Santos vs Sps.

Reyes
G.R. No. 135813

October 25, 2001

Facts:
Fernando Santos, petitioner, and Nieves Reyes, respondent, was introduced by each other by
one Meliton Zabat regarding a lending business venture proposed by Nieves. In their
Articles of Agreement exeuted by Reyes and Zabat, it was agreed upon that Santos will act
as the financier while Reyes and Zabat would take charge of solicitation of members and
collection of loan payments. Arsenio, Nieves husband, acted as credit investigator. Later on,
Zabat was expelled from the partnership because he was engaged in the same lending
business in competition with their partnership.
In 1987, Santos filed a complaint for recovery of sum of money and damages against the
spouses Reyes alleging that, in their capacities as employees, they had misappropriated
funds intended for their client, Gragera. In their answer, the Spouses Reyes claimed that
they were not merely employees but business partners of Santos.
The trial court ruled that the spouses Reyes were not mere employees but business partners
of Santos. On appeal, the CA upheld in toto the trial courts decision based on the following
circumstances: (1) the lending business was Nieves idea and she was the one who
introduced Gragera to Santos; (2) Arsenio received "dividends" or "profit-shares"; and (3) the
partnership contract was executed after the Agreement with Gragera and Santos and thus
showed the parties' intention to consider it as a transaction of the partnership. In their
common venture, Santos invested capital while spouses Reyes contributed industry or
services, with the intention of sharing in the profits of the business. Hence, this present
petition.
Issue: WON the parties' relationship was one of partnership or of employer employee.
Ruling:
The SC held that the parties relationship is one of partnership. By the contract of
partnership, two or more persons bind themselves to contribute money, property or industry
to a common fund, with the intention of dividing the profits among themselves.
The SC agreed with the lower courts decision that spouses Reyes were industrial partners.
They provided services without which the partnership would not have had the wherewithal
to carry on the purpose for which it was organized and as such were considered industrial
partners. Further, although Zabat was removed from the partnership, the remaining partners
simply continued the business of the partnership without undergoing the procedure relative
to dissolution. Instead, they invited Arsenio to participate as a partner in their operations.
There was therefore, no intent to dissolve the earlier partnership. The partnership between
Santos, Nieves and Arsenio simply took over and continued the business of the former
partnership with Zabat.