Partnership or lease


Aman wrote a letter to a woman, proposing the formation of a partnership between them to run and operate a theatre. Among the principal conditions offered were: first, that the woman would have a guaranteed monthly participation of P3,000; and second, that the partnership shall last for a period of two years and six months.

The woman accepted the offer and the parties executed a partnership agreement. The capital was fixed at P100,000, P80,000 of which was to be furnished by the man and P20,000 by the woman. All gains were to be distributed among the partners in the same proportion as their capital contribution and the woman’s liability, in case of loss, shall be limited to her capital contribution. Later, they executed a supplementary agreement, wherein they extended the partnership for three (3) years and the benefits were now to be divided equally between them.

They built the theatre on a piece of land, which was leased under the woman’s name.

Two months before the partnership was due to expire, the woman demanded from the man her share in the profits of the business. In a letter, the man explained that he had stopped paying monthly rentals due to the pending ejectment case brought by the landlords against the woman. Inasmuch as he was the sub-lessee, he was retaining the rentals to make good the rentals due from the woman in arrears.

Thus, the woman filed a suit for damages against him for maliciously refusing to give her share in the partnership profits.

In his answer, the man claimed that the real agreement between them was not one of partnership but of lease. The partnership was merely adopted as a subterfuge to get around the prohibition contained in the contract of lease between them and the landowners.

The trial court rendered judgment in favor of the man. It held that the real agreement between them is one of lease since under the agreement, the woman did not actually share either in the profits or in the losses as required by the Civil Code for partnerships.

On appeal, the Supreme Court upheld the lower court’s decision. Under Article 1767 of the Civil Code, the following are the requisites of a partnership: 1) two or more persons who bind themselves to contribute money, property, or industry to a common fund; and 2) the intention on the part of the partners to divide the profits among themselves. Held the High Court –

In the first place, the woman did not furnish the supposed P20,000 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has ever demanded from [the man]any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that 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 the premises which she had leased from the owners (Yulo v. Yang Chiao Seng, L-12541, 28 August 1959, J. Labrador).


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