AFISCO vs CA (Elements of Partnership)

Petitioners are 41 non-life insurance corporation organized and existing under the law of the Philippines. The petitioners entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with Munich, which was a non-resident foreign insurance corporation.

The reinsurance treaty required the petitioners to form a pool which was formed on the same day.

The Pool machinery insurers submitted a financial statement and filed an Information Return of Organization Exempt from Income tax.

The CIR made an assessment of deficiency corporate and withholding taxes, which was protested against by the petitioner.

CIR denied the protest and ordered petitioner to pay the tax deficiency, interest and withholding tax.

CA rules that the pool machinery insurer was a partnership taxable as a corporation.

Issue: W/N the clearing house, acting as a mere agent and performing strictly administrative functions and did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation?

Ruling: Yes. The pool is taxable as a corporation

The pool or clearing house was an informal partnership as found by the Court Of Appeals. Under Art. 1767 NCC which recognizes the creation of a contract of partnership when 2 or more

person binds themselves to contribute money, property or industry to a common fund, with the intention of dividing the profit among themselves.

The following are the requisite of a partnershipo Mutual contribution to a common fundo Joint interest in profit

In the case at bar the ceding company entered into a Pool Agreement or an association that would handle all the insurance businesses covered under quota-share reinsurance treaty and surplus reinsurance treaty with Munich

o The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool.

o The pool function through an executive boardo The ceding companies share in the business ceded to the pool and in the expense

according to the Rules of Distribution The fact that the pool does not retain an profit or income does not obliterate an antecedent fact

that of the pool being used in the transaction of business for profit. That the association was indispensable to the transaction of the business profit. Profit must have been the object as indeed profit was earned.

Evangelista Vs CIR (Intent of Parties)

Petitioners (Eufemia, Manuela and Francisca) borrowed from their father a sum of money together with their personal monies was used by them for the purpose of buying real properties.

A series of transaction was engaged by the petitioner on buying several properties. Petitioner appointed their Brother Simeon to manage their properties with full power to lease;

to collect and receive rents; to issue receipt thereof; in default of such payment, to bring suits against defaulting tenants; to sign all letters of contracts and in their behalf to deposit and endorse all notes and checks for them

The petitioners had the same rented or leased to various tenants. CIR demanded the payment of income tax on corporation, real estate dealer’s fixed tax and

corporation residence tax as per assessment made by the officer. CTA favored the respondent.

Issue: W/N petitioner established a partnership and should be subject to corporate tax and not just co-owners?

Ruling: Yes

The essential element of partnership is an agreement to contribute money, property or industry to a common fund and the intent to divide the profit among the contracting parties.

The first element is present in the case for petitioner had contributed money and property to a common fund

The second element would be base on the intent in acting as they did. The court was satisfied that the purpose was to engage in real estate transactions for monetary gain and divide the same among themselves.

They established a common fund, they invested the same in a series of transaction they had undertaken by buying lots, the lots were not devoted for residential purpose but to be leased to several persons, the properties were under the management of one person and the said condition has existed for more than 10 to 15 years.

The petitioner here constitute a partnership insofar as the code (Internal Revenue Law) is concerned, and are subject to the income tax for corporation.

Lilibeth Sunga-Chan Vs Chua (Formal Requirements)

Respondent Chua entered to a verbal agreement into a partnership with Jacinto in the distribution of Shellane LPG, for business convenience, respondent jacinto allegedly agreed to register the business name of their partnership under Jacinto as a sole proprietor.

Respondent and Jacinto delivered their capital contribution with the intention that the profit would be equally divided between them. The partnership had Jacinto as Manager and assisted by Josephine Sy the sister of the wife of the respondent .

Upon Jacinto’s death his surviving wife petitioner Cecilia and his daughter Lilibeth took over the operation, control, custody, disposition and management of Shellite w/o the respondent’s consent.

Respondent repeatedly demands upon petitioner for accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership but was not complied with.

Respondent filed a complaint against the petitioner. Trial Court rendered a decision in favor of the respondent and CA affirmed

Issue: W/N the partnership existed between Respondent and Jacinto up until the death of Jacinto, in the absence of any written document to show such partnership between them.

Ruling: Yes the partnership exist

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.

Base from the intention of the parties and ascertained from their language and conduct, a verbal contract of partnership may arise.

In the absence of a written contract of partnership between respondent and jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove the said partnership.

Art 1772 NCC requires that partnership with a capital of 3,000 pesos or more must be registered with the SEC however this registration requirement is not mandatory. Art 1768 NCC provides that the partnership retains it juridical personality even if it fails to register. The failure to register does not invalidate the same as among the partners so long as the contract has the essential requisite since the main purpose of registration is to give notice to 3rd parties and it can be assumed hat members themselves knew of the content of their contract