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AFISCO Insurance Corporation v.

G.R. No. 112675 Jan. 25, 1999
Justice Panganiban


 Pursuant to “reinsurance treaties,” a number of local insurance firms formed themselves into a “pool” in order
to facilitate the handling of business contracted with a non resident foreign reinsurance company.
 After assessing their submitted financial statement, the BIR Commissioner required them to pay deficiency taxes
on the ground that they have formed an unregistered partnership taxable as a corporation
 AFISCO: there was no partnership
o The reinsurance policies were written by them individually and separately
o Their liability was limited to the extent of their allocated share in the original risks thus reinsured
o They did not share the same risk or solidary liability
o There was no common fund
o The executive board of the pool did not exercise control and management of its funds, unlike the board
of directors of a corporation
o 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
 CA: a partnership was formed


 WON the pool or clearing house was a partnership or association subject to tax as a corporation


 Yes, it is.
 The Philippine legislature included in the concept of corporations those entities that resembled them such as
unregistered partnerships and associations.
o Parenthetically, the NLRC’s inclusion of such entities in the tax on corporations was made even clearer
by the Tax Reform Act of 1997, which amended the Tax Code
 SC: the term partnership includes syndicate, group, pool, joint venture and other unincorporated organization,
through or by means of which any business, financial operation, or venture is carried on (Evangelista v. Collector
of Internal Revenue)
 Art. 1767 of the Civil Code: requisite of a contract of partnership
o Two or more persons mutually contribute to a common fund
o With the intention to divide the profits among themselves
 Meanwhile, an association implies associates who enter into a joint enterprise for the transaction of business
 Where several local insurance ceding companies enter into pool agreement or an association that would handle
all the insurance business covered under their quota-share reinsurance treaty and surplus reinsurance treaty
with a non-resident foreign reinsurance company, the resulting pool having a common fund, and functions
through an executive board, and its work in indispensable, beneficial and economically useful to the business of
the ceding companies and the foreign firm, such circumstances indicate a partnership or an association covered
by Sec. 24 of the NIRC


In 1980, the heirs of Jose Lim alleged that Jose Lim entered into a partnership agreement with Jimmy Yu and Norberto
Uy. The three contributed P50,000.00 each and used the funds to purchase a truck to start their trucking business. A year
later however, Jose Lim died. The eldest son of Jose Lim, Elfledo Lim, took over the trucking business and under his
management, the trucking business prospered. Elfledo was able to but real properties in his name. From one truck, he
increased it to 9 trucks, all trucks were in his name however. He also acquired other motor vehicles in his name. In 1993,
Norberto Uy was killed. In 1995, Elfledo Lim died of a heart attack. Elfledo’s wife, Juliet Lim, took over the properties but
she intimated to Jimmy and the heirs of Norberto that she could not go on with the business. So the properties in the
partnership were divided among them. Now the other heirs of Jose Lim, represented by Elenito Lim, required Juliet to do
an accounting of all income, profits, and properties from the estate of Elfledo Lim as they claimed that they are co-owners
thereof. Juliet refused hence they sued her. The heirs of Jose Lim argued that Elfledo Lim acquired his properties from the
partnership that Jose Lim formed with Norberto and Jimmy. In court, Jimmy Yu testified that Jose Lim was the partner and
not Elfledo Lim. The heirs testified that Elfledo was merely the driver of Jose Lim.

ISSUE: Who is the “partner” between Jose Lim and Elfledo Lim?

HELD: It is Elfledo Lim based on the evidence presented regardless of Jimmy Yu’s testimony in court that Jose Lim was
the partner. If Jose Lim was the partner, then the partnership would have been dissolved upon his death (in fact, though
the SC did not say so, I believe it should have been dissolved upon Norberto’s death in 1993). A partnership is dissolved
upon the death of the partner. Further, no evidence was presented as to the articles of partnership or contract of
partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in this case, because the alleged partnership
was never formally organized. But at any rate, the Supreme Court noted that based on the functions performed by Elfledo,
he is the actual partner. 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; 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; 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; and 5.) none of the heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in the case of Heirs of Tan Eng Kee, a demand for periodic accounting is
evidence of a partnership. Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and Juliet formed part of the estate of Jose, having been
derived from Jose’s alleged partnership with Jimmy and Norberto. Elfledo was not just a hired help but one of the partners
in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his
demise. The extent of his control, administration and management of the partnership and its business, the fact that its
properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative
of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the other partners only contributed in
the initial capital but had no say thereafter on how the business was ran. Evidently it was through Elfredo’s efforts and
hard work that the partnership was able to acquire more trucks and otherwise prosper.
HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, G.R. No. 126881, October 3, 2000


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

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

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

FACTS: The spouses Andres Jarantilla and FelisaJaleco were survived by eight children: Federico Sr., Delfin, Benjamin,
Conchita, Rosita, Pacita, Rafael and Antonieta. Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla
spouses by their son Federico Jarantilla, Sr. and his wife Leda Jamili. Petitioner also has two other brothers: Doroteo and
Tomas Jarantilla.

The Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their deceased parents. With the
exception of the real property adjudicated to PacitaJarantilla, the heirs also agreed to allot the produce of the said real
properties for the years 1947-1949 for the studies of Rafael and AntonietaJarantilla.

Sps. Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the spouses Buenaventura Remotigue and
ConchitaJarantilla to provide mutual assistance to each other by way of financial support to any commercial and
agricultural activity on a joint business arrangement. This proved to be successful as they were able to establish a
manufacturing and trading business, acquire real properties, and construct buildings, among other things. The same
ended in 1973 upon their voluntary dissolution.

The spouses Buenaventura and ConchitaRemotigue executed a document Acknowledgement of Participating Capital
stating the participating capital of of their co-owners as of the year 1952, with AntonietaJarantillas stated as eight
thousand pesos (P8,000.00) and Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00).

The controversy started when Antonieta filed a complaint against Buenaventura, Cynthia, Doroteo and Tomas, for the
accounting of the assets and income of the co-ownership, for its partition and the delivery of her share corresponding to
eight percent (8%), and for damages. She alleged that the initial contribution of property and money came from the heirs
inheritance, and her subsequent annual investment of seven thousand five hundred pesos (P7,500.00) as additional
capital came from the proceeds of her farm.

Respondents denied having formed a partnership. They did not deny the existence and validity of the "Acknowledgement
of Participating Capital" and in fact used this as evidence to support their claim that Antonietas 8% share was limited to
the businesses enumerated therein. Petitioner Federico Jr joined his aunt Antonieta and likewise asserted his share in the
supposed partnership.

The RTC rendered judgment in favor of Antonieta and Federico. On appeal, the CA set the RTC Decision. Petitioner filed
a petition for review to the SC.

ISSUE: Did the CA err in ruling that petitioners are not entitled to profits over the businesses not listed in the
HELD: There is a co-ownership when an undivided thing or right belongs to different persons. It is a partnership when two
dividing the profits among themselves.
The common ownership of property does not itself create a partnership between the owners, though they may use it for
the purpose of making gains; and they may, without becoming partners, agree among themselves as to the management,
and use of such property and the application of the proceeds therefrom.
Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.

It is not denied that all the parties in this case have agreed to contribute capital to a common fund to be able to later on
share its profits. They have admitted this fact, agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of Participating Capital.
The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by Conchita Jarantilla-
Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its contents and is actually relying on it to
prove his participation in the partnership. Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may
have contributed, but the industrial partner shall not be liable for the losses.
The petitioner himself claims his share to be 6%, as stated in the Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically enumerated the businesses covered by the partnership: Manila
Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City. Since there was a clear
agreement that the capital the partners contributed went to the three businesses, then there is no reason to deviate from
such agreement and go beyond the stipulations in the document. Therefore, the Court of Appeals did not err in limiting
petitioners share to the assets of the businesses enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez, the Court held that since a partnership is a separate juridical entity, the shares to be paid out to the
partners is necessarily limited only to its total resources.
The petitioner further asserts that he is entitled to respondents properties based on the concept of trust. He claims that
since the subject real properties were purchased using funds of the partnership, wherein he has a 6% share, then "law
and equity mandates that he should be considered as a co-owner of those properties in such proportion."
As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be
clear and satisfactorily show the existence of the trust and its elements. While implied trusts may be proved by oral
evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to
rest on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be
The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his bare allegations,
he has failed to show that the respondents used the partnerships money to purchase the said properties. Even assuming
arguendo that some partnership income was used to acquire these properties, the petitioner should have successfully
shown that these funds came from his share in the partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity in the partnership.
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
G.R. No. L-68118 October 29, 1985

sisters, petitioners


On March 2, 1973 Jose Obillos, Sr. bought two lots with areas of 1,124 and 963 square meters of located at
Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable
them to build their residences. The Torrens titles issued to them showed that they were co-owners of the two

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City
Securities Corporation and Olga Cruz Canada for the total sum of P313,050. They derived from the sale a total
profit of P134, 341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income
tax on one-half thereof or of P16,792.

In April, 1980, the Commissioner of Internal Revenue required the four petitioners to pay corporate income
tax on the total profit of P134,336 in addition to individual income tax on their shares thereof. The petitioners
are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint
venture The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Hence, the
instant appeal.


Whether or not the petitioners had indeed formed a partnership or joint venture and thus liable for corporate tax.


The Supreme Court held that the petitioners should not be considered to have formed a partnership just because
they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among
themselves. To regard so would result in oppressive taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider
them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners
were not engaged in any joint venture by reason of that isolated transaction.

*Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a
property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.*

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

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

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

All co-ownerships are not deemed unregistered partnership.—Co-Ownership who own properties which
produce income should not automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all

Co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce
an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income
tax on corporation.

As compared to other cases:

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

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

On June 22, 1992, respondent Lamberto T. Chua filed a complaint against petitioners, Lilibeth Sunga Sunga
Chan and Cecilia Sunga, daughter and wife, respectively of the deceased Jacinto L. Sunga, for winding up of
Partnership Affairs, accounting, appraisal and recovery of Shares and Damages with Writ of Preliminary
Attachment with the Regional Trial Court, Branch 11, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of
Shellane Liquefied Petroleum Gas (LPG) in Manila with initial capital contribution of Php100,000.00 each,
with the intention that the profits would be equally divided between them. For business convenience,
respondent and Jacinto agreed to register the business name of their partnership SHELLITE GAS APPLIANCE
CENTER under the name of Jacinto as sole proprietorship.

Petitioners question the correctness of the finding of the Trial Court and the Court of Appeals that a partnership
existed in the absence of any written document to show partnership between respondent and Jacinto from 1977
until Jacinto’s death.


Whether or not respondent Lamberto Chua and Jacinto L. Sunga has entered into a partnership?


Yes. The court ruled that a partnership may be constituted in any form, except where immovable property or
real rights are contributed thereto, in which case a public instrument shall be necessary. Also, Article 1772 of
the Civil Code requires that partnership with a capital of Php3,000.00 or more must register with the Securities
and Exchange Commission, however this registration requirement is not mandatory. Article 1768 of the Civil
Code explicitly provides that the partnership retains its juridical personality even if it fails register. The failure
to register the contract of partnership does not invalidate the same as among the partners, so long as the contract
has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can
be assumed that the members themselves knew of the contents of their contract.

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business
concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to dissolve their partnership and executed an agreement of
partition and distribution of the partnership properties among them, consequent to Jacinto Divinagracia’s
withdrawal from the partnership.
Among the assets to be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land
located at Sto. Niño and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the
Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanao’s untimely demise in 1994,
petitioner failed to submit to Tabanao’s heirs any statement of assets and liabilities of the partnership, and to
render an accounting of the partnership’s finances.
Petitioner also reneged on his promise to turn over to Tabanao’s heirs the deceased’s 1/3 share in the
total assets of the partnership, amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal
demand for payment thereof.
Consequently, Tabanao’s heirs, respondents herein, filed against petitioner an action for accounting,
payment of shares, division of assets and damages.
The trial court ruled in favor of private respondents. Petitioner then filed a petition for certiorari before
the Court of Appeals which as dismissed.
Hence, this petition.

Whether or not the surviving spouse of Vicente Tabanao has the legal capacity to sue even if she was
never appointed as administratrix or executrix of his estate.

YES. Petitioner’s objection in this regard is misplaced.
The surviving spouse does not need to be appointed as executrix or administratrix of the estate before she can
file the action. She and her children are complainants in their own right as successors of Vicente Tabanao.
From the very moment of Vicente Tabanao’s death, his rights insofar as the partnership was concerned were
transmitted to his heirs, for rights to the succession are transmitted from the moment of death of the decedent.
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted
to respondents by operation of law, more particularly by succession, which is a mode of acquisition by virtue of
transmitted. Moreover, respondents became owners of their respective hereditary shares from the moment
Vicente Tabanao died.
WHEREFORE, petition is DENIED.