FERNANDO SANTOS, vs.
Spouses ARSENIO and NIEVES REYES, PLAINTIFF’S ARGUMENTS:
FACTS: In June 1986, Fernando Santos and Nieves Reyes were introduced
to each other by Meliton Zabat regarding a lending business venture
proposed by Nieves. Fernando Santos (70%), Nieves Reyes (15%), and
Melton Zabat (15%) orally instituted a partnership with them as partners. It
was agreed that Santos shall be financier and that Nieves and Zabat shall
contribute their industry by taking charge of solicitation of members and
collection of loan payments. Their venture was launched on June 13, 1986,
with the agreement that Santos would receive 70% of the profits while
Nieves and Zabat would earn 15% each.
Later, in July 1986, Nieves introduced Cesar Gragera to Santos.
Gragera was the chairman of Monte Maria Development Corporation.
Gragera sought short-term loans for members of the corporation. It was
agreed that the partnership shall provide loans to the employees of Gragera’s
corporation and Gragera shall earn commission from loan payments.
In August 1986, the three partners put into writing their verbal
agreement to form the partnership. As earlier agreed, Santos shall finance
and Nieves shall do the daily cash flow more particularly from their dealings
with Gragera, Zabat on the other hand shall be a loan investigator. But then
later, Nieves and Santos found out that Zabat was engaged in another
lending business which competes with their partnership hence Zabat was
expelled.
The two continued with the partnership and they took with them
Nieves’ husband, Arsenio, who became their loan investigator. Later, Santos
accused the spouses of not remitting Gragera’s commissions to the latter. He
sued them for collection of sum of money. The spouses countered that Santos
merely filed the complaint because he did not want the spouses to get their
shares in the profits. Santos argued that the spouses, insofar as the dealing
with Gragera is concerned, are merely his employees. Santos alleged that
there is a distinct partnership between him and Gragera which is separate
from the partnership formed between him, Zabat and Nieves.
Petitioner maintains that he employed the services of respondent
spouses in the money-lending venture with Gragera, with Nieves as
bookkeeper and Arsenio as credit investigator. That Nieves introduced
Gragera to Santos did not make her a partner. She was only a witness to the
Agreement between the two. Separate from the partnership between
petitioner and Gragera was that which existed among petitioner, Nieves and
Zabat, a partnership that was dissolved when Zabat was expelled.
DEFENDANT’S ARGUMENTS:
In their answer, the defendants asserted that they were partners and
not mere employees of petitioner. The complaint, they alleged, was filed to
preempt and prevent them from claiming their rightful share to the profits of
the partnership. Arsenio alleged that he was enticed by the petitioner to take
the place of Zabat after petitioner learned of Zabat's activities. Arsenio
resigned from his job at the Asian Development Bank to join the partnership.
Nieves claimed that she participated in the business as a partner, as the
lending activity with Monte Maria originated from her initiative.
DECISIONS OF --
• LOWER COURT: The Trial court held that respondents were
partners, and not merely employees of the petitioner. It ruled that Gragera
was only a commission agent of petitioner, not his partner.
• CA: The CA upheld the decision of the lower court. The CA ruled
that the following circumstances indicated the existence of a partnership
among the parties (1) it was Nieves who broached to petitioner the idea of
starting a money-lending business and introduced him to Gragera (2)
Arsenio received dividends or profit-shares covering the period of July 15 to
August 7, 1986 (3) the partnership contract was executed after the Agreement
with Gragera and petitioner and thus showed the parties’ intention to
consider it as a transaction of the partnership. In their common venture,
petitioner invested capital while respondents contributed industry or
services with the intention of sharing in the profits of the business.
• The defendants were industrial partners of the petitioner. Nieves
herself provided the initiative in the lending activities with Monte Maria. In
consonance with the agreement between appellant, Nieves and Zabat (later
replaced by Arsenio), they contributed industry to the common fund with
the intention of sharing in the profits of the partnership. The spouses
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 the partnership between Santos,
Nieves and Zabat was technically dissolved by the expulsion of Zabat
therefrom, 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, one of the
incidents of which was the lending operations with Monte Maria.
• Gragera and Santos were not partners. The money-lending activities
undertaken with Monte Maria was done in pursuit of the business for which
the partnership between [petitioner], Nieves and Zabat (later Arsenio) was
organized. Gragera who represented Monte Maria was merely paid
commissions in exchange for the collection of loans. The commissions were
fixed on gross returns, regardless of the expenses incurred in the operation of
the business. The sharing of gross returns does not in itself establish a
partnership.
ISSUE/S: Whether or not the Santos and Spouses Reyes are partners
Whether or not the Spouses Reyes has a share in the partnership
profits being Industrial partners.
FIRST ISSUE: BUSINESS RELATIONSHIP
Yes, the court upheld the decisions of the Trial Court and CA that
there was a partnership created between Santos and Spouses Reyes. 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 "Articles of Agreement"
stipulated that the signatories shall share the profits of the business in a 70-
15-15 manner, with petitioner getting the lion's share. This stipulation
clearly proved the establishment of a partnership.
Though it is true that the original partnership between Zabat, Santos
and Nieves was terminated when Zabat was expelled, the said partnership
was however considered continued when Nieves and Santos continued
engaging as usual in the lending business even getting Nieves’ husband,
who resigned from the Asian Development Bank, to be their loan
investigator – who, in effect, substituted Zabat. There is no separate
partnership between Santos and Gragera. The latter being merely a
commission agent of the partnership. This is even though the partnership
was formalized shortly after Gragera met with Santos.
SECOND ISSUE: ACCOUNTING OF PARTNERSHIP
HOWEVER, the order of the Court of Appeals directing Santos to
give the spouses their shares in the profit is premature. The accounting made
by the trial court is based on the “total income” of the partnership. Such total
income calculated by the trial court did not consider the expenses sustained
by the partnership. All expenses incurred by the money-lending enterprise of
the parties must first be deducted from the “total income” in order to arrive
at the “net profit” of the partnership. The share of each one of them should
be based on this “net profit” and not from the “gross income” or “total
income”.
For the purpose of determining the profit that should go to an
industrial partner (who shares in the profits but is not liable for the losses),
the gross income from all the transactions carried on by the firm must be
added together, and from this sum must be subtracted the expenses or the
losses sustained in the business. Only in the difference representing the net
profits does the industrial partner share. But if, on the contrary, the losses
exceed the income, the industrial partner does not share in the losses.
HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740,
FACTS:
After the second World War, Tan EngKee and Tan Eng Lay, pooling
their resources and industry together, entered into a partnership engaged in
the business of selling lumber and hardware and construction supplies. They
named their enterprise "Benguet Lumber" which they jointly managed until
Tan EngKee's death. Petitioners herein averred that the business prospered
due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the conversion of
the partnership "Benguet Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was purportedly a ruse to deprive
Tan EngKee and his heirs of their rightful participation in the profits of the
business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of
the net assets of Benguet Lumber. The RTC ruled in favor of petitioners,
declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership. The Court of Appeals rendered the assailed decision reversing
the judgment of the trial court.
ISSUE:
Whether the deceased Tan EngKee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership
RULING:
There was no partnership whatsoever. Except for a firm name, there
was no firm account, no firm letterheads submitted as evidence, no certificate
of partnership, no agreement as to profits and losses, and no time fixed for
the duration of the partnership. There was even no attempt to submit an
accounting corresponding to the period after the war until Kee's death in
1984. It had no business book, no written account nor any memorandum for
that matter and no license mentioning the existence of a partnership. Also,
the trial court determined that Tan EngKee and Tan Eng Lay had entered
into a joint venture, which it said is akin to a particular partnership. A
particular partnership is distinguished from a joint adventure, to wit:(a) A
joint adventure (an American concept similar to our joint accounts) is a sort
of informal partnership, with no firm name and no legal personality. In a
joint account, the participating merchants can transact business under their
own name, and can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination maycontinue
for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind. A joint venture
"presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital
or property contributed, and where each party exercises equal rights in the
conduct of the business. The evidence presented by petitioners falls short of
the quantum of proof required to establish a partnership. In the absence of
evidence, we cannot accept as an established fact that Tan EngKee allegedly
contributed his resources to a common fund for the purpose of establishing a
partnership. Besides, it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan EngKee never asked for
an accounting.
The essence of a partnership is that the partners share in the profits
and losses .Each has the right to demand an accounting as long as the
partnership exists. A demand for periodic accounting is evidence of a
partnership. During his lifetime, Tan EngKee appeared never to have made
any such demand for accounting from his brother, Tang Eng Lay. We
conclude that Tan EngKee was only an employee, not a partner since they
did not present and offer evidence that would show that Tan EngKee
received amounts of money allegedly representing his share in the profits of
the enterprise. There being no partnership, it follows that there is no
dissolution, winding up or liquidation to speak of.

Filomeno Negado, Narciso Rocha, and Juan Guirindola vs Gonzalo
Makabenta 54 OG 4082 28 February 1958
Facts: Plaintiffs filed a suit against the defendant for the recovery of
possession and management of Liberty Theater located in Leyte and for an
accounting of all money and property pertaining thereto.
The plaintiffs allege that the theater is owned and operated by a
partnership known as Hemarogui Company composed of the plaintiffs and
defendant. Conversely, the defendant alleges that he is the sole and exclusive
owner of the theater while the plaintiffs are merely creditor.
The trial court held that no partnership exists and the oral and
material evidence (books, accounts, and papers) presented by the plaintiffs
are incompetent to establish existence of the partnership.
Issue: Whether or not a partnership exists among Negado, Rocha,
Guirindola and Makabenta
Decision: There exists a partnership. In determining whether or not a
particular transaction constitutes partnership, the intention as disclosed by
the entire transaction, and as gathered from the facts and from the language
employed by the parties as well as their conduct. A partnership may be
created without any definite intention to create it, the intention of the parties
being inferred from their conduct and dealings with each other. For the
purpose of showing the existence of a partnership, books, papers, accounts
and similar writings are admissible as evidence provided that the party
against whom they are offered is shown to have authorized or ratified them.
YULO V. YANG CHIAO SENG
Facts: Yang Chiao Seng proposed to form a partnership with Rosario Yulo to
run and operate a theatre on the premises occupied by Cine Oro, Plaza Sta.
Cruz, Manila, the principal conditions of the offer being (1) Yang guarantees
Yulo a monthly participation of P3,000 (2) partnership shall be for a period of
2 years and 6 months with the condition that if the land is expropriated,
rendered impracticable for business, owner constructs a permanent building,
then Yulo’s right to lease and partnership even if period agreed upon has not
yet expired; (3) Yulo is authorized to personally conduct business in the
lobby of the building; and (4) after Dec 31, 1947, all improvements placed by
partnership shall belong to Yulo but if partnership is terminated before lapse
of 1 and ½ years, Yang shall have right to remove improvements. Parties
established, “Yang and Co. Ltd.”, to exist from July 1, 1945 – Dec 31, 1947.
In June 1946, they executed a supplementary agreement extending the
partnership for 3 years beginning Jan 1, 1948 to Dec 31, 1950.
The land on which the theater was constructed was leased by Yulo from
owners, Emilia Carrion and Maria Carrion Santa Marina for an indefinite
period but that after 1 year, such lease may be cancelled by either party upon
90-day notice. In Apr 1949, the owners notified Yulo of their desire to cancel
the lease contract come July. Yulo and husband brought a civil action to
declare the lease for a indefinite period. Owners brought their own civil
action for ejectment upon Yulo and Yang.
Issue: Was the agreement a contract a lease or a partnership?
Ruling: No. The agreement was a sublease not a partnership. The following
are the requisites of partnership: (1) two or more persons who bind
themselves to contribute money, property or industry to a common fund; (2)
the intention on the part of the partners to divide the profits among
themselves (Article 1761, CC).
Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any
help or intervention in the management of the theatre. Neither has she
demanded from defendant any accounting of the expenses and earnings of
the business. She was absolutely silent with respect to any of the acts that a
partner should have done; all she did was to receive her share of P3,000 a
month which cannot be interpreted in any manner than a payment for the
use of premises which she had leased from the owners.