FERNANDO SANTOS, petitioner, vs.

Spouses ARSENIO
and NIEVES REYES, respondents.
G.R. No. 135813. October 25, 2001.
PANGANIBAN, J.

In 1986, Fernando Santos, Meliton Zabat and Nieves Reyes verbally agreed that Santos would act as financier
while Nieves and Zabat would take charge of solicitation of members and collection of loan payments in a
lending business venture proposed by Nieves with the understanding that Santos would receive 70% of the
profits while Nieves and Zabat would earn 15% each. They later on executed the ‘Article of Agreement’ which
formalized their verbal arrangement.

Gragera, as chairman of the Monte Maria Development Corporation sought short-term loans for members of
the corporation. Santos and Gragera executed an agreement providing funds for Monte Maria’s members.

Zabat was thereby expelled from the partnership since Santos and Nieves later discovered that their he is
engaged in the same lending business in competition with their partnership.

In 1987, Santos filed a complaint for recovery of sum of money and damage against Spouses Reyes allegedly
in their capacities as employees of Santos with having misappropriated funds intended for Gragera for the
period July 8, 1986 up to March 31, 1987.

Spouses Reyes asserted that they were partners and not mere employees of Santos.

Santos on the other hand insisted that Spouses Reyes were his mere employees and not partners with respect
to the agreement with Gragera. He claimed that after he discovered Zabat’s activities, he ceased infusing
funds, thereby causing the extinguishment of the partnership.

The agreement with Gragera was a distinct partnership from that of Spouses Reyes and Zabat. Santos
asserted that Spouses Reyes were hired as salaried employees with respect to the partnership between
Santos and Gragera.

Are Spouses Reyes partners of Santos?

Yes. Spouses Reyes were industrial partners of Santos.

Under Art. 1767 of the Civil Code, 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.

In this case, Nieves herself provided the initiative in the lending activities with Monte Maria. In consonance with
the agreement between appellant, Nieves and Zabat contributed industry to the common fund with the intention
of sharing in the profits of the partnership. Spouses Reyes provided services without which the partnership
would not have the wherewithal to carry on the purpose for which it was organized and as such were
considered industrial partners.

While it is true that 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.

Moreover, the “Articles of Agreement stipulated that the signatories shall share the profits of the business in a
70–15–15 manner, with Santos getting the lion’s share. This stipulation clearly proved the establishment of a
partnership.

Thus, Spouses Reyes were partners of Santos and not a mere employee.