Bastida vs. Menzi and Company, 58 Philippine Reports 188 Facts: Bastida Offered to assign to Menzi & Co.

his contract with Phil Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might derive therefrom. J.M. Menzi (gen. manager of Menzi & Co.) accepted the offer. The agreement between the parties was verbal and was confirmed by the letter of Menzi to the plaintiff on January 10, 1922. Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action. Still, the fertilizer business as carried on in the same manner as it was prior to the written contract, but the net profit that the plaintiff herein shall get would only be 35%. The Intervention of the plaintiff was limited to supervising the mixing of the fertilizers in the bodegas of Menzi. Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the plaintiff that the contract for his services would not be renewed. Subsequently, when the contract expired, Menzi proceeded to liquidate the Fertilizer business in question. The plaintiff refused to agree to this. It argued, among others, that the written contract entered into by the parties is a contract of general regular commercial partnership, wherein Menzi was the capitalist and the plaintiff the industrial partner. Issue: Is the relationship between the petitioner and Menzi that of partners? Held: The relationship established between the parties was not that of partners, but that of employer and employee, whereby the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi in compensation for his services for supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. The Written contract was, in fact, a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-- half of the net profits derived by the corporation form certain fertilizer contracts. According to Art. 116 of the Code of Commerce, articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter what it class may be, provided it has been established in accordance with the provisions of the Code. However In this case, there was no common fund. The business belonged to Menzi & Co. The Plaintiff was working for Menzi, and instead of

receiving a fixed salary, he was to receive 35% of the net profits as compensation for his services. The phrase in the written contract en sociedad con, which is used as a basis of the plaintiff to prove partnership in this case, merely means en reunion con or in association with. It is also important to note that although Menzi agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary credit.

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. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970.Petitioner realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000 in the sale made in 1970.Thecorresponding capital gains taxes were paid by petitioners in 1973 and1974 .Respondent Commissioner informed petitioners that in the years 1968 and1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section20(b)and its income was subject to the taxes prescribed under Section 24, both of 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 individual income tax. ISSUE: Whether petitioners formed an unregistered partnership subject to corporate income tax(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 or co-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 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; 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 personality different 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 adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax

real estate transactions for monetary gain and then divide the same among themselves as indicated by the following circumstances: 1. The common fund was not something they found already in existence nor a property inherited by them pro indiviso. It was created purposely, jointly borrowing a substantial portion thereof in order to establish said common fund; 2. They invested the same not merely in one transaction, but in a series of transactions. The number of lots acquired and transactions undertake is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain; 3. Said properties were not devoted to residential purposes, or to other personal uses, of petitioners but were leased separately to several persons; 4. They were under the management of one person where the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit; 5. Existed for more than ten years, or, to be exact, over fifteen years, since the first property was acquired, and over twelve years, since Simeon Evangelista became the manager; 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. The collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Also, petitioners argument that their being mere co-owners did not create a separate legal entity was rejected because, according to the Court, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When the NIRC includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. The qualifying expression found in Section 24 and 84(b) clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. For purposes of the tax on corporations, NIRC includes these partnerships - with the exception only of duly registered general co partnerships - within the purview of the term "corporation." It is, therefore, clear that

Evangelista, et al. v. CIR, GR No. L-9996, October 15, 1957 Facts: Herein petitioners seek a review of CTAs decision holding them liable for income tax, real estate dealers tax and residence tax. As stipulated, petitioners borrowed from their father a certain sum for the purpose of buying real properties. Within February 1943 to April 1994, they have bought parcels of land from different persons, the management of said properties was charged to their brother Simeon evidenced by a document. These properties were then leased or rented to various tenants. On September 1954, CIR demanded the payment of income tax on corporations; real estate dealers fixed tax, and corporation residence tax to which the petitioners seek to be absolved from such payment. Issue: Whether petitioners are subject to the tax on corporations. Ruling: The Court ruled that with respect to the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as used in Section 24 (provides that a tax shall be levied on every corporation no matter how created or organized except general co-partnerships) and 84 (provides that the term corporation includes among others, partnership) of the NIRC. Pursuant to Article 1767, NCC (provides for the concept of partnership), its essential elements are: (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 of the opinion of the Court that the first element is undoubtedly present for petitioners have agreed to, and did, contribute money and property to a common fund. As to the second element, the Court fully satisfied that their purpose was to engage in

petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations. As regards the residence of tax for corporations (Section 2 of CA No. 465), it is analogous to that of section 24 and 84 (b) of the NIRC. It is apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations. Finally, on the issues of being liable for real estate dealers tax, they are also liable for the same because the records show that they have habitually engaged in leasing said properties whose yearly gross rentals exceeds P3,000.00 a year.

ISSUE: Whether there was a general relation of partnership. RULING: NO, The position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed in the money used, the case might be different; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general relation of partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into a proposition which would make Lyons a participant in this deal contrary to his express determination. It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with reference to trust supply a basis for this action. The doctrines referred to operate, however, only where money belonging to one person is used by another for the acquisition of property which should belong to both; and it takes but little discernment to see that the situation here involved is not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not prejudice by that act. Pioneer Insurance & Surety Corporation vs Court of Appeals November 18, 2012 175 SCRA 668 -Business Organization Corporation Law When De Facto Partnership Does Not Exist Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery and Heavy Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts which would form part a corporation which will be the expansion of Southern Air Lines. Maglana et al then contributed and delivered money to Lim.

G.R. No. L-35469 March 17, 1932 E. S. LYONS vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased FACTS: Henry W. Elser was engaged in buying, selling, and administering real estate. E. S. Lyons joined with him, the profits being shared by the two in equal parts. Lyons, whose regular vocation was that of a missionary or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was gone for nearly a year and a half. Elser made written statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him to manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual advantage of both. The attention of Elser was drawn to a piece of land, referred to as the San Juan Estate. He obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate. The lender insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given for said loan. Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street to secure the liability thus assumed by it. The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.

But instead of using the money given to him to pay in full the aircrafts, Lim, without the knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to insure the two aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using said aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were foreclosed by Pioneer Insurance. It was established that no corporation was formally formed between Lim and Maglana et al. ISSUE: Whether or not Maglana et al must share in the loss as general partners. HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do business through a corporation but failed to incorporate, a de facto partnership would have been formed, and as such, all must share in the losses and/or gains of the venture in proportion to their contribution. But in this case, it was shown that Lim did not have the intent to form a corporation with Maglana et al. This can be inferred from acts of unilaterally taking out a surety from Pioneer Insurance and not using the funds he got from Maglana et al. The record shows that Lim was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.

Kiel v. Estate of Sabert, 46 Phil 193 (1924) Facts: After a partner died, the remaining partner sought to recover his share in the partnership. ISSUE: Held: The declarations of one partner, not made in the presence of his co-partner, are not competent to prove the existence of a partnership, between them as against such other partner. The existence of a partnership cannot be established by general reputation, rumor, or hearsay. Sec. 29. Admission by co-partner or agent. The act or declaration of a partner or agent of the party within the scope of his authority and during the existence of the partnership or agency may be given in evidence against such party after the partnership or agency is shown by evidence other than such act or declaration. The same rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the party. Agency

Ortega vs. CA 245 SCRA 529 FACTS: Joaquin L. Misa. He also asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. Issue: W/N the CA erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith. HELD: The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the foundation and essence of partnership. Its continued existence is, in turn, dependent on the mutual resolve, along with each partners capability to give it, and the absence of a cause for dissolution provided by law itself. Verily, any one of the partners may, at his sole pleasure, dictate dissolution of the partnership at will. He must however, act in good faith not that the attendance of bad faith can prevent the dissolution of the partnership at will.

An agent performs some service in representation or on behalf of his principal (Art. 1868, Civil Code of the Philippines). The agent therefore, is in legal contemplation, a mere extension of the personality of the principal and unless the agent acts in his own name, the principal must comply with all the obligations which the agent may have contracted within the scope of his authority (Art. 1883; Art. 1910, Civil Code of the Philippines). Hence, whatever is said by an agent to a third person, during the course of the agency and within the scope of his actual or apparent authority, relative to the business contemplated by the agency, is for legal purposes also the statement of the principal and is therefore, admissible against said principal (29A Am Jur 29 Evidence 815 citing Hitchman Coal & Coke Co. v. Mitchell, 245 US 229, 62 L Ed 260, 38 S Ct 65). Partnership The relationship among partners is on the same footing with the relationship of an agent to his principal. Both the contracts of agency and partnership involve fiduciary relationships. Under the law (Art. 1818, Civil Code of the Philippines), every partner is an agent of the partnership for the purpose of its business and the act of the partner in carrying out the usual course of business binds the partnership as a rule. Hence,

under the same principle governing an agency, the declarations of a partner may be admissible against the other partners or the partnership. Requisites for admissibility Not every declaration or act made or done by a partner or agent is admissible against the other partners or the principal. For the admission of a co-partners or agent to be admissible, the following requisites must concur: (a) The declaration or act of the partner and agent must have been made or done within the scope of his authority; (b) The declaration or act of the partner and agent must have been made or done during the existence of the partnership or agency, and the person making the declaration is still a partner or an agent; and (c) The existence of the partnership or agency is proven by evidence other than the declaration or act of the partner and agent. Any declaration made before the partnership or agency existed or those made after are not admissible against the other partners or the principal but remains admissible against the partner or agent making the declaration. It is also necessary for the application of the exception that the proof of the agency or partnership be from a source independent of the declaration made by the partner or agent. As a rule, statements made after a partnership has been within this exception, but where the admission are made winding up of the partnership affairs, said admissions are partner is acting as an agent of his co-partners in winding Remedial Law Compendium, Vol. 2, 2004 ed., p. 720) dissolved does not fall in connection with the still admissible as the up. (Florenz Regalado,

Rule also applies to The above rules apply to the declarations or acts of a joint owner, joint debtor, or other persons jointly interested with the party (Sec. 29, Rule 130, Rules of Court).