CAMPOS RUEDA & CO V PACIFIC COMMERCIAL

(44 PHIL 916)

FACTS: Campos, Rueda & Co., a limited partnership, is indebted to the appellants:
Pacific Commercial Co. , Asiatic Petroleum Co, and International Banking
Corporation amounting to not less than P1,000.00 (which were not paid more than
30 days prior to the date of the filing by petitioners of the application for voluntary
insolvency).
The trial court denied their petition on the ground that it was not proven, nor
alleged, that the members of the firm were insolvent at the time the application was
filed. It also held that the partners are personally and solidarily liable for the
consequences of the transactions of the partnership.

ISSUE:Whether or not a limited partnership may be held to have committed an act

of insolvency.

HELD: Yes. A limited partnership’s juridical personality is different from the

personality of its members. On general principle, the limited partnership must
answer for and suffer the consequence of its acts. Under our Insolvency Law, one of
the acts of bankruptcy upon w/c an adjudication of involuntary insolvency can be
predicated is the failure to pay obligations.
The failure of Campos, Rueda & Co., to pay its obligations constitutes an act w/c is
specifically provided for in the Insolvency Law for declaration of involuntary
insolvency. The petitioners have a right to a judicial decree declaring the
involuntary insolvency of said partnership.
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 the old 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 the Philippines,
no matter how created or organized, xxx.” Ineludibly, the Philippine
legislature included in the concept of corporations those entities that resembled
them such as unregistered partnerships and associations.
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 would handle 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 a
corporation.
Double Taxation is not Present in the Case at Bar – Double 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 entity distince 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 companies. There is no double taxation.
FACTS:
The petitioners are 41 non-life domestic insurance corporations. They issued risk
insurance policies for machines. The petitioners in 1965 entered into a Quota
Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the
Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), 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, the 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 dividends paid 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 that the latter’s 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,” and that 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 of “allocating and
distributing the risk(s) arising from the original insurance among the signatories to
the treaty or the members of the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance 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 corporation organized in, or existing under the laws
of the Philippines, no matter how created or organized, but not including duly
registered general co-partnership (compañias 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 NIRC’s inclusion of such entities 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 and without the Philippines by every
corporation, as defined in Section 22 (B) of this Code, and taxable under this 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 not include 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 operations pursuant 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 exercising 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 these unregistered partnerships and even associations or joint accounts,
which had no legal personalities apart from their individual members.
Furthermore, Pool Agreement or an association that would handle all the insurance
businesses covered under their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich may be considered a partnership because it
contains the following elements: (1) The pool has a common fund, consisting of
money and other valuables that are deposited in the name and credit of the pool.
This common fund pays for 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 each of 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 with Munich. Profit
motive or business is, therefore, the primordial reason for the pool’s formation.
LIM TANHU v. RAMOLETE
G.R. No. L-40098; August 29, 1975

FACTS: Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a
partner in the commercial partnership, Glory Commercial Company with Antonio
Lim Tanhu and Alfonso Ng Sua".
Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and
Eng Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants managed to use the funds of
the partnership to purchase lands and buildings in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla.
She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation, continued the business of Glory Commercial
Company, by purportedly organizing a corporation known as the Glory Commercial
Company, Incorporated and sometime in the month of November, 1967,
defendants, particularly Antonio Lim Tanhu, by means of fraud deceit, and
misrepresentations did then and there, induce and convince her to execute a
quitclaim of all her rights and interests, in the assets of the partnership of Glory
Commercial Company.
Thereafter, in the year 1968-69, the defendants who had earlier promised to
liquidate the aforesaid properties and assets in favor, among others of plaintiff and
until the middle of the year 1970 when the plaintiff formally demanded from the
defendants the accounting of real and personal properties of the Glory Commercial
Company, defendants refused and stated that they would not give the share of the
plaintiff.

ISSUE: Whether Tan has a right over the liquidated properties of the partnership.

HELD: No, Tan has no right over the liquidated properties of the partnership
The Supreme Court held that there is no alternative but to hold that plaintiff Tan
Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been
satisfactorily established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was that of a common-law
wife.

Moreover, the Supreme Court said that the lower courts committed an error by
awarding 1/3 of the partnership properties to Tan because there has been no
liquidation proceedings yet. And if there has not yet been any liquidation of the
partnership, the only right plaintiff could have would be to what might result after
much liquidation to belong to the deceased partner (her alleged husband) and
before this is finished, it is impossible to determine, what rights or interest, if any
the deceased had.
In other words, no specific amounts or properties may be adjudicated to the heir or
legal representative of the deceased partner without the liquidation being first
terminated.
EVANGELISTA & CO. v. ABAD SANTOS
G.R. No. L-31684; June 28, 1973

FACTS: On October 9, 1954 a co-partnership was formed under the name of

"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership were amended so
as to include herein respondent, Estrella Abad Santos, as industrial partner, with
herein petitioners Domingo C. Evangelista, Jr., Leonarda Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners, remaining in that capacity,
with a contribution of P17,500 each

On December 17, 1963 herein respondent filed suit against the three other partners,
alleging that the partnership, which was also made a party-defendant, had been
paying dividends to the partners except to her; and that notwithstanding her
demands the defendants had refused and continued to refuse to let her examine the
partnership books or to give her information regarding the partnership affairs or to
pay her any share in the dividends declared by the partnership

The defendants, in their answer, denied ever having declared dividends or

distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and by way of
affirmative defense alleged that the amended Articles of Co-partnership did not
express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership.

ISSUE: Whether Abad Santos is entitled to see the partnership books because she
is an industrial partner in the partnership

HELD: Yes, Abad Santos is entitled to see the partnership books.

The Supreme Court ruled that according to

ART. 1299. Any partner shall have the right to a formal account as to partnership
affairs:

(1)If he is wrongfully excluded from the partnership business or possession of its

property by his co-partners;
(2)If the right exists under the terms of any agreement;
(3)As provided by article 1807;
(4)Whenever other circumstances render it just and reasonable."

In the case at hand, the company is estopped from denying Abad Santos as an
industrial partner because it has been 8 years and the company never corrected
their agreement in order to show their true intentions. The company never bothered
to correct those up until Abad Santos filed a complaint.
MORAN JR. v. COURT OF APPEALS
133 SCRA 88 (1984)

FACTS: Moran and Pecson agreed to contribute P15 000 each for the purpose of
printing 95,000 posters of the delegates to the then 1971 Constitutional Commission.
It was further agreed that Pecson will receive a commission of P 1000 a month and
that the partnership is to be liquidated on December 15, 1971.
Pecson partially fulfilled his obligation when he issued P10k in favor of the
partnership. He gave the P10k to Moran as the managing partner. Moran however
did not add anything and, instead, he only used P4k out of the P10k in printing 2,000
posters. He only printed 2,000 posters. All the posters were sold for a total of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court
of Appeals affirmed the decision but modified the same as it ordered Moran to pay
P47.5k for unrealized profit; P8k for Pecson’s monthly commissions; P7k as return of
investment because the venture never took off; plus interest.

ISSUE: Whether or not the Court of Appeals erred in holding Moran liable to
respondent Pecson in the sum of P47,500 as the supposed expected profits due him.

RULING: The first question raised in this petition refers to the award of P47,500.00
as the private respondent's share in the unrealized profits of the partnership. The
award of speculative damages has no basis in fact and law.
The rule is, when a partner who has undertaken to contribute a sum of money fails to
do so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from the time he
should have complied with his obligation (Art. 1788, Civil Code. In this case, there
was mutual breach. Private respondent failed to give his entire contribution in the
amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise
failed to give any of the amount expected of him. He further failed to comply with the
agreement to print 95,000 copies of the posters. Instead, he printed only 2,000
copies.
There is no evidence whatsoever that the partnership between the petitioner and the
private respondent would have been a profitable venture. In fact, it was a failure
doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent
Being a contract of partnership, each partner must share in the profits and losses of
the venture. That is the essence of a partnership. And even with an assurance made
by one of the partners that they would earn a huge amount of profits, in the absence
of fraud, the other partner cannot claim a right to recover the highly speculative
profits