HEIRS OF JOSE LIM,

represented by ELENITO LIM, Petitioners,

- versus JULIET VILLA LIM, Respondent.
G.R. No. 172690
Promulgated:
March 3, 2010
x-----------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari[1]
under Rule 45 of the Rules of Civil Procedure, assailing the
Court of Appeals (CA) Decision[2] dated June 29, 2005,
which reversed and set aside the decision[3] of the Regional
Trial Court (RTC) of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely:
Jose's widow Cresencia Palad (Cresencia); and their children
Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed
Lim (petitioners), represented by Elenito Lim (Elenito). They
filed a Complaint[4] for Partition, Accounting and Damages
against respondent Juliet Villa Lim (respondent), widow of
the late Elfledo Lim (Elfledo), who was the eldest son of Jose
and Cresencia.
Petitioners alleged that Jose was the liaison officer of
Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime
in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and
Norberto Uy (Norberto), formed a partnership to engage in

the trucking business. Initially, with a contribution of

P50,000.00 each, they purchased a truck to be used in the
hauling and transport of lumber of the sawmill. Jose
managed the operations of this trucking business until his
death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under
the management of Elfledo. The shares in the partnership
profits and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said
funds.
Petitioners also alleged that, at that time, Elfledo was a fresh
commerce graduate serving as his fathers driver in the
trucking business. He was never a partner or an investor in
the business and merely supervised the purchase of
additional trucks using the income from the trucking
business of the partners. By the time the partnership
ceased, it had nine trucks, which were all registered in
Elfledo's name. Petitioners asseverated that it was also
through Elfledos management of the partnership that he
was able to purchase numerous real properties by using the
profits derived therefrom, all of which were registered in his
name and that of respondent. In addition to the nine trucks,
Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his
sole surviving heir. Petitioners claimed that respondent took
over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent
and approval. Claiming that they are co-owners of the
properties, petitioners
required respondent to submit an accounting of all income,
profits and rentals received from the estate of Elfledo, and
to surrender the administration thereof. Respondent refused;
thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed

that Elfledo was himself a partner of Norberto and Jimmy.
Respondent also claimed that per testimony of Cresencia,
sometime in 1980, Jose gave Elfledo P50,000.00 as the
latter's capital in an informal partnership with Jimmy and
Norberto. When Elfledo and respondent got married in 1981,
the partnership only had one truck; but through the efforts
of Elfledo, the business flourished. Other than this trucking
business, Elfledo, together with respondent, engaged in
other business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and repair
business. When Norberto was ambushed and killed on July
16, 1993, the trucking business started to falter. When
Elfledo died on May 18, 1995 due to a heart attack,
respondent talked to Jimmy and to the heirs of Norberto, as
she could no longer run the business. Jimmy suggested that
three out of the nine trucks be given to him as his share,
while the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to
respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left
no known assets, and the partnership with Jimmy and
Norberto ceased upon his demise. Respondent also stressed
that Jose left no properties that Elfledo could have held in
trust. Respondent maintained that all the properties
involved in this case were purchased and acquired through
her and her husbands joint efforts and hard work, and
without any participation or contribution from petitioners or
from Jose. Respondent submitted that these are conjugal
partnership properties; and thus, she had the right to refuse
to render an accounting for the income or profits of their
own business.
Trial on the merits ensued. On April 12, 2004, the RTC
rendered its decision in favor of petitioners, thus:

WHEREFORE, premises considered, judgment is hereby

rendered:
1) Ordering the partition of the above-mentioned properties
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all
incomes, profits and rentals received by her from said
properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's
decision, dismissing petitioners' complaint for lack of merit.
Undaunted,
petitioners
filed
their
Motion
for
Reconsideration,[5] which the CA, however, denied in its
Resolution[6] dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE
OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN
THAT BY A FORMER PARTNER ON THE ISSUE OF THE
IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?[7]
In essence, petitioners argue that according to the
testimony of Jimmy, the sole surviving partner, Elfledo was
not a partner; and that he and Norberto entered into a
partnership with Jose. Thus, the CA erred in not giving that
testimony greater weight than that of Cresencia, who was
merely the spouse of Jose and not a party to the
partnership.[8]
Respondent counters that the issue raised by petitioners is
not proper in a petition for review on certiorari under Rule
45 of the Rules of Civil Procedure, as it would entail the

review, evaluation, calibration, and re-weighing of the

factual findings of the CA. Moreover, respondent invokes the
rationale of the CA decision that, in light of the admissions
of Cresencia and Edison and the testimony of respondent,
the testimony of Jimmy was effectively refuted; accordingly,
the CA's reversal of the RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the
propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence
necessarily involves consideration of factual issues an
exercise that is not appropriate for a petition for review on
certiorariunder Rule 45. This rule provides that the parties
may raise only questions of law, because the Supreme Court
is not a trier of facts. Generally, we are
not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.[10]
When supported by substantial evidence, the findings of fact
of the CA are conclusive and binding on the parties and are
not reviewable by this Court, unless the case falls under any
of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd
or impossible;

(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation
of specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record.[11]
We note, however, that the findings of fact of the RTC are
contrary to those of the CA. Thus, our review of such
findings is warranted.
On the merits of the case, we find that the instant Petition is
bereft of merit.
A partnership exists when two or more persons agree to
place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses
among them. A contract of partnership is defined by the
Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves.[12]

(5) When the findings of fact are conflicting;

Undoubtedly, the best evidence would have been the

contract of partnership or the articles of partnership.
Unfortunately, there is none in this case, because the
alleged partnership was never formally organized.
Nonetheless, we are asked to determine who between Jose
and Elfledo was the partner in the trucking business.

(6) When the Court of Appeals, in making its findings, went

beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee;

A careful review of the records persuades us to affirm the CA

decision. The evidence presented by petitioners falls short of
the quantum of proof required to establish that: (1) Jose was

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of
facts;

the partner and not Elfledo; and (2) all the properties
acquired by Elfledo and respondent form part of the estate
of Jose, having been derived from the alleged partnership.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of

Appeals[14] is enlightening. Therein, we cited Article 1769
of the Civil Code, which provides:

Petitioners heavily rely on Jimmy's testimony. But that

testimony is just one piece of evidence against respondent.
It must be considered and weighed along with petitioners'
other evidence vis--vis respondent's contrary evidence. In
civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value
of the aggregate evidence on either side and is usually
considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last
analysis, means probability of the truth. It is evidence that is
more convincing to the court as worthy of belief than that
which is offered in opposition thereto.[13] Rule 133, Section
1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:

Art. 1769. In determining whether a partnership exists,

these rules shall apply:

SECTION I. Preponderance of evidence, how determined. In

civil cases, the party having burden of proof must establish
his case by a preponderance of evidence. In determining
where the preponderance or superior weight of evidence on
the issues involved lies, the court may consider all the facts
and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of
the facts to which they testify, the probability or
improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the
same may legitimately
appear upon the trial. The court may also consider the
number of witnesses, though the preponderance is not
necessarily with the greater number.

(1) Except as provided by Article 1825, persons who are not

partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the use
of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment
vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
Applying the legal provision to the facts of this case, the
following circumstances tend to prove that Elfledo was

himself the partner of Jimmy and Norberto: 1) Cresencia

testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of
the initial capital in the partnership;[15] (2) Elfledo ran the
affairs of the partnership, wielding absolute control, power
and authority, without any intervention or opposition
whatsoever from any of petitioners herein;[16] (3) all of the
properties, particularly the nine trucks of the partnership,
were registered in the name of Elfledo; (4) Jimmy testified
that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were
shares of the profits of the business;[17] and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As
repeatedly stressed in Heirs of Tan Eng Kee,[18] a demand
for periodic accounting is evidence of a partnership.

were placed in his name, and that he was not paid salary or
other compensation by the partners, are indicative of the
fact that Elfledo was a partner and a controlling one at that.
It is apparent that the other partners only contributed in the
initial capital but had no say thereafter on how the business
was ran. Evidently it was through Elfredos efforts and hard
work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in
the affairs of the partnership by acting as the bookkeeper
sans salary.

Furthermore, petitioners failed to adduce any evidence to

show that the real and personal properties acquired and
registered in the names of Elfledo and respondent formed
part of the estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto. They failed to
refute respondent's claim that Elfledo and respondent
engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.[19]
Petitioners could not offer any credible evidence other than
their bare assertions.Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the
former carries more weight.[20]

been dissolved and its assets liquidated. On the contrary,

these were not done but instead its operation continued
under the helm of Elfledo and without any participation from
the heirs of Jose Lim.

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a
hired help but one of the partners in the trucking business,
active and visible in the running of its affairs from day one
until this ceased operations upon his demise. The extent of
his control, administration and management of the
partnership and its business, the fact that its properties

It is notable too that Jose Lim died when the partnership was
barely a year old, and the partnership and its business not
only continued but also flourished. If it were true that it was
Jose Lim and not Elfledo who was the partner, then upon his
death the partnership should have

Whatever properties appellant and her husband had

acquired, this was through their own concerted efforts and
hard work. Elfledo did not limit himself to the business of
their partnership but engaged in other lines of businesses as
well.
In sum, we find no cogent reason to disturb the findings and
the ruling of the CA as they are amply supported by the law
and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed
Court of Appeals Decision dated June 29, 2005 is AFFIRMED.
Costs against petitioners.
SO ORDERED.

docketed as Civil Case No. 1983-R in the Regional Trial Court

of Baguio City was for accounting, liquidation and winding
up of the alleged partnership formed after World War II
between Tan Eng Kee and Tan Eng Lay. On March 18, 1991,
the petitioners filed an amended complaint4 impleading
private respondent herein BENGUET LUMBER COMPANY, as
represented by Tan Eng Lay. The amended complaint was
admitted by the trial court in its Order dated May 3, 1991.5
G.R. No. 126881

October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY,
respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for

the reversal of the Decision1 dated March 13, 1996 of the
former Fifth Division2 of the Court of Appeals in CA-G.R. CV
No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is
hereby set aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984,
Matilde Abubo, the common-law spouse of the decedent,
joined by their children Teresita, Nena, Clarita, Carlos,
Corazon and Elpidio, collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint,3

The amended complaint principally alleged that after the

second World War, Tan Eng Kee and Tan Eng Lay, pooling
their resources and industry together, entered into a
partnership engaged in the business of selling lumber and
hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed
until Tan Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the
alleged partners. However, they claimed that in 1981, Tan
Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and
the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7
rendered judgment6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is
akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay
are joint adventurers and/or partners in a business venture
and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business
venture or particular partnership;

Private respondent sought relief before the Court of Appeals

which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners' motion
for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.

c) Declaring that the assets of Benguet Lumber are the

same assets turned over to Benguet Lumber Co. Inc. and as
such the heirs or legal representatives of the deceased Tan
Eng Kee have a legal right to share in said assets;

Hence, the present petition.

d) Declaring that all the rights and obligations of Tan Eng

Kee as joint adventurer and/or as partner in a particular
partnership have descended to the plaintiffs who are his
legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President
and/or General Manager of Benguet Lumber Company Inc.
to render an accounting of all the assets of Benguet Lumber
Company, Inc. so the plaintiffs know their proper share in
the business;
f) Ordering the appointment of a receiver to preserve and/or
administer the assets of Benguet Lumber Company, Inc.
until such time that said corporation is finally liquidated are
directed to submit the name of any person they want to be
appointed as receiver failing in which this Court will appoint
the Branch Clerk of Court or another one who is qualified to
act as such.
g) Denying the award of damages to the plaintiffs for lack of
proof except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of
merit.
SO ORDERED.

As a side-bar to the proceedings, petitioners filed Criminal

Case No. 78856 against Tan Eng Lay and Wilborn Tan for the
use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by
the defendants before the trial court, consisting of payrolls
indicating that Tan Eng Kee was a mere employee of
Benguet Lumber, were fake, based on the discrepancy in the
signatures of Tan Eng Kee. They also filed Criminal Cases
Nos. 78857-78870 against Gloria, Julia, Juliano, Willie,
Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private
individual. On March 20, 1999, the Municipal Trial Court of
Baguio City, Branch 1, wherein the charges were filed,
rendered judgment9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:

I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN
ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A)
THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO
CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO

AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE

WAS NO TIME FIXED FOR THE DURATION OF THE
PARTNERSHIP (PAGE 13, DECISION).

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
ONES DETERMINING THE PRICES OF STOCKS TO BE
SOLD TO THE PUBLIC; AND

II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING
SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT
TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE FOLLOWING FACTS WHICH WERE DULY
SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE
THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG

LAY WERE ALL LIVING AT THE BENGUET LUMBER
COMPOUND;

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18,
DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE
CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).

V
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET
LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE
SUPERVISING THE EMPLOYEES THEREIN;

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN
ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE
PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE
EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH
PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE
17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings

of facts of the Court of Appeals will not be disturbed on
appeal if such are supported by the evidence.10 Our
jurisdiction, it must be emphasized, does not include review
of factual issues. Thus:

(7) when the Court of Appeals fails to notice certain

relevant facts which, if properly considered, will
justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without
citation of the specific evidence on which they are
based; and
(10)
when the findings of fact of the Court of
Appeals are premised on the absence of evidence but
such findings are contradicted by the evidence on
record.12

Filing of petition with Supreme Court. A party desiring to

appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions
of law which must be distinctly set forth.11 [emphasis
supplied]

In reversing the trial court, the Court of Appeals ruled, to

wit:

Admitted exceptions have been recognized, though, and

when present, may compel us to analyze the evidentiary
basis on which the lower court rendered judgment. Review
of factual issues is therefore warranted:

We note that the Court a quo over extended the issue

because while the plaintiffs mentioned only the existence of
a partnership, the Court in turn went beyond that by
justifying the existence of a joint venture.

(1) when the factual findings of the Court of Appeals and

the trial court are contradictory;
(2) when the findings are grounded entirely on
speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals
from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the
appreciation of facts;
(5) when the appellate court, in making its findings, goes
beyond the issues of the case, and such findings are
contrary to the admissions of both appellant and
appellee;
(6) when the judgment of the Court of Appeals is
premised on a misapprehension of facts;

When mention is made of a joint venture, it would

presuppose parity of standing between the parties, equal
proprietary interest and the exercise by the parties equally
of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was

not a partner of the Benguet Lumber before the war. The
appellees however argued that (Rollo, p. 104; Brief, p. 6) this
is because during the war, the entire stocks of the pre-war
Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to
start a lumber and hardware business, Lay and Kee pooled
the proceeds of their individual businesses earned from
buying and selling military supplies, so that the common
fund would be enough to form a partnership, both in the
lumber and hardware business. That Lay and Kee actually
established the Benguet Lumber in Baguio City, was even

testified to by witnesses. Because of the pooling of

resources, the post-war Benguet Lumber was eventually
established. That the father of the plaintiffs and Lay were
partners, is obvious from the fact that: (1) they conducted
the affairs of the business during Kee's lifetime, jointly, (2)
they were the ones giving orders to the employees, (3) they
were the ones preparing orders from the suppliers, (4) their
families stayed together at the Benguet Lumber compound,
and (5) all their children were employed in the business in
different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever.

Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and no
time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to
the period after the war until Kee's death in 1984. It had no
business book, no written account nor any memorandum for
that matter and no license mentioning the existence of a
partnership [citation omitted].
Also, the exhibits support the establishment of only a
proprietorship. The certification dated March 4, 1971, Exhibit
"2", mentioned co-defendant Lay as the only registered
owner of the Benguet Lumber and Hardware. His application
for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the
incorporation). The deceased, Kee, on the other hand, was
merely an employee of the Benguet Lumber Company, on
the basis of his SSS coverage effective 1958, Exhibit "3". In
the Payrolls, Exhibits "4" to "4-U", inclusive, for the years
1982 to 1983, Kee was similarly listed only as an employee;
precisely, he was on the payroll listing. In the Termination
Notice, Exhibit "5", Lay was mentioned also as the
proprietor.

xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a

partner [sic] may be constituted in any form, but when an
immovable is constituted, the execution of a public
instrument becomes necessary. This is equally true if the
capitalization exceeds P3,000.00, in which case a public
instrument is also necessary, and which is to be recorded
with the Securities and Exchange Commission. In this case
at bar, we can easily assume that the business
establishment, which from the language of the appellees,
prospered (pars. 5 & 9, Complaint), definitely exceeded
P3,000.00, in addition to the accumulation of real properties
and to the fact that it is now a compound. The execution of
a public instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was incorporated and the
incorporators were only Lay and the members of his family.
There is no proof either that the capital assets of the
partnership, assuming them to be in existence, were
maliciously assigned or transferred by Lay, supposedly to
the corporation and since then have been treated as a part
of the latter's capital assets, contrary to the allegations in
pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a
partnership:
1) That Kee was living in a bunk house just across the
lumber store, and then in a room in the bunk house in
Trinidad, but within the compound of the lumber
establishment, as testified to by Tandoc; 2) that both Lay
and Kee were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan; 3) that both
were supervising the laborers, as testified to by Victoria
Choi; and 4) that Dionisio Peralta was supposedly being told

by Kee that the proceeds of the 80 pieces of the G.I. sheets

were added to the business.
Partnership presupposes the following elements [citation
omitted]: 1) a contract, either oral or written. However, if it
involves real property or where the capital is P3,000.00 or
more, the execution of a contract is necessary; 2) the
capacity of the parties to execute the contract; 3) money
property or industry contribution; 4) community of funds and
interest, mentioning equality of the partners or one having a
proportionate share in the benefits; and 5) intention to
divide the profits, being the true test of the partnership. The
intention to join in the business venture for the purpose of
obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the
testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed
from the trial court which had adjudged that TAN ENG KEE
and TAN ENG LAY had allegedly entered into a joint venture.
In this connection, we have held that whether a partnership
exists is a factual matter; consequently, since the appeal is
brought to us under Rule 45, we cannot entertain inquiries
relative to the correctness of the assessment of the
evidence by the court a quo.13 Inasmuch as the Court of
Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to
determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan
Eng Lay were partners in Benguet Lumber. A contract of
partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the
exercise of a profession.14

Thus, in order to constitute a partnership, it must be

established that (1) two or more persons bound themselves
to contribute money, property, or industry to a common
fund, and (2) they intend to divide the profits among
themselves.15 The agreement need not be formally reduced
into writing, since statute allows the oral constitution of a
partnership, save in two instances: (1) when immovable
property or real rights are contributed,16 and (2) when the
partnership has a capital of three thousand pesos or
more.17 In both cases, a public instrument is required.18 An
inventory to be signed by the parties and attached to the
public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to
the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay
had entered into a joint venture, which it said is akin to a
particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our
joint accounts) is a sort of informal partnership, with no firm
name and no legal personality. In a joint account, the
participating merchants can transact business under their
own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited
to a SINGLE TRANSACTION, although the business of
pursuing to a successful termination may continue for a
number of years; a partnership generally relates to a
continuing business of various transactions of a certain
kind.21
A joint venture "presupposes generally a parity of standing
between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or
property contributed, and where each party exercises equal
rights in the conduct of the business."22 Nonetheless, in

Aurbach, et. al. v. Sanitary Wares Manufacturing

Corporation, et. al.,23 we expressed the view that a joint
venture may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin.
It has no precise legal definition, but it has been generally
understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811
[1920]) It is hardly distinguishable from the partnership,
since their elements are similar community of interest in
the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498,
[1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d.
242 [1955]). The main distinction cited by most opinions in
common law jurisdiction is that the partnership
contemplates a general business with some degree of
continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary
nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947];
Gates v. Megargel 266 Fed. 811 [1920]). This observation is
not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore
that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954])
(Campos and Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the
contract of partnership itself, or the articles of partnership

but there is none. The alleged partnership, though, was

never formally organized. In addition, petitioners point out
that the New Civil Code was not yet in effect when the
partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing
prevented the parties from complying with the provisions of
the New Civil Code when it took effect on August 30, 1950.
But all that is in the past. The net effect, however, is that we
are asked to determine whether a partnership existed based
purely on circumstantial evidence. A review of the record
persuades us that the Court of Appeals correctly reversed
the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to
establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away.
Only he, aside from Tan Eng Lay, could have expounded on
the precise nature of the business relationship between
them. In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing
a partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay. It should
be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to
be considered. None of petitioners' witnesses could suitably
account for the beginnings of Benguet Lumber Company,
except perhaps for Dionisio Peralta whose deceased wife
was related to Matilde Abubo.25 He stated that when he met
Tan Eng Kee after the liberation, the latter asked the former
to accompany him to get 80 pieces of G.I. sheets supposedly
owned by both brothers.26 Tan Eng Lay, however, denied
knowledge of this meeting or of the conversation between
Peralta and his brother.27 Tan Eng Lay consistently testified
that he had his business and his brother had his, that it was
only later on that his said brother, Tan Eng Kee, came to
work for him. Be that as it may, co-ownership or co-

possession (specifically here, of the G.I. sheets) is not an

indicium of the existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the
forty years the partnership was allegedly in existence, Tan
Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and
losses.29 Each has the right to demand an accounting as
long as the partnership exists.30 We have allowed a
scenario wherein "[i]f excellent relations exist among the
partners at the start of the business and all the partners are
more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is
perfectly plausible."31 But in the situation in the case at bar,
the deferment, if any, had gone on too long to be plausible.
A person is presumed to take ordinary care of his
concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed
P20,000.00 capital. In the second place, she did not furnish
any help or intervention in the management of the theatre.
In the third place, it does not appear that she has even
demanded from defendant any accounting of the expenses
and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business
was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was absolutely
silent with respect to any of the acts that a partner should
have done; all that she did was to receive her share of
P3,000.00 a month, which cannot be interpreted in any
manner than a payment for the use of the premises which
she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of
June 17, 1945 (Exh. "A"), which shows that both parties
considered this offer as the real contract between them.33
[emphasis supplied]

A demand for periodic accounting is evidence of a

partnership.34 During his lifetime, Tan Eng Kee appeared
never to have made any such demand for accounting from
his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for

private respondents, consisting of payrolls purporting to
show that Tan Eng Kee was an ordinary employee of
Benguet Lumber, as it was then called. The authenticity of
these documents was questioned by petitioners, to the
extent that they filed criminal charges against Tan Eng Lay
and his wife and children. As aforesaid, the criminal cases
were dismissed for insufficiency of evidence. Exhibits "4" to
"4-U" in fact shows that Tan Eng Kee received sums as
wages of an employee. In connection therewith, Article 1769
of the Civil Code provides:
In determining whether a partnership exists, these rules
shall apply:

(1) Except as provided by Article 1825, persons who are

not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or
interest in any property which the returns are
derived;
(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a

partner in the business, but no such inference shall

be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or representative of
a deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill
of a business or other property by
installments or otherwise.
In the light of the aforequoted legal provision, we conclude
that Tan Eng Kee was only an employee, not a partner. Even
if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng
Kee received amounts of money allegedly representing his
share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any,
as his share in the profits of Benguet Lumber Company for
any particular period. Hence, they failed to prove that Tan
Eng Kee and Tan Eng Lay intended to divide the profits of
the business between themselves, which is one of the
essential features of a partnership.
Nevertheless, petitioners would still want us to infer or
believe the alleged existence of a partnership from this set
of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the
employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both
placed orders to the suppliers of the Benguet Lumber
Company. They also point out that the families of the
brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet
Lumber Company compound, a privilege not extended to its
ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that
the above enumerated powers and privileges granted in
favor of Tan Eng Kee, were indicative of his being a partner
in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store
gives orders and directions to his subordinates. So long,
therefore, that an employee's position is higher in rank, it is
not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom
confidence is reposed by the owner, can order materials
from suppliers for and in behalf of Benguet Lumber.
Furthermore, even a partner does not necessarily have to
perform this particular task. It is, thus, not an indication that
Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in
the lumber compound and this privilege was not accorded to
other employees, the undisputed fact remains that Tan Eng
Kee is the brother of Tan Eng Lay. Naturally, close personal
relations existed between them. Whatever privileges Tan
Eng Lay gave his brother, and which were not given the
other employees, only proves the kindness and generosity
of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was
quarreling with Tan Eng Lay in connection with the pricing of
stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential
employees and the owners of a company sometimes argue
with respect to certain matters which, in no way indicates
that they are partners as to each other.35
In the instant case, we find private respondent's arguments
to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership,

nevertheless, the collective effect of these circumstances

may be such as to support a finding of the existence of the
parties' intent.36 Yet, in the case at bench, even the
aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show
that Tan Eng Kee was involved in the operations of Benguet
Lumber, but in what capacity is unclear. We cannot discount
the likelihood that as a member of the family, he occupied a
niche above the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company
compound. He would have moral, if not actual, superiority
over his fellow employees, thereby entitling him to exercise
powers of supervision. It may even be that among his duties
is to place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to the
conclusion desired; these are not inconsistent with the
powers and duties of a manager, even in a business
organized and run as informally as Benguet Lumber
Company.

LORENZO T. OA and HEIRS OF JULIA BUALES,

namely: RODOLFO B. OA, MARIANO B. OA, LUZ B.
OA, VIRGINIA B. OA and LORENZO B. OA, JR.,
petitioners,

There being no partnership, it follows that there is no

dissolution, winding up or liquidation to speak of. Hence, the
petition must fail.

Petition for review of the decision of the Court of Tax Appeals

in CTA Case No. 617, similarly entitled as above, holding
that
petitioners have
constituted
an
unregistered
partnership and are, therefore, subject to the payment of
the deficiency corporate income taxes assessed against
them by respondent Commissioner of Internal Revenue for
the years 1955 and 1956 in the total sum of P21,891.00,
plus 5% surcharge and 1% monthly interest from December
15, 1958, subject to the provisions of Section 51 (e) (2) of
the Internal Revenue Code, as amended by Section 8 of
Republic Act No. 2343 and the costs of the suit, 1 as well as
the resolution of said court denying petitioners' motion for
reconsideration of said decision.

WHEREFORE, the petition is hereby denied, and the

appealed decision of the Court of Appeals is hereby
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

G.R. No. L-19342

May 25, 1972

vs.
THE
COMMISSIONER
respondent.

OF

INTERNAL

REVENUE,

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A. Alafriz, Assistant
Solicitor General Felicisimo R. Rosete, and Special Attorney
Purificacion Ureta for respondent.

BARREDO, J.:p

The facts are stated in the decision of the Tax Court as

follows:

Julia Buales died on March 23, 1944, leaving as heirs her

surviving spouse, Lorenzo T. Oa and her five children. In
1948, Civil Case No. 4519 was instituted in the Court of First
Instance of Manila for the settlement of her estate. Later,
Lorenzo T. Oa the surviving spouse was appointed
administrator of the estate of said deceased (Exhibit 3, pp.
34-41, BIR rec.). On April 14, 1949, the administrator
submitted the project of partition, which was approved by
the Court on May 16, 1949 (See Exhibit K). Because three of
the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed
Oa, were still minors when the project of partition was
approved, Lorenzo T. Oa, their father and administrator of
the estate, filed a petition in Civil Case No. 9637 of the Court
of First Instance of Manila for appointment as guardian of
said minors. On November 14, 1949, the Court appointed
him guardian of the persons and property of the aforenamed
minors (See p. 3, BIR rec.).

The project of partition also shows that the estate shares

equally with Lorenzo T. Oa, the administrator thereof, in the
obligation of P94,973.00, consisting of loans contracted by
the latter with the approval of the Court (see p. 3 of Exhibit
K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court
on May 16, 1949, no attempt was made to divide the
properties therein listed. Instead, the properties remained
under the management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and
investing the income derived therefrom and the proceeds
from the sales thereof in real properties and securities. As a
result, petitioners' properties and investments gradually
increased from P105,450.00 in 1949 to P480,005.20 in 1956
as can be gleaned from the following year-end balances:
Year
Investment

The project of partition (Exhibit K; see also pp. 77-70, BIR

rec.) shows that the heirs have undivided one-half (1/2)
interest in ten parcels of land with a total assessed value of
P87,860.00, six houses with a total assessed value of
P17,590.00 and an undetermined amount to be collected
from the War Damage Commission. Later, they received
from said Commission the amount of P50,000.00, more or
less. This amount was not divided among them but was
used in the rehabilitation of properties owned by them in
common (t.s.n., p. 46). Of the ten parcels of land
aforementioned, two were acquired after the death of the
decedent with money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit
3, pp. 31-34 BIR rec.).

Land
Building
Account
Account
Account
1949

P87,860.00

P17,590.00

1950
1953
P24,657.65
61,258.27
128,566.72
84,925.68
96,076.26
161,463.83
1951
1954
51,301.31
63,623.37
120,349.28
99,001.20
110,605.11
167,962.04
1952
1955
67,927.52
100,786.00
87,065.28
120,249.78
152,674.39

169,262.52

169,262.52

On the basis of the foregoing facts, respondent

(Commissioner of Internal Revenue) decided that petitioners
formed an unregistered partnership and therefore, subject to
the corporate income tax, pursuant to Section 24, in relation
to Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00 and
P13,899.00 as corporate income taxes for 1955 and 1956,
respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50
and 86, BIR rec.). Petitioners protested against the
assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered
partnership. Finding no merit in petitioners' request,
respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See
pp. 1-4, Memorandum for Respondent, June 12, 1961).

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

The original assessment was as follows:

From said investments and properties petitioners derived

such incomes as profits from installment sales of subdivided
lots, profits from sales of stocks, dividends, rentals and
interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 3738). The said incomes are recorded in the books of account
kept by Lorenzo T. Oa where the corresponding shares of
the petitioners in the net income for the year are also
known. Every year, petitioners returned for income tax
purposes their shares in the net income derived from said
properties and securities and/or from transactions involving
them (Exhibit 3, supra; t.s.n., pp. 25-26). However,
petitioners did not actually receive their shares in the yearly
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was
always left in the hands of Lorenzo T. Oa who, as heretofore
pointed out, invested them in real properties and securities.
(See Exhibit 3, t.s.n., pp. 50, 102-104).

1955

1956

175,028.68

135,714.68

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

II.
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25

Total ............................................................... P17,361.25

THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT

THE PETITIONERS WERE CO-OWNERS OF THE PROPERTIES
INHERITED
AND
(THE)
PROFITS
DERIVED
FROM
TRANSACTIONS THEREFROM (sic);

(See Exhibit 13, page 50, BIR records)

III.

Upon further consideration of the case, the 25% surcharge

was eliminated in line with the ruling of the Supreme Court
in Collector v. Batangas Transportation Co., G.R. No. L-9692,
Jan. 6, 1958, so that the questioned assessment refers solely
to the income tax proper for the years 1955 and 1956 and
the "Compromise for non-filing," the latter item obviously
referring to the compromise in lieu of the criminal liability for
failure of petitioners to file the corporate income tax returns
for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3,
Annex C to Petition)

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT

PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES
FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

Compromise for non-filing .......................... 50.00

Petitioners have assigned the following as alleged errors of

the Tax Court:

IV.

ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED

AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX
APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS
WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT
ONLY THAT THEY INVESTED THE PROFITS FROM THE
PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED
USING
THE
INHERITED
PROPERTIES
AS
COLLATERALS;

I.
V.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED

PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
DEDUCTING THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR
RESPECTIVE SHARES OF THE PROFITS ACCRUING FROM THE
PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY
TAX OF THE UNREGISTERED PARTNERSHIP.

In other words, petitioners pose for our resolution the

following questions: (1) Under the facts found by the Court
of Tax Appeals, should petitioners be considered as coowners of the properties inherited by them from the
deceased Julia Buales and the profits derived from
transactions involving the same, or, must they be deemed
to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal
Revenue Code? (2) Assuming they have formed an
unregistered partnership, should this not be only in the
sense that they invested as a common fund the profits
earned by the properties owned by them in common and the
loans granted to them upon the security of the said
properties, with the result that as far as their respective
shares in the inheritance are concerned, the total income
thereof should be considered as that of co-owners and not of
the unregistered partnership? And (3) assuming again that
they are taxable as an unregistered partnership, should not
the various amounts already paid by them for the same
years 1955 and 1956 as individual income taxes on their
respective shares of the profits accruing from the properties
they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such
unregistered partnership by the respondent Commissioner?

Pondering on these questions, the first thing that has struck

the Court is that whereas petitioners' predecessor in interest
died way back on March 23, 1944 and the project of
partition of her estate was judicially approved as early as
May 16, 1949, and presumably petitioners have been
holding their respective shares in their inheritance since
those dates admittedly under the administration or
management of the head of the family, the widower and
father Lorenzo T. Oa, the assessment in question refers to
the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years
1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership. At
least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case,
and We see no reason how it could be otherwise, it is easily
understandable why petitioners' position that they are coowners and not unregistered co-partners, for the purposes
of the impugned assessment, cannot be upheld. Truth to tell,
petitioners should find comfort in the fact that they were not
similarly assessed earlier by the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the

estate of the deceased among themselves pursuant to the
project of partition approved in 1949, "the properties
remained under the management of Lorenzo T. Oa who
used said properties in business by leasing or selling them
and investing the income derived therefrom and the proceed
from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily
increased yearly from P87,860.00 in "land account" and
P17,590.00 in "building account" in 1949 to P175,028.68 in
"investment account," P135.714.68 in "land account" and
P169,262.52 in "building account" in 1956. And all these

became possible because, admittedly, petitioners never

actually received any share of the income or profits from
Lorenzo T. Oa and instead, they allowed him to continue
using said shares as part of the common fund for their
ventures, even as they paid the corresponding income taxes
on the basis of their respective shares of the profits of their
common business as reported by the said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to

their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that
during the material years herein involved, some of the said
properties were sold at considerable profit, and that with
said profit, petitioners engaged, thru Lorenzo T. Oa, in the
purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were
divided among petitioners proportionately in accordance
with their respective shares in the inheritance. In these
circumstances, it is Our considered view that from the
moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as a
common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared
by them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect,
they thereby formed an unregistered partnership within the
purview of the above-mentioned provisions of the Tax Code.

It is but logical that in cases of inheritance, there should be

a period when the heirs can be considered as co-owners
rather
than
unregistered
co-partners
within
the
contemplation of our corporate tax laws aforementioned.
Before the partition and distribution of the estate of the

deceased, all the income thereof does belong commonly to

all the heirs, obviously, without them becoming thereby
unregistered co-partners, but it does not necessarily follow
that such status as co-owners continues until the
inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to
continue holding said shares under the common
management of the administrator or executor or of anyone
chosen by them and engage in business on that basis.
Withal, if this were to be allowed, it would be the easiest
thing for heirs in any inheritance to circumvent and render
meaningless Sections 24 and 84(b) of the National Internal
Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it

was stated, among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes, that
their common fund "was not something they found already
in existence" and that "it was not a property inherited by
them pro indiviso," but it is certainly far fetched to argue
therefrom, as petitioners are doing here, that ergo, in all
instances where an inheritance is not actually divided, there
can be no unregistered co-partnership. As already indicated,
for tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership
the moment the said common properties and/or the incomes
derived therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or
intestate proceeding. The reason for this is simple. From the
moment of such partition, the heirs are entitled already to
their respective definite shares of the estate and the
incomes thereof, for each of them to manage and dispose of

as exclusively his own without the intervention of the other

heirs, and, accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition, he
allows his share to be held in common with his co-heirs
under a single management to be used with the intent of
making profit thereby in proportion to his share, there can
be no doubt that, even if no document or instrument were
executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what
happened to petitioners in this case.

In this connection, petitioners' reliance on Article 1769,

paragraph (3), of the Civil Code, providing that: "The sharing
of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or
common right or interest in any property from which the
returns are derived," and, for that matter, on any other
provision of said code on partnerships is unavailing. In
Evangelista, supra, this Court clearly differentiated the
concept of partnerships under the Civil Code from that of
unregistered partnerships which are considered as
"corporations" under Sections 24 and 84(b) of the National
Internal Revenue Code. Mr. Justice Roberto Concepcion, now
Chief Justice, elucidated on this point thus:

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 confirmity with the usual
requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "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 co-partnerships"
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." ....
xxx

xxx

xxx

Similarly, the American Law

... provides its own concept of a partnership. Under the term
"partnership" it includes not only a partnership as known in
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; emphasis 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; emphasis 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.

We reiterated this view, thru Mr. Justice Fernando, in Reyes

vs. Commissioner of Internal Revenue, G. R. Nos. L-2402021, July 29, 1968, 24 SCRA 198, wherein the Court ruled
against a theory of co-ownership pursued by appellants
therein.

As regards the second question raised by petitioners about

the segregation, for the purposes of the corporate taxes in
question, of their inherited properties from those acquired
by them subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for
reconsideration:

In connection with the second ground, it is alleged that, if

there was an unregistered partnership, the holding should
be limited to the business engaged in apart from the
properties inherited by petitioners. In other words, the
taxable income of the partnership should be limited to the
income derived from the acquisition and sale of real
properties and corporate securities and should not include
the income derived from the inherited properties. It is

admitted that the inherited properties and the income

derived therefrom were used in the business of buying and
selling other real properties and corporate securities.
Accordingly, the partnership income must include not only
the income derived from the purchase and sale of other
properties but also the income of the inherited properties.

Besides, as already observed earlier, the income derived

from inherited properties may be considered as individual
income of the respective heirs only so long as the
inheritance or estate is not distributed or, at least,
partitioned, but the moment their respective known shares
are used as part of the common assets of the heirs to be
used in making profits, it is but proper that the income of
such shares should be considered as the part of the taxable
income of an unregistered partnership. This, We hold, is the
clear intent of the law.

Likewise, the third question of petitioners appears to have

been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion for
reconsideration of the decision of said court. Pertinently, the
court ruled this wise:

In support of the third ground, counsel for petitioners

alleges:

Even if we were to yield to the decision of this Honorable

Court that the herein petitioners have formed an
unregistered partnership and, therefore, have to be taxed as
such, it might be recalled that the petitioners in their
individual income tax returns reported their shares of the

profits of the unregistered partnership. We think it only fair

and equitable that the various amounts paid by the
individual petitioners as income tax on their respective
shares of the unregistered partnership should be deducted
from the deficiency income tax found by this Honorable
Court against the unregistered partnership. (page 7,
Memorandum for the Petitioner in Support of Their Motion
for Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the

taxable income of the partnership must be reduced by the
amounts of income tax paid by each petitioner on his share
of partnership profits. This is not correct; rather, it should be
the other way around. The partnership profits distributable
to the partners (petitioners herein) should be reduced by the
amounts of income tax assessed against the partnership.
Consequently, each of the petitioners in his individual
capacity overpaid his income tax for the years in question,
but the income tax due from the partnership has been
correctly assessed. Since the individual income tax liabilities
of petitioners are not in issue in this proceeding, it is not
proper for the Court to pass upon the same.

Petitioners insist that it was error for the Tax Court to so rule
that whatever excess they might have paid as individual
income tax cannot be credited as part payment of the taxes
herein in question. It is argued that to sanction the view of
the Tax Court is to oblige petitioners to pay double income
tax on the same income, and, worse, considering the time
that has lapsed since they paid their individual income
taxes, they may already be barred by prescription from
recovering their overpayments in a separate action. We do
not agree. As We see it, the case of petitioners as regards
the point under discussion is simply that of a taxpayer who

has paid the wrong tax, assuming that the failure to pay the
corporate taxes in question was not deliberate. Of course,
such taxpayer has the right to be reimbursed what he has
erroneously paid, but the law is very clear that the claim and
action for such reimbursement are subject to the bar of
prescription. And since the period for the recovery of the
excess income taxes in the case of herein petitioners has
already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the
delay is precisely because the taxpayers failed to make the
proper return and payment of the corporate taxes legally
due from them. In principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons who are not
exactly above suspicion in their conduct vis-a-vis their tax
obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court
of Tax Appeals appealed from is affirm with costs against
petitioners.

G.R. No. L-68118

October 29, 1985

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.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:

This case is about the income tax liability of four brothers

and sisters who sold two parcels of land which they had
acquired from their father.

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 coowners 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 fiveyear 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.

Not only that. 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 is taxable) and required them
to pay deficiency income taxes aggregating P56,707.20
including the 50% fraud surcharge and the accumulated
interest.

Thus, the petitioners are being held liable for deficiency

income taxes and penalties totalling P127,781.76 on their
profit of P134,336, in addition to the tax on capital gains
already paid by them.

The Commissioner acted on the theory that the four

petitioners had formed an unregistered partnership or joint
venture within the meaning of sections 24(a) and 84(b) of
the Tax Code (Collector of Internal Revenue vs. Batangas
Trans. Co., 102 Phil. 822).

The petitioners contested the assessments. Two Judges of

the Tax Court sustained the same. Judge Roaquin dissented.
Hence, the instant appeal.

We hold that it is error to consider the petitioners as having

formed a partnership under article 1767 of the Civil Code
simply because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit
among themselves.

To regard the petitioners as having formed a taxable

unregistered partnership would result in oppressive taxation

and confirm the dictum that the power to tax involves the
power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention.

They were co-owners pure and simple. To consider them as
partners would obliterate the distinction between a coownership 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. Castan Tobeas says:

Como establecer el deslinde entre la comunidad ordinaria o

copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizadaesta: por razon del origen, en que la sociedad presupone
necesariamente la convencion, mentras que la comunidad
puede existir y existe ordinariamente sin ela; y por razon del
fin objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es solo mantener en su
integridad la cosa comun y favorecer su conservacion.

Reflejo de este criterio es la sentencia de 15 de Octubre de

1940, en la que se dice que si en nuestro Derecho positive
se ofrecen a veces dificultades al tratar de fijar la linea
divisoria entre comunidad de bienes y contrato de sociedad,
la moderna orientacion de la doctrina cientifica seala como
nota fundamental de diferenciacion aparte del origen de
fuente de que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun partible en la
sociedad, y mera conservacion y aprovechamiento en la
comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed.,
1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing

of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or
common right or interest in any property from which the
returns are derived". There must be an unmistakable
intention to form a partnership or joint venture.*

Such intent was present in Gatchalian vs. Collector of

Internal Revenue, 67 Phil. 666, where 15 persons
contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would
divide the prize The ticket won the third prize of P50,000.
The 15 persons were held liable for income tax as an
unregistered partnership.

The instant case is distinguishable from the cases where the

parties engaged in joint ventures for profit. Thus, in Oa vs.

** This view is supported by the following rulings of

respondent Commissioner:

Co-owership distinguished from partnership.We find that

the case at bar is fundamentally similar to the De Leon case.
Thus, like the De Leon heirs, the Longa heirs inherited the
'hacienda' in question pro-indiviso from their deceased
parents; they did not contribute or invest additional ' capital
to increase or expand the inherited properties; they merely
continued dedicating the property to the use to which it had
been put by their forebears; they individually reported in
their tax returns their corresponding shares in the income
and expenses of the 'hacienda', and they continued for
many years the status of co-ownership in order, as
conceded by respondent, 'to preserve its (the 'hacienda')
value and to continue the existing contractual relations with
the Central Azucarera de Bais for milling purposes. Longa vs.
Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.

Co-Ownership who own properties which produce income
should not automatically be considered partners of an
unregistered partnership, or a corporation, within the
purview of the income tax law. To hold otherwise, would be
to subject the income of all
co-ownerships of inherited properties to the tax on
corporations, inasmuch as if a property does not produce an
income at all, it is not subject to any kind of income tax,
whether the income tax on individuals or the income tax on
corporation. (De Leon vs. CI R, CTA Case No. 738,
September 11, 1961, cited in Araas, 1977 Tax Code
Annotated, Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972,

45 SCRA 74, where after an extrajudicial settlement the coheirs used the inheritance or the incomes derived therefrom
as a common fund to produce profits for themselves, it was
held that they were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of

Internal Revenue, 24 SCRA 198, where father and son
purchased a lot and building, entrusted the administration of
the building to an administrator and divided equally the net
income, and from Evangelista vs. Collector of Internal
Revenue, 102 Phil. 140, where the three Evangelista sisters
bought four pieces of real property which they leased to
various tenants and derived rentals therefrom. Clearly, the
petitioners in these two cases had formed an unregistered
partnership.

In the instant case, what the Commissioner should have

investigated was whether the father donated the two lots to
the petitioners and whether he paid the donor's tax (See Art.
1448, Civil Code). We are not prejudging this matter. It
might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and

set aside. The assessments are cancelled. No costs.

SO ORDERED.