Santos vs Sps.

Reyes 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.
Business Organization – Partnership, Agency, Trust – Shares in Liquidation
There is no separate partnership between Santos and Gragera. The latter being
– Net Profit vs Gross Income
merely a commission agent of the partnership. This is even though the
In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton partnership was formalized shortly after Gragera met with Santos (Note that
Zabat (15%) orally instituted a partnership with them as partners. Their Nieves was even the one who introduced Gragera to Santos exactly for the
venture is to set up a lending business where it was agreed that Santos shall purpose of setting up a lending agreement between the corporation and the
be financier and that Nieves and Zabat shall contribute their industry. **The partnership).
percentages after their names denote their share in the profit.
HOWEVER, the order of the Court of Appeals directing Santos to give the
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman spouses their shares in the profit is premature. The accounting made by the
of a corporation. It was agreed that the partnership shall provide loans to the trial court is based on the “total income” of the partnership. Such total income
employees of Gragera’s corporation and Gragera shall earn commission from calculated by the trial court did not consider the expenses sustained by the
loan payments. 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
In August 1986, the three partners put into writing their verbal agreement to “net profit” of the partnership. The share of each one of them should be based
form the partnership. As earlier agreed, Santos shall finance and Nieves shall on this “net profit” and not from the “gross income” or “total income”.
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.
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