R. No. 134559. December 9, 1999]
ANTONIA TORRES, assisted by her husband, ANGELO TORRES;
and EMETERIA BARING, Petitioners, v. COURT OF APPEALS and
MANUEL TORRES, Respondents.
DECISION
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially disadvantageous to
them will not relieve them of their obligations therein. The lack of an
inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in
accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision1 Second Division of the Court of Appeals2 (CA) in CA-GR CV No.
42378 and its June 25, 1998 Resolution denying reconsideration. The
assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of
Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for
the defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered
dismissed. No pronouncement as to costs.3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the contract,
they executed a Deed of Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000 which,
under the Joint Venture Agreement, was to be used for the development of
the subdivision.4 All three of them also agreed to share the proceeds from the
sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed
by the bank.
According to petitioners, the project failed because of respondents lack of
funds or means and skills. They add that respondent used the loan not for the
development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the
Agreement. With the said amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City Councils approval of
the subdivision project which he advertised in a local newspaper. He also
caused the construction of roads, curbs and gutters. Likewise, he entered into
a contract with an engineering firm for the building of sixty low-cost housing
units and actually even set up a model house on one of the subdivision lots.
He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project.5
Subsequently, petitioners filed a criminal case for estafa against respondent
and his wife, who were however acquitted. Thereafter, they filed the present
civil case which, upon respondent's motion, was later dismissed by the trial
court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the
RTC issued its assailed Decision, which, as earlier stated, was affirmed by
the CA.
Hence, this Petition.6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the subdivision.
Thus, they must bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial courts pronouncement that losses as well as profits in a joint
venture should be distributed equally,7 the CA invoked Article 1797 of the
Civil Code which provides:
Article 1797 - The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable under
the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
x x x [The] Court of Appeals erred in concluding that the transaction x x x
between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines.8
The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend
that the Joint Venture Agreement and the earlier Deed of Sale, both of which
were the bases of the appellate courts finding of a partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the proceeds
from the sale of the subdivision lots, they pray that respondent pay them
damages equivalent to 60 percent of the value of the property.9
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this
5th day of March, 1969, by and between MR. MANUEL R. TORRES, x x x
the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan, under
Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square
meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the
execution of this contract for the property entrusted by the SECOND
PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby stipulate
and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x
dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50)
Philippine Currency, in favor of the FIRST PARTY, but the SECOND
PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST
PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, for their personal obligations and this particular
amount will serve as an advance payment from the FIRST PARTY for the
property mentioned to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the
sub-division project is terminated and ready for sale to any interested parties,
and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all the
expenses will not be deducted from the sales after the development of the
sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM
40% for the FIRST PARTY, and additional profits or whatever income
deriving from the sales will be divided equally according to the x x x
percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will
start the work and all improvements upon the adjacent lots will be negotiated
in both parties['] favor and all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get
back the property mentioned provided the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and the FIRST
PARTY will be given a grace period to turnover the property mentioned
above.
That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein
stated.10
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
ART. 1767. 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.
Under the above-quoted Agreement, petitioners would contribute property to
the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name of
the respondent. On the other hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to construct
low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary consequences
thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and
insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations may
turn out to be financially disadvantageous will not relieve parties thereto of
their obligations. They cannot now disavow the relationship formed from
such agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773
of the Civil Code, which provides:
ART. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if an inventory of said property is not made, signed by
the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the public
instrument an inventory of the real property contributed, the partnership is
void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771,12 the execution
of a public instrument would be useless if there is no inventory of the
property contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is declared
void by the law when no such inventory is made. The case at bar does not
involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for
their claim that respondent should pay them 60 percent of the value of the
property.13 They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which
the parties rights and obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under
Article 142214 of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another.15
In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the trial
court, the land was in effect given to the partnership as [petitioners]
participation therein. x x x There was therefore a consideration for the sale,
the [petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which was
their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts
were not the cause of the failure of the project.16 But it also ruled that neither
was respondent responsible therefor.17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual
findings of the appellate court relieving him of fault. Verily, factual issues
cannot be resolved in a petition for review under Rule 45, as in this case.
Petitioners have not alleged, not to say shown, that their Petition constitutes
one of the exceptions to this doctrine.18 Accordingly, we find no reversible
error in the CA's ruling that petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
 Indeed, the partnership was established to engage in a money-lending business,
despite the fact that it was formalized only after the Memorandum of
Fernando Santos vs Spouses Arsenio and Nieves Reyes Agreement had been signed by petitioner and Gragera.
Facts:

This is a petition for review on certiorari assailing CA decision which affirmed

the RTC decision. Santos and Nieves Reyes verbally agreed that Santos would
act as financier while Nieves and Meliton Zabat would act as solicitors for
membership and collectors of loan payment. 70% of the profits would go to
Santos while Nieves and Zabat would get 15% each.
It was a lending venture business.

Nieves introduced Gragera of Monte Maria Corp, who obtained short term
loans for the partnership in consideration of commissions. In 1986, Nieves and
Zabat executed an agreement which formalized their earlier verbal
agreement. But, Santis and Nieves later discovered that Zabat engaged in the
same lending business. Hence, Zabat was expelled from the partnership. On
June 1987, Santos filed a complaint for recovery of sum of money and
damages against the respondents, alleging them as employees who
misappropriated the funds. Respondents assert they were partners and not
mere employees. Santos claimed that after discovery of Zabat's activities, he
ceased infusing funds thereby extinguishing the partnership.

Issue:
Whether or not the parties' relationship was one of partnership or of employer-
employee

Held:
Yes they were partners. 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. The "Articles of
Agreement" stipulated that the signatories shall share the profits of the
business in a 70-15-15 manner, with petitioner getting the lion's share. This
stipulation clearly proved the establishment of a partnership.
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE &
JOSE U. ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES,
CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C.
JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF
FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF
INTERNAL REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R.
109446.
VITUG, J.:
These two consolidated special civil actions for prohibition challenge, in
G.R. No. 109289, the constitutionality of Republic Act No. 7496, also
commonly known as the Simplified Net Income Taxation Scheme ("SNIT"),
amending certain provisions of the National Internal Revenue Code and, in
G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93,
promulgated by public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act
No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) — Every bill passed by the
Congress shall embrace only one subject which shall be
expressed in the title thereof.
Article VI, Section 28(1) — The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Article III, Section 1 — No person shall be deprived of . . .
property without due process of law, nor shall any person be
denied the equal protection of the laws.
In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations
No. 2-93, argue that public respondents have exceeded their rule-making
authority in applying SNIT to general professional partnerships.
The Solicitor General espouses the position taken by public respondents.
The Court has given due course to both petitions. The parties, in compliance
with the Court's directive, have filed their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No. 34314, progenitor of
Republic Act No. 7496, is a misnomer or, at least, deficient for being merely
entitled, "Simplified Net Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their Profession" (Petition in
G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified Net Income Taxation
Scheme For The Self-Employed and Professionals Engaged
In The Practice of Their Profession, Amending Sections 21
and 29 of the National Internal Revenue Code, as Amended.
The pertinent provisions of Sections 21 and 29, so referred to, of the National
Internal Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or residents. —
 xxx xxx xxx
(f) Simplified Net Income Tax for the Self-Employed and/or
Professionals Engaged in the Practice of Profession. — A tax
is hereby imposed upon the taxable net income as
determined in Section 27 received during each taxable year
from all sources, other than income covered by paragraphs
(b), (c), (d) and (e) of this section by every individual
whether
a citizen of the Philippines or an alien residing in the
Philippines who is self-employed or practices his profession
herein, determined in accordance with the following
schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross income. — In computing
taxable income subject to tax under Sections 21(a), 24(a), (b)
and (c); and 25 (a)(1), there shall be allowed as deductions
the items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing taxable
income subject to tax under Section 21 (f) in the case of
individuals engaged in business or practice of profession,
only the following direct costs shall be allowed as
deductions:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the
course of or pursuant to the business or practice of their
profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited
relief organizations for the rehabilitation of calamity stricken
areas declared by the President; and
(g) Interest paid or accrued within a taxable year on loans
contracted from accredited financial institutions which must
be proven to have been incurred in connection with the
conduct of a taxpayer's profession, trade or business.
For individuals whose cost of goods sold and direct costs are
difficult to determine, a maximum of forty per cent (40%) of
their gross receipts shall be allowed as deductions to answer
for business or professional expenses as the case may be.
On the basis of the above language of the law, it would be difficult to accept
petitioner's view that the amendatory law should be considered as having
now adopted a gross income, instead of as having still retained
the net income, taxation scheme. The allowance for deductible items, it is
true, may have significantly been reduced by the questioned law in
comparison with that which has prevailed prior to the amendment; limiting,
however, allowable deductions from gross income is neither discordant with,
nor opposed to, the net income tax concept. The fact of the matter is still that
various deductions, which are by no means inconsequential, continue to be
well provided under the new law.
Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to
prevent log-rolling legislation intended to unite the members of the
legislature who favor any one of unrelated subjects in support of the whole
act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly
apprise the people, through such publications of its proceedings as are
usually made, of the subjects of legislation.1 The above objectives of the
fundamental law appear to us to have been sufficiently met. Anything else
would be to require a virtual compendium of the law which could not have
been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional
requirement that taxation "shall be uniform and equitable" in that the law
would now attempt to tax single proprietorships and professionals differently
from the manner it imposes the tax on corporations and partnerships. The
contention clearly forgets, however, that such a system of income taxation
has long been the prevailing rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal protection, merely
requires that all subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long
as: (1) the standards that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose, (3) the
law applies, all things being equal, to both present and future conditions, and
(4) the classification applies equally well to all those belonging to the same
class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197
SCRA 52).
What may instead be perceived to be apparent from the amendatory law is
the legislative intent to increasingly shift the income tax system towards the
schedular approach2 in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment3 on taxable corporations.
We certainly do not view this classification to be arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on the merits of the law,
illustrating, in the process, what he believes to be an imbalance between the
tax liabilities of those covered by the amendatory law and those who are not.
With the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. This court cannot freely delve into those matters which, by
constitutional fiat, rightly rest on legislative judgment. Of course, where a tax
measure becomes so unconscionable and unjust as to amount to confiscation
of property, courts will not hesitate to strike it down, for, despite all its
plenitude, the power to tax cannot override constitutional proscriptions. This
stage, however, has not been demonstrated to have been reached within any
appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of petitioner to have the law
declared unconstitutional for being violative of due process must perforce
fail. The due process clause may correctly be invoked only when there is a
clear contravention of inherent or constitutional limitations in the exercise of
the tax power. No such transgression is so evident to us.
G.R. No. 109446
The several propositions advanced by petitioners revolve around the question
of whether or not public respondents have exceeded their authority in
promulgating Section 6, Revenue Regulations No. 2-93, to carry out
Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional Partnership — The general
professional partnership (GPP) and the partners comprising
the GPP are covered by R. A. No. 7496. Thus, in
determining the net profit of the partnership, only the direct
costs mentioned in said law are to be deducted from
partnership income. Also, the expenses paid or incurred by
partners in their individual capacities in the practice of their
profession which are not reimbursed or paid by the
partnership but are not considered as direct cost, are not
deductible from his gross income.
The real objection of petitioners is focused on the administrative
interpretation of public respondents that would apply SNIT to partners in
general professional partnerships. Petitioners cite the pertinent deliberations
in Congress during its enactment of Republic Act No. 7496, also quoted by
the Honorable Hernando B. Perez, minority floor leader of the House of
Representatives, in the latter's privilege speech by way of commenting on the
questioned implementing regulation of public respondents following the
effectivity of the law, thusly:
MR. ALBANO, Now Mr. Speaker, I would
like to get the correct impression of this bill.
Do we speak here of individuals who are
earning, I mean, who earn through business
enterprises and therefore, should file an
income tax return?
 MR. PEREZ. That is correct, Mr. Speaker.
This does not apply to corporations. It
applies only to individuals.
(See Deliberations on H. B. No. 34314, August 6, 1991, 6:15
P.M.; Emphasis ours).
Other deliberations support this position, to
wit:
MR. ABAYA . . . Now, Mr. Speaker, did I
hear the Gentleman from Batangas say that
this bill is intended to increase collections as
far as individuals are concerned and to make
collection of taxes equitable?
MR. PEREZ. That is correct, Mr. Speaker.
(Id. at 6:40 P.M.; Emphasis ours).
In fact, in the sponsorship speech of Senator Mamintal
Tamano on the Senate version of the SNITS, it is
categorically stated, thus:
This bill, Mr. President, is not applicable to
business corporations or to partnerships; it is
only with respect to individuals and
professionals. (Emphasis ours)
The Court, first of all, should like to correct the apparent misconception that
general professional partnerships are subject to the payment of income tax or
that there is a difference in the tax treatment between individuals engaged in
business or in the practice of their respective professions and partners in
general professional partnerships. The fact of the matter is that a general
professional partnership, unlike an ordinary business partnership (which is
treated as a corporation for income tax purposes and so subject to the
corporate income tax), is not itself an income taxpayer. The income tax is
imposed not on the professional partnership, which is tax exempt, but on the
partners themselves in their individual capacity computed on their
distributive shares of partnership profits. Section 23 of the Tax Code, which
has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional
partnerships. — (a) Persons exercising a common profession
in general partnership shall be liable for income tax only in
their individual capacity, and the share in the net profits of
the general professional partnership to which any taxable
partner would be entitled whether distributed or otherwise,
shall be returned for taxation and the tax paid in accordance
with the provisions of this Title.
(b) In determining his distributive share in the net income of
the partnership, each partner —
(1) Shall take into account separately his
distributive share of the partnership's
income, gain, loss, deduction, or credit to the
extent provided by the pertinent provisions
of this Code, and
(2) Shall be deemed to have elected the
itemized deductions, unless he declares his
distributive share of the gross income
undiminished by his share of the deductions.
There is, then and now, no distinction in income tax liability between a
person who practices his profession alone or individually and one who does it
through partnership (whether registered or not) with others in the exercise of
a common profession. Indeed, outside of the gross compensation income tax
and the final tax on passive investment income, under the present income tax
system all individuals deriving income from any source whatsoever are
treated in almost invariably the same manner and under a common set of
rules.
We can well appreciate the concern taken by petitioners if perhaps we were
to consider Republic Act No. 7496 as an entirely independent, not merely as
an amendatory, piece of legislation. The view can easily become myopic,
however, when the law is understood, as it should be, as only forming part of,
and subject to, the whole income tax concept and precepts long obtaining
under the National Internal Revenue Code. To elaborate a little, the phrase
"income taxpayers" is an all embracing term used in the Tax Code, and it
practically covers all persons who derive taxable income. The law, in levying
the tax, adopts the most comprehensive tax situs of nationality and residence
of the taxpayer (that renders citizens, regardless of residence, and resident
aliens subject to income tax liability on their income from all sources) and of
the generally accepted and internationally recognized income taxable base
(that can subject non-resident aliens and foreign corporations to income tax
on their income from Philippine sources). In the process, the Code classifies
taxpayers into four main groups, namely: (1) Individuals, (2) Corporations,
(3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable
both as to corpus and as to income).
WHEREFORE, the petitions are DISMISSED. No special pronouncement on
costs.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo,
Melo, Quiason, Puno, Kapunan and Mendoza, JJ., concur.

Partnerships are, under the Code, either "taxable partnerships" or "exempt Padilla and Bidin, JJ., are on leave.
partnerships." Ordinarily, partnerships, no matter how created or organized,
are subject to income tax (and thus alluded to as "taxable partnerships")
which, for purposes of the above categorization, are by law assimilated to be
within the context of, and so legally contemplated as, corporations. Except
for few variances, such as in the application of the "constructive receipt rule"
in the derivation of income, the income tax approach is alike to both juridical
persons. Obviously, SNIT is not intended or envisioned, as so correctly
pointed out in the discussions in Congress during its deliberations on
Republic Act 7496, aforequoted, to cover corporations and partnerships
which are independently subject to the payment of income tax.

"Exempt partnerships," upon the other hand, are not similarly identified as
corporations nor even considered as independent taxable entities for income
tax purposes. A general professional partnership is such an example.4 Here,
the partners themselves, not the partnership (although it is still obligated to
file an income tax return [mainly for administration and data]), are liable for
the payment of income tax in their individual capacity computed on their
respective and distributive shares of profits. In the determination of the tax
liability, a partner does so as an individual, and there is no choice on the
matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or
a flow-through entity in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely
confirmed, the above standing rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable
to all individual income taxpayers on their non-compensation income. There
is no evident intention of the law, either before or after the amendatory
legislation, to place in an unequal footing or in significant variance the
income tax treatment of professionals who practice their respective
professions individually and of those who do it through a general
professional partnership.
G.R. No. L-45425 April 29, 1939 3. Saturnina Silva
.08
....................................................................................................
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
vs. 4. Guillermo Tapia
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. .13
...................................................................................................

Guillermo B. Reyes for appellants. 5. Jesus Legaspi

.15
Office of the Solicitor-General Tuason for appellee. ......................................................................................................

IMPERIAL, J.: 6. Jose Silva

.......................................................................................................... .07
The plaintiff brought this action to recover from the defendant Collector of ...
Internal Revenue the sum of P1,863.44, with legal interest thereon, which
they paid under protest by way of income tax. They appealed from the 7. Tomasa Mercado
.08
decision rendered in the case on October 23, 1936 by the Court of First ................................................................................................
Instance of the City of Manila, which dismissed the action with the costs
against them. 8. Julio Gatchalian
.13
...................................................................................................
The case was submitted for decision upon the following stipulation of facts: 9. Emiliana Santiago
.13
................................................................................................
Come now the parties to the above-mentioned case, through their
respective undersigned attorneys, and hereby agree to respectfully 10. Maria C. Legaspi
submit to this Honorable Court the case upon the following statement .16
...............................................................................................
of facts:
11. Francisco Cabral
.13
1. That plaintiff are all residents of the municipality of Pulilan, ...............................................................................................
Bulacan, and that defendant is the Collector of Internal Revenue of
the Philippines; 12. Gonzalo Javier
.14
....................................................................................................
2. That prior to December 15, 1934 plaintiffs, in order to enable them
to purchase one sweepstakes ticket valued at two pesos (P2), 13. Maria Santiago
.17
subscribed and paid therefor the amounts as follows: ...................................................................................................

14. Buenaventura Guzman

.13
1. Jose Gatchalian P0.1 ......................................................................................
.................................................................................................... 8
15. Mariano Santos
.14
2. Gregoria Cristobal .................................................................................................
.18
...............................................................................................
Total
........................................................................................................ 2.00
3. That immediately thereafter but prior to December 15, 1934,
plaintiffs purchased, in the ordinary course of business, from one of
the duly authorized agents of the National Charity Sweepstakes
Office one ticket bearing No. 178637 for the sum of two pesos (P2)
and that the said ticket was registered in the name of Jose Gatchalian
and Company;
4. That as a result of the drawing of the sweepstakes on December
15, 1934, the above-mentioned ticket bearing No. 178637 won one
of the third prizes in the amount of P50,000 and that the
corresponding check covering the above-mentioned prize of P50,000
was drawn by the National Charity Sweepstakes Office in favor of
Jose Gatchalian & Company against the Philippine National Bank,
which check was cashed during the latter part of December, 1934 by
Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by
income tax examiner Alfredo David to file the corresponding income
tax return covering the prize won by Jose Gatchalian & Company
and that on December 29, 1934, the said return was signed by Jose
Gatchalian, a copy of which return is enclosed as Exhibit A and
made a part hereof;
6. That on January 8, 1935, the defendant made an assessment
against Jose Gatchalian & Company requesting the payment of the
sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan, giving to said Jose Gatchalian & Company until January
20, 1935 within which to pay the said amount of P1,499.94, a copy
of which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney,
sent to defendant a reply, a copy of which marked Exhibit C is
attached and made a part hereof, requesting exemption from payment
of the income tax to which reply there were enclosed fifteen (15)
separate individual income tax returns filed separately by each one of
the plaintiffs, copies of which returns are attached and marked
Exhibit D-1 to D-15, respectively, in order of their names listed in
the caption of this case and made parts hereof; a statement of sale
signed by Jose Gatchalian showing the amount put up by each of the
plaintiffs to cover up the attached and marked as Exhibit E and made
a part hereof; and a copy of the affidavit signed by Jose Gatchalian
dated December 29, 1934 is attached and marked Exhibit F and made
part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of
which marked Exhibit G is enclosed, denied plaintiffs' request of
January 20, 1935, for exemption from the payment of tax and
reiterated his demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935 within which
to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of
tax demanded by the defendant, notwithstanding subsequent demand
made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked
Exhibit I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the
property of the plaintiffs, the said plaintiffs on June 15, 1935,
through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi,
paid under protest the sum of P601.51 as part of the tax and penalties
to the municipal treasurer of Pulilan, Bulacan, as evidenced by
official receipt No. 7454879 which is attached and marked Exhibit J
and made a part hereof, and requested defendant that plaintiffs be
allowed to pay under protest the balance of the tax and penalties by
monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties
was granted by defendant subject to the condition that plaintiffs file
the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which
marked Exhibit K is enclosed and made a part hereof, to guarantee
the payment of the balance of the alleged tax liability by monthly
installments at the rate of P118.70 a month, the first payment under
protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested
against the payment of the sum of P602.51, a copy of which protest
is attached and marked Exhibit L, but that defendant in his letter
 dated August 1, 1935 overruled the protest and denied the request for indicated below and the part of may share remaining is also shown to
refund of the plaintiffs; wit:

14. That, in view of the failure of the plaintiffs to pay the monthly
Purchaser Amount Address
installments in accordance with the terms and conditions of bond
filed by them, the defendant in his letter dated July 23, 1935, copy of Pulilan,
which is attached and marked Exhibit M, ordered the municipal 1. Mariano Santos ........................................... P0.14
Bulacan.
treasurer of Pulilan, Bulacan to execute within five days the warrant
of distraint and levy issued against the plaintiffs on May 13, 1935; 2. Buenaventura Guzman ............................... .13 - Do -

15. That in order to avoid annoyance and embarrassment arising 3. Maria Santiago
from the levy of their property, the plaintiffs on August 28, 1936, .17 - Do -
............................................
through Jose Gatchalian, Guillermo Tapia, Maria Santiago and
Emiliano Santiago, paid under protest to the municipal treasurer of 4. Gonzalo Javier
.14 - Do -
Pulilan, Bulacan the sum of P1,260.93 representing the unpaid ..............................................
balance of the income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is attached and 5. Francisco Cabral
.13 - Do -
marked Exhibit N and made a part hereof; and that on September 3, ..........................................
1936, the plaintiffs formally protested to the defendant against the
payment of said amount and requested the refund thereof, copy of 6. Maria C. Legaspi
.16 - Do -
which is attached and marked Exhibit O and made part hereof; but ..........................................
that on September 4, 1936, the defendant overruled the protest and
denied the refund thereof; copy of which is attached and marked 7. Emiliana Santiago
.13 - Do -
Exhibit P and made a part hereof; and .........................................

16. That plaintiffs demanded upon defendant the refund of the total 8. Julio Gatchalian
.13 - Do -
sum of one thousand eight hundred and sixty three pesos and forty- ............................................
four centavos (P1,863.44) paid under protest by them but that
9. Jose Silva
defendant refused and still refuses to refund the said amount .07 - Do -
......................................................
notwithstanding the plaintiffs' demands.
10. Tomasa Mercado
17. The parties hereto reserve the right to present other and .08 - Do -
.......................................
additional evidence if necessary.
11. Jesus Legaspi
Exhibit E referred to in the stipulation is of the following tenor: .15 - Do -
.............................................

To whom it may concern: 12. Guillermo Tapia

.13 - Do -
...........................................
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age,
hereby certify, that on the 11th day of August, 1934, I sold parts of 13. Saturnina Silva
.08 - Do -
my shares on ticket No. 178637 to the persons and for the amount ............................................
 14. Gregoria Cristobal 5. Jesus Legaspi by Maria 3,10
.18 - Do - D-5 .15 3,825 720
....................................... Cristobal ......... 5

15. Jose Gatchalian 6. Jose Silva

.18 - Do - 1,51
............................................ .......................................... D-6 .08 1,875 360
5
..........
Total cost of
2.00 said 7. Tomasa Mercado 1,51
D-7 .07 1,875 360
....................................... 5
ticket; and that, therefore, the persons named above are entitled to 8. Julio Gatchalian by 2,91
the parts of whatever prize that might be won by said ticket. D-8 .13 3,150 240
Beatriz Guzman ....... 0

Pulilan, Bulacan, P.I. 9. Emiliana Santiago 2,96

D-9 .13 3,325 360
...................................... 5
(Sgd.) JOSE GATCHALIAN
10. Maria C. Legaspi 3,14
D-10 .16 4,100 960
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions ...................................... 0
as follows:
11. Francisco Cabral 2,96
D-11 .13 3,325 360
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX ...................................... 5
RETURNS FOR 1934 ALL DATED JANUARY 19, 1935
12. Gonzalo Javier 2,96
SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE. D-12 .14 3,325 360
.......................................... 5

Exhib Purcha Price Net 13. Maria Santiago 3,99

D-13 .17 4,350 360
Name it se Expenses priz .......................................... 0
No. Price Won e
14. Buenaventura Guzman 2,96
D-14 .13 3,325 360
1. Jose Gatchalian P4,42 3,94 ........................... 5
D-1 P0.18 P 480
.......................................... 5 5
15. Mariano Santos 2,96
D-15 .14 3,325 360
2. Gregoria Cristobal 2,57 ........................................ 5
D-2 .18 4,575 2,000
...................................... 5

3. Saturnina Silva
1,51
.......................................... D-3 .08 1,875 360
5
...

4. Guillermo Tapia 2,96

D-4 .13 3,325 360
.......................................... 5

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The legal questions raised in plaintiffs-appellants' five assigned errors may
properly be reduced to the two following: (1) Whether the plaintiffs formed a
partnership, or merely a community of property without a personality of its
own; in the first case it is admitted that the partnership thus formed is liable
for the payment of income tax, whereas if there was merely a community of
property, they are exempt from such payment; and (2) whether they should
pay the tax collectively or whether the latter should be prorated among them
and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act
No. 2833, as last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar
year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or
insurance company, organized in the Philippine Islands, no matter
how created or organized, but not including duly registered general
copartnership (compañias colectivas), a tax of three per centum upon
such income; and a like tax shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every
corporation, joint-stock company, partnership, joint account (cuenta
en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided,
however, That nothing in this section shall be construed as permitting
the taxation of the income derived from dividends or net profits on
which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition
(cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of Act Numbered Two
thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by
every taxable corporation, joint-stock company, partnership, joint
account (cuenta en participacion), association, or insurance company
in the calendar year nineteen hundred and twenty and in each year
thereafter.
There is no doubt that if the plaintiffs merely formed a community of
property the latter is exempt from the payment of income tax under the law.
But according to the stipulation facts the plaintiffs organized a partnership of
a civil nature because each of them put up money to buy a sweepstakes ticket
for the sole purpose of dividing equally the prize which they may win, as
they did in fact in the amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally appeared in the office of the
Philippines Charity Sweepstakes, in his capacity as co-partner, as such
collection the prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea that the plaintiffs
organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said
entity is the one bound to pay the income tax which the defendant collected
under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2
of Act No. 3761. There is no merit in plaintiff's contention that the tax should
be prorated among them and paid individually, resulting in their exemption
from the tax.

In view of the foregoing, the appealed decision is affirmed, with the costs of
this instance to the plaintiffs appellants. So ordered.