Lim vs.

Philippine Fishing Gear

Industries Inc. [GR 136448, 3 November
1999]
FACTS: Lim Tong Lim requested Peter Yao
and Antonio Chuato engage in commercial
fishing with him. The three agreed to
purchase two fishing boats but since they
do not have the money they borrowed from
one Jesus Lim the brother of Lim Tong Lim.
Subsequently, they again borrowed money
for the purchase of fishing nets and other
fishing equipments. Yao and Chua
represented themselves as acting in behalf
of Ocean Quest Fishing Corporation
(OQFC) and they contracted with Philippine
Fishing Gear Industries (PFGI) for the
purchase of fishing nets amounting to more
than P500k. However, they were unable to
pay PFGI and hence were sued in their own
names as Ocean Quest Fishing Corporation
is a non-existent corporation. Chua admitted
his liability while Lim Tong Lim refused such
liability alleging that Chua and Yao acted
without his knowledge and consent in
representing themselves as a corporation.
ISSUE: Whether Lim Tong Lim is liable as
a partner
HELD:
Yes. It is apparent from the factual milieu
that the three decided to engage in a fishing
business. Moreover, their Compromise
Agreement had revealed their intention to
pay the loan with the proceeds of the sale
and to divide equally among them the
excess or loss. The boats and equipment
used for their business entails their common
fund. 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.
The principle of corporation by estoppel
cannot apply in the case as Lim Tong Lim
also benefited from the use of the nets in
the boat, which was an asset of the
partnership. Under the law on estoppel,
those acting in behalf of a corporation and
those benefited by it, knowing it to be
without valid existence are held liable as
general partners. Hence, the question as to
whether such was legally formed for
unknown reasons is immaterial to the case.

Pioneer Insurance vs. CA

G.R. No. 84197; July 28, 1989
FACTS: Lim is an owner-operator of
Southern Airlines (SAL). Japan Domestic
Airlines (JDA) and Lim entered into a sales
contract. Pioneer Insurance and Surety

Corp. as surety executed its surety bond

in favor of JDA on behalf of its principal Lim.
Border Machinery and Heacy Equipment
Co, Inc., Francisco and Modesto Cervantes,
and Constancio Maglana contributed funds
based on the misrepresentation of Lim that
they will form a new corporation to expand
his business. They executed two separate
indemnity agreements in favor of Pioneer,
one signed by Maglana and the other jointly
signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements
stipulated that the indemnitors principally
agree and bind themselves jointly and
severally to indemnify and hold and save
Pioneer
from
and
against
any/all
damages,losses, etc. of whatever kind and
nature may incur in consequence of having
become surety. Lim executed in favor of
Pioneer a deed of chattel mortgage as
security. Upon default on the payments,
Pioneer paid for him and filed a petition for
the foreclosure of chattel mortgage as
security.
Maglana, Bormaheco and the Cervantess filed
cross
-claims against Lim alleging that they were
not privies to the contracts signed by Lim
and for recovery of the sum of money they
advanced to Lim for the purchase of the
aircrafts. The decision was rendered holding
Lim liable to pay.
ISSUES:
1. Whether Pioneer has a cause of action
against respondents.
2.
Whether
failure
to
incorporate
automatically
resulted
to
de
facto
partnership.
HELD:
1. , Pioneer has no right to institute and
maintain in its own name an action for the
benefit of the reinsurers. It is well-settled
that an action brought by an attorney-in-fact
in his own name instead of that of the
principal will not prosper, and this is so even
where the name of the principal is disclosed
in the complaint. An attorney-in-fact is not a
real party in interest, that there is no law
permitting an action to be brought by
an attorney-in-fact.
2. NO. Partnership inter se does not
necessarily exist, for ordinarily persons
cannot be made to assume the relation of
partners as between themselves, when their
purpose is that no partnership shall exist
and it should be implied only when
necessary to do justice between the parties;
thus, one who takes no part except to
subscribe for stock in a proposed
corporation which is never legally formed
does not become a partner with other
subscribers who engage in business under
the name of the pretended corporation, so
as to be liable as such in an action for

settlement of the alleged partnership and

contribution.
Pioneer Insurance vs. CA
G.R. No. 84197; July 28, 1989

175 SCRA 668 Business Organization

Corporation Law When De Facto
Partnership Does Not Exist
FACTS: Jacob Lim was the owner of
Southern Air Lines, a single proprietorship.
In 1965, Lim convinced Constancio
Maglana, Modesto Cervantes, Francisco
Cervantes, and Border Machinery and
Heavy
Equipment
Company
(BORMAHECO) to contribute funds and to
buy two aircrafts which would form part a
corporation which will be the expansion of
Southern Air Lines. Maglana et al then
contributed and delivered money to Lim.
But instead of using the money given to him
to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an
agreement with Pioneer Insurance for the
latter to insure the two aircrafts which were
brought in installment from Japan Domestic
Airlines (JDA) using said aircrafts as
security. So when Lim defaulted from paying
JDA, the two aircrafts were foreclosed by
Pioneer Insurance.
It was established that no corporation was
formally formed between Lim and Maglana
et al.
ISSUE: Whether or not Maglana et al must
share in the loss as general partners.
HELD: No. There was no de facto
partnership. Ordinarily, when co-investors
agreed to do business through a corporation
but failed to incorporate, a de facto
partnership would have been formed, and
as such, all must share in the losses and/or
gains of the venture in proportion to their
contribution. But in this case, it was shown
that Lim did not have the intent to form a
corporation with Maglana et al. This can be
inferred from acts of unilaterally taking out a
surety from Pioneer Insurance and not
using the funds he got from Maglana et al.
The record shows that Lim was acting on
his own and not in behalf of his other wouldbe incorporators in transacting the sale of
the airplanes and spare parts.

LORENZO OA V CIR
GR No. L -19342 | May 25, 1972 | J.
Barredo

Facts:
Julia Buales died leaving as heirs her
surviving spouse, Lorenzo Oa and her five
children. A civil case was instituted for the
settlement of her state, in which Oa was
appointed administrator and later on the
guardian of the three heirs who were still
minors when the project for partition was
approved. This shows that the heirs have
undivided interest in 10 parcels of land, 6
houses and money from the War Damage
Commission.
Although the project of partition was
approved by the Court, no 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. As a result, petitioners properties
and investments gradually increased.
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.
Based on these facts, CIR decided that
petitioners
formed
an
unregistered
partnership and therefore, subject to the
corporate income tax, particularly for years
1955 and 1956. Petitioners asked for
reconsideration, which was denied hence
this petition for review from CTAs decision.
Issue:
W/N there was a co-ownership or an
unregistered partnership
W/N the petitioners are liable for the
deficiency corporate income tax
Held:
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 properties to remain under the
management of Oa and let him use their
shares as part of the common fund for their
ventures, even as they paid corresponding
income taxes on their respective shares.
Yes. For tax purposes, the co-ownership of
inherited
properties
is
automatically
converted into an unregistered partnership
the moment the said common properties
and/or the incomes derived therefrom are
used as a common fund with intent to
produce profits for the heirs in proportion to
their respective shares in the inheritance as
determined in a project partition either duly
executed in an extrajudicial settlement or
approved by the court in the corresponding
testate or intestate proceeding. The reason
is simple. From the moment of such
partition, the heirs are entitled already to
their respective definite shares of the estate
and the incomes thereof, for each of them to
manage and dispose of as exclusively his
own without the intervention of the other
heirs, and, accordingly, he becomes liable
individually for all taxes in connection
therewith. If after such partition, he allows
his share to be held in common with his coheirs under a single management to be
used with the intent of making profit thereby
in proportion to his share, there can be no
doubt that, even if no document or
instrument were executed, for the purpose,
for tax purposes, at least, an unregistered
partnership is formed.
For purposes of the tax on corporations, our
National Internal Revenue 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.)

with the exception only of duly registered

general
copartnerships
within
the
purview of the term corporation. It is,
therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as
said Code is concerned, and are subject to
the income tax for corporations. Judgment
affirmed.

OBILLOS, JR VS CIR
Facts:
On March 2, 1973 Jose Obillos, Sr. bought two lots
with areas of 1,124 and 963 square meters of
located at Greenhills, San Juan, Rizal. The next day
he transferred his rights to his four children, the
petitioners, to enable them to build their residences.
The Torrens titles issued to them showed that they
were co-owners of the two lots.In 1974, or after
having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canada for the total sum
of P313,050. They derived from the sale a total profit
of P134, 341.88 or P33,584 for each of them. They
treated the profit as a capital gain and paid an
income tax on one-half thereof or of P16,792.In April,
1980, the Commissioner of Internal Revenue
required the four petitioners to pay corporate
income tax on the total profit of P134,336 in
addition to individual income tax on their shares
thereof. The petitioners are being held liable for
deficiency income taxes and penalties totaling
P127,781.76 on their profit of P134,336, in addition
to the tax on capital gains already paid by them. The
Commissioner acted on the theory that the four
petitioners had formed an unregistered partnership
or joint venture The petitioners contested the
assessments. Two Judges of the Tax Court
sustained the same. Hence, the instant appeal.
Issue:
Whether or not the petitioners had indeed formed a
partnership or joint venture and thus liable for
corporate tax.
Held:
The Supreme Court held that the petitioners should
not be considered to have formed a partnership just
because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the
profit among themselves. To regard so would result
in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That
eventuality should be obviated. As testified by Jose
Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as
partners would obliterate the distinction between a
co-ownership and a partnership. The petitioners
were not engaged in any joint venture by reason of
that isolated transaction.
*
Article
1769(3) of the Civil Code provides that "t
he sharing
of gross
returns does
not of itself
establish a partnership, whether or not t
he persons sharing them have a joint or
common right or interest in any property
from which the returns are derived". The
re must be an unmistakable intention to f
orm a partnership or joint venture.*

CIR VS. SUTER

FACTS:A limited partnership named William
J. Suter 'Morcoin' Co., Ltd was formed
30September 1947 by William J. Suter
as the general partner, and Julia
Spirig
andG u s t a v C a r l s o n . T h e y c o n t r i b u
t e d , r e s p e c t i v e l y, P 2 0 , 0 0 0 . 0 0 , P 1
8 , 0 0 0 . 0 0 a n d P2,000.00. it was also
duly registered with the SEC. On 1948
Suter and Spirig got m a r r i e d a n d i n
effect Carlson sold his share to
the couple, the same was also
registered
with
the
SEC. T h e l i m i t e d p a r t n e r s h i p
had been filing its income t
a x r e t u r n s a s a corporation,
without objection by the herein
petitioner, Commissioner of Internal
Revenue, until in 1959 when the latter, in an
assessment, consolidated the income of
the firm and the individual incomes of
the partners-spouses Suter and Spirig
resulting in a determination of a deficiency
income tax against respondent Suter in the
amount
of
P2,678.06
for
1954
and P4,567.00 for 1955.
ISSUE:Whether
or
not
the
limited
partnership has been dissolved after the
marriageof Suter and Spirig and buying
the interest of limited partner Carlson.

RULING:
No, the limited
dissolved.

partnership

was

not

A h u s b a n d a n d a w i f e
m a y n o t e n t e r i n t o a c o
n t r a c t o f g e n e r a l copartne
rship, because under the Civil Co
de, which applies in the
absence of express provision in
the Code of Commerce, persons p
r o h i b i t e d f r o m m a k i n g donations to
each other are prohibited from entering into
universal partnerships. (2Echaverri 196) It
follows that the marriage of partners
necessarily brings about the dissolution of a
pre-existing partnership.
W h a t t h e l a w p r o h i b i t s w a s
when the spouses entered
into a general
partnership.
In
the case at bar, the partnership was limited.