G.R. No. 135813 October 25, 2001
Except for the limited period of
FERNANDO SANTOS, petitioner,
vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
FACTS
[Petitioner] Fernando Santos and [Respondent] Nieves Reyes
were introduced to each other by one Meliton Zabat regarding
a lending business venture proposed by Nieves. It was verbally
agreed that [petitioner would] act as financier while [Nieves]
and Zabat [would] take charge of solicitation of members and
collection of loan payments. The venture was launched on
June 13, 1986, with the understanding that [petitioner] would
receive 70% of the profits while x x x Nieves and Zabat would
earn 15% each.
Nieves introduced Cesar Gragera to [petitioner]. Gragera, as
chairman of the Monte Maria Development
Corporation6 (Monte Maria, for brevity), sought short-term
loans for members of the corporation. [Petitioner] and Gragera
executed an agreement providing funds for Monte Maria's
members. Under the agreement, Monte Maria, represented by
Gragera, was entitled to P1.31 commission per thousand paid
daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio,
husband of Nieves, acted as credit investigator.
[Nieves] and Zabat executed the 'Article of Agreement' which
formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner
Zabat engaged in the same lending business in competition
with their partnership[.] Zabat was thereby expelled from the
partnership. The operations with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of
sum of money and damages. [Petitioner] charged
[respondents], allegedly in their capacities as employees of
[petitioner], with having misappropriated funds intended for
Gragera for the period July 8, 1986 up to March 31, 1987.
Upon Gragera's complaint that his commissions were
inadequately remitted, [petitioner] entrusted P200,000.00 to x x
x Nieves to be given to Gragerax x x . Nieves allegedly failed
to account for the amount. [Petitioner] asserted that after
examination of the records, he found that of the total amount of
P4,623,201.90 entrusted to [respondents], only P3,068,133.20
was remitted to Gragera, thereby leaving the balance of
P1,555,065.70 unaccounted for.
In their answer, [respondents] 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.
x x x Arsenio alleged that he was enticed by [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.
"For her part, x x x Nieves claimed that she participated in the
business as a partner, as the lending activity with Monte Maria
originated from her initiative.
July 8, 1986 through August 20, 1986, she did not handle
sums intended for Gragera. Collections were turned over to
Gragera because he guaranteed 100% payment of all sums
loaned by Monte Maria. Entries she made on worksheets were
based on this assumptive 100% collection of all loans. The
loan releases were made less Gragera's agreed commission.
Because of this arrangement, she neither received payments
from borrowers nor remitted any amount to Gragera. Her job
was merely to make worksheets (Exhs. '15' to '15-
DDDDDDDDDD') to convey to [petitioner] how much he would
earn if all the sums guaranteed by Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were
his mere employees and not partners with respect to the
agreement with Gragera. He claimed that after he discovered
Zabat's activities, he ceased infusing funds, thereby causing
the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent]
and Zabat. [Petitioner] asserted that [respondents] were hired
as salaried employees with respect to the partnership between
[petitioner] and Gragera.
[Petitioner] further asserted that in Nieves' capacity as
bookkeeper, she received all payments from which Nieves
deducted Gragera's commission. The commission would then
be remitted to Gragera. She likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the
following points: whether [respondents] were employees or
partners of [petitioner], whether [petitioner] entrusted money to
[respondents] for delivery to Gragera, whether the
P1,555,068.70 claimed under the complaint was actually
remitted to Gragera and whether [respondents] were entitled to
their counterclaim for share in the profits."7
ISSUE
WON THE RELATIONSHIP BETWEEN SPS. REYES AND
SANTOS IS ONE OF EMPLOYER-EMPLOYEE AND NOT
PARTNERSHIP.
HELD
YES. The court held that the relationship between the parties is
partnership.
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.
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.12 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.13 This
stipulation clearly proved the establishment of a partnership.
[Respondents] were industrial partners of [petitioner]x x x .
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),
[respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership.
[Respondents] 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 (Evangelista v. Abad Santos, 51 SCRA 416
[1973]).
Indeed, the partnership was established to engage in a money-
lending business, despite the fact that it was formalized only
after the Memorandum of Agreement had been signed by
petitioner and Gragera. Contrary to petitioner's contention,
there is no evidence to show that a different business venture
is referred to in this Agreement, which was executed on August
6, 1986, or about a month after the Memorandum had been
signed by petitioner and Gragera on July 14, 1986. The
Agreement itself attests to this fact:

While concededly, the partnership between [petitioner,] 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 [petitioner,] 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.

xxx xxx xxx

"Gragera and [petitioner] 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."11

We find no cogent reason to disagree with the lower courts that

the partnership continued lending money to the members of
the Monte Maria Community Development Group, Inc., which
later on changed its business name to Private Association for
Community Development, Inc. (PACDI). Nieves was not
merely petitioner's employee. She discharged her bookkeeping
duties in accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:

"2. That the SECOND PARTY and THIRD PARTY

shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be
responsible in handling the collection of the loan
payments of the borrowers that they each solicited.

"3. That the bookkeeping and daily balancing of

account of the business operation shall be handled by
the SECOND PARTY."14

The "Second Party" named in the Agreement was none other

than Nieves Reyes. On the other hand, Arsenio's duties as
credit investigator are subsumed under the phrase "screening
of prospective borrowers." Because of this Agreement and the
disbursement of monthly "allowances" and "profit shares" or
"dividends" (Exh. "6") to Arsenio, we uphold the factual finding
of both courts that he replaced Zabat in the partnership.
G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY,respondents.
DE LEON, JR., J.:
FACTS
HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY The complaint was for accounting,
liquidation and winding up of the alleged partnership formed
after World War II between Tan Eng Kee and Tan Eng Lay.
The complaint principally alleged that after the second World
War, Tan Eng Kee 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 Eng Kee'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 Eng Kee
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.
ISSUE
WON THE HEIRS OF TAN ENG KEE ARE ENTITLED FOR
PARTNERSHIP ASSEST, DISSOLUTION, WINDING UP AND
LIQUIDATION THEREOF, AND THE EQUAL DIVISION OF
THE NET ASSETS OF BENGUET LUMBER ON THE
GROUND THAT TAN ENG KEE AND TAN ENG LAY WERE
PARTNERS IN BENGUET LUMBER.
HELD
NO. The court held that Tan Eng Kee is an employee of
Benguet Lumber and thus not entitled for those the heirs
prayed for. A demand for periodic accounting is evidence of a
partnership.During his lifetime, Tan Eng Kee appeared never
to have made any such demand for accounting from his
brother, Tang Eng Lay.
Exhibits "4" to "4-U" consisting of payrolls purporting to show
that Tan Eng Kee was an ordinary employee of Benguet
Lumber, as it was then called. Exhibits "4" to "4-U" in fact
shows that Tan Eng Kee received sums as wages of an
employee. In connection therewith, Article 1769 of the Civil
Code provides:
In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of 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 which the
returns are derived;
(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
In the light of the aforequoted legal provision, conclude that
Tan Eng Kee was only an employee, not a partner. Even if the
payrolls as evidence were discarded, petitioners would still be
back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the
profits of the enterprise. Petitioners failed to show how much
their father, Tan Eng Kee, received, if any, as his share in the
profits of Benguet Lumber Company for any particular period.
Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between
themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe
the alleged existence of a partnership from this set of
circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the
employees; that both were the ones who determined the price
at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They
also point out that the families of the brothers Tan Eng Kee
and Tan Eng Lay lived at the Benguet Lumber Company
compound, a privilege not extended to its ordinary employees.
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C.
YULO, plaintiffs-appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
FACTS
LABRADOR, J.:
Yang Chiao Seng wrote a letter to the plaintiff Mrs. Rosario U.
Yulo, proposing the formation of a partnership between them to
run and operate a theatre on the premises occupied by former
Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions
of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo
a monthly participation of P3,000 payable quarterly in advance
within the first 15 days of each quarter, (2) that the partnership
shall be for a period of two years and six months, starting from
July 1, 1945 to December 31, 1947, with the condition that if
the land is expropriated or rendered impracticable for the
business, or if the owner constructs a permanent building
thereon, or Mrs. Yulo's right of lease is terminated by the
owner, then the partnership shall be terminated even if the
period for which the partnership was agreed to be established
has not yet expired; (3) that Mrs. Yulo is authorized personally
to conduct such business in the lobby of the building as is
ordinarily carried on in lobbies of theatres in operation,
provided the said business may not obstruct the free ingress
and agrees of patrons of the theatre; (4) that after December
31, 1947, all improvements placed by the partnership shall
belong to Mrs. Yulo, but if the partnership agreement is
terminated before the lapse of one and a half years period
under any of the causes mentioned in paragraph (2), then
Yang Chiao Seng shall have the right to remove and take away
all improvements that the partnership may place in the
premises.
Pursuant to the above offer, which plaintiff evidently accepted,
the parties executed a partnership agreement establishing the
"Yang & Company, Limited," which was to exist from July 1,
1945 to December 31, 1947. It states that it will conduct and
carry on the business of operating a theatre for the exhibition
of motion and talking pictures. The capital is fixed at P100,000,
P80,000 of which is to be furnished by Yang Chiao Seng and
P20,000, by Mrs. Yulo. All gains and profits are to be
distributed among the partners in the same proportion as their
capital contribution and the liability of Mrs. Yulo, in case of
loss, shall be limited to her capital contribution (Exh. "B").
They executed a supplementary agreement, extending the
partnership for a period of three years beginning January 1,
1948 to December 31, 1950. The benefits are to be divided
between them at the rate of 50-50 and after December 31,
1950, the show house building shall belong exclusively to the
second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by
plaintiff Mrs. Yulo from Emilia Carrion Santa Marina and Maria
Carrion Santa Marina. In the contract of lease it was stipulated
that the lease shall continue for an indefinite period of time, but
that after one year the lease may be cancelled by either party
by written notice to the other party at least 90 days before the
date of cancellation. The last contract was executed between
the owners and Mrs. Yulo on April 5, 1948. But on April 12,
1949, the attorney for the owners notified Mrs. Yulo of the
owner's desire to cancel the contract of lease on July 31, 1949.
In view of the above notice, Mrs. Yulo and her husband
brought a civil action to the Court of First Instance of Manila on
July 3, 1949 to declare the lease of the premises. On February
9, 1950, the Municipal Court of Manila rendered judgment
ordering the ejectment of Mrs. Yulo and Mr. Yang. The
judgment was appealed. In the Court of First Instance, the two
cases were afterwards heard jointly, and judgment was
rendered dismissing the complaint of Mrs. Yulo and her
husband, and declaring the contract of lease of the premises
terminated as of July 31, 1949, and fixing the reasonable
monthly rentals of said premises at P100. Both parties
appealed from said decision and the Court of Appeals, on April
30, 1955, affirmed the judgment.
Mrs. Yulo demanded from Yang Chiao Seng her share in the
profits of the business. Yang answered the letter saying that
upon the advice of his counsel he had to suspend the payment
(of the rentals) because of the pendency of the ejectment suit
by the owners of the land against Mrs. Yulo. In this letter Yang
alleges that inasmuch as he is a sublessee and inasmuch as
Mrs. Yulo has not paid to the lessors the rentals from August,
1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh.
"E").
In view of the refusal of Yang to pay her the amount agreed
upon, Mrs. Yulo instituted this action on May 26, 1954, alleging
the existence of a partnership between them and that the
defendant Yang Chiao Seng has refused to pay her share from
December, 1949 to December, 1950; that after December 31,
1950 the partnership between Mrs. Yulo and Yang terminated,
as a result of which, plaintiff became the absolute owner of the
building occupied by the Cine Astor; that the reasonable rental
that the defendant should pay therefor from January, 1951 is
P5,000; that the defendant has acted maliciously and refuses
to pay the participation of the plaintiff in the profits of the
business amounting to P35,000 from November, 1949 to
October, 1950, and that as a result of such bad faith and
malice on the part of the defendant, Mrs. Yulo has suffered
damages in the amount of P160,000 and exemplary damages
to the extent of P5,000. The prayer includes a demand for the
payment of the above sums plus the sum of P10,000 for the
attorney's fees.
In answer to the complaint, defendant alleges that the real
agreement between the plaintiff and the defendant was one of
lease and not of partnership; that the partnership was adopted
as a subterfuge to get around the prohibition contained in the
contract of lease between the owners and the plaintiff against
the sublease of the said property. As to the other claims, he
denies the same and alleges that the fair rental value of the
land is only P1,100. By way of counterclaim he alleges that by
reason of an attachment issued against the properties of the
defendant the latter has suffered damages amounting to
P100,000.
ISSUE
WON THE RELATIONSHIP BETWEEN YANG AND YULO IS
PARTNERSHIP AND NOT AS LESSEE AND LESSOR.
HELD
NO. The court held that the fully agree with the conclusion of
the trial court that 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) intention on
the part of the partners to divide the profits among themselves.
(Art. 1767, Civil Code.).

In the first place, plaintiff did not furnish the supposed P20,000
capital. In the second place, she did not furnish any help or
intervention in the management of the theatre. In the third
place, it does not appear that she has ever demanded from
defendant any accounting of the expenses and earnings of the
business.

Were she really a partner, her first concern should have been
to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to any of the acts
that a partner should have done; all that she did was to receive
her share of P3,000 a month, which can not be interpreted in
any manner than a payment for the use of the premises which
she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of
June 17, 1945 (Exh. "A"), which shows that both parties
considered this offer as the real contract between them.

Plaintiff claims the sum of P41,000 as representing her share

or participation in the business from December, 1949. But the
original letter of the defendant, Exh. "A", expressly states that
the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the
lease. Plaintiff's right having terminated in July, 1949 as found
by the Court of Appeals, the partnership agreement or the
agreement for her to receive a participation of P3,000
automatically ceased as of said date.