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166299-300, Petitioner's demand in the petitory portion of his complaint is for delivery or payment
2005-12-13 to him, as Eduardo's and Yang's partner, of his partnership/joint venture share, after
an accounting has been duly conducted of what he deems to be partnership/joint
Facts: venture property.
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Issues:
Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started when, on
2002, in the RTC Aurelio filed a suit against his brother Eduardo and respondent whether or not petitioner and respondent Eduardo are partners in the theatre, shipping
Robert T. Yang (Yang) and several corporations for specific performance and and realty business
In his complaint Aurelio alleged that, since 1973, he and Eduardo are into a joint
venture/partnership arrangement in the Odeon Theater business which had expanded The petition lacks merit.
thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
A partnership exists when two or more persons agree to place their money, effects,
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands
labor, and skill in lawful commerce or business, with the understanding that there shall
and buildings, among other corporations. Yang is described in the complaint as
be a proportionate sharing of the profits and losses between them.
petitioner's and Eduardo's partner in their Odeon Theater investment.
A contract of partnership is defined by the Civil Code as one where two or more
The same complaint also contained the following material averments:
persons bound themselves to contribute money, property, or industry to a common
It was then agreed upon between [Aurelio] and Eduardo that in consideration of fund with the intention of dividing the profits among themselves.
[Aurelio's] retaining his share in the remaining family businesses and contributing his
A joint venture, on the other hand, is hardly distinguishable from, and may be likened
industry to the continued operation of these businesses, [Aurelio] will be given P1
to, a partnership since their elements are similar, i.e., community of interests in the
Million or 10% equity in all these businesses and those to be subsequently acquired
business and sharing of profits and losses. Being a form of partnership, a joint venture
by them whichever is greater
is generally governed by the law on partnership.
In addition the joint venture/partnership had also acquired [various other assets], but
Clearly, a look at the legal provisions determinative of the existence, or defining the
Eduardo caused to be registered in the names of other parties.
formal requisites, of a partnership is indicated. Foremost of these are the following
Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that provisions of the Civil Code:
[Aurelio] requested for an accounting and liquidation of his share in the joint
Art. 1771. A partnership may be constituted in any form, except where
venture/partnership [but these demands for complete accounting and liquidation were
immovable property or real rights are contributed thereto, in which case a
not heeded].
public instrument shall be necessary.
What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the
Art. 1772. Every contract of partnership having a capital of three thousand
corporate defendants as well as Bobby [Yang], are transferring various real properties
pesos or more, in money or property, shall appear in a public instrument,
of the corporations belonging to the joint venture/partnership to other parties in fraud
which must be recorded in the Office of the Securities and Exchange
of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation
on the titles of these real properties' a notice of lis pendens
Failure to comply with the requirement of the preceding paragraph shall
Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER
not affect the liability of the partnership and the members thereof to third
denying under oath the material allegations of the complaint, more particularly that
portion depicting petitioner and Eduardo as having entered into a contract of
partnership. Art. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if an inventory of said property is not made, signed
For his part, Yang moved to dismiss on the ground that as to him, petitioner has no
by the parties, and attached to the public instrument.
cause of action and the complaint does not state any.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is On 1991, the petitioners filed an amended complaint impleading private respondent
unsigned and undated. As an unsigned document, there can be no quibbling that herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay.
Annex "A-1" does not meet the public instrumentation requirements exacted under
Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to The complaint principally alleged that after the second World War, Tan Eng Kee and
a partnership involving more than P3,000.00 in money or property, Annex "A-1" Tan Eng Lay, pooling their resources and industry together, entered into a partnership
cannot be presented for notarization, let alone registered with the Securities and engaged in the business of selling lumber and hardware and construction supplies.
Exchange Commission (SEC), as called for under the Article 1772 of the Code. And They named their enterprise "Benguet Lumber" which they jointly managed until Tan
inasmuch as the inventory requirement under the succeeding Article 1773 goes into Eng Kee's death
the matter of validity when immovable property is contributed to the partnership, the
However, they claimed that in 1981, Tan Eng Lay and his children caused the
next logical point of inquiry turns on the nature of petitioner's contribution, if any, to
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet
the supposed partnership. A partnership may be constituted in any form, save when
Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee
immovable property or real rights are contributed thereto or when the partnership has
and his heirs of their rightful participation in the profits of the business. Petitioners
a capital of at least P3,000.00, in which case a public instrument shall be necessary.
prayed for accounting of the partnership assets, and the dissolution, winding up and
And if only to stress what has repeatedly been articulated, an inventory to be signed
liquidation thereof, and the equal division of the net assets of Benguet Lumber.
by the parties and attached to the public instrument is also indispensable to the validity
of the partnership whenever immovable property is contributed to it. Regional Trial Court rendered judgment Declaring that Benguet Lumber is a joint
venture which is akin to a particular partnership;
Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the "Memorandum" which Private respondent sought relief before the Court of Appeals which reversing the
purports to establish the said "partnership/joint venture" is NOT a public judgment of the trial court. Petitioners' motion for reconsideration was denied
instrument and there was NO inventory of the immovable property duly signed
by the parties. As such, the said "Memorandum" is null and void for purposes Hence, the present petition.
of establishing the existence of a valid contract of partnership. Indeed, because of
the failure to comply with the essential formalities of a valid contract, the purported Issues:
"partnership/joint venture" is legally inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract cannot be the source of any whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber.
contractual or legal right. Accordingly, the allegations in the complaint, including the Ruling:
actionable document attached thereto, clearly demonstrates that [petitioner] has NO
valid contractual or legal right which could be violated by the [individual respondents] A contract of partnership is defined by law as one where:
herein. As a consequence, [petitioner's] complaint does
xxx two or more persons bind themselves to contribute money, property, or
NOT state a valid cause of action because NOT all the essential elements of a cause industry to a common fund, with the intention of dividing the profits among
of action are present. themselves.

Two or more persons may also form a partnership for the exercise of a
HEIRS OF TAN ENG KEE v. CA, GR No. 126881, 2000-10-03
Thus, in order to constitute a partnership, it must be established that (1) two or more
Facts: persons bound themselves to contribute money, property, or industry to a common
fund, and (2) they intend to divide the profits among themselves.
Following the death of Tan Eng Kee, Matilde Abubo, the common-law spouse of the
decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and The agreement need not be formally reduced into writing, since statute allows the oral
Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed constitution of a partnership, save in two instances: (1) when immovable property or
suit against the decedent's brother TAN ENG LAY on 1990. The complaint was for real rights are contributed, and (2) when the partnership has a capital of three thousand
accounting, liquidation and winding up of the alleged partnership formed after World pesos or more. In both cases, a public instrument is required.
War II between Tan Eng Kee and Tan Eng Lay.
An inventory to be signed by the parties and attached to the public instrument is also real properties for the years 1947-1949 for the studies of Rafael and
indispensable to the validity of the partnership whenever immovable property is AntonietaJarantilla.
contributed to the partnership. Undoubtedly, the best evidence would have been the
contract of partnership itself, or the articles of partnership but there is none. The Sps. Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the
alleged partnership, though, was never formally organized. spouses Buenaventura Remotigue and ConchitaJarantilla to provide mutual
Besides, it is indeed odd, that despite the forty years the partnership was assistance to each other by way of financial support to any commercial and
allegedly in existence, Tan Eng Kee never asked for an accounting. The essence agricultural activity on a joint business arrangement. This proved to be successful as
of a partnership is that the partners share in the profits and losses. Each has the right they were able to establish a manufacturing and trading business, acquire real
to demand an accounting as long as the partnership exists. But in the situation in the properties, and construct buildings, among other things. The same ended in 1973
case at bar, the deferment, if any, had gone on too long to be plausible. A person is upon their voluntary dissolution.
presumed to take ordinary care of his concerns.
The spouses Buenaventura and ConchitaRemotigue executed a document
A demand for periodic accounting is evidence of a partnership. During his Acknowledgement of Participating Capital stating the participating capital of of their
lifetime, Tan Eng Kee appeared never to have made any such demand for accounting
co-owners as of the year 1952, with AntonietaJarantillas stated as eight thousand
from his brother, Tang Eng Lay. This brings us to the matter of Exhibits "4" to "4-U"
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee pesos (P8,000.00) and Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00).
of Benguet Lumber Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received
sums as wages of an employee. The controversy started when Antonieta filed a complaint against Buenaventura,
Cynthia, Doroteo and Tomas, for the accounting of the assets and income of the co-
we conclude that Tan Eng Kee was only an employee, not a partner. Even if the ownership, for its partition and the delivery of her share corresponding to eight
payrolls as evidence were discarded, petitioners would still be back to square one, so percent (8%), and for damages. She alleged that the initial contribution of property
to speak, since they did not present and offer evidence that would show that Tan Eng and money came from the heirs inheritance, and her subsequent annual investment
Kee received amounts of money allegedly representing his share in the profits of the of seven thousand five hundred pesos (P7,500.00) as additional capital came from
enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received,
the proceeds of her farm.
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 Respondents denied having formed a partnership. They did not deny the existence
features of a partnership. and validity of the "Acknowledgement of Participating Capital" and in fact used this
as evidence to support their claim that Antonietas 8% share was limited to the
businesses enumerated therein. Petitioner Federico Jr joined his aunt Antonieta and
likewise asserted his share in the supposed partnership.
BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE, The RTC rendered judgment in favor of Antonieta and Federico. On appeal, the CA
DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents. set the RTC Decision. Petitioner filed a petition for review to the SC.

FACTS: The spouses Andres Jarantilla and FelisaJaleco were survived by eight ISSUE: Did the CA err in ruling that petitioners are not entitled to profits over
children: Federico Sr., Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and the businesses not listed in the Acknowledgement?
Antonieta. Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla
spouses by their son Federico Jarantilla, Sr. and his wife Leda Jamili. Petitioner also HELD: There is a co-ownership when an undivided thing or right belongs to
has two other brothers: Doroteo and Tomas Jarantilla. different persons. It is a partnership when two or more persons bind
themselves to contribute money, property, or industry to a common fund, with
The Jarantilla heirs extrajudicially partitioned amongst themselves the real the intention of dividing the profits among themselves.
properties of their deceased parents. With the exception of the real property
adjudicated to PacitaJarantilla, the heirs also agreed to allot the produce of the said The common ownership of property does not itself create a partnership between the
owners, though they may use it for the purpose of making gains; and they may, ***
without becoming partners, agree among themselves as to the management, and use
of such property and the application of the proceeds therefrom. The petitioner further asserts that he is entitled to respondents properties based on
the concept of trust. He claims that since the subject real properties were purchased
Under Article 1767 of the Civil Code, there are two essential elements in a contract using funds of the partnership, wherein he has a 6% share, then "law and equity
of partnership: (a) an agreement to contribute money, property or industry to a mandates that he should be considered as a co-owner of those properties in such
common fund; and (b) intent to divide the profits among the contracting parties. proportion."

It is not denied that all the parties in this case have agreed to contribute capital to a As a rule, the burden of proving the existence of a trust is on the party asserting its
common fund to be able to later on share its profits. They have admitted this fact, existence, and such proof must be clear and satisfactorily show the existence of the
agreed to its veracity, and even submitted one common documentary evidence to trust and its elements. While implied trusts may be proved by oral evidence, the
prove such partnership - the Acknowledgement of Participating Capital. evidence must be trustworthy and received by the courts with extreme caution, and
should not be made to rest on loose, equivocal or indefinite declarations.
The Acknowledgement of Participating Capital is a duly notarized document Trustworthy evidence is required because oral evidence can easily be fabricated.
voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura
Remotigue in 1957. Petitioner does not dispute its contents and is actually relying on The petitioner has failed to prove that there exists a trust over the subject real
it to prove his participation in the partnership. Article 1797 of the Civil Code properties. Aside from his bare allegations, he has failed to show that the
provides: respondents used the partnerships money to purchase the said properties. Even
assuming arguendo that some partnership income was used to acquire these
Art. 1797. The losses and profits shall be distributed in conformity with the properties, the petitioner should have successfully shown that these funds came from
agreement. If only the share of each partner in the profits has been agreed upon, the his share in the partnership profits. After all, by his own admission, and as stated in
share of each in the losses shall be in the same proportion. the Acknowledgement of Participating Capital, he owned a mere 6% equity in the
In the absence of stipulation, the share of each partner in the profits and losses shall
be in proportion to what he may have contributed, but the industrial partner shall not DENIED
be liable for the losses.
Partnership v Co-ownership
The petitioner himself claims his share to be 6%, as stated in the Acknowledgement
There is a co-ownership when an undivided thing or right belongs to different
of Participating Capital. However, petitioner fails to realize that this document
persons. It is a partnership when two or more persons bind themselves to contribute
specifically enumerated the businesses covered by the partnership: Manila Athletic
money, property, or industry to a common fund, with the intention of dividing the
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City.
profits among themselves.
Since there was a clear agreement that the capital the partners contributed went to
the three businesses, then there is no reason to deviate from such agreement and go The rule for determining when a transaction should be deemed a partnership or a co-
beyond the stipulations in the document. Therefore, the Court of Appeals did not err ownership. Said article paragraphs 2 and 3, provides;
in limiting petitioners share to the assets of the businesses enumerated in the
Acknowledgement of Participating Capital. (2) Co-ownership or co-possession does not itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of
In Villareal v. Ramirez, the Court held that since a partnership is a separate juridical the property;
entity, the shares to be paid out to the partners is necessarily limited only to its total
resources. (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 Hence, the instant petition
property from which the returns are derived
Private respondent, for his part, denies that he was ever an industrial partner of
petitioners. There was no written agreement, no proof that he received a share in
petitioners' profits, nor was there anything to show he had any participation with
VICENTE SY v. CA, GR No. 142293, 2003-02-27 respect to the running of the business.

Facts: Issues:

private respondent Jaime Sahot started working as a truck helper for petitioners' Whether Sahot is an industrial partner
family-owned trucking business named Vicente Sy Trucking he became a truck driver
of the same family business, renamed T. Paulino Trucking Service, later 6B's Ruling:
Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation NO
since 1994. Throughout all these changes in names and for 36 years, private
respondent continuously served the trucking business of petitioners. As found by the appellate court, petitioners owned and operated a trucking business
since the 1950s and by their own allegations, they determined private respondent's
Sahot was already 59 years old. He had been incurring absences as he was suffering wages and rest day. Records of the case show that private respondent actually engaged
from various ailments. Particularly causing him pain was his left thigh, which greatly in work as an employee. During the entire course of his employment he did not have
affected the performance of his task as a driver. He inquired about his medical and the freedom to determine where he would go, what he would do, and how he would
retirement benefits with the Social Security System (SSS), but discovered that his do it. He merely followed instructions of petitioners and was content to do so, as long
premium payments had not been remitted by his employer. as he was paid his wages.
Sahot had filed a week-long leave, he was medically examined and treated for Indeed, said the CA, private respondent had worked as a truck helper and driver
hypertensive retinopathy, UTI, Osteoarthritis and heart enlargement. At the end of his of petitioners not for his own pleasure but under the latter's control.
week-long absence, Sahot applied for extension of his leave for the whole month. It
was at this time when petitioners allegedly threatened to terminate his employment Article 1767 of the Civil Code states that in a contract of partnership two or more
should he refuse to go back to work. persons bind themselves to contribute money, property or industry to a common fund,
with the intention of dividing the profits among themselves. Not one of these
At this point, Sahot was facing dismissal if he refused to work, But he could not retire circumstances is present in this case. No written agreement exists to prove the
on pension because petitioners never paid his correct SSS premiums. The fact partnership between the parties. Private respondent did not contribute money,
remained he could no longer work as his left thigh hurt abominably. Petitioners ended property or industry for the purpose of engaging in the supposed business. There is no
his dilemma. They carried out their threat and dismissed him from work proof that he was receiving a share in the profits as a matter of course, during the
He ended up sick, jobless and penniless. period when the trucking business was under operation. Neither is there any proof that
he had actively participated in the management, administration and adoption of
Sahot filed with the NLRC a complaint for illegal dismissal against petitioners policies of the business.

For their part, petitioners admitted they had a trucking business in the 1950s but On this point, we affirm the findings of the appellate court and the NLRC. Private
denied employing helpers and drivers. They contend that private respondent was not respondent Jaime Sahot was not an industrial partner but an employee of petitioners
illegally dismissed as a driver because he was in fact petitioner's industrial partner.

The NLRC ruled that there was no illegal dismissal in Sahot's case.
On appeal, the National Labor Relations Commission modified the judgment of the 1999-11-03
Labor Arbiter. It declared that private respondent was an employee, not an industrial
partner the appellate court affirmed with modification the judgment of the NLRC Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao Their contribution may be in the form of credit or industry, not necessarily cash or
entered into a Contract for the purchase of fishing nets from the Philippine Fishing fixed assets. Being partners, they are all liable for debts incurred by or on behalf of
Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a the partnership. The liability for a contract entered into on behalf of an unincorporated
business venture with Petitioner Lim Tong Lim, who however was not a signatory to association or ostensible corporation may lie in a person who may not have directly
the agreement. transacted on its behalf, but reaped benefits from that contract.

The buyers, however, failed to pay for the fishing nets and the floats; hence, private The Petition is devoid of merit.
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim
with a prayer for a writ of preliminary attachment. The suit was brought against the We are not persuaded by the arguments of petitioner.
three in their capacities as general partners, on the allegation that "Ocean Quest
here existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the
Fishing Corporation" was a nonexistent corporation as shown by a Certification from
Civil Code which provides:
the Securities and Exchange Commission.
"Article 1767 - By the contract of partnership, two or more persons bind themselves
the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced
to contribute money, property, or industry to a common fund, with the intention of
by attaching the fishing nets on board F/B Lourdes
dividing the profits among themselves." it is clear that Chua, Yao and Lim had decided
The trial court maintained the Writ, and upon motion of private respondent, ordered to engage in a fishing business, which they started by buying boats worth P3.35
the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won million, financed by a loan secured from Jesus Lim who was petitioner's brother. In
the bidding and deposited with the said court the sales proceeds of P900,000. their Compromise

the trial court rendered its Decision, ruling that Chua, Yao and Lim, as general Agreement, they subsequently revealed their intention to pay the loan with the
partners, were jointly liable to pay respondent. proceeds of the sale of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed with borrowed
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) money, fell under the term "common fund" under Article 1767. The contribution to
on the testimonies of the witnesses presented and (2) on a Compromise Agreement such fund need not be cash or fixed assets; it could be an intangible like credit or
executed by the thre im appealed to the Court of Appeals (CA) which industry. That the parties agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows that they had indeed
CA held that petitioner was a partner of Chua and Yao in a fishing business and may formed a partnership.
thus be held liable as a such for the fishing nets and floats purchased by and for the
use of the partnership. Moreover, the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing,
Hence, petitioner brought this recourse before this Court. were obviously acquired in furtherance of their business.
Petitioner argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao,
of Lease" showed that he had merely leased to the two the main asset of the purported a partnership engaged in the fishing business. They purchased the boats, which
partnership -- the fishing boat F/B Lourdes. constituted the main assets of the partnership, and they agreed that the proceeds from
the sales and operations thereof would be divided among them.
Petitioner Was a Partner, Not a Lessor
Existence of a Partnership and Petitioner's Liability
petitioner entered into a business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading of the vessels which
A partnership may be deemed to exist among parties who agree to borrow money to would be used in their fishing business. The sale of the boats, as well as the division
pursue a business and to divide the profits or losses that may arise therefrom, even if among the three of the balance remaining after the payment of their loans, proves
it is shown that they have not contributed any capital of their own to a "common fund." beyond cavil that F/B Lourdes, though registered in his name, was not his own
property but an asset of the partnership
It is not uncommon to register the properties acquired from a loan in the name of the They formed a partnership
person the lender trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim. There is no doubt that if the plaintiffs merely formed a community of property the
latter is exempt from the payment of income tax under the law. But according to the
We stress that it is unreasonable - indeed, it is absurd -- for petitioner to sell his stipulated facts the plaintiffs organized a partnership of a civil nature because
property to pay a debt he did not incur, if the relationship among the three of them each of them put up money to buy a sweepstakes ticket for the sole purpose of
was merely that of lessor-lessee, instead of partners. dividing equally the prize which they may win, as they did in fact in the amount of
P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon
JOSE GATCHALIAN ET AL. v. COLLECTOR OF INTERNAL REVENUE, GR the organization thereof and the winning of the prize, Jose Gatchalian personally
No. 45425, 1939-04-29 appeared in the office of the Philippine Charity Sweepstakes, in his capacity as co-
partner, as such collected the prize, the office issued the check for P50,000 in favor of
Jose Gatchalian and company, and the said partner, in the same capacity, collected the
plaintiffs are all residents of the municipality of Pulilan, Bulacan, and that defendant said check. All these circumstances repel the idea that the plaintiffs organized and
is the Collector of Internal Revenue of the Philippines; plaintiffs, in order to enable formed a community of property only.
them to purchase one sweepstakes ticket valued at two pesos (P2), subscribed and
Having organized and constituted a partnership of a civil nature, the said entity is the
paid therefor the amounts as follows (nag ambagan)
one bound to pay the income tax which the defendant collecte
immediately thereafter plaintiffs purchased from one of the duly authorized agents of
There is no merit in plaintiffs' contention that the tax should be prorated among them
the National Charity Sweepstakes Office one ticket bearing No. 178637 and that the
and paid individually, resulting in their exemption from the tax.
said ticket was registered in the name of Jose Gatchalian and Company as a result, the
above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount
of P50,000 and which check was cashed by Jose Gatchalian & Company
Santos v. Sps. Reyes, G.R. No. 135813,
Gatchalian was required by income tax examiner Alfredo David to file the
corresponding income tax return covering the prize won by Jose Gatchalian & In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%)
Company and that the said return was signed by Gatchalian efendant made an orally instituted a partnership with them as partners. Their venture is to set up a
assessment against requesting the payment of the sum of P1,499.94 to the deputy lending business where it was agreed that Santos shall be financier and that Nieves
provincial treasurer of Pulilan, Bulacan plaintiffs, through their attorney, sent to and Zabat shall contribute their industry. **The percentages after their names denote
defendant a reply requesting exemption from the payment of the income tax to which their share in the profit.
reply there were enclosed fifteen (15) separate individual income tax returns filed
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a
separately by each one of the plaintiffs defendant denied plaintiffs' request for
corporation. It was agreed that the partnership shall provide loans to the employees of
exemption from the payment of tax in view of the failure of the plaintiffs to pay the
Gragera’s corporation and Gragera shall earn commission from loan payments.
amount of tax demanded by the defendant, notwithstanding subsequent demand
issued a warrant of distraint and levy against the property of the plaintiffs 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
Plaintiffs paid under protest the sum. plaintiffs demanded upon defendant the refund flow more particularly from their dealings with Gragera, Zabat on the other hand shall
of the total sum of P1,863.44 paid under protest by them but that defendant refused be a loan investigator. But then later, Nieves and Santos found out that Zabat was
and still refuses to refund the said amount notwithstanding the plaintiffs' demands. 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,
Whether the plaintiffs formed a partnership, or merely a community of property Arsenio, who became their loan investigator.
without a personality of its own
Later, Santos accused the spouses of not remitting Gragera’s commissions to the
Ruling: 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