JOSE GATCHALIAN, ET AL.

, plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

FACTS OF THE CASE:

That plaintiff are all residents of the municipality of Pulilan, Bulacan. Prior to December 15,
1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket valued at two pesos
(P2), subscribed and paid therefor the amounts as follows:

Jose Gatchalian P0.18; . Gregoria Cristobal .18; Saturnina Silva .08; Guillermo Tapia .13;
Jesus Legaspi .15; Jose Silva .07; Tomasa Mercado .08; Julio Gatchalian .13; Emeliana Santiago
.13; Maria C. Legaspi .16; Francisco Cabral .13; Gonzalo Javier .14; Maria Santiago .17;
Buenaventura Guzman . 13 and Mariano Santos .14, totaled P2.00.

That immediately thereafter, plaintiffs purchased 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;

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 in favor of
Jose Gatchalian & Company.

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.

ISSUE;

Whether or not the plaintiff organized a partnership and said entity is bound to pay income
tax.

Held:

YES. 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,

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.
FLORENCIO REYES and ANGEL REYES, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents.

FACTS OF THE CASE:

Father and son, purchased a lot and building, known as the Gibbs Building, situated at 671
Dasmariñas Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a
balance of P460,000.00, representing the mortgage obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed by the vendees. The initial payment of
P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased
to various tenants, whose rights under the lease contracts with the original owners, the purchasers,
petitioners herein, agreed to respect. The administration of the building was entrusted to an
administrator who collected the rents; kept its books and records and rendered statements of
accounts to the owners; negotiated leases; made necessary repairs and disbursed payments,
whenever necessary, after approval by the owners; and performed such other functions necessary
for the conservation and preservation of the building. Petitioners divided equally the income of
operation and maintenance. The gross income from rentals of the building amounted to about
P90,000.00 annually. The respondent Court of Tax Appeals applying the appropriate provisions of
the National Internal Revenue Code, the first of which imposes an income tax on corporations

ISSUE:

Whether or not the petitioner formed a partnership and is subject to tax on corporations
provided for in `Sec. 24 24 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code

HELD:

YES. As penned by the present Chief Justice, "9 After referring to another section of the National
Internal Revenue Code, which explicitly provides that the term corporation "includes partnerships"
and then to Article 1767 of the Civil Code of the Philippines, defining what a contract of partnership
is, the opinion goes on to state that "the essential elements of a partnership are two, namely: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to and did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, are fully satisfied that their purpose was to engage in
real estate transactions for monetary gain and then divide the same among themselves, . It is,
therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned,
and are subject to the income tax for corporations.."10
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P.
OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

FACTS OF THE CASE:

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots
with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he
transferred his rights to his four children, the petitioners, to enable them to build their residences.
The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44,
Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the
two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the
Walled City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and
D). They derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They
treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner
of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated
interest, or a total of P71,074.56. He considered the share of the profits of each petitioner in the sum
of P33,584 as a " taxable in full (not a mere capital gain of which ½ is taxable) and required them to
pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.

ISSUE: Did the petitioners form a partnership under Article 1967?

HELD: NO. Division of Profits was merely incidental. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership and a
partnership. The petitioners were not engaged in any joint venture by reason of that isolated
transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, then they had
no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the nature of things a temporary state.
It had to be terminated sooner or later.
ADOLFO CRUZ AZNAR VS. GARCIA

FACTS OF THE CASE:

Edward E. Christensen, an American citizen who was already residing in Davao,

became the manager of the Mindanao Estates in Padada. A group of laborers recruited from
Argao, Cebu, arrived to work in the said plantation. Among the group was, Bernarda
Camporedondo, who became an assistant to the cook. Thereafter, this girl and Edward E.
Christensen, who was also unmarried started living together as husband and wife and although
the records failed to establish the exact date when such relationship commenced, the lower
court found the same to have been continuous for over 30 years until the death of Christensen
occurred on April 30, 1953. Out of said relations, 2 children, Lucy and Helen Christensen, were
allegedly born.

Upon the demise of the American, who had left a considerable amount of properties, his will
naming Adolfo Cruz Aznar as executor was duly presented for probate in court and became the
subject of Special Proceedings No. 622 of the Court of First Instance of Davao which he
declares that he has one (1) child named MARIA LUCY CHRISTENSEN (now Mrs. Bernard
Daney) and further declare that I now have no living ascendants and no descendants except
my above named daughter MARIA LUCY CHRISTENSEN DANEY.and give all the income from
the rest, remainder, and residue of my property and estate, real, personal and/or mixed, of
whatsoever kind or character, and wheresoever situated, of which he may be possessed.

ISSUE:

Whether or not in their cohabitation, an informal civil partnership exist and have an equal
interest in the properties acquired during said union and is entitled to participate therein if said
properties were the product of their joint effort.

HELD:

NO. — Before Republic Act No. 386 (Civil Code of the Philippines) went into operation
on August 30, 1950, this court had already that where a man and a woman, not suffering from
any impediment to contract marriage, live together as husband and wife, an informal civil
partnership exists, and each of them has an equal interest in the properties acquired during said
union and is entitled to participate therein if said properties were the product of their JOINT
effort (Marata v. Diono G.R. No. 24449, December 31, 1925)

In the case at bar, aside from the observation of the trial court that appellee was an
illiterate woman, there appears no evidence to prove appellee’s contribution or participation in
the acquisition of the properties involved; therefore, following the aforecited ruling of this Court,
appellee’s claim for 1/2 of the properties cannot be granted. Even assuming for the sake of
argument that this case falls under the provisions of Article 144 of the Civil Code which
recognizes the parties as co-owners of the properties acquires during the union, the law would
be applicable only as far as properties acquired after the Act are concerned and to no other, for
such law cannot be given retroactive effect to govern those already possessed before August
30, 1950.
[G.R. No. L-47045. November 22, 1988.]
NOBIO SARDANE, Petitioner, v. THE COURT OF APPEAL and ROMEO J. ACOJEDO
FACTS OF THE CASE:

Petitioner brought an action in the City Court of Dipolog for collection of a sum of
P5,217.26 based on promissory notes executed by the herein private respondent Nobio
Sardane in favor of the herein petitioner. Petitioner bases his right to collect on Exhibits B, C, D,
E, F, and G executed on different dates and signed by private respondent Nobio Sardane.

"It has been established in the trial court that on many occasions, the petitioner demanded the
payment of the total amount of P5,217.25. The failure of the private respondent to pay the said
amount prompted the petitioner to seek the services of lawyer who made a letter (Exhibit 1)
formally demanding the return of the sum loaned. Because of the failure of the private
respondent to heed the demands extra judicially made by the petitioner, the latter was
constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an
answer. On motion by the petitioner, the City Court of Dipolog issued an order dated May 18,
1976 declaring the private respondent in default and allowed the petitioner to present his
evidence ex-parte. Based on petitioner’s evidence, the City Court of Dipolog rendered judgment
by default in favor of the petitioner.

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del
Norte,which based on the oral testimony for the therein private respondent Sardane that a
partnership existed between him and therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes, reversed the decision of the lower court by
dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-
appellant P500.00 each for actual damages, moral damages, exemplary damages and
attorney’s fees, as well as the costs of suit. Plaintiff-appellee then sought the review of said
decision by petition to the respondent Court.

ISSUE: Whether or not partnership existed between the two the petitioner and the respondent.

RULING:
The fact that he had received 50% of the net profits does not conclusively establish that
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit
that while the receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, no such inference shall be drawn if such profits were
received in payment as wages of an employee. Furthermore, herein petitioner had no voice in
the management of the affairs of the basnig. Under similar facts, this Court in the early case of
Fortis v. Gutierrez Hermanos, denied the claim of the plaintiff therein that he was a partner in
the business of the defendant. The same rule was reiterated in Bastida v. Menzi & Co., Inc., Et.
Al. which involved the same factual and legal milieu.