Acebedo Optical Company, Inc. v.

CA, 329 SCRA 314, March 31,

2000, En Banc [Purisima]

Lastly, the granting of the license is not a contract, it is a

special privilege estoppels does not apply.

Municipal Corporation Proprietary Functions Police Power

Acebedo Optical applied for a business permit to operate in Iligan

The scope of police power has been held to be so comprehensive

as to encompass almost all matters affecting the health, safety,
peace, order, morals, comfort and convenience of the community.

Police power is essentially regulatory in nature and the power to

issue licenses or grant business permits, if exercised for a
regulatory and not revenue-raising purpose, is within the ambit of
this power.

City.

After hearing the sides of local optometrists, Mayor Cabili of

Iligan granted the

permit

but he

attached

various

special

conditions which basically made Acebedos dependent upon

prescriptions to be issued by local optometrists.

Acebedo is not allowed to practice optometry within the city.

Acebedo however acquiesced to the said conditions and operated

under the permit.

Later, Acebedo was charged for violating the said conditions and

Jose Gatchalian, et.al. plaintiffs-appellants, vs. The Collector of

Internal Revenue, defendant-appellee.

was subsequently suspended from operating within Iligan.

Acebedo then assailed the validity of the attached conditions.

The local optometrists argued that Acebedo is estopped in

A distraint warrant is a document served by the sheriff that

indicates the amount of overdue taxes, the due date and
instructions prohibiting the removal or destruction of any property
within the business.

Facts:

Plaintiffs purchased, in the ordinary course of business, from one

of the duly authorized agents of the National CharitySweepstakes

assailing the said conditions because it acquiesced to the same

Office one ticket for the sum of two pesos (P2), said ticket was

and that the imposition of the special conditions is a valid exercise

registered in the name of Jose Gatchalian and Company.

of police power; that such conditions were entered upon by the

city in its proprietary function hence the permit is actually a

The ticket won one of the third-prizes in the amount of P50,000.

contract.

Jose Gatchalian was required to file the corresponding income tax

return covering the prize won.

made

an

assessment against

Jose

Gatchalian and Co. requesting the payment of the sum of

ISSUE: Whether or not the special conditions attached by the mayor is

a valid exercise of police power.

Defendant-Collector

P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan.

Plaintiffs,

however

through

counsel

made

request for

exemption. It was denied.

HELD: NO.

distraint and levy was issued.

Acebedo was applying for a business permit to operate its

business and not to practice optometry (the latter being within the
jurisdiction PRC Board of Optometry).

Plaintiffs failed to pay the amount due, hence a warrant of

Plaintiffs paid under protest a part of the tax and penalties to

avoid the effects of the warrant.

A request that the balance be paid by plaintiffs in installments was

made. This was granted on the condition that a bond be filed.

The conditions attached by the mayor is ultra vires hence cannot

be given any legal application therefore estoppel does not apply.

Plaintiffs failed in their installment payments.

Hence a request for execution of the warrant of distraint and levy
was made.

It is neither a valid exercise of police power.

Though the mayor can definitely impose conditions in the granting

of permits, he must base such conditions on law or ordinances

Plaintiffs paid under protest to avoid the execution.

A claim for refund was made by the plaintiffs, which was

dismissed, hence the appeal.

otherwise the conditions are ultra vires.

Issue: Whether the plaintiffs formed a partnership or community of

property. If a partnership, hence liable for income tax.

Petitioners returned for income tax purposes their shares in the

net income but they did not actually receive their shares because
this left with Oa who invested them.

Held: Yes. The plaintiffs formed a formed a partnership.

Based on these facts, CIR decided that petitioners formed an

According to the stipulation facts the plaintiffs organized a

unregistered partnership and therefore, subject to the corporate

partnership of a civil nature because each of them put up money

income tax, particularly for years 1955 and 1956.

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

this petition for review from CTAs decision.

amount of P50,000.

Petitioners asked for reconsideration, which was denied hence

The partnership was not only formed, but upon the organization
thereof and the winning of the prize, Jose Gatchalian personally

Issue:

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

1) Whether or not there was a co-ownership or an unregistered

partnership

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.

Lorenzo T. Ona and Heirs of Julia Bunales petitioner vs The

Commissioner of Internal Revenue, respondent.

2) Whether or not the petitioners are liable for the deficiency corporate
income tax

Held:

1.)

Unregistered partnership. The Tax Court found that instead of

actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their

Facts:

properties to remain under the management of Oa and let him

use their shares as part of the common fund for their ventures,

Julia Buales died leaving as heirs her surviving spouse, Lorenzo

even as they paid corresponding income taxes on their respective

Oa and her five children.

shares.

A civil case was instituted for the settlement of her state, in which
Oa was appointed administrator and later on the guardian of the

2.)

Yes. For tax purposes, the co-ownership of inherited properties is

automatically converted into an unregistered partnership the

three heirs who were still minors when the project for partition was

moment the said common properties and/or the incomes derived

approved.

therefrom are used as a common fund with intent to produce

This shows that the heirs have undivided interest in 10 parcels

profits for the heirs in proportion to their respective shares in the

of land, 6 houses and money from the War Damage Commission.

inheritance as determined in a project partition either duly

executed in an extrajudicial settlement or approved by the court in

Although the project of partition was approved by the Court, no

the corresponding testate or intestate proceeding.

attempt was made to divide the properties and they remained

under the management of 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.

The reason 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

As a result, petitioners properties and investments gradually

dispose of as exclusively his own without the intervention of the

increased.

other heirs, and, accordingly, he becomes liable individually for all

They again borrowed money and they agreed to purchase fishing

nets and otherfishing equipments.

taxes in connection therewith.

Now, Yao and Chua represented themselves as acting in behalf of

Ocean Quest Fishing Corporation (OQFC) they contracted with

Philippine Fishing Gear Industries (PFGI) for the purchase of

If after such partition, he allows his share to be held in common

fishing nets amounting to more than P500k.

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

their own names because apparently OQFC is a non-existent

be no doubt that, even if no document or instrument were

corporation.

executed, for the purpose, for tax purposes, at least, an

unregistered partnership is formed.

For purposes of the tax on corporations, our National Internal Revenue

They were however unable to pay PFGI and so they were sued in

Chua admitted liability and asked for some time to pay.

Yao waived his rights.

Code includes these partnerships

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; emphasis
ours.)

Lim Tong Lim however argued that hes not liable because he
was not aware that Chua and Yao represented themselves as a
corporation; that the two acted without his knowledge and
consent.

with the exception only of duly registered general co-partnerships

within the purview of the term corporation.

ISSUE: Whether or not Lim Tong Lim is liable.

CONCLUSION:

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. Judgment affirmed.

HELD: YES.

From the factual findings of both lower courts, it is clear that

Chua, Yao and Lim had decided to engage in a fishing business,
which they started by buying boats worth P3.35 million, financed
by a loan secured from Jesus Lim.

In their Compromise Agreement, they subsequently revealed their

LIM TONG LIM, petitioner vs. Philippine Fishing Gear Industries,

intention to pay the loan with the proceeds of the sale of the

Inc.respondent

boats, and to divide equally among them the excess or loss.

Business Organization Partnership, Agency, Trust Corporation by

Estoppel

These boats, the purchase and the repair of which were financed
with borrowed money, fell under the term common fund under
Article 1767.

Facts:

It was established that Lim Tong Lim requested Peter Yao to

The contribution to such fund need not be cash or fixed assets; it

could be an intangible like credit or industry.

engage in commercial fishing with him and one Antonio Chua.

That the parties agreed that any loss or profit from the sale and

The three agreed to purchase two fishing boats but since they do

operation of the boats would be divided equally among them also

not have the money they borrowed from one Jesus Lim (brother

shows that they had indeed formed a partnership.

of Lim Tong Lim).

Lim Tong Lim cannot argue that the principle of corporation by

In 1992 however, the relationship between the brothers went sour.

And so Aurelio demanded an accounting and the liquidation of his

estoppels can only be imputed to Yao and Chua.

Unquestionably, Lim Tong Lim benefited from the use of the nets

share in the partnership.

found in his boats, the boat which has earlier been proven to be
an asset of the partnership.

Lim, Chua and Yao decided to form a corporation.

Although it was never legally formed for unknown reasons, this

Eduardo did not heed and so Aurelio sued Eduardo.

ISSUE: Whether or not there exists a partnership.

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

HELD: NO.

corporation and those benefited by it, knowing it to be without

valid existence, are held liable as general partners.

Aurelio K. Litonjua, Jr.,petitioner vs. Eduardo K. Litonjua, Sr.,

The partnership is void and legally nonexistent.

The documentary evidence presented by Aurelio, i.e. the letter

respondents.

from Eduardo and the Memorandum, did not prove partnership.

The 1973 letter from Eduardo on its face, contains typewritten

entries, personal in tone, but is unsigned and undated.

Business Organization Partnership, Agency, Trust Partnership, how

formed

As an unsigned document, there can be no quibbling that said

letter does not meet the public instrumentation requirements
exacted under Article 1771 (how partnership is constituted) of the
Civil Code.

Facts:

Aurelio and Eduardo are brothers.

Moreover,

being unsigned and

doubtless

referring

to

partnership involving more than P3,000.00 in money or property,

said letter cannot be presented for notarization, let alone

In 1973, Aurelio alleged that Eduardo entered into a contract of

registered with the Securities and Exchange Commission (SEC),

partnership with him.

as called for under the Article 1772 (capitalization of a

partnership) of the Code.

Aurelio showed as evidence a letter sent to him by Eduardo that

the latter is allowing Aurelio to manage their family business (if

And inasmuch as the inventory requirement under the succeeding

Eduardos away) and in exchange thereof he will be giving Aurelio

Article 1773 goes into the matter of validity when immovable

P1 million or 10% equity, whichever is higher.

property is contributed to the partnership, the next logical point of

inquiry turns on the nature of Aurelios contribution, if any, to the

A memorandum was subsequently made for the said partnership

supposed partnership.

agreement.

The Memorandum is also not a proof of the partnership for the

The memorandum this time stated that in exchange of Aurelio,

same is not a public instrument and again, no inventory was

who just got married, retaining his share in the family business

made of the immovable property and no inventory was attached

(movie theatres, shipping and land development) and some other

to the Memorandum.

immovable properties, he will be given P1 Million or 10% equity in

all these businesses and those to be subsequently acquired by
them whichever is greater.

Article 1773 of the Civil Code requires that if immovable

property is contributed to the partnership an inventory shall be
had and attached to the contract.