Heirs of Tan Eng kee vs CA 341 scra 740

FACTS: Benguet Lumber has been around even before World War II but during the war, its stocks
were confiscated by the Japanese. fter the war, the brothers !an "ng Lay and !an "ng #ee pooled
their resources in order to revive the business. In $%&$, !an "ng Lay caused the conversion of
Benguet Lumber into a corporation called Benguet Lumber and 'ardware (ompany, with him and
his family as the incorporators. In $%&), !an "ng #ee died. !hereafter, the heirs of !an "ng #ee
demanded for an accounting and the li*uidation of the partnership.
!an "ng Lay denied that there was a partnership between him and his brother. 'e said that !an "ng
#ee was merely an employee of Benguet Lumber. 'e showed evidence consisting of !an "ng #ee+s
payroll, his --- as an employee and Benguet Lumber being the employee. s a result of the
presentation of said evidence, the heirs of !an "ng #ee filed a criminal case against !an "ng Lay for
allegedly fabricating those evidence. -aid criminal case was however dismissed for lack of evidence.
ISSUE: Whether or not !an "ng #ee is a partner.
HELD: .o. !here was no certificate of partnership between the brothers. !he heirs were not able to
show what was the agreement between the brothers as to the sharing of profits. ll they presented
were circumstantial evidence which in no way proved partnership.
It is obvious that there was no partnership whatsoever. "/cept 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 fi/ed for the duration of the partnership. !here was even no attempt
to submit an accounting corresponding to the period after the war until #ee+s death in $%&0. It had
no business book, no written account nor any memorandum for that matter and no license
mentioning the e/istence of a partnership.
In fact, !an "ng Lay was able to show evidence that Benguet Lumber is a sole proprietorship. 'e
registered the same as such in $%10, that #ee was 2ust an employee based on the latter+s payroll
and --- coverage, and other records indicating !an "ng Lay as the proprietor.
lso, the business definitely amounted to more 3),444.44 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?
"ven so, nothing prevented the parties from complying with this re*uirement.
lso, the -upreme (ourt emphasi5ed that for 04 years, !an "ng #ee never asked for an accounting.
!he essence of a partnership is that the partners share in the profits and losses. "ach has the right
to demand an accounting as long as the partnership e/ists. "ven if it can be speculated that a
scenario wherein 6if e/cellent relations e/ist 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.7 But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible. person is presumed to take ordinary care
of his concerns. demand for periodic accounting is evidence of a partnership which #ee never did.
!he -upreme (ourt also noted:
In determining whether a partnership e/ists, these rules shall apply:
8$9 "/cept as provided by rticle $&:1, persons who are not partners as to each other are not
partners as to third persons,
8:9 (o;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,
8)9 !he sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a 2oint or common right or interest in any property which the returns are derived,
809 !he 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:
8a9 s a debt by installment or otherwise,
8b9 s wages of an employee or rent to a landlord,
8c9 s an annuity to a widow or representative of a deceased partner,
8d9 s interest on a loan, though the amount of payment vary with the profits of the business,
8e9 s the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.
AFISCO INSURANCE CORP e! a" vs COURT OF APPEA#S
$%R No 11&'7( )an*ar+ &(, 1---.
FACTS/ The petitioners are 41 non-life domestic insurance corporations. They
issued risk insurance policies for machines. The petitioners in 1965 entered into
a 0*o!a S1are Reins*rance Trea!+ an2 a S*r3"*s Reins*rance Trea!+ with
the Munchener Ruckversicheruns-!esselschaft "hereafter called Munich#$ a non-
resident forein insurance corporation. The reinsurance treaties re%uired
petitioners to form a pool$ which they complied with.
&n 19'6$ the pool of machinery insurers su(mitted a )nancial statement and )led an
*&nformation Return of +rani,ation -.empt from &ncome Ta./ for 19'5. +n the
(asis of this$ the 0&R assessed a de)ciency of 11$243$4'3.65$ and withholdin ta.es
in the amount of 11$'62$'99.39 and 129$432.62 on dividends paid to Munich and to
the petitioners$ respectively.
The 0ourt of Ta. 6ppeal sustained the petitioner7s lia(ility. The 0ourt of 6ppeals
dismissed their appeal.
The 06 ruled in that the pool of machinery insurers was a partnership ta.a(le as a
corporation$ and that the latter8s collection of premiums on (ehalf of its mem(ers$
the cedin companies$ was ta.a(le income.
ISSUE4S/
1. 9hether or not the pool is ta.a(le as a corporation.
4. 9hether or not there is dou(le ta.ation.
HE#5/
1# :es; 1ool ta.a(le as a corporation
6rument of 1etitioner; The reinsurance policies were written (y them *individually
and separately$/ and that their lia(ility was limited to the e.tent of their allocated
share in the oriinal risks thus reinsured. <ence$ the pool did not act or earn income
as a reinsurer. &ts role was limited to its principal function of *allocatin and
distri(utin the risk"s# arisin from the oriinal insurance amon the sinatories to
the treaty or the mem(ers of the pool (ased on their a(ility to a(sor( the risk"s#
ceded=>? as well as the performance of incidental functions$ such as records$
maintenance$ collection and custody of funds$ etc./
6rument of @0; 6ccordin to @ection 44 of the A&R0 of 19'5;
*@-0. 44. Rate of tax on corporations. -- "a# Tax on domestic corporations. -- 6
ta. is here(y imposed upon the ta.a(le net income received durin each ta.a(le
year from all sources (y every corporation orani,ed in$ or e.istin under the laws
of the 1hilippines$ no matter how created or orani,ed$ (ut not includin duly
reistered eneral co-partnership "compaias colectivas#$ eneral professional
partnerships$ private educational institutions$ and (uildin and loan associations
..../
&neludi(ly$ the 1hilippine leislature included in the concept of corporations those
entities that resem(led them such as unreistered partnerships and associations.
&nterestinly$ the A&R08s inclusion of such entities in the ta. on corporations was
made even clearer (y the Ta. Reform 6ct of 199' @ec. 4' read toether with @ec.
44 reads;
*@-0. 4'. Rates of Income Tax on Domestic Corporations. --
"6# In General. -- -.cept as otherwise provided in this 0ode$ an income ta. of
thirty-)ve percent "35B# is here(y imposed upon the ta.a(le income derived durin
each ta.a(le year from all sources within and without the 1hilippines (y every
corporation$ as de)ned in @ection 44 "C# of this 0ode$ and ta.a(le under this Title as
a corporation ..../
*@-0. 44. -- Defnition. -- 9hen used in this Title;
... ... ...
"C# The term Dcor3ora!ion6 shall include partnerships$ no matter how created or
orani,ed$ Eoint-stock companies$ Eoint accounts "cuentas en participacion#$
associations$ or insurance companies$ (ut does not include eneral professional
partnerships =or? a Eoint venture or consortium formed for the purpose of
undertakin construction proEects or enain in petroleum$ coal$ eothermal and
other enery operations pursuant to an operatin or consortium areement under a
service contract without the !overnment. D%enera" 3rofessiona" 3ar!ners1i3s8
are partnerships formed (y persons for the sole purpose of e.ercisin their common
profession$ no part of the income of which is derived from enain in any trade or
(usiness.
Thus$ the 0ourt in Evangelista v. Collector of Internal Revenue held that @ection 44
covered these unreistered partnerships and even associations or Eoint accounts$
which had no leal personalities apart from their individual mem(ers.
Furthermore$ 1ool 6reement or an association that would handle all the insurance
(usinesses covered under their %uota-share reinsurance treaty and surplus
reinsurance treaty with Munich may (e considered a partnership (ecause it contains
the followin elements; "1# The pool has a common fund$ consistin of money and
other valua(les that are deposited in the name and credit of the pool. This common
fund pays for the administration and operation e.penses of the pool. "4# The pool
functions throuh an e.ecutive (oard$ which resem(les the (oard of directors of a
corporation$ composed of one representative for each of the cedin companies. "3#
9hile$ the pool itself is not a reinsurer and does not issue any policies> its work is
indispensa(le$ (ene)cial and economically useful to the (usiness of the cedin
companies and Munich$ (ecause without it they would not have received their
premiums pursuant to the areement with Munich. 1ro)t motive or (usiness is$
therefore$ the primordial reason for the pool8s formation.
4# Ao; There is no dou(le ta.ation.
6rument of 1etitioner; Remittances of the pool to the cedin companies and
Munich are not dividends su(Eect to ta.. &mposin a ta. *would (e tantamount to an
illeal dou(le ta.ation$ as it would result in ta.in the same premium income twice
in the hands of the same ta.payer./ Furthermore$ even if such remittances were
treated as dividends$ they would have (een e.empt under t@ections 44 "(# "&# and
463 of the 19'' A&R0 $ as well as 6rticle ' of pararaph 1and 6rticle 5 of pararaph
5 of the R1-9est !erman Ta. Treaty.
6rument of @upreme 0ourt; Gou(le ta.ation means *ta.in the same person twice
(y the same Eurisdiction for the same thin./ &n the instant case$ the insurance pool
is a ta.a(le entity distince from the individual corporate entities of the cedin
companies. The ta. on its income is o(viously diHerent from the ta. on the
dividends received (y the companies. There is no dou(le ta.ation.
Ta. e.emption cannot (e claimed (y non-resident forein insurance corporattion>
ta. e.emption construed strictly aainst the ta.payer - @ection 44 "(# "1# pertains to
ta. on forein corporations> hence$ it cannot (e claimed (y the cedin companies
which are domestic corporations. Aor can Munich$ a forein corporation$ (e ranted
e.emption (ased solely on this provision of the Ta. 0ode (ecause the same
su(section speci)cally ta.es dividends$ the type of remittances forwarded to it (y
the pool. The foreoin interpretation of @ection 44 "(# "1# is in line with the
doctrine that a ta. e.emption must (e construed strictissimi juris$ and the statutory
e.emption claimed must (e e.pressed in a lanuae too plain to (e mistaken.
AN% PUE 7 CO8PAN9, ET A#, plaintiHs-appellants$ vs. SECRETAR9 OF
CO88ERCE AN5 IN5USTR9, defendant-appellee.
FACTS/ +n May 1$ 1953$ 6n 1ue and Tan @ion$ (oth 0hinese citi,ens$
orani,ed the partnership 6n 1ue I 0ompany for a term of :ve +ears
e;!en2i<"e <+ !1eir =*!*a" consen! The 3*r3ose of !1e 3ar!ners1i3
>as Jto maintain the (usiness of eneral merchandisin$ (uyin and sellin
at wholesale and retail$ particularly of lum(er$ hardware and other
construction materials for commerce$ either native or forein.J The
correspondin articles of partnership were regis!ere2 in the +Kce of the
@ecurities I -.chane 0ommission on Lune 16$ 1953. On )*ne 1-, 1-(4
Re3*<"ic Ac! No 11?0 >as enac!e2 !o reg*"a!e !1e re!ai" <*siness. &t
provided$ amon other thins$ that$ after its enactment$ a 3ar!ners1i3 no!
>1o""+ for=e2 <+ Fi"i3inos co*"2 con!in*e !o engage in !1e re!ai"
<*siness *n!i" !1e e;3ira!ion of i!s !er=
+n 6pril 15$ 1952 M 3rior !o !1e e;3ira!ion of the )ve-year term of the
partnership 6n 1ue I 0ompany$ (ut af!er !1e enac!=en! of the Repu(lic
6ct 1125$ the partners already mentioned a=en2e2 !1e origina" ar!ic"es
of part ownership so as !o e;!en2 the term of life of the partnership to
another )ve years. 9hen the amended articles were presented for
reistration in the +Kce of the @ecurities I -.chane 0ommission on 6pril
16$ 1952$ regis!ra!ion >as ref*se2 *3on !1e gro*n2 !1a! !1e
e;!ension >as in vio"a!ion of !1e aforesai2 Ac!
ISSUE/ 9+A plaintiHs could e.tend for )ve years the term of the
partnership pursuant to the provisions of plaintiHs7 6mendment to the 6rticle
of 0o-partnership.
HE#5/ NO To orani,e a corporation or a partnership that could claim a
Euridical personality of its own and transact (usiness as such$ is no! a
=a!!er of a<so"*!e rig1! <*! a 3rivi"ege which may (e enEoyed only
under such terms as the @tate may deem necessary to impose. That the
@tate$ throuh 0onress$ and in the manner provided (y law$ had the riht to
enact Repu(lic 6ct Ao. 1125 and to provide therein that only Filipinos and
concerns wholly owned (y Filipinos may enae in the retail (usiness can
no! <e serio*s"+ 2is3*!e2. That this provision was c"ear"+ in!en2e2 !o
a33"+ !o 3ar!ners1i3 a"rea2+ e;is!ing a! !1e !i=e of !1e enac!=en!
of !1e "a> is c"ear"+ s1o>ing <+ i!s 3rovision giving !1e= !1e rig1!
!o con!in*e engaging in !1eir re!ai" <*siness *n!i" !1e e;3ira!ion of
!1eir !er= or "ife
To arue that (ecause the oriinal articles of partnership provided that the
partners could e.tend the term of the partnership$ the provisions of Repu(lic
6ct 1125 cannot (e adversely aHect appellants herein$ is to erroneo*s"+
ass*=e !1a! !1e aforesai2 3rovision cons!i!*!e a 3ro3er!+ rig1! of
which the partners can not (e deprived without due process or without their
consent. The areement contain therein must (e deemed su(Eect to the law
e.istin at the time when the partners came to aree reardin the
e.tension. &n the present case$ as already stated$ >1en !1e 3ar!ners
a=en2e2 !1e ar!ic"es of 3ar!ners1i3, !1e 3rovisions of Re3*<"ic Ac!
11?0 >ere a"rea2+ in force, and there can (e not the slihtest dou(t that
the riht claimed (y appellants to e.tend the oriinal term of their
partnership to another )ve years >o*"2 <e in vio"a!ion of !1e c"ear
in!en! an2 3*r3ose of !1e "a> aforesai2
#i= Tong #i= vs P1i" Fis1ing %ear In2*s!ries, Inc
FACTS: It was established that Lim !ong Lim re*uested 3eter <ao to engage in commercial fishing
with him and one ntonio (hua. !he three agreed to purchase two fishing boats but since they do
not have the money they borrowed from one Jesus Lim 8brother of Lim !ong Lim9. !hey again
borrowed money and they agreed to purchase fishing nets and other fishing e*uipments. .ow, <ao
and (hua represented themselves as acting in behalf of 6=cean >uest ?ishing (orporation7 8=>?(9
they contracted with 3hilippine ?ishing @ear Industries 83?@I9 for the purchase of fishing nets
amounting to more than 3144k.
!hey were however unable to pay 3?@I and so they were sued in their own names because
apparently =>?( is a non;e/istent corporation. (hua admitted liability and asked for some time to
pay. <ao waived his rights. Lim !ong Lim however argued that he+s not liable because he was not
aware that (hua and <ao represented themselves as a corporation, that the two acted without his
knowledge and consent.
ISSUE: Whether or not Lim !ong Lim is liable.
HELD: <es. ?rom the factual findings of both lower courts, it is clear that (hua, <ao and Lim had
decided to engage in a fishing business, which they started by buying boats worth 3).)1 million,
financed by a loan secured from Jesus Lim. In their (ompromise greement, they subse*uently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide
e*ually among them the e/cess or loss. !hese boats, the purchase and the repair of which were
financed with borrowed money, fell under the term 6common fund7 under rticle $ABA. !he
contribution to such fund need not be cash or fi/ed assets, it could be an intangible like credit or
industry. !hat the parties agreed that any loss or profit from the sale and operation of the boats
would be divided e*ually among them also shows that they had indeed formed a partnership.
Lim !ong Lim cannot argue that the principle of corporation by estoppels can only be imputed to <ao
and (hua. Cn*uestionably, Lim !ong Lim benefited from the use of the nets found in his boat s, the
boat which has earlier been proven to be an asset of the partnership. Lim, (hua and <ao decided to
form a corporation. lthough it was never legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting parties in representation of it. (learly, under the
law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid e/istence, are held liable as general partners.
ONA vs CIR
FACTS; &n 1944 Noren,o +na was appointed administrator of the estate of his late
wife Lulia Cunales. The administrator su(mitted the proEect of partition$ which was
approved (y the court. <owever$ there was no attempt was made to divide the
properties amon his 5 children. &nstead$ the properties remained under the
manaement of Noren,o who used the said properties in (usiness (y leasin or
sellin them and investin the income derived therefrom.
&n the years 1944 to 1954$ respondent 0&R did treat petitioners as co-owners$ not
lia(le to corporate ta.$ and it was only from 1955 that 0&R considered them as
havin formed an unreistered partnership.
ISSUE; 9OA an unreistered partnership was formed.
HE#5/ :es. &t is admitted that all pro)ts from these ventures were divided amon
petitioners proportionately in accordance with their respective shares in the
inheritance. From the moment petitioners allowed not only the incomes from their
respective shares (ut even the properties themselves to (e used (y Noren,o as a
common fund in undertakin several transactions or (usiness$ with the intention of
derivin pro)t to (e shared (y them proportionately$ such act was tantamount to
actually contri(utin such incomes to a common fund and$ in eHect they there(y
formed an unreistered partnership ta.a(le (y law.