I.

PARTNERSHIP

A. General Provisions (Art. 1767 1783)

1. What is a contract of partnership? (Art 1767)

Santos vs Sps. Reyes 368 SCRA 261 THIRD DIVISION GR 135813 Oct 25 2001

(citing Evangelista vs Collector of Internal Revenue, 54 OG 996)

FACTS:
Nieves proposed a lending business venture to Santos. It was verbally agreed that Santos
would act as financier while Nieves and Zabat would take charge of solicitation of members
and collection of loan payments. Santos would receive 70% of profits while Nieves and Zabat
would earn 15% each.
Nieves introduced Gragera, chairman of Monte Maria Devt Corporation, to Santos. Santos
and Gragera executed an agreement providing funds/loan for employees of the corporation
where Gragera was entitled to P1.31 commission per thousand paid daily to Santos.
Santos, Nieves, and Zabat executed the Article of Agreement which formalized their earlier
verbal agreement.
Zabat was later on expelled from the partnership upon discovery that Zabat angaged in the
same lending business in competition with their partnership. Arsenio, husband of Nieves
replaced Zabat. The operations with Monte Maria continued.
Santos filed a complaint against Sps. Reyes for misappropriating funds intended for
Gragera. Santos insisted that Sps Reyes were his mere employees (bookkeeper and credit
investigator) and not partners with respect to the agreement with Gargera. He claimed that
after discovery of Zabats activities, he ceased infusing funds, thereby causing the
extinguishment of the partnership; and that the agreement with Gragera was a distinct
partnership from that of Reyes and Zabat.

ISSUE:
Whether there was a partnership between Sps Reyes and Santos.

RULING:
YES.
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 essential elements of a partnership are: (a) An agreement to contribute
money, property or industry toa common fund; (2) An intent to divide the profits among the
ontracting parties). 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 lions share. This
stipulation clearly proved the establishment of a partnership.
Sps Reyes were industrial partners of Santos. Nieves herself provided the initiative in the
lending activities with Monte Maria. In consonance with the agreement between Nieves and
Zabat (later replaced by Arsenio), Sps. Reyes contributed industry to the common fund with
the intention of sharing in the profits of the partnership. Sps Reyes provided services without
which the partnership would not have had the wherewithal to carry on the purpose for which
it was organized and as such were considered industrial partners (Evangelista v. Abad
Santos, 51 SCRA 416 [1973]).
While concededly, 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. 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.
Gragera and Santos were not partners. The money-lending activities undertaken with
Monte Maria was done in pursuit of the business for which the partnership betweenSantos,
Nieves and Zabat (later Arsenio) was organized. Gragera 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.
Indeed, the partnership was established to engage in a money-lending business, despite
the fact that it was formalized only after the Memorandum of Agreement had been signed by
petitioner and Gragera. Contrary to Santos 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.
For the purpose of determining the profit that should go to an industrial partner (who
shares in the profits but is not liable for the losses), the gross income from all the
transactions carried on by the firm must be added together, and from this sum must be
subtracted the expenses or the losses sustained in the business. Only in the difference
representing the net profits does the industrial partner share. But if, on the contrary, the
losses exceed the income, the industrial partner does not share in the losses.

2. Determining factors in the existence of partnership (Art. 1769)

Heirs of Tan Eng Kee vs CA 341 SCRA 740 GR No. 126881 Oct 3, 2000

FACTS:

After World War II, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together,
allegedly entered into a partnership engaged in a business selling lumber and hardware and
construction supplies. They named their enterprise Benguet Lumber which they jointly managed
until Kees detah. The heirs claimed that the partnership was obvious from the fact that: (1) they
conducted the affairs of the business during Kees lifetime, jointly, (2) they were the ones giving
orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families
stayed together at the Benguet Lumber compound, and (5) all their children were employed in the
business in different capacities.

Heirs of Kee claimed that Lay and his children caused the conversion of the partnership into a
corporation to deprive Kee and his heirs of their rightful participation in the profits of the business.
Heir of Kee prayed for accounting of the partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets of Benguet Lumber.

ISSUE:

Whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber.

RULING:

NO. A contract of partnership is defined by law as one where:

xxx 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.

Two or more persons may also form a partnership for the exercise of a profession.[14]

Thus, in order to constitute a partnership, it must be established that (1) two or more persons
bound themselves to contribute money, property, or industry to a common fund, and (2) they intend
to divide the profits among themselves.[15] The agreement need not be formally reduced into writing,
since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable
property or real rights are contributed,[16] and (2) when the partnership has a capital of three
thousand pesos or more.[17] In both cases, a public instrument is required.[18] An inventory to be
signed by the parties and attached to the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to the partnership.[19]
 Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. We are asked to determine whether a partnership existed based purely
on circumstantial evidence. The evidence presented by petitioners falls short of the quantum of proof
required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could
have expounded on the precise nature of the business relationship between them. In the absence of
evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership. It should be noted that it is
not with the number of witnesses wherein preponderance lies; the quality of their testimonies is to be
considered. None of petitioners witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.[25] He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers.[26] Tan Eng Lay,
however, denied knowledge of this meeting or of the conversation between Peralta and his brother.
Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only
later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or
co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a
partnership.

A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay. There
were payrolls showing that Tan Eng Kee was an ordinary employee of Benguet Lumber.

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;

(b) 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.

Kee was a mere employee, not a partner. The Heirs of Kee did not present and offer evidence
showing that Kee received amounts of money allegedly representing his share in the profits of the
enterprise. 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.

Where circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding of
the existence of the parties intent. Yet, in the case at bench, even the aforesaid circumstances
when taken together are not persuasive indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We
 cannot discount the likelihood that as a member of the family, he occupied a niche above the
rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company compound. He would have moral, if not
actual, superiority over his fellow employees, thereby entitling him to exercise powers of
supervision. It may even be that among his duties is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even in a business organized
and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to

speak of.Hence, the petition must fail.

NOTE:

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint adventure,
which it said is akin to a particular partnership.[20] A particular partnership is distinguished from a joint
adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating
merchants can transact business under their own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind.[21]

A joint adventure presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property contributed,
and where each party exercises equal rights in the conduct of the business.[22] It is hardly
distinguishable from the partnership, since their elements are similar-community of interest in the
business, sharing of profits and losses, and a mutual right of control. The Supreme Court has however
recognized a distinction between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint adventure with others.

Filomeno Negado, Narciso Rocha and Juan Guirindola vs Gonzalo Makabenta 54 OG 4082 No. 10842
(?) Feb 28, 1958

Negado et al. filed a suit against Makabenta for the recovery of possession and management
of Liberty Theater and for an accounting of all money and property pertaining thereto. Negado et al
allege that the theater is owned and operated by a partnership known as Hemarogui Company
composed of the Negado, Rocha, Guirindola and Makabenta. On the other hand, Makabenta alleges
that he is the sole and exclusive owner of the theater and Negado et al are merely his creditors.

ISSUE: Whether partnership exist among Negado, Rocha, Guirindola, and Makabenta

RULING:

YES. A partnership was created among the aprties for the construction and management of the
Liberty Theater and that all requisites of law were present in the formation thereof. Whether the
partnership be a civil one under provisions of the Old Civil Code or a commercial one under the
provisions of Code of Commerce, would not in any way alter the result we have reached.

In determining whether or not a particular transaction constitutes a partnership as between the

parties, the intention as disclosed by the entire transaction, and as gathered from the facts and from
the language employed by the parties, as well as their conduct, should be ascertained. A partnership
may be created without any definite intention to create it, the intention of the parties being inferred
from their conduct and dealings with each other. For the purpose of showing the existence of a
partnership, books, papers, accounts, and similar writings are admissible provided the party against
whom they are offered is shown to have authorized or ratified them, or in any way, to have been
legally responsible for them.
 Negado had receipts showing his investment, purchases and disbursements for the theater.
Guirindola made weekly payments out of his own private funds to laborers. Rocha has a receipt of
purchase of lumber for the Liberty Theater. Makabenta received his salary as Manager; Guirindola as
Treasurer; Rocha as Asst Manager; Negado as General Manager and bookkeeper.

Makabenta did not keep a record of his alleged indebtedness and did not make any move to settle
such indebtedness. The only explanation of his failure ro keep a record of his indebtedness to issue
receipts to evidence loans advanced to him, and to take any step to settle such Indebtedness is
that he was always aware, at the same time secretlt refusing to admit, that the advances made by
Negado et al were in character and cocept of contributions to a partnership appertaining to the
theater.

There were letters evidencing management of plaintiffs in the cine of business.

The written articles of Partnership were insisted by the plaintiff after they became aware of the
negative attitude of Makabenta, thats why it was signed a year after the oral agreement was entered
into.

Yulo vs Yang Chiaco Seng L-12541 Aug 28, 1959

Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre on
the premises occupied by Cine Oro, Plaza Sta. Cruz, Manila, the principal conditions of the offer being
(1) Yang guarantees Yulo a monthly participation of P3,000 (2) partnership shall be for a period of 2
years and 6 months with the condition that if the land is expropriated, rendered impracticable for
business, owner constructs a permanent building, then Yulos right to lease and partnership even if
period agreed upon has not yet expired; (3) Yulo is authorized to personally conduct business in the
lobby of the building; and (4) after Dec 31, 1947, all improvements placed by partnership shall belong
to Yulo but if partnership is terminated before lapse of 1 and years, Yang shall have right to remove
improvements.
Parties established, Yang and Co. Ltd., to exist from July 1, 1945 Dec 31, 1947.
In June 1946, they executed a supplementary agreement extending the partnership for 3 years
beginning Jan 1, 1948 to Dec 31, 1950.
The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrion and
Maria Carrion Santa Marina for an indefinite period but that after 1 year, such lease may be cancelled
by either party upon 90-day notice. In Apr 1949, the owners notified Yulo of their desire to cancel the
lease contract come July. Yulo and husband brought a civil action to declare the lease for a indefinite
period. Owners brought their own civil action for ejectment upon Yulo and Yang.
CFI: Two cases were heard jointly; Complaint of Yulo and Yang dismissed declaring contract of lease
terminated.
CA: Affirmed the judgment.
In 1950, Yulo demanded from Yang her share in the profits of the business. Yang answered saying
he had to suspend payment because of pending ejectment suit.
Yulo filed present action in 1954, alleging the existence of a partnership between them and that
Yang has refused to pay her shares.
Defendants Position: The real agreement between plaintiff and defendant was one of lease and not
of partnership; that the partnership was adopted as a subterfuge to get around the prohibition
contained in the contract of lease between the owners and the plaintiff against the sublease of the
property.
Trial Court: Dismissal. It is not true that a partnership was created between them because
defendant has not actually contributed the sum mentioned in the Articles of Partnership or any other
amount. The agreement is a lease because plaintiff didnt share either in the profits or in the losses of
the business as required by Art 1769 (CC) and because plaintiff was granted a guaranteed
participation in the profits belies the supposed existence of a partnership.
Issue: Was the agreement a contract a lease or a partnership?
Ruling: Dismissal. The agreement was a sublease not a partnership. The following are the requisites
of partnership:
 (1) two or more persons who bind themselves to contribute money, property or industry to a
common fund; (2) the intention on the part of the partners to divide the profits among themselves
(Article 1761, CC)
Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or intervention in
the management of the theatre. Neither has she demanded from defendant any accounting of the
expenses and earnings of the business.
She was absolutely silent with respect to any of the acts that a partner should have done; all she did
was to receive her share of P3,000 a month which cannot be interpreted in any manner than a
payment for the use of premises which she had leased from the owners.

3. Disctinction Between partnership and a private corporation

1 Fletcher Cyc Corp. Sec 20

4. Formalities required by law for the organization/constitution of partnership (Art 1771, 1772,
1773, 1843)

SEC Memorandum Circular No. 21, Series of 2013

Omnibus Guidelines and Procedures on the Use of Corporate and Partnership Names

SEC Memorandum Circular No. 8 series of 2013

Amendment on the Guidelines and Procedures on the Use of Corporate and Partnership Names

SEC Memorandum Circular No. 6 Series of 2016

Omnibus Guidelines on Principal Office Address of each Incorporator, Director, Trustee or Partner

Executive Order No. 184

Tenth Foreign Investment Negative List

Week No. 2

5. Different Kinds of Partnership

a) As to object (Art. 1777, 1778, 1780, 1783)

 i. Universal Partnership

ii. Particular partnership

b) As to liability of the partners

i. General partnership

ii. Limited Partnership

6. Different kinds of partners

a) Industrial Partner

b) Capitalist partner

c) General Partner

d) Limited Partner

e) Managing Partner

f) Silent Partner

g) Ostensible Partner

h) Secret Partner

i) Partner by Estoppel