LESSON 1 – PARTNERSHIP SY 2021-2022

I. Preliminary Considerations

A. Review of the Law on Contracts (Synchronous Discussion)

a.1. What are Contracts?

 A contract is a meeting of minds between two persons whereby one binds

himself, with respect to the other, to give something or to render some services.
(Civil Code Art. 1305)

a.2. What are the essential requisites of a valid contract?

1. Consent of the contracting parties (Free, Voluntary, and willful)

2. There must be an object certain which is the subject matter of a contract (The offer is
certain and the acceptance is absolute)
3. Cause of the obligation which is established

a.3. Forms of Contract (Purpose: for VALIDITY, ENFORCEABILITY,

CONVENIENCE)

1. Consensual Contract- perfected by mere consent; such as the contract of sale,

lease and agency

2. Real Contract- perfected by mere consent and the delivery of the object; such
as deposit, pledge and commodatum

3. Solemn Contracts- perfected through compliance with the form required by

law; identical with formal contract.

 Contracts are obligatory whatever form they may have been entered into
provided that all requisites are present and valid.

For example, if the contract was done not in writing it would still be valid as
long as the essential requisites of a contract are all present.

Except, when the law requires the contract should be written (solemn contracts)
and for an example of this would be donation of an immovable property since it
must be embodied in a public instrument in order to be valid. Another example,
is the donation of a movable property with worth more than 5,000 which must be
in writing to be valid.
B. Brief History of Partnership as a business organization (Readings by Students)

Babylonian---Jewish Law---Romans---England (Merchants)---English

Partnership would be better be practiced because of the rapid growth of business that one
person cannot handle it by himself.

C. Evolution of the law on Partnership (Readings by Students)

1. Spanish Influence
a. Spanish Civil Code (Articles 1665-1708)
b. Comparison of Old Spanish Civil Code and Present Day Civil Code Provisions;
Highlights
2. American Influence
3. New Civil Code
4. Modern day Partnerships; Joint Ventures

D. Partnership as a Business Organization; Significance of Partnership in the Real World

(Synchronous Discussion)

II. General Provisions

Article 1767. - Statutory Definition of a Partnership (Synchronous Discussion)

ART. 1767. By the contract of partnership two or more persons bind themselves to
contribute money or property, or industry to a common fund, with the intention of dividing the
profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.

A. Characteristic Elements of Partnership

1. Consensual- Because it is perfected by mere consent either implied or express

agreement of two or more persons
2. Nominate- because it has special name or designation in our law.
3. Bilateral- because it is entered by two or more persons wherein there is
reciprocity between the two.
4. Onerous- because certain contribution should be made
5. Commutative- the undertaking of each partner are considered as equivalent to
the others.
6. Principal- because it is not dependent in other contracts.
7. Preparatory- because it is entered into as a means to an end.

B. Essential Features of Partnership

 1. Existence of a valid contract

 Consent
 Object Certain/Subject matter
 Cause of obligation

- Delectus Personae – no one can become a member of the partnership association without
the consent of all the other associates. The right to choose with whom a person wishes to
associate or continue to associate himself is the very foundation and essence of
partnership

2. Legal Capacity

3. Lawful Object or purpose

Cases: (Synchronous and Asynchronous Learning)

1. Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November
3, 1999;

Facts: On behalf of Ocean Quest Fishing Company, Antonio Chua and Peter Yao entered into a
contract for the purchase of fishing nets of various sizes from Philippine Fishing Gear Industries.
They claimed that they are engaged in a business venture with Lim Tong Lim who however is
not signatory to the said agreement. The Philippine Fishing Industry filed a suit against the three
of them as general partners on the allegation that the Ocean Quest Fishing Company was a non-
existing corporation as shown by a certification from the SEC.

Issue: Whether or not Lim Tong Lim who is not a signatory to the agreement could be held liable
as for not paying for the purchased nets and floats to be used in the partnership.

Ruling:

RTC: Yes, Lim tong Lim could still be held liable as it is supported by the compromise
agreement made by the three of them that they will split the profits and split the payment if there
are damages to the said boats use for the venture business.

CA: Approved and maintained the decision of RTC since Lim tong Lim would still be held liable
as a member of the said partnership even though he is not signatory to the said agreement since
he benefited to the said profits that the two worked on in their business.

SC: Yes, Lim Tong Lim can be considered as a member of the partnership formed by Chua and
Yao as the former approached the two when they are already partners and written on the said
compromise agreement that the purchased of the boat was paid by the brother of Lim Tong Lim
as can be considered as a common fund. Upon this argument the purchase of nets and floats are
included for their venture business since it is necessary to the said business.

On the argument of Lim Tong Lim that he is not a partner but a lessor cannot be given merit. Yes,
this was proven because of the contract of lease, however, it does not support its logic that the
former would sell his boats and the money would serve as payment of the debts of Chua and Yao.
A lessor cannot do that.

On the argument that those whose names are included in the corporation should only be held
liable and that his name is not there, hence, he cannot be held liable. This is devoid of merit since
even though his name is not there still he benefited from the said business particularly the
purchased nets and floats and the boats used.

2. Evangelista, et. Al. Vs. CIR, L-9996, October 15, 1957

Facts:
            Herein petitioners seek a review of CTA’s decision holding them liable for income tax,
real estate dealer’s tax and residence tax. As stipulated, petitioners borrowed from their father a
certain sum for the purpose of buying real properties. Within February 1943 to April 1994, they
have bought parcels of land from different persons, the management of said properties was
charged to their brother Simeon evidenced by a document. These properties were then leased or
rented to various tenants.

        On September 1954, CIR demanded the payment of income tax on corporations, real estate
dealer’s fixed tax, and corporation residence tax to which the petitioners seek to be absolved
from such payment.

 Issue: Whether petitioners are subject to the tax on corporations.

 
Ruling:
            The Court ruled that with respect to the tax on corporations, the issue hinges on the
meaning of the terms “corporation” and “partnership” as used in Section 24 (provides that a tax
shall be levied on every corporation no matter how created or organized except general co-
partnerships) and 84 (provides that the term corporation includes among others, partnership) of
the NIRC. Pursuant to Article 1767, NCC (provides for the concept of partnership), its essential
elements are: (a) an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties.

It is of the opinion of the Court that the first element is undoubtedly present for petitioners have
agreed to, and did, contribute money and property to a common fund. As to the second element,
the Court fully satisfied that their purpose was to engage in real estate transactions for monetary
gain and then divide the same among themselves as indicated by the following circumstances:

1.       The common fund was not something they found already in existence nor a property
inherited by them pro indiviso. It was created purposely, jointly borrowing a substantial portion
thereof in order to establish said common fund;
2.       They invested the same not merely in one transaction, but in a series of transactions. The
number of lots acquired and transactions undertake is strongly indicative of a pattern or common
design that was not limited to the conservation and preservation of the aforementioned common
fund or even of the property acquired. In other words, one cannot but perceive a character of
habitually peculiar to business transactions engaged in the purpose of gain;
3.       Said properties were not devoted to residential purposes, or to other personal uses, of
petitioners but were leased separately to several persons;

4.       They were under the management of one person where the affairs relative to said
properties have been handled as if the same belonged to a corporation or business and enterprise
operated for profit;

5.       Existed for more than ten years, or, to be exact, over fifteen years, since the first property
was acquired, and over twelve years, since Simeon Evangelista became the manager;

6.       Petitioners have not testified or introduced any evidence, either on their purpose in
creating the set up already adverted to, or on the causes for its continued existence.

The collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein.

            Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality independent of that
of its members, did not come into existence, and some of the characteristics of partnerships are
lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals.

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking,
are distinct and different from "partnerships". When our Internal Revenue Code includes
"partnerships" among the entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly
registered general partnerships which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said 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. Again, pursuant to said
section 84(b), the term "corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality of its own, independent
of that of its members. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general copartnerships" — which are possessed of the aforementioned
personality — have been expressly excluded by law (sections 24 and 84 [b] from the connotation
of the term "corporation" It may not be amiss to add that petitioners' allegation to the effect that
their liability in connection with the leasing of the lots above referred to, under the management
of one person — even if true, on which we express no opinion — tends to increase the similarity
 between the nature of their venture and that corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on corporations.

As regards the residence of tax for corporations (Section 2 of CA No. 465), it is analogous to that
of section 24 and 84 (b) of the NIRC. It is apparent that the terms "corporation" and
"partnership" are used in both statutes with substantially the same meaning. Consequently,
petitioners are subject, also, to the residence tax for corporations.

Finally, on the issues of being liable for real estate dealer’s tax, they are also liable for the same
because the records show that they have habitually engaged in leasing said properties whose
yearly gross rentals exceeds P3,000.00 a year.

3. Estanislao, Jr. Vs. Court of Appeals, G.R. No. 49982, April 27, 1988

Facts: The petitioner and the private respondents were siblings who co-owned a certain lot in
QC, which were being leased to Shell. They agreed to open and operate a gas station with an
initial investment of P15,000.00 to be taken from the advance rentals due to them from SHELL.
Thus, a joint affidavit was executed stating that the advanced rentals would redound to the
“capital investment” for the operation of the partnership. Consequently, the petitioner and the
respondents executed another document entitled “Additional Cash Pledge Agreement”, with
Shell as a signatory, indicating that the advanced rentals of the same amount would start on May
24, 1966, rather than May 25, 1996 of the earlier agreement.

The petitioner failed to render proper accounting of the partnership. Thus, the private
respondents filed a complaint for the petitioner to render proper accounting, and for the
respondents to be given their proper share in the profits. The petitioner contended that there was
no longer a partnership existing between him and the respondents since

1. The subsequent agreement expressly superseded the former agreement;

2. The subsequent agreement no longer referred to as “capital investments”; and
3. The subsequent agreement was indicated that the business was in the nature of a sole
proprietorship.

Issue: Whether or not there is partnership

Ruling: Yes, In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly
stipulated by the parties that the P 15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which advance
rentals shall be credited as rentals from May 25, 1966 up to four and one-half months or
until 10 October 1966, more or less covering said P 15,000.00.

In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced
(Exhibit 6), the private respondents and petitioners assigned to SHELL the monthly rentals
due them commencing the 24th of May 1966 until such time that the monthly rentals
accumulated equal P 15,000.00 which private respondents agree to be a cash deposit of
petitioner in favor of SHELL to increase his credit limit as dealer. As above-stated it
provided therein that "This agreement, therefore, cancels and supersedes the Joint Affidavit
dated 11 April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding that
previous Joint Affidavit, whatever partnership agreement there was in said previous
agreement had thereby been abrogated. We find no merit in this argument. Said cancelling
provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals
starting May 25, 1966 while the latter agreement also refers to advance rentals of the same
amount starting May 24, 1966. There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent document that it "cancels and
supersedes" the previous one. True it is that in the latter document, it is silent as to the
statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of
the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but
this is as it should be for in the latter document SHELL was a signatory and it would be
against its policy if in the agreement it should be stated that the business is a partnership
with private respondents and not a sole proprietorship of petitioner.

Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private respondent
Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic
accounting of the business. 4 Petitioner gave a written authority to private respondent
Remedies Estanislao, his sister, to examine and audit the books of their "common business'
aming negosyo). 5 Respondent Remedios assisted in the running of the business. There is no
doubt that the parties hereto formed a partnership when they bound themselves to contribute
money to a common fund with the intention of dividing the profits among themselves.6 The
sole dealership by the petitioner and the issuance of all government permits and licenses in
the name of petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.

4. Heirs of Lim vs. Lim, G.R. No. 172690, March 3, 2010

Facts: Jose Lim formed a partnership of trucking services with Jimmy and Noberto. Upon
the death of Jose his eldest son Elfledo took the position of his Father Jose he managed the
business and that he engaged further himself to other kinds of business that’s why he and his
wife purchased lots and bought their own vehicle.

Petitioners claimed that respondent took over the administration of the aforementioned
properties, which belonged to the estate of Jose, without their consent and approval.
Claiming that they are co-owners of the properties, petitioners required respondent to submit
an accounting of all income, profits and rentals received from the estate of Elfledo, and to
surrender the administration thereof. Respondent refused; thus, the filing of this case.

Issue: Whether or not Elfledo can be considered as partner of Jimmy and Noberto
Ruling: Yes, Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1)
Cresencia testified that Jose gave Elfledo ₱50,000.00, as share in the partnership, on a date
that coincided with the payment of the initial capital in the partnership; 15 (2) Elfledo ran the
affairs of the partnership, wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners herein; 16 (3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name of
Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the profits of the
business;17 and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan
Eng Kee,18 a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of the
estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto.
They failed to refute respondent's claim that Elfledo and respondent engaged in other
businesses. Edison even admitted that Elfledo also sold Interwood lumber as a
sideline.19 Petitioners could not offer any credible evidence other than their bare assertions.
Thus, we apply the basic rule of evidence that between documentary and oral evidence, the
former carries more weight.20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but one of the partners in
the trucking business, active and visible in the running of its affairs from day one until this
ceased operations upon his demise. The extent of his control, administration and management
of the partnership and its business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners, are indicative of the fact
that Elfledo was a partner and a controlling one at that. It is apparent that the other partners
only contributed in the initial capital but had no say thereafter on how the business was ran.
Evidently it was through Elfredo’s efforts and hard work that the partnership was able to
acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of
the partnership by acting as the bookkeeper sans salary.1avvphi1

It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it was
Jose Lim and not Elfledo who was the partner, then upon his death the partnership should
have

been dissolved and its assets liquidated. On the contrary, these were not done but instead its
operation continued under the helm of Elfledo and without any participation from the heirs of
Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own
concerted efforts and hard work. Elfledo did not limit himself to the business of their
partnership but engaged in other lines of businesses as well.

5. Sevilla vs. Court of Appeals, G.R. No. 41182-3, April 15, 1988

Facts : A contract by and between Noguera and Tourist World Service (TWS), represented
by Canilao, wherein TWS leased the premises belonging to Noguera as branch office of
TWS. When the branch office was opened, it was run by appellant Sevilla payable to TWS
by any airline for any fare brought in on the efforts of Mrs. Sevilla, 4% was to go to Sevilla
and 3% was to be withheld by the TWS. Later, TWS was informed that Sevilla was
connected with rival firm, and since the branch office was losing, TWS considered closing
down its office. On January 3, 1962, the contract with appellee for the use of the branch
office premises was terminated and while the effectivity thereof was January 31, 1962, the
appellees no longer used it. Because of this, Canilao, the secretary of TWS, went over to the
branch office, and finding the premises locked, he padlocked the premises. When neither
appellant Sevilla nor any of his employees could enter, a complaint was filed by the
appellants against the appellees. TWS insisted that Sevilla was a mere employee, being the
“branch manager” of its branch office and that she had no say on the lease executed with the
private respondent, Noguera.

Issue: Whether or not an employer-employee relationship exists between Sevilla and TWS.

Ruling: The records show that petitioner, Sevilla, was not subject to control by the private
respondent TWS. In the first place, under the contract of lease, she had bound herself in
solidum as and for rental payments, an arrangement that would belie claims of a master-
servant relationship. That does not make her an employee of TWS, since a true employee
cannot be made to part with his own money in pursuance of his employer’s business, or
otherwise, assume any liability thereof. In the second place, when the branch office was
opened, the same was run by the appellant Sevilla payable to TWS by any airline for any
fare brought in on the effort of Sevilla. Thus, it cannot be said that Sevilla was under the
control of TWS. Sevilla in pursuing the business, relied on her own capabilities. It is further
admitted that Sevilla was not in the company’s payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to TWS. Unlike an employee,
who earns a fixed salary, she earned compensation in fluctuating amount depending on her
booking successes. The fact that Sevilla had been designated “branch manager” does not
make her a TWS employee. It appears that Sevilla is a bona fide travel agent herself, and she
acquired an interest in the business entrusted to her. She also had assumed personal
obligation for the operation thereof, holding herself solidary liable for the payment of
rentals. Wherefore, TWS and Canilao are jointly and severally liable to indemnify the
petitioner, Sevilla.
6. Torres vs. Court of Appeals, G.R. No. 134559, December 9, 1999

Facts: The petitioners and the defendant herein entered into a joint venture agreement for the
development of a parcel of land into a subdivision. In the said agreement they executed a
deed of sale in favor of the defendant and that he mortgaged the property and obtained a loan
of 40,000 which was to be used for the development of the subdivision. All the three of them
agreed also to share the proceeds from the sale of the subdivided lots.

The project did not push through and the bank foreclosed the said land.

According to the petitioners the project did not push through because of the lack of skills
and funds of the respondent while according to the respondent it is because there is a conflict
on the relatives of the petitioners for the adverse claim on the title of the said lot.

Issue: Whether or not there is an existence of a partnership

Ruling: Yes, Petitioners deny having formed a partnership with respondent. They contend
that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases
of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is
liable for his failure to implement the project. Because the agreement entitled them to
receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that
respondent pay them damages equivalent to 60 percent of the value of the property

Under the above-quoted Agreement, petitioners would contribute property to the partnership
in the form of land which was to be developed into a subdivision; while respondent would
give, in addition to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a
partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred
the title to the land to facilitate its use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the proceeds of which were used for the
survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to construct low-cost housing
units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money
or property, but also industry.

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof,

It is undisputed that petitioners are educated and are thus presumed to have understood the
terms of the contract they voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts,
and the fact that the contractual stipulations may turn out to be financially disadvantageous
will not relieve parties thereto of their obligations.

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of the
value of the property, which was their share in the profits under the Joint Venture
Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the
cause of the failure of the project. 16 But it also ruled that neither was respondent responsible
therefor. 17 In imputing the blame solely to him, petitioners failed to give any reason why we
should disregard the factual findings of the appellate court relieving him of fault

7. Sy, et. Al. vs. Court of Appeals, G.R. 142293, February 27, 2003

Facts: Private respondent in this case serves as a driver for the petitioners for 36 years in
changing names of the said trucking services. At the age of 59 years old he suffered many
illnesses such as pain in his left thigh, enlargement of heart, UTI ostheo-athritis etc. The
respondent decided to inquire his medical and retirement benefits to the SSS, however, he
discovered that his employer did not remit his premium payments. He then decided to file a
week-long leave and that she was told by Belen Paulino of the trucking services to file a
formal request for an extension of his leave and it was this time that he was threatened to be
terminated on his employment and that result to his actual termination later on.

Issue: Whether or not Sahot is an industrial partner or an employee of the said trucking
services.

Whether or not Sahod is validly terminated

Whether or not Sahot can be given a separation pay.

Ruling: 1). Sahot is an employee and not an industrial partner since he entered the trucking
services at the age of 23 and who would ever have thought at that age a man can be an
industrial partner. Moreover, the respondent said the owners of the trucking services did not
share their profits to him and that they have the control over him such as the time to eat,
where to deliver the goods and the time to start their work. 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

There was no written agreement, no proof that he received a share in petitioners’ profits, nor
was there anything to show he had any participation with respect to the running of the
business

2). Sahot is not validly terminated. The labor code provides that in general rule an employer
can terminate an employee if the law provides that the illness or the disease prevents the
employee to work on the place which is hazardous and can endanger his health more.
However, before the termination the employer must wait for the medical certification issued
by the competent public health authority that the illness cannot be cured within 6 months
even with proper medical treatment and If the disease or ailment can be cured within the
period, the employer shall not terminate the employee but shall ask the employee to take a
leave. In this case, the employer without receiving that medical certification just terminated
the work of Sahot.

it clearly appears that procedural due process was not observed in the separation of private
respondent by the management of the trucking company. The employer is required to
furnish an employee with two written notices before the latter is dismissed: (1) the notice to
apprise the employee of the particular acts or omissions for which his dismissal is sought,
which is the equivalent of a charge; and (2) the notice informing the employee of his
dismissal, to be issued after the employee has been given reasonable opportunity to answer
and to be heard on his defense.33 These, the petitioners failed to do, even only for record
purposes. What management did was to threaten the employee with dismissal, then actually
implement the threat when the occasion presented itself because of private respondent’s
painful left thigh.

3) The law is clear on the matter. An employee who is terminated because of disease is
entitled to "separation pay equivalent to at least one month salary or to one-half month
salary for every year of service, whichever is greater xxx

8. Aurbach vs. Sanitary Wares, 180 SCRA 350

9. Tocao vs. Court of Appeals, G.R. No. 127405, October 4, 2000

Facts: Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company, a
manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that Belo’s
name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in securing distributorship of cookware
from that company. The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding commission of six percent
(6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make;
and (4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo’s assurances that he was sincere, dependable and honest
when it came to financial commitments.

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter 6 addressed to the
Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices

Issue: Whether or not Anay, Tocao and Belo formed a Partnership

Ruling: Yes, Anay through her expertise, the business of Tocao and Belo rapidly grow. Anay
has the right to choose people to enter into the said business due also to their expertise. The
override commission gained by Tocao is the same as Anay would gained and this is
supported by the statements of the former that she treated Anay equal. Therefore, there
would be a partnership since Tocao has no control over Anay and that they share the profits
they gained in selling cookwares.

10. Santos vs. Reyes, G.R. No. 135813, October 25, 2001 (n)

Facts:  Santos and Nieves were introduced by Zabat regarding a lending business venture. It
was agreed verbally that Santos was the financier while Nieves and Zabat would cover
solicitation of members and collection of loan payments. Subsequently, Nieves introduced
Santos to Gragera resulting to a business deal with Monte Maria Development Corp. On Aug
1986, Santos, Nieves, and Zabat executed the ‘Article of Agreement’ which formalized their
earlier verbal agreement. Later on, Santos and Nieves discovered that Zabat was engaged in
the same lending business in competition with their venture thus resulting to the latter’s
expulsion from the partnership. On June 1987, Santos filed a complaint against Nieves for
recovery of sum of money and damages. He charged Nieves of allegedly misappropriating
funds intended to Gragera in their capacity as ‘employees’ of Santos. In their answer, Nieves
asserted they were partners and alleged that the complaint was filed to prevent them from
claiming their rightful share to the profits of the partnership. Santos contended that Nieves
were his employess due to the fact that he ceased infusing funds upon discovering Zabat’s
activities thus extinguishing the partnership.
RTC: Held that respondents were PARTNERS, not mere employees, of petitioner. It further
ruled that Gragera was only a commission agent of petitioner, not his partner.

CA: Upheld the decision of the RTC. Counterclaim was dismissed.

Issue: Whether or not the respondents were employees or partners of the petitioner.

Ruling: We agree with both courts on this point. 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.12 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.13 This stipulation clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued
lending money to the members of the Monte Maria Community Development Group, Inc., which
later on changed its business name to Private Association for Community Development, Inc.
(PACDI). Nieves was not merely petitioner’s employee. She discharged her bookkeeping duties
in accordance with paragraphs 2 and 3 of the Agreement.
 Because of this Agreement and the disbursement of monthly “allowances” and “profit shares” or
“dividends” (Exh. “6”) to Arsenio, we uphold the factual finding of both courts that he replaced
Zabat in the partnership.
Indeed, the partnership was established to engage in a moneylending business, despite the fact
that it was formalized only after the Memorandum of Agreement had been signed by petitioner
and Gragera. Contrary to petitioner’s contention, there is no evidence to show that a different
business venture is referred to in this Agreement, which was executed on August 6, 1986, or
about a month after the Memorandum had been signed by petitioner and Gragera on July 14,
1986.
The Agreement itself attests to this fact:
“WHEREAS, the parties have decided to formalize the terms of their business relationship in
order that their respective interests may be properly defined and established for their mutual
benefit and understanding,”