1. MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs.

COURT OF APPEALS and NENITA

A. ANAY, respondents. [G.R. No. 127405. October 4, 2000]
Business Organization Partnership, Agency, Trust Dissolution of the Partnership

Facts: William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form a
joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao also contributed
some cash and she shall also act as president and general manager; and Anay shall be in charge of
marketing. Belo and Tocao specifically asked Anay because of her experience and connections as a
marketer. They agreed further that Anay shall receive the following:
1. 10% share of annual net profits
2. 6% overriding commission for weekly sales
3. 30% of sales Anay will make herself
4. 2% share for her demo services
They operated under the name Geminesse Enterprise, this name was however registered as a sole
proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was not
reduced to writing because Anay trusted Belos assurances.
The venture succeeded under Anays marketing prowess. But then the relationship between Anay
and Tocao soured. One day, Tocao advised one of the branch managers that Anay was no longer a part of
the company. Anay then demanded that the company be audited and her shares be given to her.

ISSUE: Whether or not there is a partnership.

HELD:Yes, even though it was not reduced to writing, for a partnership can be instituted in any form.
The fact that it was registered as a sole proprietorship is of no moment for such registration was only for
the companys trade name.
Anay was not even an employee because when they ventured into the agreement, they explicitly
agreed to profit sharing this is even though Anay was receiving commissions because this is only
incidental to her efforts as a head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership
as well as damages or share in the profits realized from the appropriation of the partnership business and
goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully
expelled.
An unjustified dissolution by a partner can subject him to action for damages because by the
mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership. Tocaos unilateral exclusion of
Anay from the partnership is shown by her memo to the Cubao office plainly stating that Anay was, as of
October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner
Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.

NOTE: Motion for Reconsideration filed by Tocao and Belo decided by the SC on September 20, 2001.
Belo is not a partner. Anay was not able to prove that Belo in fact received profits from the company.
Belo merely acted as a guarantor. His participation in the business meetings was not as a partner but as a
guarantor. He in fact had only limited partnership. Tocao also testified that Belo received nothing from
the profits. The Supreme Court also noted that the partnership was yet to be registered in the Securities
and Exchange Commission. As such, it was understandable that Belo, who was after all petitioner
Tocaos good friend and confidante, would occasionally participate in the affairs of the business, although
never in a formal or official capacity.
2. Lim Tong Lim vs Philippine Fishing Gear Industries, Inc. (317 SCRA 729, 1999)
Business Organization Partnership, Agency, Trust Corporation by Estoppel

Facts: It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have the
money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again borrowed money and
they agreed to purchase fishing nets and other fishing equipments. 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 fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because apparently
OQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waived
his rights. 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.

ISSUE: Whether or not Lim Tong Lim is liable.

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
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.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets 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 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.


3. ESTANISLAO, JR. VS. COURT OF APPEALS

Facts: The petitioner and private respondents are brothers and sisters who are co-owners of certain lots at
the in Quezon City which were then being leased to SHELL. They agreed to open and operate a gas
station thereat to be known as Estanislao Shel lService Station with an initial investment of PhP15,000.00
to be taken from the advance rentals due to them from SHELL for the occupancy of thesaid lots owned in
common by them. A joint affidavit was executed by them on April 11, 1966. The respondents agreed to
help their brother, petitioner therein, by allowing him to operate and manage the gasoline service station
of the family. In order not torun counter to the companys policy of appointing only one dealer, it was
agreed that petitioner would apply for the dealership. Respondent Remedios helped in co-managing the
business with petitioner from May 1966 up to February 1967.On May 1966, the parties entered into an
Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P15,000.00 advance
rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that
said agreement cancels and supersedes the Joint Affidavit.
For sometime, the petitioner submitted financial statement regarding the operation of the business
to the private respondents, but thereafter petitioner failed to render subsequent accounting. Hence , the
private respondents filed a complaint against the petitioner praying among others that the latter be
ordered:(1)To execute a public document embodying all the provisions of the partnership agreement they
entered into;(2)To render a formal accounting of the business operation veering the period from May 6,
1966 up to December 21, 1968, and from January 1, 1969 up to the time the order is issued and that the
same be subject tto proper audit;(3)To pay the plaintiffs their lawful shares and participation in the net
profits of the business; and(4)To pay the plaintiffs attorneys fees and costs of the suit.

Issue: Can a partnership exist between members of the same family arising from their joint ownership of
certain properties?

Trial Court: The complaint (of the respondents) was dismissed. But upon a motion for reconsideration of
the decision, another decision was rendered in favor of the respondents.

CA: Affirmed in toto

Petitioner: The CA erred in interpreting the legal import of the Joint Affidavit vis--vis the Additional
Cash Pledge Agreement. Because of the stipulation cancelling and superseding the Joint Affidavit,
whatever partnership agreement there was in said previous agreement had thereby been abrogated. Also,
the CA erred in declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and /or operation of the gasoline service station business.

Held:
There is no merit in the petitioners contention that because of the stipulation cancelling and
superseding the previous joint affidavit, whatever partnership agreement there was in said previous
agreement had thereby been abrogated. Said cancelling provision was necessary for the Joint Affidavit
speaks of P15,000.00 advance rental starting May 25, 1966 while the latter agreemental so refers to
advance rentals of the same amount starting May 24, 1966. There is therefore a duplication of reference to
the P15,000.00 hence the need to provide in the subsequent document that it cancels and supercedes the
previous none. Indeed, it is true that the latter document is silent as to the statement in the Join Affidavit
that the value represents the capital investment of the parties in the business and it speaks of the
petitioner as the sole dealer, but this is as it should be for in the latter document, SHELL was a signatory
and it would be against their policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of the petitioner.

Furthermore, there are other evidences in the record which show that there was in fact such
partnership agreement between parties. The petitioner submitted to the private respondents periodic
accounting of the business and gave a written authority to the private respondent Remedios Estanislao to
examine and audit the books of their common business (aming negosyo). The respondent Remedios, on
the other hand, assisted in the running of the business. Indeed, the parties hereto formed a partnership
when they bound themselves to contribute money in a common fund with the intention of dividing the
profits among themselves











4. Alfredo Aguila Jr vs Court of Appeals et al

Business Organization Partnership, Agency, Trust Identity Separate and Distinct

Facts: In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement with a
lending firm called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To secure the loan,
the spouses mortgaged their house and lot located in a subdivision. The terms of the loan further
stipulates that in case of non-payment, the property shall be automatically appropriated to the partnership
and a deed of sale be readily executed in favor of the partnership. She does have a 90 day redemption
period.

Ruben died, and Felicidad failed to make payment. She refused to turn over the property and so the firm
filed an ejectment case against her (wherein she lost). She also failed to redeem the property within the
period stipulated. She then filed a civil case against Alfredo Aguila, manager of the firm, seeking for the
declaration of nullity of the deed of sale. The RTC retained the validity of the deed of sale. The Court of
Appeals reversed the RTC. The CA ruled that the sale is void for it is a pactum commissorium sale which
is prohibited under Art. 2088 of the Civil Code (note the disparity of the purchase price, which is the loan
amount, with the actual value of the property which is after all located in a subdivision).

ISSUE: Whether or not the case filed by Felicidad shall prosper.

HELD: No. Unfortunately, the civil case was filed not against the real party in interest. As pointed out by
Aguila, he is not the real party in interest but rather it was the partnership A.C. Aguila & Sons, Co. The
Rules of Court provide that every action must be prosecuted and defended in the name of the real party
in interest. A real party in interest is one who would be benefited or injured by the judgment, or who is
entitled to the avails of the suit. Any decision rendered against a person who is not a real party in interest
in the case cannot be executed. Hence, a complaint filed against such a person should be dismissed for
failure to state a cause of action, as in the case at bar.

Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from
that of each of the partners. The partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes. In this case, Felicidad has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. It is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its name. A violation of this
rule will result in the dismissal of the complaint.

5.Heirs of Tan Eng Kee vs Court of Appeals

Business Organization Partnership, Agency, Trust Periodic Accounting Profit Sharing

Facts: Benguet Lumber has been around even before World War II but during the war, its stocks were
confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled their
resources in order to revive the business. In 1981, Tan Eng Lay caused the conversion of Benguet Lumber
into a corporation called Benguet Lumber and Hardware Company, with him and his family as the
incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an
accounting and the liquidation of the partnership.

Tan Eng Lay denied that there was a partnership between him and his brother. He said that Tan Eng Kee
was merely an employee of Benguet Lumber. He showed evidence consisting of Tan Eng Kees payroll;
his SSS as an employee and Benguet Lumber being the employee. As a result of the presentation of said
evidence, the heirs of Tan Eng Kee filed a criminal case against Tan Eng Lay for allegedly fabricating
those evidence. Said criminal case was however dismissed for lack of evidence.

ISSUE: Whether or not Tan Eng Kee is a partner.

HELD: No. There was no certificate of partnership between the brothers. The heirs were not able to show
what was the agreement between the brothers as to the sharing of profits. All they presented were
circumstantial evidence which in no way proved partnership.

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kees 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.

In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole proprietorship. He
registered the same as such in 1954; that Kee was just an employee based on the latters payroll and SSS
coverage, and other records indicating Tan Eng Lay as the proprietor.
Also, the business definitely amounted to more P3,000.00 hence if there was a partnership, it should have
been made in a public instrument. But the business was started after the war (1945) prior to the
publication of the New Civil Code in 1950? Even so, nothing prevented the parties from complying with
this requirement.

Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee 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. Even if it can be speculated that a scenario wherein if
excellent relations exist among the partners at the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits
is perfectly plausible. But in the situation in the case at bar, the deferment, if any, had gone on too long
to be plausible. A person is presumed to take ordinary care of his concerns. A demand for periodic
accounting is evidence of a partnership which Kee never did.
The Supreme Court also noted:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as
to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.



6. PASCUAL v. Commissioner of Internal Revenue
G.R. No. 78133 October 18, 1988

GANCAYCO, J.:

FACTS: On June 22, 1965, petitioners bought two (2)parcels of land from Santiago Bernardino, et al.and
on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of
land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of
land were sold by petitioners to Erlinda Reyes and Maria Samsonon March 19,1970. Petitioner realized a
net profit in the sale made in 1968 in the amount of P165, 224.70, while they realized a net profit of
P60,000 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973
and 1974 .Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as
co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a
corporation under Section 20(b)and its income was subject to the taxes prescribed under Section 24, both
of the National Internal Revenue Code; that the unregistered partnership was subject to corporate income
tax as distinguished from profits derived from the partnership by them which is subject to individual
income tax

ISSUE: Whether petitioners formed an unregisteredpartnership subject to corporate income
tax(partnership vs. co-ownership)

RULING:
Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:(2) Co-ownership or
co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived; The sharing of returns does not in itself establish a
partnership whether or not the persons sharing therein have a joint or common right or interest in the
property. There must be a clear intent to form a partnership, the existence of a juridical personality
different from the individual partners, and the freedom of each party to transfer or assign the whole
property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate
basis to support the proposition that they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on
their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as
the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been
formed, since there is no such existing unregistered partnership with a distinct personality nor with assets
that can be held liable for said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership.





7. 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 co-heirs
under a single management to be used with the intent of making profit thereby in proportion to his share,
there can be no doubt that, even if no document or instrument were executed, for the purpose, for tax
purposes, at least, an unregistered partnership is formed.



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.

8. Philex Mining Corporation vs. CIR [G.R. No. 148187 (April 16, 2008)]

Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former
to manage the latters mining claim know as the Sto. Mine. The parties agreement was denominated as
Power of Attorney. The mine suffered continuing losses over the years, which resulted in petitioners
withdrawal as manager of the mine. The parties executed a Compromise Dation in Payment, wherein
the debt of Baguio amounted to Php. 112,136,000.00. Petitioner deducted said amount from its gross
income in its annual tax income return as loss on the settlement of receivables from Baguio Gold against
reserves and allowances. BIR disallowed the amount as deduction for bad debt. Petitioner claims that it
entered a contract of agency evidenced by the power of attorney executed by them and the advances
made by petitioners is in the nature of a loan and thus can be deducted from its gross income. Court of
Tax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmed
CTA

Issue: Whether or not it is an agency.

Held: No. The lower courts correctly held that the Power of Attorney (PA) is the instrument material
that is material in determining the true nature of the business relationship between petitioner and Baguio.
An examination of the said PA reveals that a partnership or joint venture was indeed intended by the
parties. While a corporation like the petitioner cannot generally enter into a contract of partnership unless
authorized by law or its charter, it has been held that it may enter into a joint venture, which is akin to a
particular partnership. The PA indicates that the parties had intended to create a PAT and establish a
common fund for the purpose. They also had a joint interest in the profits of the business as shown by the
50-50 sharing of income of the mine.

Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends upon it or the mutual interest of both principal
and agent. In this case the non-revocation or non-withdrawal under the PA applies to the advances made
by the petitioner who is the agent and not the principal under the contract. Thus, it cannot be inferred
from the stipulation that it is an agency.










9. AFISCO INSURANCE CORP. et al. vs. COURT OF APPEALS
[G.R. No. 112675. January 25, 1999]

DOCTRINE:
Unregistered Partnerships and associations are considered as corporations for tax purposes Under the
old internal revenue code, A tax is hereby imposed upon the taxable net income received during each
taxable year from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized, xxx. Ineludibly, the Philippine legislature included in
the concept of corporations those entities that resembled them such as unregistered partnerships and
associations.

Insurance pool in the case at bar is deemed a partnership or association taxable as a corporation In the
case at bar, petitioners-insurance companies formed a Pool Agreement, or an association that would
handle all the insurance businesses covered under their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich is considered a partnership or association which may be taxed as a
ccorporation.

Double Taxation is not Present in the Case at Bar Double taxation means taxing the same person twice
by the same jurisdiction for the same thing. In the instant case, the insurance pool is a taxable entity
distince 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 companies. There is no double taxation.

FACTS: The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance
policies for machines. The petitioners in 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 pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an Information Return
of Organization Exempt from Income Tax for 1975. On the basis of this, the CIR assessed a deficiency
of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends
paid to Munich and to the petitioners, respectively.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their appeal.

The CA ruled in 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.

ISSUE/S:
1.Whether or not the pool is taxable as a corporation.
2.Whether or not there is double taxation.

HELD:

1) Yes: Pool taxable as a corporation

Argument of Petitioner: 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.
Hence, the pool did not act or earn income as a reinsurer. 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.

Argument of SC: According to Section 24 of the NIRC of 1975:

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 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-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. Interestingly, the NIRCs inclusion of such
entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997 Sec. 27 read
together with Sec. 22 reads:

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:
xxx xxx xxx
(B) The term corporation shall 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 partnerships are 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.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these
unregistered partnerships and even associations or joint accounts, which had no legal personalities apart
from their individual members.
Furthermore, Pool Agreement or an association that would handle all the insurance businesses covered
under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich may be considered
a partnership because it contains the following elements: (1) The pool has a common fund, consisting of
money and other valuables that are deposited in the name and credit of the pool. This common fund pays
for the administration and operation expenses of the pool. (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. (3) While, the pool itself is not a reinsurer and does not issue any policies; 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 pursuant to the agreement with
Munich. Profit motive or business is, therefore, the primordial reason for the pools formation.

2) No: There is no double taxation.

Argument of Petitioner: Remittances of the pool to the ceding companies and Munich are not dividends
subject to tax. Imposing a tax 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. Furthermore, even if such
remittances were treated as dividends, they would have been exempt under tSections 24 (b) (I) and 263 of
the 1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of the RP-West German
Tax Treaty.

Argument of Supreme Court: Double taxation means taxing the same person twice by the same
jurisdiction for the same thing. In the instant case, the insurance pool is a taxable entity distince 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 companies. There is no double taxation.


Tax exemption cannot be claimed by non-resident foreign insurance corporattion; tax exemption
construed strictly against the taxpayer - Section 24 (b) (1) 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 taxes dividends, the type of remittances forwarded to it by the pool. The foregoing
interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be construed
strictissimi juris, and the statutory exemption claimed must be expressed in a language too plain to be
mistaken.

10. Antonia Torres vs Court of Appeals
Business Organization Partnership, Agency, Trust Sharing of Loss in a Partnership Industrial
Partner

Facts: In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with
Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a
parcel of land, the sisters received no cash payment from Manuel but the promise of profits (60% for the
sisters and 40% for Manuel) said parcel of land is to be developed as a subdivision.

Manuel then had the title of the land transferred in his name and he subsequently mortgaged the property.
He used the proceeds from the mortgage to start building roads, curbs and gutters. Manuel also contracted
an engineering firm for the building of housing units. But due to adverse claims in the land, prospective
buyers were scared off and the subdivision project eventually failed.

The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of the
property, which according to the sisters, is whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no partnership
between them and Manuel because the joint venture agreement is void.

ISSUE: Whether or not there exists a partnership.

HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement
whereby they agreed to contribute property (their land) which was to be developed as a subdivision.
While on the other hand, though Manuel did not contribute capital, he is an industrial partner for his
contribution for general expenses and other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage (60-40). Clearly, the contract manifested the intention of
the parties to form a partnership. Further still, the sisters cannot invoke their right to the 60% value of the
property and at the same time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to Manuel
(the sisters on their appeal did not show evidence as to Manuels fault in the failure of the partnership).
The sisters must then bear their loss (which is 60%). Manuel does not bear the loss of the other 40%
because as an industrial partner he is exempt from losses.