FERNANDO SANTOS vs.

Spouses ARSENIO and NIEVES REYES

In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally
instituted a partnership with them as partners. Their venture is to set up a lending business
where it was agreed that Santos shall be financier and that Nieves and Zabat shall contribute
their industry. **The percentages after their names denote their share in the profit.
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a
corporation. It was agreed that the partnership shall provide loans to the employees of
Grageras 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 Grageras 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.
The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to
pay the shares of the spouses.
ISSUE: Whether or not the spouses are partners.
HELD: Yes. 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 (Note that Nieves was even the one who introduced
Gragera to Santos exactly for the purpose of setting up a lending agreement between the
corporation and the 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.
heirs of tan eng kee vs. ca
Benguet Lumber has been around even before World War II but during the war, its stocks
were confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee
pooled their resources in order to revive the business. In 1981, Tan Eng Lay caused the
conversion of Benguet Lumber into a corporation called Benguet Lumber and Hardware
Company, with him and his family as the incorporators. In 1983, Tan Eng Kee died.
Thereafter, the heirs of Tan Eng Kee demanded for an accounting and the liquidation of the
partnership.
Tan Eng Lay denied that there was a partnership between him and his brother. He said that
Tan Eng Kee was merely an employee of Benguet Lumber. He showed evidence consisting
of Tan Eng Kees payroll; his SSS as an employee and Benguet Lumber being the employee.
As a result of the presentation of said evidence, the heirs of Tan Eng Kee filed a criminal case
against Tan Eng Lay for allegedly fabricating those evidence. Said criminal case was however
dismissed for lack of evidence.
ISSUE: Whether or not Tan Eng Kee is a partner.
HELD: No. There was no certificate of partnership between the brothers. The heirs were not
able to show what was the agreement between the brothers as to the sharing of profits. All
they presented were circumstantial evidence which in no way proved partnership.
It is obvious that 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 Kees 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.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole proprietorship.
He registered the same as such in 1954; that Kee was just an employee based on the latters
payroll and SSS coverage, and other records indicating Tan Eng Lay as the proprietor.
Also, the business definitely amounted to more P3,000.00 hence if there was a partnership,
it should have been made in a public instrument.
But the business was started after the war (1945) prior to the publication of the New Civil
Code in 1950?
Even so, nothing prevented the parties from complying with this requirement.
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee 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. Even if it can
be speculated that a scenario wherein if excellent relations exist among the partners at the
start of the business and all the partners are more interested in seeing the firm grow rather
than get immediate returns, a deferment of sharing in the profits is perfectly plausible. But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A
person is presumed to take ordinary care of his concerns. A demand for periodic accounting
is evidence of a partnership which Kee never did.
The Supreme Court also noted:
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 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.