Lim vs.

Philippine Fishing Gear Industries Inc

Lim vs. Philippine Fishing Gear Industries Inc. [GR 136448, 3 November 1999]

FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him.
The three agreed to purchase two fishing boats but since they do not have the money they borrowed
from one Jesus Lim the brother of Lim Tong Lim. Subsequently, they again borrowed money for the
purchase of fishing nets and other fishing equipments. Yao and Chua represented themselves as acting in
behalf of “Ocean Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear
Industries (PFGI) for the purchase of fishing nets amounting to more than P500k. However, they were
unable to pay PFGI and hence were sued in their own names as Ocean Quest Fishing Corporation is a
non-existent corporation. Chua admitted his liability while Lim Tong Lim refused such liability alleging
that Chua and Yao acted without his knowledge and consent in representing themselves as a
corporation.

ISSUE: Whether Lim Tong Lim is liable as a partner

HELD: Yes. It is apparent from the factual milieu that the three decided to engage in a fishing business.
Moreover, their Compromise Agreement had revealed their intention to pay the loan with the proceeds
of the sale and to divide equally among them the excess or loss. The boats and equipment used for their
business entails their common fund. The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership. The principle of corporation by estoppel cannot apply in the case as Lim Tong Lim
also benefited from the use of the nets in the boat, which was an asset of the partnership. Under the law
on estoppel, those acting in behalf of a corporation and those benefited by it, knowing it to be without
valid existence are held liable as general partners. Hence, the question as to whether such was legally
formed for unknown reasons is immaterial to the case.

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

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.

GATCHALIAN v. COMMISSIONER OF INTERNAL REVENUE

GATCHALIAN v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 45425; April 29, 1939

Ponente: J. Imperial

FACTS:

On December 15, 1934, the plaintiffs, all 15 of them, each contributed in order to buy a
sweepstakes ticket worth Php 2.00.

That immediately thereafter but prior to December 16, 1934, plaintiffs purchased, in the ordinary
course of business, from one of the duly authorized agents of the National Charity Sweepstakes Office
one ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in
the name of Jose Gatchalian and Company.

The above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of
P50,000 and that the corresponding check covering the above-mentioned prize of P50,000 was drawn by
the National Charity Sweepstakes Office in favor of Jose Gatchalian & Company against the Philippine
National Bank, which check was cashed during the latter part of December, 1934 by Jose Gatchalian &
Company

Thereafter, Jose Gatchalian was required by income tax examiner Alfredo David to file the
corresponding income tax return covering the prize won by Jose Gatchalian & Company and that on
December 29, 1934

The defendant made an assessment against Jose Gatchalian & Company requesting the payment
of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. Tthe plaintiffs requested
exemption from the payment of the income tax but it was rejected. The plaintiffs paid in protest the tax
assessment given to them.

ISSUE:

Whether the plaintiffs formed a partnership, thus not exempted from paying income tax

HELD:

Yes, the plaintiffs formed a partnership

The Supreme Court held that according to the stipulated facts the plaintiffs organized a partnership
of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did in fact in the amount of P50,000.

The partnership was not only formed, but upon the organization thereof and the winning of the
prize, Jose Gatchalian personally appeared in the office of the Philippine Charity Sweepstakes, in his
capacity as co-partner, as such collected the prize, the office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner. in the same capacity, collected the said check.

Having organized and constituted a partnership of a civil nature, the said entity is the one bound to
pay the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761.

Arbes v. Polistico

G.R. No. 31057; September 7, 1929

FACTS:

An association called “Turnuhan Polistico & Co” was deemed by the court-appointed commissioner, to
which the court declared as well, as an unlawful partnership. The defendants objected to the trial court’s
report. Consequently, they filed a motion for a charitable institution to be included as a party defendant
applying the provisions of Art. 1666 of the NCC which provides:
“A partnership must have a lawful object and must be established for the common benefit of the
partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to
charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.”

ISSUE:

May a charitable institution be a party defendant based on the provisions of Art. 1666?

HELD:

No. The Court held that the application for the said article is improper. An unlawful partnership is a void
contract, and as such, no right or cause of action can flow from it.

The Court made reference to Manresa which propounded that the relevant logic that members of an
unlawful partnership should not be able to recover profits since in the eyes of the law, the partnership
had not come into existence and that no judicial action may flow from the contract.

However, such members may recover what they have contributed not on the basis of the contract, but
on the basis of the mere contribution they have made on the capital and to disable them to do so would
be an unjust sanction.

LORENZO OÑA V CIR

lazylegalbones

8 years ago

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GR No. L -19342 | May 25, 1972 | J. Barredo

Facts:

Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A civil case
was instituted for the settlement of her state, in which Oña 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 ½ 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 Oña 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 Oña 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 CTA’s 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 Oña 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 Merten’s 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.

HEIRS OF JOSE LIM v. JULIET VILLA LIM, GR No. 172690, 2010-03-03

Facts:

Petitioners are the heirs of the late Jose Lim (Jose)

Jose's widow Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison
They filed a Complaint[4] for Partition, Accounting and Damages against respondent Juliet Villa Lim
(respondent)... widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that

Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed
a partnership to engage in the trucking business.

hey purchased a truck to be used in the hauling and transport of lumber of the sawmill.

Jose managed the operations of this trucking business until his death

Thereafter, Jose's heirs, including Elfledo, and partners agreed to... continue the business under the
management of Elfledo.

Petitioners also alleged that

Elfledo... was never a partner or an investor in the business and merely supervised the purchase of
additional trucks using the income from the... trucking business of the partners.

Elfledo died, leaving respondent as his sole surviving heir

Petitioners claimed that respondent took over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent and approval.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto
and Jimmy.
Respondent also stressed that Jose left no properties that Elfledo could have held in trust.

Respondent maintained that all the... properties involved in this case were purchased and acquired
through her and her husband's joint efforts and hard work, and without any participation or contribution
from petitioners or from Jose.

Respondent submitted that these are conjugal partnership properties; and thus, she... had the right to
refuse to render an accounting for the income or profits of their own business.

RTC rendered its decision in favor of petitioners... to submit an accounting of all incomes, profits and
rentals received by her from said properties

Aggrieved, respondent appealed to the CA.

he CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack of merit.

petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was not a
partner; and that he and Norberto entered into a partnership with Jose.

Issues:

who between Jose and Elfledo... was the "partner" in the trucking business.

Ruling:

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of the
profits and losses among them. A contract of partnership is defined by... the Civil Code as one where 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.

Art. 1769. 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 from which the returns are
derived;

(4) The receipt by a person of a share of the profits of a business is a 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 installments 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.
the following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:
1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that
coincided with the... payment of the initial capital in the partnership;[15] (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and authority, without any intervention or opposition
whatsoever from any of petitioners herein;[16] (3) all of the properties, particularly the nine trucks of
the partnership, were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not receive
wages or salaries from the partnership, indicating that what he actually received were shares of... the
profits of the business;[17] and (5) none of the petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo during his lifetime.

Principles:

Heirs of Tan Eng Kee,[18] a demand... for periodic accounting is evidence of a partnership.