Bastida vs.
Menzi and Company, receiving a fixed salary, he was to receive 35% of the net profits as compensation for
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 co-
partnership. 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
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
Evangelista, et al. v. CIR,
GR No. L-9996, October 15, 1957
Facts:
           Herein petitioners seek a review of CTA’s decision holding them liable for
income tax, real estate dealer’s 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 dealer’s 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
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
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 dealer’s 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.
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.
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.
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.
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 partner’s 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.
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
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 dissolved does not fall
within this exception, but where the admission are made in connection with the
winding up of the partnership affairs, said admissions are still admissible as the
partner is acting as an agent of his co-partners in winding up. (Florenz Regalado,
Remedial Law Compendium, Vol. 2, 2004 ed., p. 720) 

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).