FERNANDO SANTOS, petitioner vs.

Spouses ARSENIO and NIEVES REYES,

respondents.
GR NO: 135813
October 25, 2001
FACTS:
In June 1986, Fernando Santos and Nieves Reyes were introduced to each other
by Meliton Zabat regarding a lending business venture proposed by Nieves. They
orally instituted a partnership with them as partners and agreed that they will have
a 70-15-15 share for Fernando Santos, Nieves Reyes, and Melton Zabat
respectively. They 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.
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 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. However, Zabat was expelled from the
partnership for engaging in another lending business which competes with their
business.
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
amounting to P3M. 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 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.
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. And as agreed, Nieves and Zabat
(later replaced by Arsenio) 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 ability 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. 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.
Moreover, Gragera and Santos were not partners. The money-lending activities
undertaken with Monte Maria were done in pursuit of the business for which the
partnership between Santos, 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
HELD:
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 biggest 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. 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.

By: Yanee