TITLE OF THE CASE: FERNANDO SANTOS, petitioner vs.

Spouses ARSENIO and NIEVES FACTS:

REYES, respondents. In June

GR NO: 135813 DATE: October 25, 2001 1986,

PONENTE

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.

PLAINTIFF’S ARGUMENTS:

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.

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 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.
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.

CFI: Two cases were heard jointly; Complaint of Yulo and Yang dismissed declaring contract of lease terminated.

CA: Affirmed the judgment.

In 1950, Yulo demanded from Yang her share in the profits of the business. Yang answered saying he had to suspend payment because of pending
ejectment suit.

Yulo filed present action in 1954, alleging the existence of a partnership between them and that Yang has refused to pay her shares.

Defendant’s Position: The real agreement between plaintiff and 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 property.

Trial Court: Dismissal. It is not true that a partnership was created between them because defendant has not actually contributed the sum
mentioned in the Articles of Partnership or any other amount. The agreement is a lease because plaintiff didn’t share either in the profits or in the
losses of the business as required by Art 1769 (CC) and because plaintiff was granted a “guaranteed participation” in the profits belies the
supposed existence of a partnership.

Issue: Was the agreement a contract a lease or a partnership?

Ruling: Dismissal. 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.

HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, G.R. No. 126881, October 3, 2000

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.

CIR VS. SUTER

FACTS:

A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed 30 September 1947 by William J.
Suter as the general partner, and Julia Spirig and Gustav Carlson. They contributed, respectively, P20,000.00, P18,000.00
and P2,000.00. it was also duly registered with the SEC. On 1948 Suter and Spirig got married and in effect Carlson sold
his share to the couple, the same was also registered with the SEC.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein
petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income
of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

ISSUE:

Whether or not the limited partnership has been dissolved after the marriage of Suter and Spirig and buying the
interest of limited partner Carlson.

RULING:

No, the limited partnership was not dissolved.

“A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code,
which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations
to each other are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership. “

What the law prohibits was when the spouses entered into a general partnership. In the case at bar, the
partnership was limited.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate from that of
its partners (unlike American and English law that does not recognize such separate juridical personality), the bypassing of the existence of the
limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its income with that of the component members. True, section 24 of the Internal
Revenue Code merges registered general co partnerships (compañias colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a car-dinal tenet of our partnership laws, and can not be extended by mere implication to
limited partnerships.
Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted
its own dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such in-dependent entity. The
change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use
the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its Section 24:
for the appellant Commissioner's stand results in equal treatment, taxwise, of a general copartnership (compañia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the
case of compañias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership’

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO,

petitioners,
vs.
 HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents. G.R. No. 109248, July 3, 1995

Facts: The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered with the SEC on 4 August 1948.
There were several subsequent amendments to the articles of partnership to change the firm name, the last being on 7
June 1977 to BITO, MISA & LOZADA. [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with petitioners Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners. On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating
that he is withdrawing and retiring from the firm.

Petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution
and liquidation of partnership. The hearing officer rendered a decision ruling that petitioner's withdrawal from the law
firm did not dissolve the said partnership. On appeal, the SEC en banc reversed the decision of the Hearing Officer and
held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The
Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as
by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. The Court of Appeals, AFFIRMED in toto the SEC decision and order appealed from.

Issue: Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito,
Lozada, Ortega & Castillo) is a partnership at will.

Held: NO. A partnership that does not fix its term is a partnership at will. The birth and life of a partnership at will is
predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership.

Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it
can result in a liability for damages.

Among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although
not necessarily the right, to dissolve the partnership. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its termination.

Additional:

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at
will.

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law
contemplates is a specific undertaking or "project" which has a definite or definable period of completion.