Litunjua VS Litunjua

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract
of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the
latter is allowing Aurelio to manage their family business (if Eduardos away) and in exchange
thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum
was subsequently made for the said partnership agreement. The memorandum this time stated
that in exchange of Aurelio, who just got married, retaining his share in the family business
(movie theatres, shipping and land development) and some other immovable properties, he will
be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired
by them whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an
accounting and the liquidation of his share in the partnership. Eduardo did not heed and so
Aurelio sued Eduardo.
ISSUE: Whether or not there exists a partnership.
HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented
by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership.
Art. 1771. A partnership may be constituted in any form, except where immovable property
or real rights are contributed thereto, in which case a public instrument shall be necessary.
TCDcSE
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in
money or property, shall appear in a public instrument, which must be recorded in the Office
of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the
liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and attached to
the public instrument.
The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that said letter does
not meet the public instrumentation requirements exacted under Article 1771 (how partnership
is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in money or property, said letter cannot be presented
for notarization, let alone registered with the Securities and Exchange Commission (SEC), as
called for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as
the inventory requirement under the succeeding Article 1773 goes into the matter of validity
when immovable property is contributed to the partnership, the next logical point of inquiry turns
on the nature of Aurelios contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not a public instrument
and again, no inventory was made of the immovable property and no inventory was attached to
the Memorandum. Article 1773 of the Civil Code requires that if immovable property is
contributed to the partnership an inventory shall be had and attached to the
contract.

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.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still
be back to square one, so to speak, since they did not present and offer evidence that would
show that Tan Eng Kee received amounts of money allegedly representing his share in the profits
of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, 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 features of a partnership.

Sy v. Court of Appeals, G.R. No. 142293, [February 27, 2003], 446 PHIL 404-420).
RATIONALE:
The elements to determine the existence of an employment relationship are: (a) the selection
and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d)
the employer's power to control the employee's conduct. The most important element is the
employer's control of the employee's conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it.
Article 1767 of the Civil Code states that in a 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

FACTS:
Sometime in 1958, private respondent Jaime Sahot 5 started working as a truck helper for
petitioners' family-owned trucking business named Vicente Sy Trucking. In 1965, he became a
truck driver of the same family business, renamed T. Paulino Trucking Service, later 6B's Trucking
Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994. Throughout
all these changes in names and for 36 years, private respondent continuously served the
trucking business of petitioners.
In April 1994, Sahot was already 59 years old. He had been incurring absences as he was
suffering from various ailments. Particularly causing him pain was his left thigh, which greatly
affected the performance of his task as a driver. He inquired about his medical and retirement
benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his
premium payments had not been remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically
examined and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes "G-5" and "G-
3", pp. 48, 104, respectively), 6 HPM, UTI, Osteoarthritis (Annex "G-4", p. 105), 7 and heart
enlargement (Annex G, p. 107). 8 On said grounds, Belen Paulino of the SBT Trucking Service
management told him to file a formal request for extension of his leave. At the end of his week-
long absence, Sahot applied for extension of his leave for the whole month of June, 1994. It was
at this time when petitioners allegedly threatened to terminate his employment should he refuse
to go back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work.
But he could not retire on pension because petitioners never paid his correct SSS premiums. The
fact remained he could no longer work as his left thigh hurt abominably. Petitioners ended his
dilemma. They carried out their threat and dismissed him from work, effective June 30, 1994. He
ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal
dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of
separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino,
Vicente Sy Trucking, T. Paulino Trucking Service, 6B's Trucking and SBT Trucking, herein
petitioners.
For their part, petitioners admitted they had a trucking business in the 1950s but denied
employing helpers and drivers. They contend that private respondent was not illegally dismissed
as a driver because he was in fact petitioners' industrial partner. They add that it was not until
the year 1994, when SBT Trucking Corporation was established, and only then did respondent
Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the
time of his separation. IcaHCS
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not
able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend
his leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private
respondent never reported back to work nor did he file an extension of his leave. Instead, he filed
the complaint for illegal dismissal against the trucking company and its owners.
Petitioners add that due to Sahot's refusal to work after the expiration of his authorized leave of
absence, he should be deemed to have voluntarily resigned from his work. They contended that
Sahot had all the time to extend his leave or at least inform petitioners of his health condition
LABOR ARBITER DECISION
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there
was no illegal dismissal in Sahot's case.
NLRC DECISION
the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared
that private respondent was an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was terminated on account of his
illness, pursuant to Article 284 9 of the Labor Code
CA DECISION
In its decision dated February 29, 2000, the appellate court affirmed with modification the
judgment of the NLRC. It held that private respondent was indeed an employee of petitioners
since 1958.

Issue: Whether or not an employer-employee relationship existed between petitioners and

respondent Sahot

Held: Yes. The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee's conduct. The most important
element is the employer's control of the employee's conduct, not only as to the result of the work
to be done, but also as to the means and methods to accomplish it. 19
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 wages and rest day.
20 Records of the case show that private respondent actually engaged in work as an employee.
During the entire course of his employment he did not have the freedom to determine where he
would go, what he would do, and how he would do it. He merely followed instructions of
petitioners and was content to do so, as long as he was paid his wages. Indeed, said the CA,
private respondent had worked as a truck helper and driver of petitioners not for his own
pleasure but under the latter's control.
Article 1767 of the Civil Code states that in a 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. 22 Not one of these circumstances is present in this case.
No written agreement exists to prove the partnership between the parties. Private respondent
did not contribute money, property or industry for the purpose of engaging in the supposed
business. There is no proof that he was receiving a share in the profits as a matter of course,
during the 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 policies of
the business. Thus, the NLRC and the CA did not err in reversing the finding of the Labor Arbiter
that private respondent was an industrial partner from 1958 to 1994. DaCTcA
On this point, we affirm the findings of the appellate court and the NLRC. Private respondent
Jaime Sahot was not an industrial partner but an employee of petitioners from 1958 to 1994. The
existence of an employer-employee relationship is ultimately a question of fact 23 and the
findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but
finality when supported by substantial evidence. Substantial evidence is such amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. 24
Time and again this Court has said that "if doubt exists between the evidence presented by the
employer and the employee, the scales of justice must be tilted in favor of the latter." 25 Here,
we entertain no doubt. Private respondent since the beginning was an employee of, not an
industrial partner in, the trucking business.

Evangelista VS CIR

Facts: Petitioners borrowed money from their father and purchased several lands. For several
years, these lands were leased to tenants by the petitioners. In 1954, respondent Collector of
Internal Revenue demanded from petitioners the payment of income tax on corporations, real
estate dealer's fixed tax and corporation residence tax for the years 1945-1949. A letter of
demand and corresponding assessments were delivered to petitioners. Petitioners claim that
they should be absolved from paying said taxes since they are not a corporation.

Issue: Whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as
to the residence tax for corporations and the real estate dealers fixed tax.

Held: Yes. Petitioners are subject to the income tax and residence tax for corporation.

As defined in section 84 (b) of the Internal Revenue Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates
that a joint venture need not be undertaken in any of the standard forms, or in conformity with
the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Partnership, as has been defined in the civil
code refers to two or more persons who bind themselves to contribute money, properly, or
industry to a common fund, with the intention of dividing the profits among themselves. Thus,
petitioners, being engaged in the real estate transactions for monetary gain and dividing the
same among themselves constitute a partnership so far as the Code is concerned and are
subject to income tax for corporation.

Since Sec 2 of the Code in defining corporations also includes joint-stock company, partnership,
joint account, association or insurance company, no matter how created or organized, it follows
that petitioners, regardless of how their partnership was created is also subject to the residence
tax for corporations.

Lim Tong Lim vs Philippine Fishing Gear Industries, Inc.

It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not
have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time
to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable because he was
not aware that Chua and Yao represented themselves as a corporation; that the two acted
without his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the 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 money, fell under the term common fund under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
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 formed a partnership.

Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his
boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general
partners.

AFISCO v. CA

FACTS:
The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance
policies for machines. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and
a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter
called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required
petitioners to form a pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax for 1975. On the basis of this, the CIR assessed
a deficiency of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and
P89,438.68 on dividends paid to Munich and to the petitioners, respectively.
The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed their
appeal.

The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation,
and that the latters collection of premiums on behalf of its members, the ceding companies, was
taxable income.
ISSUE/S:
w/n the insurance pool is a partnership or association taxable as a corporation

HELD:
1) Yes: Pool taxable as a corporation

Argument of Petitioner: The reinsurance policies were written by them individually and
separately, and that their liability was limited to the extent of their allocated share in the
original risks thus reinsured. Hence, the pool did not act or earn income as a reinsurer. Its role
was limited to its principal function of allocating and distributing the risk(s) arising from the
original insurance among the signatories to the treaty or the members of the pool based on their
ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions, such as
records, maintenance, collection and custody of funds, etc.

Argument of SC: According to Section 24 of the NIRC of 1975:

SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is hereby
imposed upon the taxable net income received during each taxable year from all sources by
every corporation organized in, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general co-partnership (compaias
colectivas), general professional partnerships, private educational institutions, and building and
loan associations xxx.

Ineludibly, the Philippine legislature included in the concept of corporations those entities that
resembled them such as unregistered partnerships and associations. Interestingly, the NIRCs
inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act
of 1997 Sec. 27 read together with Sec. 22 reads:

SEC. 27. Rates of Income Tax on Domestic Corporations. --

(A) In General. -- Except as otherwise provided in this Code, an income tax of thirty-five percent
(35%) is hereby imposed upon the taxable income derived during each taxable year from all
sources within and without the Philippines by every corporation, as defined in Section 22 (B) of
this Code, and taxable under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participacion), associations, or insurance
companies, but does not include general professional partnerships [or] a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium
agreement under a service contract without the Government. General professional
partnerships are partnerships formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from engaging in any trade or
business.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that Section 24 covered these
unregistered partnerships and even associations or joint accounts, which had no legal
personalities apart from their individual members.
Furthermore, Pool Agreement or an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich
may be considered a partnership because it contains the following elements: (1) The pool has a
common fund, consisting of money and other valuables that are deposited in the name and
credit of the pool. This common fund pays for the administration and operation expenses of the
pool. (2) The pool functions through an executive board, which resembles the board of directors
of a corporation, composed of one representative for each of the ceding companies. (3) While,
the pool itself is not a reinsurer and does not issue any policies; its work is indispensable,
beneficial and economically useful to the business of the ceding companies and Munich, because
without it they would not have received their premiums pursuant to the agreement with Munich.
Profit motive or business is, therefore, the primordial reason for the pools formation.

GATCHALIAN VS CIR

Facts: Plaintiffs purchased, in the ordinary course of business, from one of the duly authorized
agents of the National Charity Sweepstakes Office one ticket for the sum of two pesos (P2), said
ticket was registered in the name of Jose Gatchalian and Company. The ticket won one of the
third-prizes in the amount of P50,000.

Jose Gatchalian was required to file the corresponding income tax return covering the prize won.
Defendant-Collector made an assessment against Jose Gatchalian and Co. requesting the
payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. Plaintiffs,
however through counsel made a request for exemption. It was denied.

Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was issued. Plaintiffs
paid under protest a part of the tax and penalties to avoid the effects of the warrant. A request
that the balance be paid by plaintiffs in installments was made. This was granted on the
condition that a bond be filed.

Plaintiffs failed in their installment payments. Hence a request for execution of the warrant of
distraint and levy was made. Plaintiffs paid under protest to avoid the execution.

A claim for refund was made by the plaintiffs, which was dismissed, hence the appeal.

Issue: Whether the plaintiffs formed a partnership hence liable for income tax.

Held: Yes. According to the stipulation facts the plaintiffs organized a partnership of a civil nature
because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact in the amount of P50,000. The
partnership was not only formed, but upon the organization thereof and the winning of the prize,
Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his
capacity as co-partner, as such collection 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
said check. All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.

Santos VS Sps 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 of Santos in the business.

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.