agency, partnership and trust cases

8/12/2019 agency, partnership and trust cases

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1. MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITAA. ANAY, respondents. [G.R. No. 127405. October 4, 2000]Business OrganizationPartnership, Agency, Trust Dissolution of the Partnership

Facts: William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form ajoint 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 ofmarketing. Belo and Tocao specifically asked Anay because of her experience and connections as amarketer. They agreed further that Anay shall receive the following:

1. 10% share of annual net profits2. 6% overriding commission for weekly sales3.

30% of sales Anay will make herself4.

2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however registered as a soleproprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was notreduced to writing because Anay trusted Belos assurances.

The venture succeeded under Anays marketing prowess. But then the relationship between Anayand 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 forthe 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 onlyincidental to her efforts as a head marketer.

The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is aninnocent 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 andgoodwill. An innocent partner thus possesses pecuniary interest in every existing contract that wasincomplete 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 personaeallows the partners to have

thepower, although not necessarily the right to dissolve the partnership. Tocaos unilateral exclusion ofAnay 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, petitionerTocao 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 notterminated 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 aguarantor. He in fact had only limited partnership. Tocao also testified that Belo received nothing fromthe 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 petitionerTocaos good friend and confidante, would occasionally participate in the affairs of the business, althoughnever in a formal or official capacity.


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2.Lim Tong Lim vs Philippine Fishing Gear Industries, Inc. (317 SCRA 729, 1999)Business OrganizationPartnership, Agency, TrustCorporation by Estoppel

Facts: It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing withhim and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not have themoney 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 representedthemselves as acting in behalf of Ocean Quest Fishing Corporation (OQFC) they contracted withPhilippine 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 apparentlyOQFC is a non-existent corporation. Chua admitted liability and asked for some time to pay. Yao waivedhis 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 haddecided 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 theirintention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them theexcess 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 orfixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profitfrom 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, theboat which has earlier been proven to be an asset of the partnership. Lim, Chua and Yao decided to form acorporation. 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 atthe in Quezon City which were then being leased to SHELL. They agreed to open and operate a gasstation 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 incommon 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 appointingonly one dealer, it wasagreed 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 anAdditional 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 thatsaid agreement cancels and supersedes the Joint Affidavit.

For sometime, the petitioner submitted financial statement regarding the operation of the businessto 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


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ordered:(1)To execute a public document embodying all the provisions of the partnership agreement theyentered 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 thesame be subject tto proper audit;(3)To pay the plaintiffs their lawful shares and participation in the net

profits of thebusiness; and(4)To pay the plaintiffs attorneys fees andcosts of the suit.

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

Trial Court: The complaint (of the respondents) was dismissed. But upon a motion for reconsideration ofthe 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 AdditionalCash 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 previousagreement 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 toadvance 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 theprevious none. Indeed, it is true that the latter document is silent as to the statement in the Join Affidavitthat 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 apartnership 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 periodicaccounting of the business and gave a written authority to the private respondent Remedios Estanislao toexamine and audit the books of their common business (aming negosyo). Therespondent Remedios, onthe other hand, assisted in the running of the business. Indeed, the parties hereto formed a partnershipwhen they bound themselves to contribute money in a common fund with the intention of dividing the

profits among themselves


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4.Alfredo Aguila Jr vs Court of Appeals et al

Business OrganizationPartnership, Agency, TrustIdentity Separate and Distinct

Facts: In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement with alending 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 furtherstipulates that in case of non-payment, the property shall be automatically appropriated to the partnershipand 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 theperiod 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 ofAppeals 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 loanamount, 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 byAguila, he is not the real party in interest but rather it was the partnership A.C. Aguila & Sons, Co. TheRules 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 benefitedor injured by the judgment, or who isentitled 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 forfailure 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 p artnershipunless 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 aseparate 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 thisrule will result in the dismissal of the complaint.

5.Heirs of Tan Eng Kee vs Court of Appeals

Business OrganizationPartnership, Agency, TrustPeriodic AccountingProfit Sharing

Facts: Benguet Lumber has been around even before World War II but during the war, its stocks wereconfiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled theirresources in order to revive the business. In 1981, Tan Eng Lay caused the conversion of Benguet Lumberinto 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 anaccounting 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 Keewas merely an employee of Benguet Lumber. He showed evidence consisting of Tan Eng Kees payroll;


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his SSS as an employee and Benguet Lumber being the employee. As a result of the presentation of saidevidence, 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 showwhat was the agreement between the brothers as to the sharing of profits. All they presented werecircumstantial evidence which in no way proved partnership.

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firmaccount, 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 tosubmit 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 theexistence 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 SS Scoverage, 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 thepublication of the New Civil Code in 1950? Even so, nothing prevented the parties from complying withthis 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 demandan accounting as long as the partnership exists. Even if it can be speculated that a scenario wherein ifexcellent 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 longto be plausible. A person is presumed to take ordinary care of his concerns. A demand for periodicaccounting 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 asto third persons;(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners orco-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 personssharing 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 orotherwise.


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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.andon May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels ofland were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels ofland were sold by petitioners to Erlinda Reyes and Maria Samsonon March 19,1970. Petitioner realized anet profit in the sale made in 1968 in the amount of P165, 224.70, while they realized a net profit ofP60,000 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 asco-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, bothof 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 individualincome tax

ISSUE: Whether petitioners formed an unregisteredpartnership subject to corporate incometax(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 orco-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 itselfestablish a partnership, whether or not the persons sharing them have a joint or common right or interestin 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 personalitydifferent 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 adequatebasis to support the proposition that they thereby formed an unregistered partnership. The two isolatedtransactions whereby they purchased properties and sold the same a few years thereafter did not therebymake them partners. They shared in the gross profits as co- owners and paid their capital gains taxes ontheir 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, asthe respondent commissioner proposes.

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


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7.LORENZO OA V CIRGR 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 theguardian of the three heirs who were still minors when the project for partition was approved. This showsthat the heirs have undivided interest in 10 parcels of land, 6 houses and money from the War DamageCommission.

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 orselling 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 forreconsideration, 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 thedeceased among themselves pursuant to the project of partition, the heirs allowed their properties toremain under the management of Oa and let him use their shares as part of the common fund for theirventures, 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 anunregistered partnership the moment the said common properties and/or the incomes derived therefromare used as a common fund with intent to produce profits for the heirs in proportion to their respectiveshares 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 issimple. 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 taxesin connection therewith. If after such partition, he allows his share to be held in common with his co-heirsunder 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.


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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 unincorporatedorganization, through or by means of which any business, financial operation, or venture is carried on(8 Mertens Law of Federal Income Taxation, p. 562 Note63; emphasis ours.)

with the exception only of duly registered general copartnerships within the purview of the termcorporation. It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar assaid 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 formerto manage the latters mining claim know as the Sto. Mine. The parties agreement was denominated asPower 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, whereinthe 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 againstreserves and allowances. BIR disallowed the amount as deduction for bad debt. Petitioner claims that itentered 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 ofTax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA affirmedCTA

Issue:Whether or not it is an agency.

Held:No. The lower courts correctly held that the Power of Attorney (PA) is the instrument materialthat 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 unlessauthorized 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 acommon 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 theprincipal due to an interest of a third party that depends upon it or the mutual interest of both principaland 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 inferredfrom the stipulation that it is an agency.


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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 theold 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 thePhilippines, no matter how created or organized, xxx. Ineludibly, the Philippine legislature included inthe concept of corporations those entities that resembled them such as unregistered partnerships andassociations.

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 wouldhandle 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 accorporation.

Double Taxation is not Present in the Case at BarDouble 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 entitydistince from the individual corporate entities of the ceding companies. The tax on its income is obviouslydifferent 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 insurancepolicies for machines. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a

Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter calledMunich), 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, th e 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 dividendspaid 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 thatthe 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, andthat 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 ofallocating and distributing the risk(s) arising from the original insurance among the signatories to the


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treaty or the members of the pool based on their ability to absorb the risk(s) ceded[;] as well as theperformance 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 corporationorganized in, or existing under the laws of the Philippines, no matter how created or organized, but notincluding 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 suchentities 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 andwithout the Philippines by every corporation, as defined in Section 22 (B) of this Code, and taxable underthis 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 notinclude 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 operationspursuant 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 ex ercising

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 theseunregistered partnerships and even associations or joint accounts, which had no legal personalities apartfrom their individual members.

Furthermore, Pool Agreement or an association that would handle all the insurance businesses coveredunder their quota-share reinsurance treaty and surplus reinsurance treaty with Munich may be considereda partnership because it contains the following elements: (1) The pool has a common fund, consisting ofmoney and other valuables that are deposited in the name and credit of the pool. This common fund paysfor 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 eachof 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 withMunich. 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 dividendssubject to tax. Imposing a tax would be tantamount to an illegal double taxation, as it would result intaxing the same premium income twice in the hands of the same taxpayer. Furthermore, even if suchremittances were treated as dividends, they would have been exempt under tSections 24 (b) (I) and 263 of


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the 1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of the RP-West GermanTax Treaty.

Argument of Supreme Court: Double taxation means taxing the same person twice by the samejurisdiction for the same thing. In the instant case, the insurance pool is a taxable entity distince from theindividual 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 exemptionconstrued strictly against the taxpayer - Section 24 (b) (1) pertains to tax on foreign corporations; hence, itcannot 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 samesubsection 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 construedstrictissimi juris, and the statutory exemption claimed must be expressed in a language too plain to be

mistaken.

10. Antonia Torres vs Court of AppealsBusiness Organization Partnership, Agency, Trust Sharing of Loss in a Partnership IndustrialPartner

Facts: In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement withManuel 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 thesisters 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 theproperty, 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 agreementwhereby 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 hiscontribution for general expenses and other costs. Furthermore, the income from the said project would bedivided according to the stipulated percentage (60-40). Clearly, the contract manifested the intention ofthe 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.

agency, partnership and trust cases

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