FERNANDO SANTOS, petitioner vs.

Spouses introduced Gragera to Santos did not make her a

ARSENIO and NIEVES REYES, respondents. partner. She was only a witness to the Agreement
between the two. Separate from the partnership
GR NO: 135813 DATE: October 25, 2001 between petitioner and Gragera was that which
existed among petitioner, Nieves and Zabat, a
FACTS: partnership that was dissolved when Zabat was
expelled.
In June 1986, Fernando Santos and Nieves Reyes
were introduced to each other by Meliton Zabat
regarding a lending business venture proposed by DEFENDANTS ARGUMENTS:
Nieves. Fernando Santos (70%), Nieves Reyes In their answer, the defendants asserted that they
(15%), and Melton Zabat (15%) orally instituted a were partners and not mere employees of petitioner.
partnership with them as partners. It was agreed that The complaint, they alleged, was filed to preempt
Santos shall be financier and that Nieves and Zabat and prevent them from claiming their rightful share
shall contribute their industry by taking charge of to the profits of the partnership. Arsenio alleged that
solicitation of members and collection of loan he was enticed by the petitioner to take the place of
payments. Their venture was launched on June 13, Zabat after petitioner learned of Zabat's activities.
1986, with the agreement that Santos would receive Arsenio resigned from his job at the Asian
70% of the profits while Nieves and Zabat would Development Bank to join the partnership. Nieves
earn 15% each. claimed that she participated in the business as a
partner, as the lending activity with Monte Maria
Later, in July 1986, Nieves introduced Cesar originated from her initiative.
Gragera to Santos. Gragera was the chairman of
Monte Maria Development Corporation. Gragera DECISIONS OF --
sought short-term loans for members of the LOWER COURT: The Trial court held
corporation. It was agreed that the partnership shall that respondents were partners, and not
provide loans to the employees of Grageras merely employees of the petitioner. It ruled
corporation and Gragera shall earn commission that Gragera was only a commission agent
from loan payments. of petitioner, not his partner.

In August 1986, the three partners put into writing

their verbal agreement to form the partnership. As CA: The CA upheld the decision of the
earlier agreed, Santos shall finance and Nieves shall lower court. The CA ruled that the following
do the daily cash flow more particularly from their circumstances indicated the existence of a
dealings with Gragera, Zabat on the other hand shall partnership among the parties (1) it was
be a loan investigator. But then later, Nieves and Nieves who broached to petitioner the idea
Santos found out that Zabat was engaged in another of starting a money-lending business and
lending business which competes with their introduced him to Gragera (2) Arsenio
partnership hence Zabat was expelled. received dividends or profit-shares covering
the period of July 15 to August 7, 1986 (3)
The two continued with the partnership and they the partnership contract was executed after
took with them Nieves husband, Arsenio, who the Agreement with Gragera and petitioner
became their loan investigator. Later, Santos and thus showed the parties intention to
accused the spouses of not remitting Grageras consider it as a transaction of the
commissions to the latter. He sued them for partnership. In their common venture,
collection of sum of money. The spouses countered petitioner invested capital while respondents
that Santos merely filed the complaint because he contributed industry or services with the
did not want the spouses to get their shares in the intention of sharing in the profits of the
profits. Santos argued that the spouses, insofar as business.
the dealing with Gragera is concerned, are merely
his employees. Santos alleged that there is a distinct The defendants were industrial partners of
partnership between him and Gragera which is the petitioner. Nieves herself provided the
separate from the partnership formed between him, initiative in the lending activities with
Zabat and Nieves. Monte Maria. In consonance with the
agreement between appellant, Nieves and
Zabat (later replaced by Arsenio), they
PLAINTIFFS ARGUMENTS: contributed industry to the common fund
with the intention of sharing in the profits of
Petitioner maintains that he employed the services the partnership. The spouses provided
of respondent spouses in the money-lending venture services without which the partnership
with Gragera, with Nieves as bookkeeper and would not have [had] the wherewithal to
Arsenio as credit investigator. That Nieves carry on the purpose for which it was
 organized and as such [were] considered when Zabat was expelled, the said partnership was
industrial partners the partnership between however considered continued when Nieves and
Santos, Nieves and Zabat was technically Santos continued engaging as usual in the lending
dissolved by the expulsion of Zabat business even getting Nieves husband, who
therefrom, the remaining partners simply resigned from the Asian Development Bank, to be
continued the business of the partnership their loan investigator who, in effect, substituted
without undergoing the procedure relative to Zabat. There is no separate partnership between
dissolution. Instead, they invited Arsenio to Santos and Gragera. The latter being merely a
participate as a partner in their operations. commission agent of the partnership. This is even
There was therefore, no intent to dissolve though the partnership was formalized shortly after
the earlier partnership. The partnership Gragera met with Santos.
between Santos, Nieves and Arsenio simply
took over and continued the business of the SECOND ISSUE: ACCOUNTING OF
former partnership with Zabat, one of the PARTNERSHIP
incidents of which was the lending HOWEVER, the order of the Court of Appeals
operations with Monte Maria. directing Santos to give the spouses their shares in
the profit is premature. The accounting made by the
Gragera and Santos were not partners. The trial court is based on the total income of the
money-lending activities undertaken with partnership. Such total income calculated by the
Monte Maria was done in pursuit of the trial court did not consider the expenses sustained
business for which the partnership between by the partnership. All expenses incurred by the
[petitioner], Nieves and Zabat (later money-lending enterprise of the parties must first be
Arsenio) was organized. Gragera who deducted from the total income in order to arrive
represented Monte Maria was merely paid at the net profit of the partnership. The share of
commissions in exchange for the collection each one of them should be based on this net
of loans. The commissions were fixed on profit and not from the gross income or total
gross returns, regardless of the expenses income.
incurred in the operation of the business.
The sharing of gross returns does not in For the purpose of determining the profit that
itself establish a partnership. 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
ISSUE/S: sustained in the business. Only in the difference
Whether or not the Santos and Spouses representing the net profits does the industrial
Reyes are partners partner share. But if, on the contrary, the losses
exceed the income, the industrial partner does not
Whether or not the Spouses Reyes has a share in the losses.
share in the partnership profits being Industrial
partners.

HELD:

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