G.R. No.

L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

AQUINO, J.:

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

The Commissioner acted on the theory that the four petitioners had formed an unregistered
partnership or joint venture 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 "the sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common
right or interest in any property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*

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

They did not contribute or invest additional ' capital to increase or expand the properties,
nor was there an unmistakable intention to form partnership or joint venture.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are
cancelled. No costs.

All co-ownerships are not deemed unregistered partnership.—Co-Ownership who own

properties which produce income should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all

Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property

does not produce an income at all, it is not subject to any kind of income tax, whether the
income tax on individuals or the income tax on corporation.

As compared to other cases:

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an
extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom
as a common fund to produce profits for themselves, it was held that they were taxable as
an unregistered partnership.

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

TUASON VS. BOLANOS

GR. No. L-4935. May 28, 1954
95 Phil. 106

CASE DIGEST

Facts:

Plaintiff’s complaint against defendant was to recover possession of a registered land.

In the complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc.,
another corporation. Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession under claim of ownership,
adverse to the entire world by defendant and his predecessors in interest" from "time
immemorial". After trial, the lower court rendered judgment for plaintiff, declaring defendant
to be without any right to the land in question and ordering him to restore possession thereof
to plaintiff and to pay the latter a monthly rent. Defendant appealed directly to the
Supreme Court and contended, among others, that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that it is illegal for two corporations to enter into
a partnership

Issue:

Whether or not a corporation may enter into a joint venture with another corporation.

Ruling:

It is true that the complaint states that the plaintiff is "represented herein by its
Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against
one corporation being represented by another person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. cannot act as managing partner for plaintiff on
the theory that it is illegal for two corporations to enter into a partnership is without merit, for
the true rule is that "though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that venture is in line
with the business authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L.
R., 1043, citing 2. Fletcher Cyc. of Corp., 1082.). There is nothing in the record to indicate that
the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing
partner" is not in line with the corporate business of either of them.

HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, G.R. No. 126881, October 3, 2000

FACTS:
After the second World War, Tan EngKee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business of selling lumber and
hardware and construction supplies. They named their enterprise "Benguet Lumber" which
they jointly managed until Tan EngKee's death. Petitioners herein averred that the business
prospered due to the hard work and thrift of the alleged partners. However, they claimed
that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan EngKee and his heirs of their rightful participation in the
profits of the business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of the net assets of
Benguet Lumber. The RTC ruled in favor of petitioners, declaring that Benguet Lumber is a
joint venture which is akin to a particular partnership. The Court of Appeals rendered the
assailed decision reversing the judgment of the trial court.

ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business venture or particular partnership

RULING:

There was no partnership whatsoever. Except for a firm name, there was no firm account, no
firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no
attempt to submit an accounting corresponding to the period after the war until Kee's death
in 1984. It had no business book, no written account nor any memorandum for that matter
and no license mentioning the existence of a partnership. Also, the trial court determined
that Tan EngKee and Tan Eng Lay had entered into a joint venture, which it said is akin to a
particular partnership. A particular partnership is distinguished from a joint adventure, to
wit:(a) A joint adventure (an American concept similar to our joint accounts) is a sort of
informal partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be
individually liable therefor. (b) Usually, but not necessarily a joint adventure is limited to a
SINGLE TRANSACTION, although the business of pursuing to a successful termination
maycontinue for a number of years; a partnership generally relates to a continuing business
of various transactions of a certain kind. A joint venture "presupposes generally a parity of
standing between the joint co-ventures or partners, in which each party has an equal
proprietary interest in the capital or property contributed, and where each party exercises
equal rights in the conduct of the business. The evidence presented by petitioners falls short
of the quantum of proof required to establish a partnership. In the absence of evidence, we
cannot accept as an established fact that Tan EngKee allegedly contributed his resources to
a common fund for the purpose of establishing a partnership. Besides, it is indeed odd, if not
unnatural, that despite the forty years the partnership was allegedly in existence, Tan EngKee
never asked for an accounting. The essence of a partnership is that the partners share in the
profits and losses .Each has the right to demand an accounting as long as the partnership
exists. A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan
EngKee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay. We conclude that Tan EngKee was only an employee, not a partner since
they did not present and offer evidence that would show that Tan EngKee received
amounts of money allegedly representing his share in the profits of the enterprise. There
being no partnership, it follows that there is no dissolution, winding up or liquidation to speak
of.

WOLFGANG AURBACH v. SANITARY WARES MANUFACTURING CORPORATION, GR No. 75875,

1989-12-15
Facts:
ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement
with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to...
participate in the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and sanitary
wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The management of the Corporation shall be vested in a Board of Directors, which shall
consist of nine individuals. As long as American-Standard shall own at least 30% of the
outstanding stock of the Corporation, three of the nine directors... shall be designated by
American-Standard, and the other six shall be designated by the other stockholders of the
Corporation.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered
with the Board of Investments for availment of incentives with the condition that at least 60%
of the capital stock of the corporation shall be owned... by Philippine nationals.
Unfortunately, with the business successes, there came a deterioration of the initially
harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to expand the
export operations of the company to which ASI objected as it apparently had other
subsidiaries or joint venture groups in the countries where Philippine exports were...
contemplated.
On March 8, 1983, the annual stockholders' meeting was held.
There were protests against the action of the Chairman and heated arguments ensued.
These incidents triggered off the filing of separate petitions by the parties with the Securities
and Exchange Commission (SEC). The first petition filed was for preliminary injunction by
Saniwares, Ernesto
V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo
and George F. Lee against Luciano Salazar and Charles Chamsay.
The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay...
against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F.
Cruz.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a
decision upholding the election of the Lagdameo Group and dismissing the quo warranto
petition of Salazar and Chamsay. The ASI
Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing
officer's decision.
Issues:
"THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCS, FAILS TO FULLY ENFORCE THE
BASIC INTENT OF THE AGREEMENT AND THE LAW.
whether it was a joint venture or a corporation
Ruling:
The rule is that whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual intention which
is determined in accordance with the rules governing the interpretation and... construction
of contracts
In the instant cases, our examination of important provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo and Young Group shows that the parties
agreed to establish a joint venture and not a... corporation.
The history of the organization of Saniwares and the unusual arrangements which govern its
policy making body are all consistent with a joint venture and not with an ordinary
corporation.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall
be construed to constitute any of the parties hereto partners or... joint venturers in respect of
any transaction hereunder" was merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third parties.
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose.
The main distinction cited by most opinions in common law... jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature.

Frank Bourns v. D.M. Carman G.R. No. 2880 December 4, 1906 Ponente: MAPA, J. FACTS: An
action to recover the sum of $437.50 balance due on a contract for the sawing of lumber
yard of Lo-Chim-Lim was filed by Bourns (Plaintiff). The contract was entered into by LoChim-
Lim, acting as in his own name with the plaintiff, and it appears that Lo-Chim-Lim personally
agreed to pay for the work himself. The plaintiff brought the action against LoChim-Lim and
his co-defendants jointly, alleging that at the time the contract was made, they were the
joint proprietors and operators of the said lumber yard engaged in the purchase and sale of
lumber under the name and style of Lo-Chim-Lim, hence were partners. The lower court
dismissed the action on the ground that defendants D.M. Carman, Fulgencio and Tan-
Tongco, except Vicente Palance and Go-Tauco were not the partners of Lo-Chim-Lim. ISSUE:
Whether appellants are deemed partners of Lo-Chim-Lim and hence are liable to Bourns
HELD: No. The alleged partnership between Lo-Chim-Lim and the appellants was formed by
verbal agreement only. There is no evidence tending to show that the said agreement was
reduced to writing, or that it was ever recorded in a public instrument. Moreover, the
partnership had no corporate name. The partnership was engaged in business under the
name and style of Lo-Chim-Lim only. Moreover, it does not appear that there was any
mutual agreement between the parties and if there were any, it has not been shown what
the agreement was. The contracts made with the plaintiff were made by Lo-Chim-Lim
individually in his own name, and there is no evidence that the partnership over contracted
in any form. Hence, the partnership is one of cuentasen participacion. It is but a simple
business conducted by Lo-Chim-Lim exclusively in his own name. A partnership constituted in
such a manner, the existence of which was only known to those who had an interest in the
same, being no mutual agreements between the partners and without a corporate name
indicating to the public in some way that there were other people besides the one who
ostensibly managed and conducted the business, is exactly the accidental partnership of
cuentas en participacion defined in Art. 239 of the Code of Commerce. Those who contract
with the person under whose name the business of such partnership of cuentas en
participacion is conducted, shall have only a right of action against such person and not
against the other persons interested, and the latter, on the other hand, shall have no right of
action against the third person who contracted with the manager unless such manager
formally transfers his right to them.

Philex Mining Corp. v. Commissioner of Internal Revenue

G.R. No. 148187 April 16, 2008 Ynares-Santiago, J.
FACTS:

Philex Mining Corp. entered into an agreement with Baguio Gold Mining Co. for the former
to manageand operate the latter’s mining claim, known as the Sto. Nino Mine. The
parties’ agreement wasdenominated as “Power of Attorney” which provides inter
alia:4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make avail
able tothe MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such
amounts asfrom time to time may be required by the MANAGERS within the said 3-
year period, for use in theMANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION
PESOS (P11,000,000.00) shall bedeemed, for internal audit purposes, as the owner’s account
in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO
MINE, which is left with the Sto. Nino PROJECT,shall be added to such owner’s
account.5. Whenever the MANAGERS shall deem it necessary and convenient in connection
with theMANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property
to the Sto. NinoPROJECT, in accordance with the following
arrangements:(a) The properties shall be appraised and, together with the cash, shall be car
ried by the Sto.Nino PROJECT as a special fund to be known as the MANAGERS’
account.(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except w
ith priorapproval of the PRINCIPAL; provided, however, that if the compensation of the
MANAGERS as hereinprovided cannot be paid in cash from the Sto. Nino PROJECT, the
amount not so paid in cash shall beadded to the MANAGERS’
account.(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PRO
JECT untiltermination of this
Agency.(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRI
NCIPAL toextend to the MANAGERS the benefit of subsequent appreciation
of property, upon a projectedtermination of this Agency, the ratio which the
MANAGERS’ account has to the owner’s account willbe determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE,excluding the
claims, shall be transferred to the MANAGERS, except that such transferred
assetsshall not include mine development, roads, buildings, and similar property which will
be valueless, orof slight value, to the MANAGERS. The MANAGERS can, on the other
hand, require at their optionthat property srcinally transferred by them to the Sto. Nino
PROJECT be re-transferred to them. Untilsuch assets are transferred to the MANAGERS, this
Agency shall remain subsisting.x x x x12. The compensation of the
MANAGER shall be fifty per cent (50%) of the net profit of the Sto.Nino PROJECT before
income tax. It is understood that the MANAGERS shall pay income tax on theircompensation,
while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECTafter
deduction therefrom of the MANAGERS’ compensation.

Philex Mining
made advances of cash and property in accordance with paragraph 5 of
t h e agreement. However, the mine suffered continuing losses over the years which resulted
to PhilexMining’s withdrawal as manager of the mine and in the eventual cessation of
mine operations.

The parties executed a “Compromise with Dation in Payment” wherein Baguio

Gold admitted anindebtedness to petitioner in the amount of P179,394,000.00 and agreed
to pay the same in threesegments by first assigning Baguio Gold’s tangible assets to Philex
Mining, transferring to the latterBaguio Gold’s equitable title in its Philodrill assets and finally
settling the remaining liability throughproperties that Baguio Gold may acquire in the future.

The parties executed an “Amendment to Compromise with Dation in Payment”

where the partiesdetermined that Baguio Gold’s indebtedness to petitioner actually
amounted to P259,137,245.00,which sum included liabilities of Baguio Gold to other
creditors that petitioner had assumed asguarantor. These liabilities pertained to long-
term loans amounting to US$11,000,000.00 contracted

by Baguio Gold from the Bank of America NT & SA and Citibank N.A. This
time, Baguio
Goldu n d e r t o o k t o p a y p e t i t i o n e r i n t w o s e g m e n t s b y f i r s t a s s i g
n i n g i t s t a n g i b l e a s s e t s f o r P127,838,051.00 and then transferring its equitable
title in its Philodrill assets for
P16,302,426.00. T h e p a r t i e s t h e n a s c e r t a i n e d t h a t B a g u i o G o l d h a d a r e m a i n i
n g o u t s t a n d i n g i n d e b t e d n e s s t o petitioner in the amount of P114,996,768.00.

Philex Mining wrote off in its 1982 books of account the remaining outstanding
indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that
were set up in 1981 andP2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, Philex Mining deducted from its gross income the
amount of P112,136,000.00 as “loss on settlement of receivables from Baguio Gold
against reserves andallowances.” However, the BIR disallowed
the amount as deduction for bad debt and assessedpetitioner a deficiency income
tax of P62,811,161.39. Philex Mining protested before the BIR arguingthat the deduction must
be allowed since all requisites for a bad debt deduction were satisfied, towit: (a) there was a
valid and existing debt; (b) the debt was ascertained to be worthless; and (c) itw a s
charged off within the taxable year when it was
d e t e r m i n e d t o b e w o r t h l e s s . B I R d e n i e d petitioner’s protest. It held that the alleged
debt was not ascertained to be worthless since BaguioGold remained existing and had not
filed a petition for bankruptcy; and that the deduction did notconsist of a valid and
subsisting debt considering that, under the management contract, petitionerwas to be paid
50% of the project’s net profit.
ISSUE:
WON the parties entered into a contract of agency coupled with an interest
which is notrevocable at will
HELD:
No. An examination of the “Power of Attorney” reveals that a partnership or joint venture
wasindeed intended by the parties.

In an agency coupled with interest, it is the agency that cannot be revoked or

withdrawn by theprincipal due to an interest of a third party that depends upon it,
or the mutual interest of bothprincipal and agent. In this case, the non-revocation
or non-withdrawal under paragraph 5(c) appliesto the advances made by petitioner
who is supposedly the agent and not the principal under
thec o n t r a c t . T h u s , i t c a n n o t b e i n f e r r e d f r o m t h e s t i p u l a t i o n t h a t t h e p a r t i
e s ’ r e l a t i o n u n d e r t h e agreement is one of agency coupled with an interest and not
a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the

relationship of theparties was one of agency and not a partnership. Although the
said provision states that “thisAgency shall be irrevocable while any obligation of
the PRINCIPAL in favor of the MANAGERS isoutstanding, inclusive of the
MANAGERS’ account,” it does not necessarily follow that the partiesentered into an
agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.

The main object of the “Power of Attorney” was not to confer a power in favor of
petitioner tocontract with third persons on behalf of Baguio Gold but to create a business
relationship betweenpetitioner and Baguio Gold, in which the former was to
manage and operate the latter’s minethrough the parties’ mutual contribution
of material resources and industry. The essence of anagency, even one that is
coupled with interest, is the agent’s ability to represent his principal andbring about business
relations between the latter and third persons.

The strongest indication that petitioner was a partner in the Sto. Nino Mine is the fact that it
wouldreceive 50% of the net profits as “compensation” under paragraph 12 of the
agreement. Thee n t i r e t y o f t h e p a r t i e s ’ c o n t r a c t u a l s t i p u l a t i o n s s i m p l y l e a d s
t o n o o t h e r c o n c l u s i o n t h a n t h a t petitioner’s “compensation” is actually its share in
the income of the joint venture. Article 1769 (4) of the Civil Code explicitly provides that the
“receipt by a person of a share in the profits of a businessis prima facie evidence that he is a
partner in the business.”

AFISCO INSURANCE CORP. V CA 302 SCRA 1 (January 25, 1999)

Monday, January 26, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Taxation

Facts: AFISCO and 40 other non-life insurance companies entered into a Quota Share
Reinsurance Treaties with Munich, a non-resident foreign insurance corporation, to cover for
All Risk Insurance Policies over machinery erection, breakdown and boiler explosion. The
treaties required petitioners to form a pool, to which AFISCO and the others complied. 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 1975, on
the basis of which, it was assessed by the commissioner of Internal Revenue deficiency
corporate taxes. A protest was filed but denied by the CIR.

Petitioners contend that they cannot be taxed as a corporation, because (a) the
reinsurance policies were written by them individually and separately, (b) their liability was
limited to the extent of their allocated share in the original risks insured and not solidary, (c)
there was no common fund, (d) the executive board of the pool did not exercise control
and management of its funds, unlike the board of a corporation, (e) 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. They further contend that remittances to
Munich are not dividends and to subject it to tax would be tantamount to an illegal double
taxation, as it would result to taxing the same premium income twice in the hands of the
same taxpayer. Finally, petitioners argue that the government’s right to assess
and collect 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 prescriptive period then provided in the NIRC had already lapsed, and that the internal
revenue commissioner was already barred by prescription from making an assessment.

Held: A pool is considered a corporation for taxation purposes. Citing the case of Evangelista
v. CIR, the court held that Sec. 24 of the NIRC covered these unregistered partnerships and
even associations or joint accounts, which had no legal personalities apart from individual
members. Further, the pool is a partnership as evidence by a common fund, the existence of
executive board and the fact that while the pool is not in itself, a reinsurer and does not issue
any insurance policy, 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.

As to the claim of double taxation, the pool is a taxable entity distinct from the individual
corporate entities of the ceding companies. The tax on its income is obviously different from
the tax on the dividends received by the said companies. Clearly, there is no double
taxation.

As to the argument on prescription, the prescriptive period was totaled under the Section
333 of the NIRC, 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.
Further, the law clearly states that the prescriptive period will be suspended only if the
taxpayer informs the CIR of any change in the address.

LIM TANHU v. HON. JOSE R. RAMOLETE

LIM TANHU v. HON. JOSE R. RAMOLETE
G.R. No. L-40098; August 29, 1975
Ponente: J. Barredo

FACTS:

Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company with Antonio Lim Tanhu and Alfonso
Ng Sua".

Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial
Company, defendants managed to use the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and
Minglanilla.

She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation, continued the business of Glory Commercial Company, by
purportedly organizing a corporation known as the Glory Commercial Company,
Incorporated and sometime in the month of November, 1967, defendants, particularly
Antonio Lim Tanhu, by means of fraud deceit, and misrepresentations did then and there,
induce and convince her to execute a quitclaim of all her rights and interests, in the assets of
the partnership of Glory Commercial Company.

Thereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the
aforesaid properties and assets in favor, among others of plaintiff and until the middle of the
year 1970 when the plaintiff formally demanded from the defendants the accounting of real
and personal properties of the Glory Commercial Company, defendants refused and stated
that they would not give the share of the plaintiff.

ISSUE:
Whether Tan has a right over the liquidated properties of the partnership

HELD:

No, Tan has no right over the liquidated properties of the partnership

The Supreme Court held that there is no alternative but to hold that plaintiff Tan Put's
allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife.
Moreover, the Supreme Court said that the lower courts committed an error by awarding
1/3 of the partnership properties to Tan because there has been no liquidation proceedings
yet. And if there has not yet been any liquidation of the partnership, the only right plaintiff
could have would be to what might result after much liquidation to belong to the deceased
partner (her alleged husband) and before this is finished, it is impossible to determine, what
rights or interest, if any the deceased had.
In other words, no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first terminated.

LIWANAG v. CA
G.R. No. 114398; October 24, 1997
Ponente: J. Romero

FACTS:

Petitioner Carmen Liwanag and a certain Thelma Tabligan went to the house of
complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying
and selling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed.
Under their agreement, Rosales would give the money needed to buy the cigarettes while
Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her
if the goods are sold; otherwise the money would be returned to Rosales. Consequently,
Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00

Alarmed that Liwanag was no longer visiting her regarding their business and believing
that the amounts she advanced were being misappropriated, Rosales filed a case of estafa
against Liwanag.

Liwanag advances the theory that the intention of the parties was to enter into a
contract of partnership, wherein Rosales would contribute the funds while she would buy
and sell the cigarettes, and later divide the profits between them. She also argues that the
transaction can also be interpreted as a simple loan, with Rosales lending to her the amount
stated on an installment basis. RTC found Liwanag guilty for the crime of estafa. The Court
of Appeals affirmed the lower court’s decision

ISSUE:

Whether Liwanag can be acquitted from the crime of estafa because she and Rosales
formed a partnership

HELD:

No, Liwanag could not be acquitted from the crime of estafa.

The Supreme Court held that Estafa is a crime committed by a person who defrauds
another causing him to suffer damages, by means of unfaithfulness or abuse of confidence,
or of false pretenses or fraudulent acts.

In the case at hand, even assuming that a contract of partnership was indeed entered
into by and between the parties, we have ruled that when money or property have been
received by a partner for a specific purpose (such as that obtaining in the instant case) and
he later misappropriated it, such partner is guilty of estafa.

UNITED STATES v. CLARIN Peñafiel

G.R. No. 5840, Sept. 17, 1910

Plaintiff: The United States

Defendant: Eusebio Clarin

Doctrine: The action of a partner who furnished the capital for the recovery of his money is
NOT a criminal action for estafa, but a civil one arising from the partnership contract for a
liquidation of the partnership and a levy on its assets if there should be any.
Facts:

 Pedro Larin delivered to Pedro Tarug P172.00 in order for Tarug, Eusebio Clarin and
Carlos de Guzman to buy and sell mangoes, believing that he could make some
money out of the business.
 Larin made an agreement with the 3 men that the profits will be divided equally
among the 4 of them.
 Tarug, Clarin, de Guzman traded in mangoes and obtained P203.00; however, they
did not comply with the terms of the contract – that is, to deliver to Larin his half of the
profits. They also did not render him any account of the capital.
 This led Larin to charge them with the estafa, but the provincial fiscal filed an
information only against Clarin. Clarin was accused of appropriating to himself not
only P172.00 but also the share of profits that belonged to Larin, amounting to P15.50.

The trial court charged Clarin with estafa and ordered him to return to Larin P172.00 and
P30.50 as Larin’s share to the profits. Clarin appealed. Hence, this case.

Issue: WON Clarin is guilty of estafa -> NO.

Held:

 The Court held that 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, a contract of partnership is formed (Art. 1165, CC).
 When Larin put the P172.00 into the partnership, he invested his capital with the risks or
benefits of the business of the purchase and sale of mangoes, and, even though he
had reserved the capital and conveyed only the usufruct of his money, it would not
devolve upon his 3 partners to return his capital to him, but upon the partnership of
which he himself formed part.
 The P172.00 having been received by the partnership, the business commenced and
profits accrued, the action that lies with the partner who furnished the capital for the
recovery of his money is NOT a criminal action for estafa, but a civil one arising from
the partnership contract for a liquidation of the partnership and a levy on its assets if
there should be any.
 The provision of estafa in the Penal Code does not include money received for a
partnership; otherwise the result would be that, if the partnership, instead of obtaining
profits, suffered losses, as it could not be held liable civilly for the share of the capitalist
partner who reserved the ownership of the money brought in by him, it would have to
answer to the charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.

Conclusively, Clarin WON – he was acquitted.

Provision: "who, to the prejudice of another, shall appropriate or misapply any money,
goods, or any kind of personal property which they may have received as a deposit on
commission for administration or in any other character producing the obligation to deliver
or return the same," (as, for example, in commodatum, precarium, and other unilateral
contracts which require the return of the same thing received).

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,

vs.
LO SENG, defendant-appellant.

ANG L!" an# $%N!&' GALV%(

vs.
L' )%NG
/
*acts+
0o 1eng and 2ang 0im were partners in the business of running a distillery- !nown as 34l 2rogreso5. The land
on which saiddistillery is located was to the +rm of 0o 1eng and Co. for the term of three years. %pon the
e6piration of this lease a new writtencontract- in the ma!ing of which 0o 7ao was represented by one 0o
1hui as attorney in fact- became e8ective whereby the leasewas e6tended for +fteen years. 2ang 0im
sold all his interest in the distillery to his partner 0o 1eng- thus placing the latter in theposition of sole owner.
0o 1hui- again acting as attorney in fact of 0o 7ao- e6ecuted and ac!nowledged before a notary public
adeed purporting to convey to 2ang 0im and another Chinaman named 9enito Galve - the entire
distillery plant. 9ut this documentwas never recorded in the registry of property. Thereafter- 2ang 0im and
9enito Galve demanded possession from 0o 1eng- butthe latter refused to yield; and the present action
of unlawful detainer was thereupon initiated by 2ang 0im and 9enito Galve inthe court of the ustice of
the peace of 2aombong to recover possession of the premises.

2lainti8 2ang 0im has occupied a double role in the transactions which gave rise to this litigation- namely-
+rst- as one of thelessees; and secondly- as one of the purchasers now see!ing to terminate the lease.
These two positions are essentiallyantagonistic and incompatible. 4very competent person is by law
bound to maintain in all good faith the integrity of his ownobligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regardsany contract previously
entered into by himself.
!ss + 'N
2ang 0im- having been a participant in the contract of lease now in ,uestion- is in a position to terminate it;
and thisis a fatal obstacle to the maintenance of the action of unlawful detainer by him.
/ l#+ N'.
<hile yet a partner in the +rm of 0o 1eng and Co.- 2ang 0im participated in the creation of this lease- and
when he soldout his interest in that +rm to 0o 1eng this operated as a transfer to 0o 1eng of 2ang 0im=s
interest in the +rm assets- including thelease; and 2ang 0im cannot now be permitted- in the guise of a
purchaser of the estate- to destroy an interest derived fromhimself- and for which he has received full
value.
Ratio+
The bad faith of the plainti8s in see!ing to deprive the defendant of this lease is stri!ingly
revealed in the circumstance that priorto the ac,uisition of this property 2ang 0im had been partner
with 0o 1eng and 9enito Galve an employee. 9oth therefore hadbeen in relations of con+dence with
0o 1eng and in that position had ac,uired !nowledge of the possibilities of the property andpossibly an
e6perience which would have enabled them- in case they had ac,uired possession- to e6ploit the distillery
with pro+t. It would be shoc!ing to the moral sense if the condition of the law were found to be such that
2ang 0im- after pro+ting by the saleof his interest in a business- worthless without the lease- could intervene
as purchaser of the property and con+scate for his ownbene+t the property which he had sold for a
valuable consideration to 0o 1eng.

&bove all other persons in business relations- partners are re,uired to e6hibit towards each other the highest
degree of goodfaith. In fact the relation between partners is essentially +duciary- each being considered
in law- as he is in fact- the con+dentialagent of the other.

If one partner obtains in his own name and for his own bene+t the renewal of a lease on property used by
the +rm- tocommence at a date subse,uent to the e6piration of the +rm=s lease- the partner obtaining
the renewal is held to be aconstructive trustee of the +rm as to such lease.

as 0o 1eng is vested with the possessory right as against 2ang 0im- he cannot be ousted either by 2ang
0im or 9enito Galve .>aving lawful possession as against one cotenant- he is entitled to retain it against
both

Catalan Vs. Gatchalian 105 Phil 1270 G.R. No. L-11648 April 22, 1 5
Facts: Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the impr
ovements thereon tosecure a credit from the latter. The partnership failed to pay the obligation. The
properties were sold to Dr. Marave at a publicauction. Catalan redeemed the property and he contends
that title should be cancelled and a new one must be issued in hisname.
Issue: Did Catalan s redemption of the properties ma!e him the absolute owner of the lands"
#uling:$o. %nder &rticle '()* of the $CC every partner becomes a trustee for his copartner with regard to
any bene+ts or pro+ts derivedfrom his act as a partner. Conse,uently- when Catalan redeemed the
properties in ,uestion- he became a trustee and held thesame in trust for his copartner Gatchalian-
sub ect to his right to demand from the latter his contribution to the amount ofredemption.&rt. '(/). The
marriage of the general partner to a limited partner did not result in the dissolution of the partnership

Pioneer Insurance V. CA (1989)

G.R. No. 84197 July 28, 1989

Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a
partnership absent intent to form one (Corporate Law)

FACTS:

 1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship

 May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract
regarding:
 2 DC-#A type aircrafts
 1 set of necessary spare parts
 Total: $ 190,000 in installments
 May 22 1965: 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 for the transaction based on the
misrepresentation of Lim that they will form a new corp.. to expand his business
 Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as
security
 Restructuring of obligation to change the maturity was done 2x w/o the knowledge of
other defendants
 made the surety of JDA prescribed so not entitled to reimbursement
 Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the
foreclosure of chattel mortgage as security
 CA affirmed Trial of Merits: Only Lim is liable to pay
ISSUE: W/N failure of respondents to incorporate = de facto partnership.

HELD: NO. CA affirmed.

 Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume
the relation of partners as bet. themselves, when their purpose is that no partnership shall
exists
 Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to
make others liable)
 Lim never intended to form a corp.

Evangelista & Co. et.al. v. Estrella Abad Santos

FACTS:

On October 9, 1954, a co-partnership with herein petitioners as capitalist partners was formed under the name
“Evangelista & Co.” The Articles of Co-partnership was, however, amended on June 7, 1955 so as to include herein
respondent, Estrella Abad Santos, as an industrial partner.

Consequently, on December 17, 1963, Abad Santos filed suit against the three (3) capitalist partners, alleging that the
partnership, which was also made a party-defendant, had been paying dividends to the partners except to her. It was
further alleged that despite her requests that she be allowed to examine partnership books, to give her information
regarding the partnership affairs and to receive her share in the dividends declared by the partnership, the petitioners
refused and continued to refuse. She therefore prayed that the petitioners be ordered to render an accounting of the
partnership business and to pay her the corresponding share in the dividends.
ISSUE:

Whether or not the Articles of Co-partnership shall be considered as a conclusive evidence of respondent’s status as a
limited partner?

HELD:

NO. The Court held that despite the genuineness of the Articles of Co-partnership the same did not express
the true intent and agreement of the parties, however, as the subsequent events and testimonial evidences indicate
otherwise, the Court upheld that respondent is an industrial partner of the company.

Article 1789 provides that ‘An industrial partner cannot engage in business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either
case.’ Since 1954 and until after the promulgation of the decision of the appellate court, Abad Santos has served as a
judge of the City Court of Manila and had been paid for services rendered allegedly contributed by her to the
partnership. Though being a judge of the City Court of Manila cannot be characterized a business and/or may be
considered an antagonistic business to the partnership, the petitioners, subsequent of petitioners’ answer to the
complaint, petitioners reached the decision that respondent be excluded from and deprived of her alleged share in the
interest or participation as an alleged industrial partner in the net profits or income of the partnership.

Having always known the respondent is a City Judge even before she joined the partnership, why did it take petitioners
so many years before excluding her from said company? Furthermore, the act of exclusion is premised on the ground
that respondent has always been a partner, an industrial partner. In addition, the Court further held that with the
consideration of Article 1767 that ‘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 profits among themselves’, the services
rendered by respondent may legitimately be considered the respondent’s contribution to the common fund.

Moran Jr. v. CA
Facts:

On February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for
the purpose of printing 95,000 posters featuring the delegates to the 1971 Constitutional Convention, with Moran
actually supervising the work; that Pecson would receive a commission of P1,000 a month starting on April 15, 1971 up
to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of the
95,000 posters would be made; that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable
on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the
date due, complete with the costs of collection."
Pecson filed with the CFI of Manila alleging that: (1) on the alleged partnership agreement, the return of his contribution
of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid
commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary
damages and attorney's fees. CFI held that ordering defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19, 1972. Parties
appealed to the CA which rendered a decision against the petitioner to pay: Forty-seven thousand five hundred
(P47,500) (the amount that could have accrued to Pecson under their agreement); (b) Eight thousand (P8,000), (the
commission for eight months); (c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project); and (d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is
made).

Issues:

Whether or not CA grievously erred in holding petitioner liable to respondent in the sum of P47,500 as the supposed
expected profits due him;

Whether or not CA grievously erred in holding petitioner liable to respondent in the sum of P8,000, as supposed
commission in the partnership arising out of Pecson's investment;

Whether or not CA grievously erred in holding petitioner liable to respondent in the sum of P7,000 as a supposed return
of investment in a magazine venture.

Held:

The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute and for interests and damages from the time he should
have complied with his obligation. Thus in Uy v. Puzon (19 SCRA 598), which interpreted Art. 2200 of the Civil Code of
the Philippines, the Court allowed a total of P200,000.00 compensatory damages in favor of the appellee because the
appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in
question.

Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in
the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. The records show that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing
cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income therefore
w as P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of P10,000.00 and with no evidence
on the cost of distribution, the net profits amount to only P6,000.00. Relative to the second alleged error, the petitioner
submits that the award of P8,000.00 as Pecson's supposed commission has no justifiable basis in law. The partnership
agreement stipulated that the petitioner would give the private respondent a monthly commission of P1,000.00 from
April 15, 1971 to December 15, 1971 for a total of eight monthly commissions. The agreement does not state the basis
of the commission. The payment of the commission could only have been predicated on relatively extravagant profits.

There is misapprehension of facts. The evidence of the private respondent himself shows that his investment in the
"Voice of Veterans" project amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the
private respondent expected to receive.

The respondent court erred when it concluded that the project never left the ground because the project did take place.
Only it failed. It was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans"
in the lower court as Exhibit "L". Therefore, it would be error to state that the project never took place and on this basis
decree the return of the private respondent's investment.