Article 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. (1665a)THIRD DIVISION[G.R. No. 112675.January 25, 1999]AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION; CHARTER INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION; COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE CO., INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION; DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES; EASTERN ASSURANCE COMPANY & SURETY CORP.; EMPIRE INSURANCE COMPANY; EQUITABLE INSURANCE CORPORATION; FEDERAL INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION; FIDELITY & SURETY COMPANY OF THE PHILS., INC.;FILIPINO MERCHANTS INSURANCE CO., INC.; GOVERNMENT SERVICE INSURANCE SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE CO., INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN INSURANCE COMPANY; METRO-TAISHO INSURANCE CORPORATION; NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE CORPORATION; PARAMOUNT INSURANCECORPORATION; PEOPLES TRANS-EAST ASIA INSURANCE CORPORATION; PERLACOMPANIA DE SEGUROS, INC.; PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE CO., INC.; PIONEER INSURANCE & SURETY CORP.; PIONEER INTERCONTINENTAL INSURANCE CORPORATION; PROVIDENT INSURANCE COMPANY OF THE PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY & INSURANCE COMPANY; RIZAL SURETY & INSURANCE COMPANY; SANPIRO INSURANCE CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.;SOLID GUARANTY, INC.; SOUTH SEA SURETY & INSURANCE CO., INC.; STATE BONDING& INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION;TABACALERA INSURANCE CO., INC.all assessed as POOL OF MACHINERYINSURERS,petitioners, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,respondents.D E C I S I O NPANGANIBAN,J.:Pursuant to reinsurance treaties, a number of local insurance firms formed themselves into a pool in order to facilitate the handling of business contracted with a nonresident foreign reinsurance company.May the clearing house or insurance pool so formed be deemed a partnership or an association that is taxable as a corporation under the National Internal Revenue Code (NIRC)?Should the pools remittances to the member companies and to the said foreign firm be taxable as dividends?Under the facts of this case, has the governments right to assess and collect said tax prescribed?The CaseThese are the main questions raised in the Petition for Review onCertioraribefore us, assailing the October 11, 1993 Decision[1]of the Court of Appeals[2]in CA-GR SP 29502, which dismissed petitioners appeal of the October 19, 1992 Decision[3]of the Court of Tax Appeals[4](CTA) which had previously sustained petitioners liability for deficiency income tax, interest and withholding tax.The Court of Appeals ruled:WHEREFORE, the petition is DISMISSED, with costs against petitioners.[5]The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution[6]denying reconsideration.The FactsThe antecedent facts,[7]as found by the Court of Appeals, are as follows:The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the Philippines.Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and ContractorsAll Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation.The reinsurance treaties required petitioners to form a [p]ool.Accordingly, a pool composed of the petitioners was formed on the same day.On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an Information Return of Organization Exempt from Income Tax for the year ending in 1975, on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount ofP1,843,273.60, and withholding taxes in the amount ofP1,768,799.39 andP89,438.68 on dividends paid to Munich and to the petitioners, respectively.These assessments were protested by the petitioners through its auditors Sycip, Gorres, Velayo and Co.On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiency income tax, interest, and with[h]oldingtax, itemized as follows:Net income per informationreturnP3,737,370.00===========Income tax due thereonP1,298,080.00Add: 14% Int. fr. 4/15/76to 4/15/79545,193.60TOTAL AMOUNT DUE &P1,843,273.60COLLECTIBLE===========Dividend paid to MunichReinsurance CompanyP3,728,412.00===========35% withholding tax atsource due thereonP1,304,944.20Add: 25% surcharge326,236.0514% interest from1/25/76 to 1/25/79137,019.14Compromise penalty-non-filing of return300.00late payment300.00TOTAL AMOUNT DUE &P1,768,799.39COLLECTIBLE===========Dividend paid to Pool MembersP655,636.00===========10% withholding tax atsource due thereonP65,563.60Add: 25% surcharge16,390.9014% interest from1/25/76 to 1/25/796,884.18Compromise penalty-non-filing of return300.00late payment300.00TOTAL AMOUNT DUE &P89,438.68COLLECTIBLE===========[8]The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a corporation, and that the latters collection of premiums on behalf of its members, the ceding companies, was taxable income.It added that prescription did not bar the Bureau of Internal Revenue (BIR) from collecting the taxes due, because the taxpayer cannot be located at the address given in the information return filed.Hence, this Petition for Review before us.[9]The IssuesBefore this Court, petitioners raise the following issues:1.Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions, and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation;2.Whether or not the remittances to petitioners and MUNICHRE of their respective shares of reinsurance premiums, pertaining to their individual and separate contracts of reinsurance, were dividends subject to tax; and3.Whether or not the respondent Commissioners right to assess the Clearing House had already prescribed.[10]The Courts RulingThe petition is devoid of merit.We sustain the ruling of the Court of Appeals that the pool is taxable as a corporation, and that the governments right to assess and collect the taxes had not prescribed.First Issue:Pool Taxable as a CorporationPetitioners contend that the Court of Appeals erred in finding that the pool or clearing house was an informal partnership, which was taxable as a corporation under the NIRC.They point out that the reinsurance policies were written by them individually and separately, and that their liability was limited to the extent of their allocated share in the original risks thus reinsured.[11]Hence, the pool did not act or earn income as a reinsurer.[12]Its role was limited to its principal function of allocating and distributing the risk(s) arising from the original insurance among the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions, such as records, maintenance, collection and custody of funds, etc.[13]Petitioners belie the existence of a partnership in this case, because(1) they, the reinsurers, did not share the same risk or solidary liability;[14](2)there was no common fund;[15](3)the executive board of the pool did not exercise control and management of its funds, unlike the board of directors of a corporation;[16]and(4)the pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself.[17]The Court is not persuaded.The opinion or ruling of the Commission of Internal Revenue, the agency tasked with the enforcement oftaxlaws,is accorded much weight and even finality, when there is no showing that it is patently wrong,[18]particularly in this case where the findings and conclusions of the internal revenue commissioner were subsequently affirmed by the CTA, a specialized body created for the exclusive purpose of reviewing tax cases, and the Court of Appeals.[19]Indeed,[I]t has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority.[20]This Court rules that the Court of Appeals, in affirming the CTA which had previously sustained the internal revenue commissioner, committed no reversible error.Section 24 of the NIRC, as worded in the year ending 1975, provides:SEC. 24.Rate of tax on corporations.--(a)Tax on domestic corporations.--A tax is hereby imposed upon the taxable net income received during each taxable year from all sourcesby every corporation organized in, or existing under thelaws of the Philippines, no matter how created or organized,butnotincludingdulyregisteredgeneralco-partnership (compaias colectivas), general professional partnerships, private educational institutions, and building and loan associations xxx.Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations.Parenthetically, the NLRCs inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997,[21]which amended the Tax Code.Pertinent provisions of the new law read as follows:SEC. 27.Rates of Income Tax on Domestic Corporations.--(A)In General.--Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as a corporation xxx.SEC. 22.--Definition.--When used in this Title:xxxxxxxxx(B)The termcorporationshall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not include general professional partnerships [or] a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract without the Government.General professional partnershipsare partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.xxxxxxxxx."Thus, the Court inEvangelista v. Collector of Internal Revenue[22]held that Section 24 covered these unregistered partnerships and even associations or joint accounts, which had no legal personalities apart from their individual members.[23]The Court of Appeals astutely appliedEvangelista:[24]xxx Accordingly, a pool of individual real property owners dealing in real estate business was considered a corporation for purposes of the tax in sec. 24 of the Tax Code inEvangelista v. Collector of Internal Revenue, supra.The Supreme Court said: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 Mertens Law of Federal Income Taxation, p. 562 Note 63)Article 1767 of the Civil Code recognizes the creation of a contract of partnership when 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.[25]Its requisites are:(1)mutual contribution to a common stock, and(2)a joint interest in the profits.[26]In other words, a partnership is formed when persons contract to devote to a common purpose either money, property, or labor with the intention of dividing the profits between themselves.[27]Meanwhile, an association implies associates who enter into a joint enterprise x x x for the transaction of business.[28]In the case before us, the ceding companies entered into a Pool Agreement[29]or an association[30]that would handle all the insurance businesses covered under their quota-share reinsurance treaty[31]and surplus reinsurance treaty[32]with Munich.The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC:(1)The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool.[33]This common fund pays for the administration and operation expenses of the pool.[34](2)The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies.[35](3)True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums.The ceding companies share in the business ceded to the pool and in the expenses according to a Rules of Distribution annexed to the Pool Agreement.[36]Profit motive or business is, therefore, the primordial reason for the pools formation.As aptly found by the CTA:xxx The fact that the pool does not retain any profit or income does not obliterate an antecedent fact, that of the pool being used in the transaction of business for profit.It is apparent, and petitioners admit, that their association or coaction was indispensable [to] the transaction of the business.x x x If together they have conducted business, profit must have been the object as, indeed, profit was earned.Though the profit was apportioned among the members, this is only a matter of consequence, as it implies that profit actually resulted.[37]The petitioners reliance onPascual v. Commissioner[38]is misplaced, because the facts obtaining therein are not on all fours with the present case.InPascual,there was no unregistered partnership, but merely a co-ownership which took up only two isolated transactions.[39]The Court of Appeals did not err in applyingEvangelista,which involved a partnership that engaged in a series of transactions spanning more than ten years, as in the case before us.Second Issue:Pools Remittances Are TaxablePetitioners further contend that the remittances of the pool to the ceding companies and Munich are not dividends subject to tax.They insist that taxing such remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and would be tantamount to an illegal double taxation, as it would result in taxing the same premium income twice in the hands of the same taxpayer.[40]Moreover, petitioners argue that since Munich was not a signatory to the Pool Agreement, the remittances it received from the pool cannot be deemed dividends.[41]They add that even if such remittances were treated as dividends, they would have been exempt under the previously mentioned sections of the 1977 NIRC,[42]as well as Article 7 of paragraph 1[43]and Article 5 of paragraph 5[44]of the RP-West German Tax Treaty.[45]Petitioners are clutching at straws.Double taxation means taxing the same property twice when it should be taxed only once.That is, xxx taxing the same person twice by the same jurisdiction for the same thing.[46]In the instant case, the pool is a taxable entity distinct from the individual corporate entities of the ceding companies.The tax on itsincomeis obviously different from the tax on thedividendsreceived by the said companies.Clearly, there is no double taxation here.The tax exemptions claimed by petitioners cannot be granted, since their entitlement thereto remains unproven and unsubstantiated.It is axiomatic in the law of taxation that taxes are the lifeblood of the nation.Hence, exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right.[47]Petitioners have failed to discharge this burden of proof.The sections of the 1977 NIRC which they cite are inapplicable, because these were not yet in effect when the income was earned and when the subject information return for the year ending 1975 was filed.Referring to the 1975 version of the counterpart sections of the NIRC, the Court still cannot justify the exemptions claimed.Section 255 provides that no tax shall xxx be paid upon reinsurance by any company that has already paid the tax xxx.This cannot be applied to the present case because, as previously discussed, the pool is a taxable entity distinct from the ceding companies; therefore, the latter cannot individually claim the income tax paid by the former as their own.On the other hand, Section 24 (b) (1)[48]pertains to tax on foreign corporations; hence, it cannot be claimed by the ceding companies which are domestic corporations.Nor can Munich, a foreign corporation, be granted exemption based solely on this provision of the Tax Code, because the same subsection specifically taxesdividends,the type of remittances forwarded to it by the pool.Although not a signatory to the Pool Agreement, Munich is patently an associate of the ceding companies in the entity formed, pursuant to their reinsurance treaties which required the creation of said pool.Under its pool arrangement with the ceding companies, Munich shared in their income and loss.This is manifest from a reading of Articles 3[49]and 10[50]of the Quota Share Reinsurance Treaty and Articles 3[51]and 10[52]of the Surplus Reinsurance Treaty.The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be construedstrictissimi juris,and the statutory exemption claimed must be expressed in a language too plain to be mistaken.[53]Finally, the petitioners claim that Munich is tax-exempt based on the RP-West German Tax Treaty is likewise unpersuasive, because the internal revenue commissioner assessed the pool for corporate taxes on the basis of the information return it had submitted for the year ending 1975, a taxable year when said treaty was not yet in effect.[54]Although petitioners omitted in their pleadings the date of effectivity of the treaty, the Court takes judicial notice that it took effect only later, on December 14, 1984.[55]Third Issue:PrescriptionPetitioners also argue that the governments right to assess and collect the subject tax had prescribed.They claim that the subject information return was filed by the pool on April 14, 1976. On the basis of this return, the BIR telephoned petitioners on November 11, 1981, to give them notice of its letter of assessment dated March 27, 1981.Thus, the petitioners contend that the five-year statute of limitations then provided in the NIRC had already lapsed, and that the internal revenue commissioner was already barred by prescription from making an assessment.[56]We cannot sustain the petitioners.The CA and the CTA categorically found that the prescriptive period was tolled under thenSection 333 of the NIRC,[57]because the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment.[58]Indeed, whether the governments right to collect and assess the tax has prescribed involves facts which have been ruled upon by the lower courts.It is axiomatic that in the absence of a clear showing of palpable error or grave abuse of discretion, as in this case, this Court must not overturn the factual findings of the CA and the CTA.Furthermore, petitioners admitted in their Motion for Reconsideration before the Court of Appeals that the pool changed its address,for they stated that the pools information return filed in 1980 indicated therein its present address.The Court finds that this falls short of the requirement of Section 333 of the NIRC for the suspension of the prescriptive period.The law clearly states that the said period will be suspended only if the taxpayer informs the Commissioner of Internal Revenue of any change in the address.WHEREFORE, the petition isDENIED.The Resolutions of the Court of Appeals dated October 11, 1993 and November 15, 1993 are herebyAFFIRMED.Costs against petitioners.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISIONG.R. No. 136448 November 3, 1999LIM TONG LIM,petitioner,vs.PHILIPPINE FISHING GEAR INDUSTRIES, INC.,respondent.PANGANIBAN,J.:A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.The CaseIn the Petition for Review onCertioraribefore us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV41477,1which disposed as follows:WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.2The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:WHEREFORE, the Court rules:1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement;b. 12% interestper annumcounted from date of plaintiff's invoices and computed on their respective amounts as follows:i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court;d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);e. Cost of suit.With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.SO ORDERED.3The FactsOn behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.4The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.5On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.6The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000.7On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.8The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three9in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.10The Compromise Agreement provided:a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.11The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss.21Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.Ruling of the Court of AppealsIn affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code).13Hence, petitioner brought this recourse before this Court.14The IssuesIn his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS.In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.This Court's RulingThe Petition is devoid of merit.First and Second Issues:Existence of a Partnershipand Petitioner's LiabilityIn arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership the fishing boatF/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:Art. 1767 By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings:15(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yao's partner;(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, theFB Lourdesand theFB Nelsonfor the sum of P3.35 million;(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao;(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua'sFB Lady Anne MelandYao's FBTracy to Lim Tong Lim.(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership.Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them.We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule.16In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.Compromise AgreementNot the Sole Basis of PartnershipPetitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution.A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement.Petitioner Was a Partner,Not a LessorWe are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, includingF/B Lourdeswhere the nets were found.His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt ofChua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil thatF/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.Corporation by EstoppelPetitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree.Sec. 21 of the Corporation Code of the Philippines provides:Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof:Provided however,That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent.17The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits.On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner should be held jointly18liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.Unquestionably, petitioner benefited from the use of the nets found insideF/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court inAlonso v.Villamor:19A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.Third Issue:Validity of AttachmentFinally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed,F/B Lourdeswas an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.SO ORDERED.

Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. L-45425 April 29, 1939JOSE GATCHALIAN, ET AL.,plaintiffs-appellants,vs.THE COLLECTOR OF INTERNAL REVENUE,defendant-appellee.Guillermo B. Reyes for appellants.Office of the Solicitor-General Tuason for appellee.IMPERIAL,J.:The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of P1,863.44, with legal interest thereon, which they paid under protest by way of income tax. They appealed from the decision rendered in the case on October 23, 1936 by the Court of First Instance of the City of Manila, which dismissed the action with the costs against them.The case was submitted for decision upon the following stipulation of facts:Come now the parties to the above-mentioned case, through their respective undersigned attorneys, and hereby agree to respectfully submit to this Honorable Court the case upon the following statement of facts:1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector of Internal Revenue of the Philippines;2. That 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:1. Jose Gatchalian ....................................................................................................P0.18

2. Gregoria Cristobal ................................................................................................18

3. Saturnina Silva .....................................................................................................08

4. Guillermo Tapia ....................................................................................................13

5. Jesus Legaspi .......................................................................................................15

6. Jose Silva ..............................................................................................................07

7. Tomasa Mercado .................................................................................................08

8. Julio Gatchalian ....................................................................................................13

9. Emiliana Santiago .................................................................................................13

10. Maria C. Legaspi ................................................................................................16

11. Francisco Cabral ................................................................................................13

12. Gonzalo Javier .....................................................................................................14

13. Maria Santiago ....................................................................................................17

14. Buenaventura Guzman .......................................................................................13

15. Mariano Santos ..................................................................................................14

Total ........................................................................................................2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary course of business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of Jose Gatchalian and Company;4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding check covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose Gatchalian & Company against the Philippine National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian & Company;5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to file the corresponding income tax return covering the prize won by Jose Gatchalian & Company and that on December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit A and made a part hereof;6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof;7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of which marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the income tax to which reply there were enclosed fifteen (15) separate individual income tax returns filed separately by each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to D-15, respectively, in order of their names listed in the caption of this case and made parts hereof; a statement of sale signed by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover up the attached and marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part thereof;8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to pay the said tax;9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant, notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit I is enclosed and made a part hereof;10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof, and requested defendant that plaintiffs be allowed to pay under protest the balance of the tax and penalties by monthly installments;11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject to the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt payment of each installments as it becomes due;12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments at the rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935;13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of P602.51, a copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated August 1, 1935 overruled the protest and denied the request for refund of the plaintiffs;14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the terms and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which is attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935;15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance of the income tax and penalties demanded by defendant as evidenced by income tax receipt No. 35811 which is attached and marked Exhibit N and made a part hereof; and that on September 3, 1936, the plaintiffs formally protested to the defendant against the payment of said amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made part hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund thereof; copy of which is attached and marked Exhibit P and made a part hereof; and16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant refused and still refuses to refund the said amount notwithstanding the plaintiffs' demands.17. The parties hereto reserve the right to present other and additional evidence if necessary.Exhibit E referred to in the stipulation is of the following tenor:To whom it may concern:I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated below and the part of may share remaining is also shown to wit:PurchaserAmountAddress

1. Mariano Santos ...........................................P0.14Pulilan, Bulacan.

2. Buenaventura Guzman ................................13- Do -

3. Maria Santiago .............................................17- Do -

4. Gonzalo Javier ...............................................14- Do -

5. Francisco Cabral ...........................................13- Do -

6. Maria C. Legaspi ...........................................16- Do -

7. Emiliana Santiago ..........................................13- Do -

8. Julio Gatchalian .............................................13- Do -

9. Jose Silva .......................................................07- Do -

10. Tomasa Mercado ........................................08- Do -

11. Jesus Legaspi ..............................................15- Do -

12. Guillermo Tapia ............................................13- Do -

13. Saturnina Silva .............................................08- Do -

14. Gregoria Cristobal ........................................18- Do -

15. Jose Gatchalian .............................................18- Do -

2.00Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of whatever prize that might be won by said ticket.Pulilan, Bulacan, P.I.(Sgd.) JOSE GATCHALIANAnd a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.NameExhibitNo.PurchasePricePriceWonExpensesNetprize

1. Jose Gatchalian ..........................................D-1P0.18P4,425P 4803,945

2. Gregoria Cristobal ......................................D-2.184,5752,0002,575

3. Saturnina Silva .............................................D-3.081,8753601,515

4. Guillermo Tapia ..........................................D-4.133,3253602,965

5. Jesus Legaspi by Maria Cristobal .........D-5.153,8257203,105

6. Jose Silva ....................................................D-6.081,8753601,515

7. Tomasa Mercado .......................................D-7.071,8753601,515

8. Julio Gatchalian by Beatriz Guzman .......D-8.133,1502402,910

9. Emiliana Santiago ......................................D-9.133,3253602,965

10. Maria C. Legaspi ......................................D-10.164,1009603,140

11. Francisco Cabral ......................................D-11.133,3253602,965

12. Gonzalo Javier ..........................................D-12.143,3253602,965

13. Maria Santiago ..........................................D-13.174,3503603,990

14. Buenaventura Guzman ...........................D-14.133,3253602,965

15. Mariano Santos ........................................D-15.143,3253602,965

2.0050,000

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

FIRST DIVISION

[G.R. No. 31057. September 7, 1929.]

ADRIANO ARBES ET AL.,Plaintiffs-Appellees, v. VICENTE POLISTICO ET AL.,Defendants-Appellants.

Marcelino Lontok and Manuel de la Rosa forAppellants.

Sumulong & Lavides forAppellees.

SYLLABUS1. UNLAWFUL PARTNERSHIPS; "TURNUHAN POLISTICO & CO.;" CHARITABLE INSTITUTIONS. The partnership "Turnuhan Polistico & Co." is an unlawful partnership (U. S. v. Baguio, 39 Phil., 962). According to paragraph 2 of article 1666 of the Civil Code, when an unlawful partnership is judicially dissolved, the earnings shall not be disposed of as profits, but shall be given to charitable institutions. But in a case like the one at bar, whose object is to determine the rights of the parties, and to liquidate the unlawful partnership, no charitable institution should be included as defendant, as the appellants contend, because it is not a necessary party to the case.

2. ID.; ACTION TO OBTAIN PROFITS OF UNLAWFUL PARTNERSHIP. Said article 1666 of the Civil Code allows no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence, as a result of the business in which it was engaged; because for that purpose the partner will have to base his action on the partnership contract which is null and without legal existence by reason of its unlawful object, and it is self-evident that what does not exist cannot be a cause of action.

D E C I S I O N

VILLAMOR,J.:

This is an action to bring about a liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer, directors and secretary of said association.

It is well to remember that this case is now brought before the consideration of this court for the second time. The first time was when the same plaintiffs appealed from the order of the court below sustaining the defendants demurrer, and requiring the former to amend their complaint within a certain period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and to enforce an accounting for money and property in their possession, it is not necessary that all members of the association be made parties to the action. (Borlasa v. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both parties amended, respectively, their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditors Office, commissioner to examine all the books, documents and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present.

The commissioner rendered his report, which is attached to the record, with the following resume:chanrob1es virtual 1aw library

Income:chanrob1es virtual 1aw library

Members shares P97,263.70

Credits paid 6,196.55

Interest received 4,569.45

Miscellaneous 1,891.00

P109,620.70

Expenses:chanrob1es virtual 1aw library

Premiums to members 68,146.25

Loans on real-estate security 9,827.00

Loans on promissory notes 4,258.55

Salaries 1,095.00

Miscellaneous 1,686.108

85,012.90

Cash on hand 24,607.80

The defendants objected to the commissioners report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of said association represented by said plaintiffs, with costs against the defendants.

The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to two points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants; (2) that the objection to the commissioners report should have been admitted by the court below.

As to the first point, the decision in the case of Borlasa v. Polistico, supra, must be followed.

With regard to the second point, despite the praiseworthy efforts of the attorney for the defendants, we are of opinion that, the trial court having examined all the evidence touching the grounds for the objection and having found that they had been explained away in the commissioners report, the conclusion reached by the court below, accepting and adopting the findings of fact contained in said report, and especially those referring to the disposition of the associations money, should not be disturbed.

In Tan Diangseng Tan Siu Pic v. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of fact made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis, when approved by the court, as findings made by the judge himself. And in Kriedt v. E.C. McCullough & Co. (37 Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court, to render judgment in accordance with the report of the referee unless the court shall for cause shown set aside the report or recommit it to the referee. This provision places upon the litigant parties the duty of discovering and exhibiting to the court any error that may be contained therein." The appellants stated the grounds for their objection. The trial court examined the evidence and the commissioners report, and accepted the findings of fact made in the report. We find no convincing argument in the appellants brief to justify a reversal of the trial courts conclusion admitting the commissioners findings.

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U. S. v. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides:jgc:chanrobles.com.ph

"A partnership must have a lawful object, and must be established for the common benefit of the partners.

"When the dissolution of an unlawful partnership is decreed, the profits shall be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province."cralaw virtua1aw library

Appellants contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case for the determination of the rights of the parties. The action which may arise from said article, in the case of an unlawful partnership, is that for the recovery of the amounts paid in by the members from those in charge of the administration of said partnership, and it is not necessary for the said partners to base their action on the existence of the partnership, but on the fact of having contributed some money to the partnership capital. And hence, the charitable institutions of the domicile of the partnership, and in default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as a result of the business in which it was engaged, because, for that purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is null and without legal existence by reason of its unlawful object; and it is self-evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of an unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution.

We deem it pertinent to quote Manresas commentaries on article 1666 at length, as a clear explanation of the scope and spirit of the provision of the Civil Code with which we are concerned. Commenting on said article, Manresa, among other things says:jgc:chanrobles.com.ph

"When the subscriptions of the members have been paid to the management of the partnership, and employed by the latter in transactions consistent with the purposes of the partnership may the former demand the return or reimbursement thereof from the manager or administrator withholding them?

"Apropos of this, it is asserted: If the partnership has had no valid existence, if it is considered juridically non-existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or administrator of the partnership capital, each ones contribution?

"The authors discuss this point at great length; but Ricci decides the matter quite clearly, dispelling all doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his claim or action. And, he adds in explanation, that the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or, in other words, to breathe the breath of life into a partnership contract with an object forbidden by the law. And as said contract does not exist in the eyes of the law, the purpose for which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any consideration; for which reason he is bound to return it, and he who has paid in his share is entitled to recover it.

"But this is not the case with regard to profits earned in the course of the partnership, because they do not constitute or represent the partners contribution but are the result of the industry, business, or speculation, which is the object of the partnership; and, therefore, in order to demand the proportional part of said profits, the partner would have to base his action on the contract, which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof. Wherefore, considering this contract as non-existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it.

"Hence, the distinction made in the second paragraph of this article of our Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall, upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

"This is a new rule, unprecedented in our law, introduced to supply an obvious deficiency of the former law, which did not prescribe the purpose to which those profits denied to the partners were to be applied, nor state what was to be done with them.

"The profits are so applied, and not the individual contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

"Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned to the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed for said profits, shows that in consequence of said exclusion, the general rules of law must be followed, and hence, the partners must be reimbursed the amount of their respective contributions. Any other solution would be immoral, and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them, by denying to the partners the action to demand them." (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264.)

The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, that the defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall deposit these sums of money and other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may distribute them among the members of said association, upon being duly identified in the manner it may deem proper. So ordered.

Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No. L-9996 October 15, 1957EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,vs.THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS,respondents.Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for Respondents.CONCEPCION,J.:This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of which reads:FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the same in the total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is hereby dismissed with costs against petitioners.It appears from the stipulation submitted by the parties:1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together with their personal monies was used by them for the purpose of buying real properties,.2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property has an assessed value of P57,517.00 as of 1948;3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an assessed value of P82,255.00 as of 1948;4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948;5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948;6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them;7. That after having bought the above-mentioned real properties the petitioners had the same rented or leases to various tenants;8. That from the month of March, 1945 up to an including December, 1945, the total amount collected as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13;10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35.It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949, computed, according to assessment made by said officer, as follows:INCOME TAXES

194514.84

19461,144.71

194710.34

19481,912.30

19491,575.90

Total including surcharge and compromiseP6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946P37.50

1947150.00

1948150.00

1949150.00

Total including penaltyP527.00

RESIDENCE TAXES OF CORPORATION

1945P38.75

194638.75

194738.75

194838.75

194938.75

Total including surchargeP193.75

TOTAL TAXES DUEP6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in question, with costs against the respondent.After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and a petition for reconsideration and new trial having been subsequently denied, the case is now before Us for review at the instance of the petitioners.The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for corporations and the real estate dealers fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read:SEC. 24.Rate of tax on corporations.There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships (compaias colectivas), a tax upon such income equal to the sum of the following: . . .SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include duly registered general copartnerships. (compaias colectivas).Article 1767 of the Civil Code of the Philippines provides:By the contract of partnership two or more persons bind themselves to contribute money, properly, or industry to a common fund, with the intention of dividing the profits among themselves.Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, because:1. Said common fund was not something they found already in existence. It was not property inherited by thempro indiviso. They created it purposely. What is more theyjointly borroweda substantial portion thereof inorderto establish said common fund.2. They invested the same, not merely not merely in one transaction, but in aseriesof transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain.3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change in the utilization thereof.4. Since August, 1945, the properties have been under the management of one person, namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit.5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager.6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not in point.Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by them, a legal entity, with a personality independent of that of its members, did not come into existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals.To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships,no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among other, joint accounts, (cuentas en participation)" 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 copartnerships" which are possessed of the aforementioned personality have been expressly excluded by law (sections 24 and 84 [b] from the connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the effect that their liability in connection with the leasing of the lots above referred to, under the management of one person even if true, on which we express no opinion tends toincreasethe similarity between the nature of their venture and that corporations, and is, therefore, an additional argumentin favorof the imposition of said tax on corporations.Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships". By specific provisions of said laws, such "corporations" include "associations, joint-stock companies and insurance companies." However, the term "association" is not used in the aforementioned laws.. . . in any narrow or technical sense. It includes any organization, created for the transaction of designed affairs, or the attainment of some object, which like a corporation, continues notwithstanding that its members or participants change, and the affairs of which, like corporate affairs, are conducted by a single individual, a committee, a board, or some other group, acting in a representative capacity. It is immaterial whether such organization is created by an agreement, a declaration of trust, a statute, or otherwise. It includes a voluntary association, a joint-stock corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the management type), an interinsuarance exchange operating through an attorney in fact, a partnership association, and any other type of organization (by whatever name known) which is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).Similarly, the American Law.. . . providesits own conceptof a partnership, under the term 'partnership 'it includes not only a partnership as known at common law but, as well, a syndicate, group, pool,joint venture or other unincorporated organizations 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 su