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CASE DIGESTS

PARTNERSHIP, AGENCY AND


TRUST

SUBMITTED TO:
ATYY: AGUSTIN P. LABAN III

SUBMITTED BY:
III-C
ABALOS, JUDEA BALAODAN, FERNANDO JR.

 DELUAO vs. CASTEEL  MARTINEZ vs. ONG PONG CO


 TESTATE ESTATE OF MOTA vs.  SISON vs. MCQUAID
SERRA
CALPITO, EDMERSON PRIX
ABLAO, FRANCEL
 MACHUCA vs. CHUIDIAN
 NGO TIAN TEK vs. PHIL.  MAXIMILIANO SANCHO vs.
EDUCATION CO. SEVERIANO LIZARRAGA
 SANTIAGO SYJUCO, INC vs.
CASTRO CAYAD-AN, KREZEL

ALARCON, PAMELA  RAMNANI vs. COURT OF APPEALS


 DE LA ROSA vs. ORTEGA GO-
 ANG PUE & CO. vs. SEC. OF COTAY
COMMERCE AND INDUSTRY
 LIWANAG AND REYES vs. CONSUL SHIELA JOYCE
WORKMEN’S COMPENSATION
COMMISSION  TEAGUE vs. MARTIN
 BONNEVIE vs. HERNANDEZ
ANGNEN, EDRALYN JOY
CORTEZ, IRIS
 PEOPLE vs. CAMPOS
 LAGUNA TRANSPORTATION CO,  U.S vs. CLARIN
INC vs. SOCIAL SECURITY SYSTEM  PO YENG CHEO vs. LIM KA YAN

ARNAES, JOHANNA DACPANO, JOHN LEE

 LOZANA vs. DEPAKAKIBO  CAMPUS RUEDA & CO. vs.


 LICHAUCO vs. LICHAUCO PACIFIC COMMERCIAL & CO.
 COMPANIA MARITIMA vs. MUNOZ
ASPILAN, RUDBETH
DELA CRUZ, JARA
 COMMISSIONER OF INTERNAL
REVENUE v. SUTER AND COURT OF  SANTOS vs. VILLANUEVA
TAX APPEALS
 THE LEYTE-SAMAR SALES CO., AND ECUA, NORMAN
RAYMUNDO TOMASSI, VS. SULPICIO V.
 DIETRICH vs. FREEMAN
CEA AND OLEGARIO LASTRILLA,
 VARGAS & CO. vs. CHAN
AVENALLOZA, JEREMIAH
ESPELITA, DARYLL
 SARDANE vs. COURT OF APPEALS
 SISON vs. H. MC QUAID
 .YU vs. NATIONAL LABOR
RELATIONS COMMISSION FAYANGCAO, DENIA
BAGSIYAO, CRISEL  ORTEGA vs. COURT OF APPEALS
 CO-PITCO vs. YULO
 TUASON vs. SOLANOS
 GOQUIOLAY vs. SYCIP GALUT, JEM AIMA
BAKILAN, RANDY  JO CHUNG CANG vs. PACIFIC
COMMERCIAL CO.
 FUE LEUNG vs. INTERMEDIATE
 LOTA vs. TOLENTINO
APPELLATE COURT
GAPAY, DYAN  ISLAND SALES, INC vs. UNITED
PIONEERS GEN.
 PASCUAL vs. COMMISSION OF CONSTRUCTION.CO
INTERNAL REVENUE
 . MCDONALD vs. NATIONAL CITY PALSIW, ROSE ANNE
BANK OF NEW YORK
 MORAN, JR vs. COURT OF
GAYA, RESTON APPEALS
 MAGDUSA vs. ALBARAN
 BACHRACH vs. ‘LA PROTECTORA’
 Soncuya v. de Luna PIOCOS, ROLLYN DEE

KIMAKIM, RHOKSON G.  NG YA vs. SUGBU COMMERCIAL


CO
 OMUM vs. LASALA  LIM TANHU vs. REMOLETE

LANTUD, AIZA RAMOS, VAN


 UY vs. PUZON  IN THE MATTER OF PETITION FOR
 SINGSONG vs. ISABELA SAWMILL AUTHORITY TO CONTINUE USE OF
FIRM NAME
MANGHI, SHEKINA  PHIL.NATIONAL BANK vs. LO
 GATCHALIAN vs. COLLECTOR OF
SABYAT, JUDITH
INTERNAL REVENUE
 VIUDA DE CHAN vs. PEN  ONA vs. COMMISSIONER OF
INTERNAL REVENUE
MOULIC, APRIL ERZA  PIONEER INSURANCE & SECURITY
 KIEL vs. ESTATE OF SABERT CORPORATION vs. COURT OF
 BEAMEZA vs. DEQUILLA APPEALS

MUNOZ, DANICE SOLANO, MAE ANN

 COMMISSIONER vs. BURROUGHS  AGAD vs. MABOLO


 CLEMENTE vs. GALVAN  GOQUIOLAY vs. SYCIP

PALISPIS, JAIMAR VENTURA, GLEESON

 ESTANISLAO, JR vs. COURT OF  AUERBACH vs. SANITARY WARES


APPEALS  .NG CHO CIO vs. NG DIONG
A) GENERAL PROVISIONS – ARTICLES 1767-1783

COMMISSIONER OF INTERNAL REVENUE, vs. BURROUGHS LIMITED AND THE


COURT OF TAX APPEALS
GR No. L-66653, June 19, 1986
Facts: Burroughs Limited is a foreign corporation authorized to engage in trade or
business in the Philippines through a branch office in Makati, Metro Manila. Sometime
in March 1979, the branch office applied with Central Bank for an authority to remit
branch profit amounting to P 7,647,058 to its parent company abroad. Thus, the office
paid the 15% branch profit remittance tax as based on the amount before the profit
remittance tax. A year later, the branch office filed a written claim for refund or tax
credit of the amount of P 172,058 representing alleged overpaid branch profit
remittance tax. The claim states that the 15% remittance tax should have been
computed on the basis of the amount actually remitted and not on the amount
before profit remittance tax. Hence, a petition to claim the overpaid branch profit
remittance tax was filed before the CTA. The court granted the petition citing a BIR
Ruling which states that the 15% branch profit remittance tax should be imposed on
profit actually remitted abroad and on the total branch profit. Unable to obtain
reconsideration, the CIR filed a petition for certiorari claiming that Burroughs Limited is
no longer entitled to refund because Memo Cir. 8-82 had revoked the BIR Ruling for
tax credit/refund.
Issue: Whether the CIR’s contention is correct.
Ruling: No. What is applicable in the case at bar is still the Revenue Ruling of January
21, 1980 because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated
March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the
National Internal Revenue Code which provides-
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any
of the rules and regulations promulgated in accordance with the preceding section
or any of the rulings or circulars promulgated by the Commissioner shag not be given
retroactive application if the revocation, modification, or reversal will be prejudicial to
the taxpayer except in the following cases (a) where the taxpayer deliberately
misstates or omits material facts from his return or in any document required of him by
the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the facts on which the ruling
is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp.
v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a


retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of P172,058.90. And, insofar as the
enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall
under any of them.
COMMISSIONER OF INTERNAL REVENUE
Vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALES

FACTS:
 September 30, 1947 a limited partnership named "William J. Suter 'Morcoin' Co.,
Ltd.," was formed by the herein respondent William J. Suter as the general
partner, and Julia Spirig and Gustav Carlson, as the limited partners.
 The partners contributed, respectively, P20, 000.00, P18, 000.00 and P2, 000.00
to the partnership. On 1 October 1947, the limited partnership was registered
with the Securities and Exchange Commission.
 The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets
and amusement machines, their parts and accessories.
 It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-
name, maintaining its own books of accounts and bank accounts, and had a
quota allocation with the Central Bank.
 1948, general partner Suter and limited partner Spirig got married.
 18 December 1948, limited partner Carlson sold his share in the partnership to
Suter and his wife.
 20 December 1948, the sale was duly recorded with the Securities and
Exchange Commission.
 The limited partnership had been filing its i
 n c o m e t a x r e t u r n s a s a corporation, without objection by
 the herein petitioner, Commissioner of Internal Revenue, until in
 1959 when the latter, in an assessment, consolidated the incomeof the
 firm and the individual incomes of the partners-spouses Suter
 and Spirigresulting in a determination of a deficiency income tax against
 respondent Suter inthe amount of P2,678.06 for 1954 and P4,567.00 for
 1955.
 The limited partnership had been filing its i
 n c o m e t a x r e t u r n s a s a corporation, without objection by
 the herein petitioner, Commissioner of Internal Revenue, until in
 1959 when the latter, in an assessment, consolidated the incomeof the
 firm and the individual incomes of the partners-spouses Suter
 and Spirigresulting in a determination of a deficiency income tax against
 respondent Suter inthe amount of P2,678.06 for 1954 and P4,567.00 for
 1955.
 The limited partnership had been filing its i
 n c o m e t a x r e t u r n s a s a corporation, without objection by
 the herein petitioner, Commissioner of Internal Revenue, until in
 1959 when the latter, in an assessment, consolidated the incomeof the
 firm and the individual incomes of the partners-spouses Suter
 and Spirigresulting in a determination of a deficiency income tax against
 respondent Suter inthe amount of P2,678.06 for 1954 and P4,567.00 for
 1955.
 The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue,
until in 1959 when the latter, in an assessment, consolidated the income of the
firm and the individual incomes of the partners-spouses Suter and Spirig,
resulting in a determination of a deficiency income tax against respondent
Suter.

ISSUE:
WON the partnership was dissolved after the marriage of the partners, William J. Suter
and Julia Spirig Suter, and the subsequent sale of them by Gustay Carlson of his
participation in the partnership.

HELD:
No, the limited partnership was not dissolved.
A husband and a wife may not enter into a contract of general co -partnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other are
prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the
marriage of partners necessarily brings about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in
force when the subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners may acquire
by their industry or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig and neither one of them was an industrial partner. It follows that William J. Suter
"Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by
Article 1677 of the Civil Code of 1889.

Nor could the subsequent marriage of the partners operate to dissolve it, such
marriage not being one of the causes provided for that purpose either by the Spanish
Civil Code or the Code of Commerce.
The capital contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they were joined in
wedlock, such contributions remained their respective separate property under the
Spanish Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:


(a) That which is brought to the marriage as his or her own ...
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did
not become common property of both after their marriage in 1948.
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME

Facts:

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty.
Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners of Atty.
Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to
continue using, in the names of their firms, the names of partners who had passed
away.

Petitioners Contend that:

Under the law, a partnership is not prohibited from continuing its business under
a firm name which includes the name of a deceased partner.

There is no possibility of imposition or deception because the deaths of their


respective deceased partners were well-publicized in all newspapers of
general circulation for several days; and

No local custom prohibits the continued use of a deceased partner's name in


a professional firm's name

The continued use of the name of a deceased or former partner when


permissible by local custom, is not unethical but care should be taken that no
imposition or deception is practiced through this use.

Issue:
WON the surviving partners may be allowed by the court to retain the name of the
partners who already passed away in the name of the firm?

Ruling: No.

In the 1953 Deen’s Case (law firm in Cebu), reiterated in the Register of Deeds
of Manila vs. China Banking Corporation the petitioners were advised to drop the
names of the deceased partners from their firm name.

“The Court believes that, in view of the personal and confidential nature of the
relations between attorney and client, and the high standards demanded in the
canons of professional ethics, no practice should be allowed which even in a remote
degree could give rise to the possibility of deception. “

The use in their partnership names of the names of deceased partners will run counter
to Article 1815 of the Civil Code which provides:
Art. 1815. Every partnership shall operate under a firm name, which may
or may not include the name of one or more of the partners.

Those who, not being members of the partnership, include their names
in the firm name, shall be subject to the liability, of a partner.

The possibility of deception upon the public, real or consequential, where the
name of a deceased partner continues to be used cannot be ruled out. A person in
search of legal counsel might be guided by the familiar ring of a distinguished name
appearing in a firm title.

It is true that Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner in the firm name of a law partnership when
such a practice is permissible by local custom but the Canon warns that care should
be taken that no imposition or deception is practiced through this use.

It must be conceded that in the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or more
senior members or partners of the law firm. A glimpse at the history of the firms of
petitioners and of other law firms in this country would show how their firm names have
evolved and changed from time to time as the composition of the partnership
changed.

However, when the Supreme Court in the Deen and Perkins cases issued its
Resolutions directing lawyers to desist from including the names of deceased partners
in their firm designation, it laid down a legal rule against which no custom or practice
to the contrary, even if proven, can prevail. This is not to speak of our civil law which
clearly ordains that a partnership is dissolved by the death of any partner. Custom
which are contrary to law, public order or public policy shall not be countenanced.
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA, respondents.

G.R. No. 109248 July 3, 1995

Facts of the Case:

On 19 December 1980, private respondent Joaquin L. Misa associated himself


together, as senior partners with petitioners Gregorio F. Ortega, Tomas O. del Castillo,
Jr., and Benjamin Bacorro, as junior partners in the law firm of Bito, Misa and Lozada.

On 17 February 1988, private respondent Misa wrote a letter to the petitioners stating
that he is withdrawing and retiring from the firm. He also requested a meeting from the
petitioners to discuss the mechanics of the dissolution of the partnership.

On 30 June 1988, private respondent filed a petition before the Commission's Securities
Investigation and Clearing Department (SICD) for dissolution and liquidation of
partnership. The hearing officer rendered a decision, ruling that the withdrawal from
the law firm Bito, Misa & Lozada did not dissolve the said law partnership. On appeal,
SEC En banc reversed the decision which was affirmed by the Court of Appeals.
Hence this petition

ISSUES:

1. Whether or not the t the partnership of Bito, Misa & Lozada (now Bito, Lozada,
Ortega & Castillo) is a partnership at will.

2. Whether or not that the withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith;

RULING OF THE COURT

1. Yes. A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored.

The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will. He must, however, act in good faith, not that the attendance
of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages.
2. Yes. The dissolution of a partnership is the change in the relation of the parties
caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up of, the business. Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its
business culminating in its termination.

The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions.

Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act.
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, respondents.
G.R. No. L-49982 April 27, 1988

FACTS:
Eligio Estanislao, together with Remedios, Emilio and Leocadio, are co-owners of
several lots in Quezon City being leased to the Shell Company of the Philippines
Limited (SHELL). They agreed to open and operate a gas station, using the advance
rentals of SHELL. In a Joint Affidavit, they stated that the P15,000.00 advance rental
due to them from SHELL shall augment their capital investment for such venture.
SHELL has a policy of appointing only one dealer, so the co-owners decided that Eligio,
the petitioner, would apply for the dealership. In essence, Eligio managed the gas
station with the help of Remedios. As the dealer, Eligio presented financial statements
and other accounts to the other co-owners. When he then failed to do so, the other
co-owners demanded for an account of the profits.
The co-owners then filed a case against Eligio demanding that he execute a public
document embodying the provisions of the partnership agreement entered by the
them and to pay the profits due to the respondents.
In his defense, Eligio claims that there was no partnership created between him and
the respondents.
ISSUE: Was a partnership formed?
HELD:
Yes. The Supreme Court held that a partnership was formed as evidenced by
Remedios being the co-manager of the business. She also has authority to examine
and audit the books of the common business. Their capital investment of P15,000.00,
which was due to them all by advance rentals, was contributed to a common fund
with the intention of dividing the profits among themselves. The issuance of the sole
dealership to Eligio was only because of the policy of SHELL of appointing only one
dealer of the SHELL products.
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO. vs. PACIFIC COMMERCIAL
CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING CORPORATION

Facts:

A decree of insolvency begins to operate on the date it is issued. It is one thing to


adjudge Campos Rueda & Co. insolvent in December, 1921, as prayed for in this case,
and another to declare it insolvent in July, 1922, as stated in the motion.

Turning to the merits of this appeal, we find that this limited partnership was, and is,
indebted to the appellants in various sums amounting to not less than P1,000, payable
in the Philippines, which were not paid more than thirty days prior to the date of the
filing by the petitioners of the application for involuntary insolvency.

The trial court denied the petition on the ground that it was not proven, nor alleged,
that the members of the aforesaid firm were insolvent at the time the application was
filed; and that was said partners are personally and solidarily liable for the
consequence of the transactions of the partnership, it cannot be adjudged insolvent
so long as the partners are not alleged and proven to be insolvent.

Issue:

Whether or not a limited partnership, such as the appellee, which has failed to pay its
obligation with three creditors for more than thirty days, may be held to have
committed an act of insolvency, and thereby be adjudged insolvent against its will.

Held:

If, as in the instant case, the limited partnership of Campos Rueda & Co. Failed to pay
its obligations with three creditors for a period of more than thirty days, which failure
constitutes, under our Insolvency Law, one of the acts of bankruptcy upon which an
adjudication of involuntary insolvency can be predicated, this partnership must suffer
the consequences of such a failure, and must be adjudged insolvent.

We are not unmindful of the fact that some courts of the United States have held that
a partnership may not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained a contrary view.

But it must be borne in mind that under the American common law, partnerships have
no juridical personality independent from that of its members.

In the event of one or more but not all of the members of a partnership being
adjudged bankrupt, the partnership property shall not be administered in bankruptcy,
unless by consent of the partner or partners not adjudged bankrupt; but such partner
or partners not adjudged bankrupt shall settle the partnership business as expeditiously
as its nature will permit, and account for the interest of the partner or partners
adjudged bankrupt.
Under this view it is unnecessary to discuss the other points raised by the parties,
although in the particular case under consideration it can be added that the liability
of the limited partners for the

obligations and losses of the partnership is limited to the amounts paid or promised to
be paid into the common fund except when a limited partner should have included
his name or consented to its inclusion in the firm name.

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for
more than thirty days to pay its obligations to the petitioners the Pacific Commercial
Co. the Asiatic Petroleum Co. and the International Banking Corporation, the case
comes under paragraph 11 of section 20 of Act No. 1956, and consequently the
petitioners have the right to a judicial decree declaring the involuntary insolvency of
said partnership.

Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for
having failed for more than thirty days to meet its obligations with the three petitioners
herein, and it is ordered that this proceeding be remanded to the Court of First
Instance of Manila.
VARGAS and COMPANY
vs.
CHAN HANG CHIU, ET AL.

Facts:
Vargas & Co., plaintiff, is a mercantile association duly organized under the laws of
the Philippine Islands and presumably registered as required by law. An action was
instituted by Chan Hang Chiu against the plaintiff to recover a sum of money. The
summons and complaint were placed in the hands of the sheriff, who certified that on
August 19 1911, he served the summons on Vargas & Co. by delivering to and leaving
with Jose Macapinlac personally true copies thereof, he being the managing agent
of Vargas & Co. at the time of such service. Vargas & Co. contends that being a
partnership, it is necessary, in bringing an action against it, to serve the summons on
all of the partners, delivering to each one of them personally a copy and that the
summons in this case having been served on the managing agent of the company
only, the service was of no effect as against the company and the members thereof
and the judgment entered by virtue of such a service was void.

Issue:

Whether or not the suit under the name of the partnership, Vargas & Co., is valid and
that the service of summons to the managing partner is sufficient

Held:

Yes, it is valid. It has been the universal practice in the Philippine Islands since American
occupation, and was the practice prior to that time, to treat companies of the class
to which the plaintiff belongs as legal or juridical entities and to permit them to sue
and be sued in the name of the company, the summons being served solely on the
managing agent or other official of the company specified by the section of the Code
of Civil Procedure referred to. This very action is an illustration of the practice in vogue
in the Philippine Islands.

Yes, the service of summons to the managing partner is sufficient. The plaintiff brings
this action in the company name and not in the name of the members of the firm. It
would be idle to serve process on individual members of a partnership if the litigation
were to be conducted in the name of the partnership itself and by the duly constituted
officials of the partnership exclusively.

It is apparent that the plaintiff in this action is acting contrary to its own contention by
bringing the action in the name of the company be served with process, then the
action should be brought in the individual names of the partners and not in the name
of the company itself. Article 35 and 38 of the Civil Code and Article 116 of the Code
of Commerce have been the foundation of the practice followed without interruption
for many years that association of the class to which plaintiff belongs have an
independent and separate legal entity sufficient to permit them to sue and be sued
in the company name and to be served with process through the chief officer or
managing agent thereof or any other official of the company specified by law.
NGO TIANK TEK and NGO HAY v. PHILIPPINE EDUCATION CO., INC., 78 Phil 275
Facts:
Ngo Hay, partners with Ngo Tian Tek of Modern Box Factory also known as Ngo
Hay and Co., Go Hay Box Factory or Gohay, made a representation with Philippine
Education Co. Inc. and other establishments (became assignors of Philippine
Education Co. Inc.), that he is the principal owner of Lee Guan Box Factory managed
by Vicente Tan alias Chan Sy. Because of this representation, credit was extended to
Lee Guan Box. The merchandise was delivered to the premises of Modern Box Factory
and payment through checks was signed by Ngo Hay. Until such time that Ngo Hay
failed to pay ₱16, 070.14, hence, Philippine Education Co. Inc. instituted an action
against the partnership for the recovery of the amount.
Ngo Hay claims that they are not liable for the amount contested because he
sold the ownership of Lee Guan Box to Vicente Chan and because of the death of
Ngo Tian Tek the action should be dismissed.
Issues:
1. Is the partnership liable?
2. Is the death of the partner a ground for the dismissal of an action against the
partnership?
Held:
1. Yes. The Court found that Lee Guan Box is the subsidiary of Modern Box Factory
and the sale of ownership was found to be untrue and simulated. Hence, the
partnership is held liable for the amount.

Article 286 of the Code of Commerce provides that contracts entered


into by a factor of a commercial establishment known to belong to a well-
known enterprise or association, shall be understood as made for the account
of the owner of such enterprise or association, even when the factor has not
so stated at the time of executing the same, provided that such contracts
involve objects comprised in the line and business of the establishment. The
absence of authority of Vicente Tan does will not prejudice the right of thirds
persons.

2. No. The court held that the death of a partner will not dismiss the action against
the partnership which has a personality distinct from any of the partners.

Article1768 of the New Civil Code provided that the partnership has a juridical
personality separate and distinct from that of each of the partners
ANG PUE & COMPANY, ET AL., vs.
SECRETARY OF COMMERCE AND INDUSTRY

G.R. No. L-17295 July 30, 1962

Facts: Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang
Pue & Company for a term of five years from May 1, 1953, extendible by their mutual
consent. This is to maintain the business of general merchandising, buying and selling
at wholesale and retail, particularly of lumber, hardware and other construction
materials for commerce, either native or foreign." On June 16, 1953, they registered
with their Articles of Partnership.

On June 19, 1954 Republic Act No. 1180 was enacted and it provides that after its
enactment, a partnership not wholly formed by Filipinos could continue to engage in
the retail business until the expiration of its term.

Before the expiration of the five-year term of the partnership Ang Pue & Company,
but after the enactment of the Republic Act 1180, the partners amended the original
articles of part ownership to extend the term of life of the partnership to another five
years. However, SEC refused to register it on the ground that the extension was in
violation of RA1180.

ISSUE: Whether or not Ang Pue & Company should be allowed to extend the term of
their partnership

RULING: No, it would violate RA 1180.

To organize a corporation or a partnership that could claim a juridical personality of


its own and transact business as such, is not a matter of absolute right but a privilege
which may be enjoyed only under such terms as the State may deem necessary to
impose. The Stated had the right to provide in Republic Act No. 1180 that only Filipinos
and concerns wholly owned by Filipinos may engage in the retail business. It was
clearly intended to apply to partnership already existing at the time of the enactment
of the law and it gives them the right to continue engaging in their retail business until
the expiration of their term or life.

The provision in their original articles of partnership that they could extend the term of
the partnership, must be deemed subject to the law existing at the time when the
partners came to agree regarding the extension. In the present case, as already
stated, when the partners amended the articles of partnership, the provisions of
Republic Act 1180 were already in force. Hence, the right claimed by appellants to
extend the original term of their partnership to another five years would be in violation
of the clear intent and purpose of the law aforesaid.
PASCUAL v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 78133 October 18, 1988

FACTS:
Petitioners Pascual and Dragon bought a total of five parcels of land from 1965
to 1966. In 1968, they sold the two parcels of land and realized a net profit of
P165,224.70. In 1970, they sold the remaining three parcels of land where they realized
a net profit of P60,000.00. Capital gains tax was paid by the petitioners in 1973 and
1974 by availing of the tax amnesties granted in the said years. In 1979, the respondent
Commissioner informed that petitioners, as co-owners in the real estate transactions,
have formed an unregistered partnership or joint venture and such was subject to
corporate income tax as distinguished from profits derived from the partnership by
them which is subject to individual income tax.
Petitioners filed a petition for review with the respondent Court of Tax Appeal
but the latter affirmed the decision of the commissioner.

ISSUE: Whether or not the petitioners created an unregistered partnership, and should
be liable for corporate income tax.

RULING:
No. The sharing of returns does not in itself establish a partnership whether or
not the persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
There is clear evidence of co-ownership between the petitioners, but there is
no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them
partners. They shared in the gross profits as co- owners and paid their capital gains
taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax.
And even assuming for the sake of argument that such unregistered partnership appears to
have been formed, since there is no such existing unregistered partnership with a distinct personality
nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can
be held individually liable as partners for this unpaid obligation of the partnership. However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions,
they are thereby relieved of any further tax liability arising therefrom.
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO
B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Facts:
Julia Bunales died leaving her surviving spouse and five children as her heirs. Lorenzo
T. Ona as the spouse, was appointed to be the administrator of the estate and a
guardian of the three minor heirs.
Thereafter, a project of partition was created and approved by the court but the
project of partition shows that the estate shares were not divided. Instead, the
properties remained under the management of Lorenzo who used the said property
in business by leasing or selling them and investing the income derived therefrom and
the proceeds from the sales thereof in real properties and securities. As a result, their
properties and investment gradually increased.
The said incomes are recorded in the books of account kept by Lorenzo T. Oña where
the corresponding shares of the petitioners in the net income for the year are also
known. Every year, petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from transactions involving.
However, petitioners did not actually receive their shares in the yearly income. The
income was always left in the hands of Lorenzo T. Oña who, as heretofore pointed out,
invested them in real properties and securities.
Respondent Commissioner of Internal Revenue then decided that petitioners formed
an unregistered partnership.
Petitioners protested against the assessment and asked for reconsideration of the
ruling of respondent that they have formed an unregistered partnership which was
denied by the CIR.

Issue:
Whether the petitioners formed an unregistered partnership.

Ruling:
The court ruled in favor of the CIR by restating the decision of the case on Evangelista
vs. Collector, 102 Phil. 140. In this ruling, the court differentiated co-partners and co-
owners. It states that to be unregistered co-partners for tax purposes, that their
common fund "was not something they found already in existence" and that "it was
not a property inherited by them pro indiviso," but it is certainly far-fetched to argue
therefrom, as petitioners are doing here, that ergo, in all instances where an
inheritance is not actually divided, there can be no unregistered co-partnership. As
already indicated, for tax purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the moment the said
common properties and/or the incomes derived therefrom are used as a common
fund with intent to produce profits for the heirs in proportion to their respective shares
in the inheritance as determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the corresponding testate or
intestate proceeding. The reason for this is simple. From the moment of such partition,
the heirs are entitled already to their respective definite shares of the estate and the
incomes thereof, for each of them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and, accordingly he becomes liable
individually for all taxes in connection therewith. If after such partition, he allows his
share to be held in common with his co-heirs under a single management to be used
with the intent of making profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is formed. This is exactly what
happened to petitioners in this case.
JOSE GATCHALIAN, ET AL. vs. CIR

(G.R. No. L-45425)

FACTS: Jose Gatchalian, et al. are all residents of the municipality of Pulilan, Bulacan.
On December 15, 1934 they paid certain amounts in order to enable them to
purchase one sweepstakes ticket and which was registered in the name of Jose
Gatchalian and Company. As a result of the drawing of the sweepstakes, their ticket
won the amount of P50,000 and check covering the prize was drawn in favor Jose
Gatchalian & Company.
On December 29, 1934, they were required to file income tax return covering
the prize won. CIR then made an assessment requesting payment of P1,499.94. In
response, the plaintiffs requested exemption from payment of the income tax, filing
separately individual income tax returns showing the amount put up by each. CIR
denied and by the failure to pay the tax despite demands, CIR issued a warrant of
distraint and levy against the property of the plaintiff. Gregoria, Maria and Jesus
Legaspi, paid under protest the sum of P601.51 as part of the tax and penalties and
requested that they be allowed to pay under protest which CIR granted to the
condition that they file bond. They then filed a bond to guarantee the payment of the
balance.
However, they failed to pay the monthly installments in accordance with the
terms and conditions of bond filed by them, so the CIR ordered the municipal treasurer
to execute the warrant of distraint and levy issued. Consequently, Jose Gatchalian,
Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid the unpaid balance
demanded under protest to the CIR against the payment and requested a refund but
CIR overruled and denied the refund.
ISSUES: Whether the plaintiffs formed a partnership thus liable to pay or merely a
community of property to be exempt from tax payment
RULING:
There is no doubt that if the plaintiffs merely formed a community of property,
they are exempt from the payment of income tax under the law. However according
to the facts, they organized a partnership of a civil nature because each of them put
up money to buy a sweepstakes ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the amount of P50,000 (article 1665,
Civil Code). The partnership was not only formed, but upon the organization thereof
and the winning of the prize, Jose Gatchalian personally appeared in the office of the
Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the
prize, the office issued the check for P50,000 in favor of Jose Gatchalian and
company, and the said partner, in the same capacity, collected the said check. All
these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.
Thus, having organized and constituted a partnership of a civil nature, the
entity is then bound to pay the income tax which the CIR collected under section 10
(a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be prorated among them and paid
individually, resulting in their exemption from the tax.
NOBIO SARDANE V. THE COURT OF APPEALS and ROMEO J. ACOJEDO
G.R. No. L-47045
November 22, 1988
While 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, no such inference shall be drawn
if such profits were received in payment as wages of an employee.
Facts:
Sarbane has been engaged in business for quite a long period of time--as
owner of the Sardane Trucking Service, entering into contracts with the government
for the construction of wharfs and seawall; and a member of the City Council of
Dapitan.
He issued Six promissory notes, amounting to P5,217.25, in favor of Acojedo.
Sardane failed to heed to the extra judicial demands of Acojeda, so Acojeda brought
an action for the collection of sum of money with the Municipal Trial Court of Dipolog,
Zamboanga.
The MTC ruled in favor of Acojeda ordering Sardane to pay the amount.
However, the Court of First Instance, now Regional Trial Court, reversed the decision
of the MTC ordering Acojeda to pay for damages. The Court of Appeals ruled in favor
of Acojeda, hence, this elevation to the Supreme Court.
Contention of the Petitioner:
Sardane and Acojeda are partners in a contract of partnership because
Acojeda receives half of the net profits of the business. The promissory notes involved
were merely receipts for the contributions by Acojeda to the partnership. Thus, the said
amount taken by Sardane from Acojeda is or was not his personal debt to Acojeda,
but expenses of the partnership between Sardena and Acojeda.
Issue:
Whether there is a contract of Partnership between Sardane and Acojeda.
Ruling:
There is no contract of Partnership between Sardane and Acojeda.
The fact that he had received 50% of the net profits does not conclusively
establish that he was a partner of the private respondent herein. Article 1769(4) of the
Civil Code is explicit that while 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, no such inference
shall be drawn if such profits were received in payment as wages of an employee.
Furthermore, Acojeda had no voice in the management of the affairs of the
company. In a similar case of Fortis vs. Gutierrez Hermanos, it was held that the plaintiff
had no voice nor vote in the management of the affairs of the company. The fact
that the compensation received by him was to be determined with reference to the
profits made by the defendant in their business did not in any sense make him a
partner therein. It was a mere contract of employment.
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
vs. NICANOR CASTEEL and JUAN DEPRA, defendants, NICANOR CASTEEL, defendant-
appellant.
G.R. No. L-21906 December 24, 1968

Doctrine: Any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership, dissolves the partnership.
Facts: In 1940, Nicanor Casteel filed a fishpond application three times from 1940 to
1946. His first two applications were not acted upon while the third one was denied
because the area applied for was needed for firewood production. On the other
hand, Aradillos and Carpio also filed their application and were granted. In November
1948, Felipe Deluao, Nicanor’s uncle also filed for fishpond application. To prevent
further usurpation, Nicanor Casteel started constructing dikes and cultivating
marketable fishes but to do so But lacking financial resources at that time, he sought
financial aid from his uncle Felipe Deluao who then extended loans totaling more or
less P27,000 with which to finance the needed improvements on the fishpond. Hence,
a wide productive fishpond was built. Meanwhile, Casteel also filed three protests
against: Carpio, Leoncio and Cacam.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first
part, and Nicanor Casteel as party of the second part, executed a contract —
denominated a "contract of service" — the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into a
contract of service, whereby the Party of the First Part hires and employs the
Party of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum
of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the
Party of the Second Part who renders only his services for the construction and
improvements of a fishpond at Barrio Malalag, Municipality of Padada,
Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the
produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having
financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between
the Parties sometime in the month of November, 1947, with all the above-
mentioned conditions enumerated

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued his
decision on the protests submitted by Casteel awarding him rights to all the fishponds
from Carpio, Aradillos and Cacam. Sometime in January 1951 Nicanor Casteel
forbade Inocencia Deluao from further administering the fishpond, and ejected the
latter's representative (encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service entered into between Inocencia Deluao
and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an
action in the Court of First Instance of Davao for specific performance and damages
against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to
violate his contract), praying inter alia, (a) that Casteel be ordered to respect and
abide by the terms and conditions of said contract and that Inocencia Deluao be
allowed to continue administering the said fishpond and collecting the proceeds from
the sale of the fishes caught from time to time; and (b) that the defendants be ordered
to pay jointly and severally to plaintiffs the sum of P20,000 in damages.

Issue: Whether or not a valid partnership has been constituted

Held: Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution
of a partnership, ". . . any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in partnership." The
approval of Casteel's fishpond application by the decisions in DANR Cases 353 and
353-B brought to the fore several provisions of law which made the continuation of the
partnership unlawful and therefore caused its ipso facto dissolution.
However, assuming in gratis argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the dissolution
ipso facto of their partnership, succeeding events reveal the intent of both parties to
terminate the partnership by refusing to share the fishpond with the other.
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective
resolutions not to share the fishpond with each other - in direct violation of the
undertaking for which they have established their partnership - each must be deemed
to have expressly withdrawn from the partnership, thereby causing its dissolution
pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is
caused "by the express will of any partner at any time."
ALBERT F. KIEL vs. ESTATE OF P. S. SABERT
G.R. No. 21639
September 25, 1924

Facts: In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain
public lands situated in Parang, Cotabato, known as Parang Plantation Company
(PPC). Kiel and P. S. Sabert then entered into an agreement to develop the PPC,
wherein Sabert agreed to furnish the capital to run the plantation and Kiel agreed sa
well to manage it. They were to share and share alike in the property. It seems that this
partnership was formed so that the land could be acquired in the name of Sabert, Kiel
being a German citizen and not deemed eligible to acquire public lands in the
Philippines.

Issue: Whether a co-partnership existed between plaintiff and deceased Sabert

Ruling: Yes. It is undisputed that no partnership agreement in writing was entered into
by Kiel and Sabert. The question consequently is whether or not the alleged verbal co-
partnership formed by the parties has been proved, if the testimony of Kiel is to be
eliminated and the relevant testimony of other witnesses are to be considered.

In performing this task, it is a well-settled rule in partnership that the declarations of one
partner, when not made in the presence of his co-partner/s, are not competent to
prove the existence of a partnership between them as against such other partner,
and that the existence of a partnership cannot be established by general reputation,
rumor, or hearsay.

The testimony of the plaintiff's witnesses, supplemented with the documentary


evidence, left the firm conclusion that Kiel and Sabert did enter into a partnership, and
that they were to share equally. Applying the tests as to the existence of partnership,
competent evidence exists establishing the partnership. Even more primary than any
of the rules of partnership above announced, is the injunction to seek out the intention
of the parties, as gathered from the facts and as ascertained from their language and
conduct, and then to give this intention effect.
TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants
FACTS:
In an insolvency proceedings of "Sociedad Mercantil, Teck Seing & Co., Ltd.," the
creditors, Pacific Commercial Company, Piñol & Company, Riu Hermanos, and W. H.
Anderson & Company, filed a motion with the Court to declare the individual partners
as parties to this proceeding, to require each of said partners to file an inventory of his
property in the manner required by section 51 of Act No. 1956, and that each of said
partners be adjudicated insolvent debtors in this proceeding. The trial judge first
granted the motion, but, subsequently, on opposition being renewed, denied it. It is
from this last order that an appeal was taken in accordance with section 82 of the
Insolvency Law.
ISSUE:
Whether Teck Seing & Co., Ltd. is a partnership
RULING:
The mercantile establishment which operated under the name of Teck Seing &
Co., Ltd. And which was constituted by the document set forth in the decision is a
general partnership.
The document providing for the partnership contract purported to form "una
sociedad mercantil limitada," and counsel for the petitioner's first contention was that
Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni siquiera
comanditaria, sino una sociedad mercantil limitada." Let us see if the partnership
contract created a "sociedad en comandita," or, as it is known in English, and will
hereafter be spoken of, "a limited partnership."
To establish a limited partnership there must be, at least, one general partner and
the name of the least one of the general partners must appear in the firm name.
(Code of Commerce, arts. 122 [2], 146, 148.) But neither of these requirements have
been fulfilled. The general rule is, that those who seek to avail themselves of the
protection of laws permitting the creation of limited partnerships must show a
substantially full compliance with such laws. A limited partnership that has not
complied with the law of its creation is not considered a limited partnership at all, but
a general partnership in which all the members are liable. (Mechem, Elements of
Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract
established a general partnership.
Turning to the document before us, it will be noted that all of the requirements of
the Code have been met, with the sole exception of that relating to the composition
of the firm name.
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

G.R. No. L-24193 June 28, 1968

The applicability of Article 1771 and 1773 of our Civil Code to the contract of
partnership

Art. 1771. A partnership may be constituted in any form, except where


immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable property is


contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.

FACTS:

On August 29, 1952, pursuant to a contract of partnership (ANNEX “A”), Agad and
Mabato agreed to operate a fishpond to the capital of which Agad contributed
P1,000, with the right to receive 50% of the profits. Mabato who handled the
partnership funds from 1952 up to 1956 had failed and refused to render accounts for
the years 1957 to 1963. Agad prayed in his complaint against Mabato and Mabato &
Agad Company, filed on June 9, 1964, that judgment be rendered sentencing
Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963.

In his answer, Mabato admitted the formal allegations of the complaint and denied
the existence of said partnership, upon the ground that the contract had not been
perfected due to Agad’s failure to give his contribution. Subsequently, Mabato filed a
motion to dismiss the complaint for failure to state a cause of action on the ground
that the contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of
our Civil Code, because an inventory of the fishpond referred in said instrument had
not been attached. Mabato alleged and the lower court held that "it is really
inconceivable how a partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the partnership."

ISSUE: Whether immovable property or real rights have been contributed to the
partnership hence lack of inventory renders the partnership void.

HELD:

The contract of partnership is valid. As stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond business". Moreover,
none of the partners contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each. The operation of the fishpond
mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor
a real right thereto was contributed to the partnership or became part of the capital
thereof, even if a fishpond or a real right thereto could become part of its assets.

It held that Article 1773 of the Civil Code is not in point and that, the order appealed
from should be, as it is hereby set aside and the case remanded to the lower court for
further proceedings.
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIO ARANETA,
INC., plaintiff appellee, vs. QUIRINO BOLAÑOS, defendant-appellant.

95 PHIL 107 May 28, 1954

FACTS: An action to recover possession of registered land situated in barrio Tatalon,


Quezon City was brought by Gregorio Araneta, INC., in the name of plaintiff J.M.
Tuason & Co., Inc., as the latter’s managing partner.

Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. On the other hand, defendant, in his
answer, sets up prescription and title in himself thru "open, continuous, exclusive and
public and notorious possession (of land in dispute) under claim of ownership, adverse
to the entire world by defendant and his predecessor in interest" from "time in-
memorial". The answer further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud or error and without
knowledge (of) or interest either personal or thru publication to defendant and/or
predecessors in interest."

After trial, the lower court rendered judgment for plaintiff, declaring defendant
to be without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940,
until he vacates the land, and also to pay the costs.

Aggrieved with the decision of the lower court, defendant appealed directly
to the Supreme Court and claimed, among others, that Gregorio Araneta, Inc. cannot
act as managing partner for plaintiff on the theory that it is illegal for two corporations
to enter into a partnership.

ISSUE: Whether or not a corporation can act as managing partner of another


corporation.

RULING: It is true that the complaint states that the plaintiff is "represented herein by
its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing
against one corporation being represented by another person, natural or juridical, in
a suit in court.

The contention that Gregorio Araneta, Inc. cannot act as managing partner
for plaintiff on the theory that it is illegal for two corporations to enter into a partnership
is without merit, for the true rule is that "though a corporation has no power to enter
into a partnership, it may nevertheless enter into a joint venture with another where
the nature of that venture is in line with the business authorized by its charter."
(Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of
Corp., 1082.) There is nothing in the record to indicate that the venture in which plaintiff
is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the
corporate business of either of them.
AURBACH vs. SANITARY WARES, 180 SCRA 350
Facts:

Saniwares, a domestic corporation was incorporated for the primary purpose of


manufacturing and marketing sanitary wares and one of its incorporators, Mr. Baldwin
Young went abroad to look for foreign partners who could help in its expansion plans.

On August 15, 1962, American Standard Inc. (ASI), a foreign corporation based in
Delaware, United States entered into an Agreement with Saniwares and some Filipino
investors. ASI and the Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares. The parties
agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."

The joint enterprise prospered until a deterioration in the harmonious relations between
the two groups occurred. According to the Filipino group, the disagreement was due
to their desire to expand the export operations of the company to which ASI objected
as it apparently had other subsidiaries of joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual stockholders'
meeting was held. The meeting was presided by Baldwin Young and the stockholders
proceeded to the election of the members of its board of directors. The ASI group
nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr.,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr.
Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of
order on the basis of section 5 (a) of the Agreement, the consistent practice of the
parties during the past annual stockholders' meetings to nominate only nine persons
as nominees.

There were protests against the action of the Chairman and an appeal was made by
the ASI representative to the body of stockholders present that a vote be taken on
the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out
of order and no vote on the ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present thus effectively excluding the 2
additional persons nominated. The ASI representative, Mr. Jaqua protested the
decision of the Chairman and announced that all votes accruing to ASI shares, a total
of 1,329,695 were being cumulatively voted for the three ASI nominees and Charles
Chamsay. Luciano E. Salazar and other proxy holders announced that all the votes
owned by and or represented by them which is 467,197 shares were being voted
cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed to cast all votes equally in favor of the three ASI nominees and
the six originally nominated by Rogelio Vinluan. The Secretary then certified for the
election of the following: Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young.
The representative of ASI then moved to recess the meeting which was duly seconded
and also a motion to adjourn. This motion to adjourn was accepted by the Chairman,
who announced that the meeting was adjourned.

Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to his the decision on
the casting of votes be thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to
continue the meeting and the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among
the other six (6) nominees for the four (4) remaining positions of directors and that the
body decided not to break the tie.

Issue:

Who were the duly elected directors: determine the nature of the business whether
joint venture or a corporation.

Ruling:

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. In an action at law, where there is
evidence tending to prove that the parties joined their efforts in furtherance of an
enterprise for their joint profit, the question whether they intended by their agreement
to create a joint adventure, or to assume some other relation is a question of fact for
the jury.

In the instant case, the examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows
that the parties agreed to establish a joint venture and not a corporation. The history
of the organization and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary corporation. The
SEC noted that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management.

The legal concept of a joint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. It is in fact 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 main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a
single transaction, and is thus of a temporary nature. This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law,
a joint venture is a form of partnership and should thus be governed by the law of
partnerships. 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 venture with others.

Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin


Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F.
Lee are declared as the duly elected directors of Saniwares at the March 8, 1983
annual stockholders' meeting.
B. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES: ARTICLES 1784-1809

MAURO LOZANA vs. SERAFIN DEPAKAKIBO G.R. No. L-13680


April 27, 1960
Facts:
Plaintiff Mauro Lozana entered into a contract with defendant Serafin Depakakibo
wherein they established a partnership capitalized at the sum of P30,000, Lozana
furnishing 60% thereof and Depakakibo, 40%, for the purpose of maintaining,
operating and distributing electric light and power in the Municipality of Dumangas,
Iloilo under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or
certificate of public necessity and convenience in favor of the said Mrs. Piadosa
Buenaflor was cancelled and revoked. Evidently because of the cancellation of the
franchise in the name of Buenaflor, Lozana sold a generator, Buda (diesel), to the
new grantee Olimpia D. Decolongon. On the other hand, Defendant Serafin
Depakakibo, sold one Crossly Diesel Engine to the spouses Felix Jimenea and Felina
Harder.
The lower court declared that the contract of partnership was null and void, because
by the contract of partnership, the parties thereto have become dummies of the
owner of the franchise. The reason for this holding was the admission by defendant
when being cross-examined by the court that he and the plaintiff are dummies
Petitioner’s Contention:
Lozana alleged that he is the owner of the Generator Buda (Diesel), valued at P8,000
and 70 wooden posts with the wires connecting the generator to the different houses
supplied by electric current in the Municipality of Dumangas, and that he is entitled to
the possession thereof, but that the defendant has wrongfully detained them as a
consequence of which he suffered damages.
Respondent’s Defense:
Depakakibo denied that the generator and the equipment mentioned in the
complaint belong to the plaintiff and alleging that the same had been contributed
by the plaintiff to the partnership entered into between them in the same manner that
defendant had contributed equipment also, and therefore that he is not unlawfully
detaining them. Also the defendant alleged that under the partnership agreement
the parties were to contribute equipment, plaintiff contributing the generator and the
defendant, the wires for the purpose of installing the main and delivery lines and that
the plaintiff sold his contribution to the partnership, in violation of the terms of their
agreement.

Ruling:
As to the properties of the partnership
The plaintiff and the defendant entered into the contract of partnership, plaintiff
contributing the amount of P18,000, and as it is not stated therein that there has been
a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel Engine
on October 15, 1955, and since the court below had found that the plaintiff had
actually contributed one engine and 70 posts to the partnership, it necessarily follows
that the Buda diesel engine contributed by the plaintiff had become the property of
the partnership.
As properties of the partnership, the same could not be disposed of by the party
contributing the same without the consent or approval of the partnership or of the
other partner. (Clemente vs. Galvan, 67 Phil., 565)
As to whether the contract of partnership is void ab initio
We find that this admission by the defendant is an error of law, not a statement of a
fact. The Anti-Dummy law has not been violated as parties plaintiff and defendant are
not aliens but Filipinos. The Anti-Dummy law refers to aliens only.
Upon examining the contract of partnership, especially the provision thereon wherein
the parties agreed to maintain, operate and distribute electric light and power under
the franchise belonging to Mrs. Buenaflor, we do not find the agreement to be illegal,
or contrary to law and public policy such as to make the contract of partnership, null
and void ab initio.
The agreement could have been submitted to the Public Service Commission if the
rules of the latter require them to be so presented. But the fact of furnishing the current
to the holder of the franchise alone, without the previous approval of the Public
Service Commission, does not per se make the contract of partnership null and void
from the beginning and render the partnership entered into by the parties for the
purpose also void and non-existent. Under the circumstances, therefore, the court
erred in declaring that the contract was illegal from the beginning and that parties to
the partnership are not bound therefor, such that the contribution of the plaintiff to
the partnership did not pass to it as its property. It also follows that the claim of the
defendant in his counterclaim that the partnership be dissolved and its assets
liquidated is the proper remedy, not for each contributing partner to claim back what
he had contributed
MAXIMILIANO SANCHO, vs. SEVERIANO LIZARRAGA

February 6, 1931

FACTS:

The plaintiff brought an action for the rescission of the partnership contract between
himself and the defendant and the reimbursement of his investment worth
50,000php with interest at 12 per cent per annum form October 15, 1920, with costs,
and any other just and equitable remedy against said defendant. The defendant
denies generally and specifically all the allegations of the complaint and asked for
the dissolution of the partnership, and the payment to him as its manager and
administrator P500 monthly from October 15, 1920 until the final dissolution with
interest.

The CFI found that the defendant had not contributed all the capital he had bound
himself to invest hence it demanded that the defendant liquidate the partnership,
declared it dissolved on account of the expiration of the period for which it was
constituted, and ordered the defendant, as managing partner, to proceed without
delay to liquidate it, submitting to the court the result of the liquidation together with
the accounts and vouchers within the period of thirty days from receipt of notice of
said judgment. The plaintiff appealed from said decision praying for the rescission of
the partnership contract between him and the defendant in accordance with Art.
1124.

ISSUE:

Whether plaintiff acquired the right to demand rescission of the partnership contract
according to article 1124 of the Civil Code.

HELD:

The SC ruled that owing to the defendant’s failure to pay to the partnership the
whole amount which he bound himself to pay, he became indebted to the
partnership for the remainder, with interest and any damages occasioned thereby,
but the plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. Article 1124 cannot be
applied to the case in question, because it refers to the resolution of obligations in
general, whereas articles 1681 and 1682 specifically refer to the contract
of partnership in particular. And it is a well known principle that special provisions
prevail over general provisions. Hence, SC dismissed the appeal left the decision
appealed from in full force
UY V. PUZON

FACTS: Defendant Bartolome Puzon had two contracts with the Bureau of Public
Highways for the construction of a City road and five (5) bridges in Zamboanga del
Sur. Finding difficulty to accomplish the projects, Puzon sought the financial assistance
of William Uy. He proposed that they create a partnership which would be the
subcontractor of the projects and the profits will be divided equally between them.
Uy, expecting to derive considerable profits, agreed to the proposition, thus resulting
to the formation of “U.P. Construction Company” which was subsequently engaged
as subcontractor of the construction projects.
The partners agreed that the capital of the partnership would be ₱100,000.00 of which
each partner shall contribute ₱50,000.00. Uy was able to advance his contribution in
the amount of ₱40,000.00. Puzon, on the other hand, promised to contribute his share
as soon as his loan with the Philippine National Bank in the amount of ₱150,000.00 is
approved. He promised to reimburse Uy the ₱40,000.00; pay his share of ₱50,000.00
and loan ₱60,000 to the partnership. Uy was entrusted with the management of the
projects and whatever expense he incurred was considered part of his contribution.
Later, the loan of Puzon was approved by the PNB and he gave ₱60,000.00 to Uy.
₱40,000.00 was for the reimbursement of Uy’s contribution and ₱20,000.00 was Puzon’s
contribution to the partnership capital. To guarantee the repayment of the loan,
Puzon, without the knowledge and consent of Uy, assigned to the PNB all the
payments to be received on account of the contracts with the Bureau of Public
Highways.
Due to the financial demands of the projects, Uy wrote demand letters to Puzon asking
him to comply with his obligation to place his capital contribution in the partnership.
Puzon replied that he is unable to put in additional capital to continue with the
business. Thereafter, Puzon as prime contractor of the construction projects, wrote U.P.
Construction Company terminating their subcontract agreement with the partnership.
Uy was not allowed to hold office in the U.P. construction Company and his authority
to negotiate with the Bureau was revoked.
Uy claimed that Puzon had violated the terms of their agreement. He sought the
dissolution of the partnership with damages. The lower court ruled in favor of Uy. During
the pendency of the appeal, Bartolome Puzon died and was substituted by Franco
Puzon.

ISSUE: Whether or not Puzon failed to comply with his obligation of paying the capital
contribution to the partnership.

HELD: Yes. The record shows that after Puzon’s loan was approved by the PNB, he
gave ₱60,000.00 to Uy who was then managing the construction projects. Of this
amount ₱40,000.00 was applied as reimbursement of Uy’s contribution to the
partnership which was used to clear Puzon’s property, and the balance of ₱20,000.00,
as Puzon’s contribution to the partnership. Thereafter, Puzon failed to make any further
contributions to the partnership funds as shown in his letters to Uy wherein he confessed
his inability to put in additional capital to continue with the projects.
Also, Puzon was found guilty of misapplying partnership funds. Puzon received
from the Bureau, as payment of the work accomplished, the amount of ₱1,047,181.01,
which rightfully and legally belongs to the partnership by virtue of the subcontract
agreements. The assignment to the PNB was prejudicial to the partnership. PNB
withheld and applied the amount of ₱332,539.60 in payment of Puzon’s personal loan.
The balance was deposited in Puzon’s current bank account and only ₱27,820.80 was
deposited in the current account of the partnership.
The dissolution of the partnership was ordered and the decision was affirmed with
costs against Puzon.
THE UNITED STATES v. EUSEBIO CLARIN
G.R. No. 5840
September 17, 1910

FACTS: Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company
with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes, and,
believing that he could make some money in this business, the said Larin made an
agreement with the three men by which the profits were to be divided equally
between him and them. Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in
fact trade in mangoes and obtained P203 from the business, but did not comply with
the terms of the contract by delivering to Larin his half of the profits; neither did they
render him any account of the capital. Larin charged them with the crime of estafa
where he accused Eusebio Clarin of appropriating to himself not only the P172 but
also the share of the profits that belonged to Larin, amounting to P15.50. The trial court,
that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to six
months' arresto mayor, to suffer the accessory penalties, and to return to Pedro Larin
P172, besides P30.50 as his share of the profits, or to subsidiary imprisonment in case of
insolvency, and to pay the costs.

ISSUE: Whether Eusebio Clarin is guilty of estafa

RULING: No

“When 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, a
contract is formed which is called partnership.”(Art. 1665 [now 1767], Civil Code.)

When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and
Guzman, he invested his capital in the risks or benefits of the business of the purchase
and sale of mangoes, and, even though he had reserved the capital and conveyed
only the usufruct of his money, it would not devolve upon of his three partners to return
his capital to him, but upon the partnership of which he himself formed part, or if it
were to be done by one of the three specifically, it would be Tarug, who, according
to the evidence, was the person who received the money directly from Larin.

The P172 having been received by the partnership, the business commenced and
profits accrued, the action that lies with the partner who furnished the capital for the
recovery of his money is not a criminal action for estafa, but a civil one arising from
the partnership contract for a liquidation of the partnership and a levy on its assets if
there should be any.

No. 5 of article 535 of the Penal Code, according to which those are guilty
of estafa does not include money received for a partnership; otherwise the result
would be that, if the partnership, instead of obtaining profits, suffered losses, as it could
not be held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the charge
of estafa, for which it would be sufficient to argue that the partnership had received
the money under obligation to return it.
PEOPLE VS. CAMPOS, C.A.
G.R. No. 18678-R, Oct. 29, 1957, 54 O.G. 681 (1957)
Facts:
Leoncio Campos (accused) and Bonifacio Guzman entered into a contract of
partnership. Bonifacio leased 47 hectares of land from Juan Alonzo for an agreed
rental of 75 cavans of palay, this land is to be use in farming. Campos who worked the
land, informed Guzman that the palay harvested from the land was ready for
threshing. Guzman sent his nephew Matias as his representative to observe the
threshing with specific instructions to give the share of the tenants and the partners'
respective shares, and then segregate the 75 cavans of palay for the rentals. After the
division of the produce, the share of the complainant was deposited at the warehouse
in Cabiao, while the share of the accused was deposited in his house. Manuel Matias,
as instructed by the complainant, delivered the 75 cavans of palay set aside for the
rentals (valued at P750) to the accused for the purpose of delivering the same to the
landowner, Juan Alonzo.
When Conception (daughter of Alonzo) went to get the palay from Campos, she
found out that the palay was gone. Campos pleaded not to tell the matter to Guzman
and promised that he would replace them. Juan Alonzo. Instead of making the
delivery, the accused misappropriated the 75 cavans of palay.
Guzman filed a complaint for estafa against accused Campos, for misappropriating
and converting goods received by him in trust or administration. Prosecuted for estafa,
the accused raised the defense that no accounting and liquidation had been
effected between the partners and that a balance of more than P 1,000 was still due
him from the partnership.
Issue: Whether there was a liquidation of the partnership as far as the harvest is in
question is concerned.
Ruling: Yes. Clearly enough, there was liquidation of the partnership as far as the
harvest is in question is concerned, for it is improbable that the shares of the partners
were set aside, without taking into account their obligations to each other; and it is
not very likely also that the 75 cavans of palay for the rentals were segregated without
some sort of accounting. The
Granting for the purposes of argument that the partnership had not been liquidated,
still we hold that appellant is responsible for estafa. The 75 cavanes of palay were
segregated from the partnership, and delivered to the appellant for the express
purpose of delivering or paying the same to Alonzo. The said palay no longer
belonged to the partnership. Instead of complying with his duty, the appellant
converted and misappropriated the said goods to his own personal use and benefit.
A partner is guilty of estafa if he fraudulently appropriates partnership property
delivered to him, with specific directions to apply it to uses of the partnership."
PEDRO MARTINEZ vs. ONG PONG CO and ONG LAY
G.R. No. L-5236 January 10, 1910

FACTS:
On the 12th of December, 1900, Pedro Martinez, plaintiff, delivered P1, 500 to the
defendants, Ong Pong Co and Ong Lay, who, in a private document, acknowledged
that they had received the same with the agreement, as stated by them, "that we are
to invest the amount in a store, the profits or losses of which we are to divide with the
former, in equal shares." Later, Martinez filed a complaint in order to compel the
defendants to render him an accounting of the partnership as agreed to, or else to
refund him the P1, 500 that he had given them for the said purpose. Ong Pong Co
alone answered the complaint and admitted the fact of the agreement and the
delivery to him and to Ong Lay of the P1, 500. Ong Pong Co alleged that Ong Lay,
who was then deceased, was the one who had managed the business, and that
nothing had resulted therefrom but the loss of the capital of P1, 500, to which loss
Martinez agreed.

The CFI ordered Ong Pong Co to return to Martinez one-half of the said capital of P1,
500 plus P90 as one-half of the profits, calculated at the rate of 12% per annum for the
six months that the store was supposed to have been open (total of P840) with legal
interest of 6% until the full payment, with costs. Ong Pong Co then assailed the decision
of the CFI.

ISSUE:
Whether Martinez is entitled to the capital he contributed to the partnership.

RULING:
Yes. The fact that the defendants received certain capital from Martinez for the
purpose of organizing a company; they, according to the agreement, were to handle
the said money and invest it in a store which was the object of the association. They
were the actual administrators thereof, in the absence of a special agreement vesting
in one sole person the management of the business. As such, they were the agent of
the company and incurred the liabilities peculiar to every agent, among which is that
of rendering account to the principal of their transactions, and paying him everything
they may have received by virtue of the mandatum. Neither Ong Pong Co or Ong
Lay has rendered such account; they are therefore obliged to refund the money that
they received for the purpose of establishing the store — the object of the association.
This was the principal pronouncement of the judgment.

Judgment appealed from is affirmed, provided, however, that the defendant Ong
Pong Co shall only pay Martinez the sum of P750 with the legal interest thereon at the
rate of 6 per cent per annum from the time of the filing of the complaint, and the
costs.
Ramnani V Court of Appeals
196 SCRA 734
Facts:
Ishwar, Choithram, and Navalrai, all surnamed Jethmal Ramnani, are brothers of the
full blood. Ishwar and his spouse Sonya had their main business based in New York.
They executed a general power of attorney appointing Navalrai and Choithram as
attorney-in-fact, empowering them to manage and conduct their business in the
Philippines.
In his capacity as attorney-in-fact of Ishwar, Choithram entered into two agreements
for the purchase of two parcels of land through a down payment and installment from
Ortigas and Company, Ltd. Partnership.Five buildings were built thereon by
Choithram. These buildings were leased out by Choithram as attorney-in-fact of
Ishwar. Two of the buildings were later on burned. Ishwar then asked Choithram to
account or the income and expenses relative to these properties. Choithram failed
and refused to render such accounting. As a consequence, Ishwar revoked the
general power of attorney which was published in a newspaper. Nevertheless,
Choithram, as such attorney-in-fact of Ishwar transferred all rights and interests of
Ishwar and Sonya in favor of his daughter-in-law Nirmla Ramnani, the wife of his son
Moti. Ortigas then executed the deeds of sale in favor of Nirmla after complete
payment of the lots. Spouses Ishwar and Sonya filed a complaint in the Court of First
Instance against Choithram and/or Spouses Nirmla Ramnani and Moti Ramnani, and
Ortigas for reconveyance of said properties or payments of its value and damages.
Issue:
Whether the Spouses Ishram and Sonya are entitled to the reconveyance of all the
properties?
Ruling:
Under the peculiar circumstances of this case, despite the fact that Choithram, et al.,
have committed acts which demonstrate their bad faith and scheme to defraued
spouses Ishwar and Sonya of their rightful share in the properties in litigation, the Court
cannot ignore the fact that Choithram must have been motivated by a strong
conviction that as the industrial partner in the acquisition of said assets he has as much
claim to said properties as Ishwar, the capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of $150,000 for the business.
They entrusted the money to Choithram to invest in a profitable business venture in the
Philippines. For this purpose they appointed Choithram as their attorney-in-fact.
Through the industry and genius of Choithram, Ishwar’s property was developed and
improved into what it is now-a valuable asset worth millions of pesos.
We have a situation where two brothers engaged in a business venture. One furnished
the capital, the other contributed his industry and talent. Justice and equity dictate
that the two share equally the fruit of their joint investment and efforts. Perhaps this
Solomonic solution may pave the way toward their reconciliation. Both would stand
to gain. No one would end up the loser. After all, blood is thicker than water.
SABELO MORAN V. COURT OF APPEALS and MARIANO PECSON
October 31, 1984
FACTS: Mariano Pecson and Isabelo Moran agreed to contribute Php 15,000 each for
the printing of 95,000 posters to be sold at Php 2.00 each which features the delegate
to the 1971 Constitutional Convetion. The agreement also contain that Mariano will
receive a commission of Php 1,000 a month from April 15, 1971 to December 15, 1971
and at the end of December 15, 1971 a liquidation will be made. Mariano only gave
Php 1,000 for which Isabelo issued a receipt. Only 2,000 copies were printed which was
sold at the price of Php 5.00 each. On May 28, 1971, Isabelo executed a promissory
note of Php 2,000 payable to Mariano. Mariano filed an action for recovery of sum of
money with the Court of First Instance which ordered Isabelo to pay Mariano Php
17,000. On appeal, the Court of Appeals rendered decision ordering Isabelo to pay
Mariano the following: a) Php 47,500, amount which could have accrued to Mariano
under the agreement; and b) Php 8,000 which is the agreed commission.
ISSUE: Whether the amount of Php 47,500 and Php 8,000 is valid
RULING: No, the amount is highly speculative. As a rule, a partner who has undertaken
to contribute a sum of money fails to do so, he becomes a debtor of the partnership
for whatever he may have promised to contribute which in this case there was mutual
breach when Mariano failed to contribute his balance of Php 5,000 and on the part
of Isabelo the printing of the agreed copies. There is no evidence that the partnership
between Mariano and Isabelo would have a profitable venture. The failure of the
Commission on election to proclaim the 320 candidates of the Constitutional
Convention on time was a major factor which cause the non-printing of the agreed
95,000 copies. Therefore, there is no basis of the award of speculative damages. Being
a contract of partnership, each partner must share in profit and losses of the
partnership. And even with an assurance made by one partner that they would earn
a huge amount of profit, in the absence of fraud, the other partner cannot claim a
right to recover such speculative profits.
The agreement does not state the basis of the commission. The payment of
the commission could only be predicated on relative extravagant profits. The parties
could not have intended the giving of a commission inspite of loss or failure of the
venture. Since the venture is a failure the commission has no basis
Ng Ya v. Sugbu Commercial Co.,

50 O.G. 4913

DOCTRINE: As a general rule, a partner appointed as manager has all the powers of a
general agent as well as all the incidental powers necessary to carry out the object of
the partnership in the transaction of its business. The exception is when the powers of
manager are specifically restricted. (Art. 1800 NCC)

FACTS:

Petitioner Ng Ya, who is a Chinese merchant in Surigao, ordered from Sugbu


Commercial Co. 1,000 galvanized iron and aluminum sheets. It was agreed that the
goods would be delivered in a week’s time, or on or before January 5, 1950. The
amount paid by Ng Ya for the goods is P5,400. Unfortunately, the said goods were not
delivered on the said date, and for the failure to deliver the goods, Sugbu Commercial
Co. promised Ng Ya that they will deliver the goods at some future time.

Later, Sugbu Commercial found out that Ng Ya was also in need of cigarettes
that the latter will sell on a resale in Surigao. Sugbu Commercial then offered petitioner
cigarettes and so they entered again into another contract of sale. Ng Ya paid for the
cigarettes in the amount of P4,000 with the help of Tan Chun Pia of Lana Bakery, with
whom she is sharing with the profits she hoped to realize from the buy and sell of
cigarettes. However, a couple of months had passed, but still, neither the cigarettes
nor the galvanized iron and aluminum sheets reached Ng Ya. Due to the anger of Tan
Chun Pia, Ng Ya was forced to reimburse him the amount of P4,000. Ng Ya then kept
coming back to Sugbu Commercial to demand either the delivery of the goods she
ordered or the payment of P9,400 which she had advanced. Sugbu Commercial did
not act and so it prompted Ng Ya to file a complaint with the Regional Trial Court of
Cebu against the Company.

Sugbu Commercial then filed a 3rd-party complaint against Pow Sun Gee,
alleging that the latter received the amounts of P5,400 and P4,000 in his capacity as
manager of Sugbu Commercial when he was not authorized to issue official receipts
and that only his co-partner Shih Tiong Chu, who was most of the time in Manila, could
do so. In this regard, Sugbu Commercial prayed that Pow Sun gee be ordered to
indemnify Sugbu Commercial for whatever is adjudged against the latter in favor of
plaintiff Ng Ya. The trial court decided in favor of Ng Ya and sentenced Sugbu to pay
plaintiff the sum of P9,400 and condemning Pow Sun Gee to reimburse Sugbu
Commercial Company.

ISSUE:

Whether Sugbu Commercial should not be held liable because Pow Sun Gee,
as the one who received the payments and issued receipts to Ng Ya, is not authorized
to do so.

RULING:
No. A manager of a partnership is presumed to have all the incidental powers
to carry out the object of the partnership in the transaction of the business. There is of
course an exception to the general rule: when the powers of a manager are
specifically restricted, he could not exercise the powers expressly limited of him. But
when the articles of association do not specify the powers of the manager, it is
admitted on principle that a manager has the powers of a general agent, and even
more. When the object of the company is determined, the manager has all the
powers necessary for the attainment of such object.

Sugbu Commercial was not able to present articles of co-partnership that


would show any limitation upon the powers of the manager – an indication that there
was none. For this reason, we hold and declare that “the minor power of issuing official
receipt is included in the general powers of the manager.”

Indeed, it would be quite queer that the manager of any juridical entity would
not be authorized to issue official receipts for amounts delivered to that entity through
said manager, and that only his co-partner Shih Tiong Chu, who was most of the time
in Manila, could do so. This is not in keeping with the present day business dealings, for
it is slow and inconvenient to those who transact with the company. Thus, Sugbu
Commercial should still be held liable for the act of its manager.
Teague vs. Martin
53 Phil. 504
Plaintiff alleges that about December 23, 1926, he and the defendants formed
a partnership for the operation of a fish business and similar commercial transactions,
which by mutual consent was called "Malangpaya Fish Co.," with a capital of P35,000,
of which plaintiff paid P25,000, the defendants Martin P5,000, Maddy P2,500, and
Golucke P2,500; that he was named the general partner; that the share in the profits
and losses is in proportion to the amount of contributed capital; that there was no
agreement as to the duration of the partnership; that he wants to dissolve it, but the
defendants refused to do so; that the partnership purchased and owns a lighter (Lapu-
Lapu), a motorship (Barracuda), and other properties, which are in the possession of
the defendants who are making use of them. It was alleged that it is the best interest
of the parties to have a receiver appointed pending this litigation, to take possession
of the properties, and he prays that the Philippine Trust Company be appointed
receiver, and for judgment dissolving the partnership, with costs.

Each of the defendants filed a separate answer, but of the same nature. It is
then alleged, among others, that Maddy will have charge of the Barracuda and the
navigating of the same, salary P300 per month; Martin will have charge of the southern
station, cold stores, commissary and procuring fish, salary P300 per month; Teague will
have charge of selling fish in Manila and purchasing supplies. No salary until business
is on paying basis.
The court issued a decision: (1) dissolving the partnership and liquidating its
assets; (2) that the barge Lapu-Lapu as well as the Ford truck and adding machine
belong exclusively to Teague, but he must return to and reimburse the partnership the
amount which was taken from its funds for the purchase of the Lapu-Lapu and the
Ford truck.
By their respective pleadings, all parties agreed that there was a partnership
between them, which appears at one time to have done a good business. In legal
effect, plaintiff asked for its dissolution and the appointment of a receiver pendente
lite. The defendants did not object to the dissolution of the partnership, but prayed for
an accounting with the plaintiff. It was upon such issues that the evidence was taken
and the case tried. Hence, there is no merit in the first assignment of error.

ISSUE:
Whether the three properties are owned by the partnership
RULING:
No, the Lapu-Lapu, the Ford truck, and the adding machine were purchased
by the plaintiff and paid for out of the funds of the partnership, and that by his own
actions and conduct, and the taking of the title in his own name, he is now estopped
to claim or assert that they are not his property or that they are the property of the
company. It is but right that the plaintiff reimburses the partnership for the use of its
funds. However, it noted that the partnership also made use of the Lapu-Lapu. In the
interest of justice, the plaintiff should be compensated for such use.
Santos vs. Villanueva, [C.A] 50 O.G. 175
Court of Appeals, September 7, 1953
Appeal from a judgment of CFI Manila
REYES, JBL, J.

Facts:
Gavino Santos, Luisito del Rosario, and Emiliano del Rosario formed a partnership for
the operation of a tailoring shop under the business name, Esquire. Emiliano is the
manager of the partnership. No dissolution nor liquidation of the partnership has been
done until the filing of an action. Without the knowledge and consent of the other
partners, Emiliano then sold the tailoring shop to defendant Cenon Villanueva and/or
Corazon del Rosario. This precipitated the filing of an action by Gavino Santos in CFI
Manila for the rescission of the sale. The TC decided in favor of plaintiff and declared
that the aforesaid sail null and void. Defendant appealed in this court, alleging that
he was a purchaser in good faith.
Issue:
W/N the sale of the tailoring shop was valid.
Held:
No. (SC also found out that Villanueva was a purchaser in bad faith). Art. 143 of Code
of Commerce: Partnership property cannot be validly sold or conveyed by anyone of
the partners without the consent of all the other partners forming the partnership. The
vendor, not having the right nor the authority to dispose of the partnership business, or
even his interest therein, without the consent of the other partners, the deed of sale is
null and void and of no effect whatsoever. The tailoring business is evidently a
partnership property.
E.M. BACHRACH v. LA PROTECTORA et al.
37 PHIL 441 JANUARY 21, 1918

FACTS:
In the year 1913, the defendants Nicolas Segundo, Antonio Adiarte, Ignacio
Flores, Modesto Serrano and Marcelo Barba formed a civil partnership, called “La
Protectora”, for the purpose of engaging in the business of transporting passengers
and freight at Laoag, Ilocos Norte. In order to provide the enterprise with means of
transportation, Marcelo Barba, acting as manager, on June 23, 1913 negotiated the
purchase of two automobile trucks from the plaintiff, E. M. Bachrach, for the agree
price of ₱16,500. He paid the sum of 3,000 in cash, and for the balance executed
promissory notes representing the deferred payments. Three promissory notes, for the
sum of ₱3,375 each, have been made, the subject of the present action wherein one
was signed by P. P. La Protectora Marcelo Barba. The other two notes are signed in
the same way with the word "By" omitted before the name of Marcelo Barba in the
second line of the signature. It is obvious that in thus signing the notes Marcelo Barba
intended to bind both the partnership and himself. In the body of the note the word
"I" instead of "we" is used before the words "promise to pay" used in the printed form.
As preliminary to the purchase of these trucks, the defendants Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, executed in due
form a document in which they declared that they were members of the firm "La
Protectora" and that they had granted to its president full authority in the name and
representation of said partnership to contract for the purchase of two automobiles.
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had
retained on the trucks in order to secure the purchase price. The amount realized from
this sale was ₱1,000. This was credited unpaid. To recover this balance, together with
the sum due for additional purchases, the appellant instituted an action in the Court
of First Instance of the City of Manila and the judgment was rendered against all the
defendants.

ISSUE:
Whether or not Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano are liable for the firm debts for authorizing Marcelo Barba to purchase the two
trucks.

RULING:
The authority of Marcelo Barba to bind the partnership, in the purchase of the
trucks, is fully established by the document executed by the four appellants. The
transaction by which Barba secured these trucks was in conformity with the tenor of
the document. The promissory notes constitute the obligation exclusively of "La
Protectora" and of Marcelo Barba; and they do not in any sense constitute an
obligation directly binding on the four appellants. Their liability is based on the fact
that they are members of the civil partnership and as such are liable for its debts. It is
true that article 1698 of the Civil Code declares that a member of a civil partnership is
not liable solidarily with his fellows for its entire indebtedness; but it results from this
article, in connection with article 1137 of the Civil Code, that each is liable with the
others for his aliquot part of such indebtedness.
Under the second clause of article 1698 of the Civil Code, no member of the
partnership can bind the others by a personal act if they have not given him authority
to do so. The Court think that the document referred to was intended merely as an
authority to enable Barba to bind the partnership and that the parties to that
instrument did not intend thereby to confer upon Barba an authority to bind them
personally. It is obvious that the contract which Barba in fact executed in pursuance
of that authority did not by its terms profess to bind the appellants personally at all, but
only the partnership and himself. It follows that the four appellants cannot be held to
have been personally obligated by that instrument; but, as the court have already
seen, their liability rests upon the general principles underlying partnership liability.
When one of the partners was authorized to buy trucks for the partnership and
effected such authority, signed the name of the partnership to the purchase money
notes and added his own name as an individual, thereby assuming solidary liability
with the firm, the partners who emitted the authority were not liable on the note, as
the document in question contained no authority to bind them personally and in fact
the notes did not purport to do so; but they were held liable in their capacity as
partners. The appellants are severally liable for their respective shares of the entire
indebtedness found to be due.
G.R. No. 1011 May 13, 1903
JOSE MACHUCA, vs. CHUIDIAN, BUENAVENTURA & CO.,

FACTS:
The defendants are a regular general partnership, organized in Manila,
December 29, 1882, as a continuation of a prior partnership of the same name. The
original partners constituting the partnership of 1882 were D. Telesforo Chuidian, Doña
Raymunda Chuidian, Doña Candelaria Chuidian, and D. Mariano Buenaventura. The
capital was fixed in the partnership agreement at 16,000 pesos, of which the first three
partners named contributed 50,000 pesos each, and the last named 10,000 pesos,
and it was stipulated that the liability of the partners should be "limited to the amounts
brought in by them to form the partnership stock."

Under the partnership agreement, each one of them had advanced money
to the preexisting partnership, which advances were assumed or accounts-current
aggregated something over 665,000 pesos, of which, 569,000 pesos represented the
advances from the Chuidians.

Doña Raymunda Chuidian retired from the partnership November 4, 1885. On


January 1, 1888, the partnership went into liquidation, and it does not appear that the
liquidation had been terminated when this action was brought.

On January 1, 1894, D. Mariano Buenaventura died, his estate passing by will


to his children, among whom was D. Vicente Buenaventura. On December 15, 1898,
D. Vicente Buenaventura executed a public instrument in which for a valuable
consideration he "assigns to D. Jose Gervasio Garcia 25 per cent share in all that may
be obtained by whatever right in whatever form from the liquidation of the partnership
of Chuidian, Buenaventura & Co., in the part pertaining to him in said partnership.

Jose Machuca claims under D. Jose Garcia by virtue of a subsequent


assignment, which has been notified to the liquidator of the partnership.

The liquidator of the partnership having declined to record in the books of the
partnership the plaintiff's claim under the assignment, Machuca filed an action for
specific performance to compel the liquidator to record in the books of his
assignment as a credit due. Machuca further asks that he be adjudicated to be a
creditor of the partnership in an amount equal to 25 per cent of D. Vicente
Buenaventura's share in his father's account-current. The Trial Court ruled in favor of
Jose Machuca.

ISSUE:
Whether or not Jose Machuca is entitled to 25% of D. Vicente Buenaventura’s
share in the partnership.

RULING:
No, Jose Machuca is not entitled to 25% of Buenaventura’s share in the
partnership.

The underlying question in the case relates to the construction of clause 19 of


the partnership agreement, by which it was stipulated that "upon the dissolution of the
company, the pending obligations in favor of outside parties should be satisfied, the
funds of the minors Jose and Francisco Chuidian should be taken out, and afterwards
the resulting balance of the account-current of each one of those who had put in
money should be paid."

Our construction of this clause is that it establishes a basis for the final
adjustment of the affairs of the partnership; that that basis is that the liabilities to
noncompartners are to be first discharged; that the claims of the Chuidian minors are
to be next satisfied; and that what is due to the respective partners on account of
their advances to the firm is to be paid last of all, leaving the ultimate residue, of
course, if there be any, to be distributed, among the partners in the proportions in
which they may be entitled thereto.

Further, D. Vicente Buenaventura, whose rights are those of his father, is in no


case entitled to receive any part of the assets until the creditors who are nonpartners
and the Chuidian minors are paid. Whatever rights he had either as creditor or partner,
he could only transfer subject to this condition. And it is clear, from the language of
the instrument under which the plaintiff claims, that this conditional interest was all that
D. Vicente Buenaventura ever intended to transfer.

Therefore, Jose Machuca having acquired no rights under the assignment


which are now enforceable against the defendant, this action cannot be maintained.
The judgment in this case should not affect the plaintiff's right to bring another action
against the partnership when the affairs of the same are finally wound up. The proper
judgment will be that the action be dismissed. The judgment of the trial court is
reversed and the case is remanded to that court with directions to enter a judgment
of dismissal.

DOCTRINE: COPARTNERSHIP; LIQUIDATION. — Where the articles of copartnership


provide that upon liquidation the claims of outside persons shall first be satisfied before
those of the partners, the assignment of a partner’s interest pending liquidation is the
assignment of a future interest which cannot be enforced until the termination of the
liquidation.
FUE LEUNG vs. INTERMEDIATE APPELLATE COURT
FACTS:
Dan Fue Leung.The Sun Wah Panciteria was registered as a single proprietorship and
its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the
sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case
to show that Sun Wah Panciteria was actually a partnership and that he was one of
the partners having contributed P4,000.00 to its initial establishment.Lower court ruled
in favor of the private respondent. Petitioner appealed the trial court's amended
decision. However,the questioned decision was further modified and affirmed by the
appellate court.
Both the trial court and the appellate court declared that the private petitioner is a
partner and is entitled to a share of the annual profits of the restaurant. Hence, an
appeal to the SC.The petitioner argues that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah
Panciteria, in return of which private respondent allegedly will receive a share in the
profits of the restaurant. It was, therefore, error for the Appellate Court to interpretor
construe 'financial assistance' to mean the contribution of capital by a partner to a
partnership.
ISSUE:
WON the private respondent is a partner of the petitioner in the establishment of Sun
Wah Panciteria.
HELD:
The private respondent is a partner of the petitioner in Sun Wah Panciteria.
The requisites of a partnership which are —
1) two or more persons bind themselves to contribute money, property, or industry to
a common fund; and
2) intention on the part of the partners to divide the profits among themselves
(Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a partner shares not only in profits but also
in the losses of the firm. If excellent relations exist among the partners at the start of
business and all the partners are more interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing in the profits is perfectly plausible. It
would be incorrect to state that if a partner does not assert his rights anytime within
ten years from the start of operations, such rights are irretrievably lost. The private
respondent's cause of action is premised upon the failure of the petitioner to give him
the agreed profits in the operation of Sun Wah Panciteria. In effect the private
respondent was asking for an accounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand
an accounting, Articles 1806, 1807, and 1809 show that the right to demand an
accounting exists as long as the partnership exists. Prescription begins to run only upon
the dissolution of the partnership when the final accounting is done.
SERGIO V. SISON vs. HELEN J. MCQUAID

G.R. No. L-6304 December 29, 1953

FACTS:

In 1951, Sergio Sison brough an action against Helen McQuaid in the Court of
First Instance of Manila. The petitioner alleged that in sometime in 1938, the defendant
borrowed from the former an amount of Two thousand two hundred ten pesos
(P2,210.00) for the reason that Helen is in need to pay the Bureau of Forestry as well as
to add capital to her lumber business. However, she failed to pay the loan. But as she
had promised Sergio Sison, she will take the latter as her partner in the lumber business
and that the amount of P2,210 shall be contributed to such partnership agreement
aside from the services Mr. Sison has been rendering. As planned, they formed a
partnership in which they agreed to share profits of the business or income, and
equally divide them from themselves. It was also stipulated that Sergio, the plaintiff,
together with Helen, the defendant, shall render services to the partnership without
compensation from 1938 to 1941.

Consequently before the last World War, the partnership sold to the United States Army
230,000 board feet of lumber for P13,800. Helen McQuaid being the manager of the
partnership claimed United States Army collection from the lumber sold. She was
informing the plaintiff that indeed the claim has been finally approved and that the
amount has been fully paid. However, she neglected to deliver one-half of it as
stipulated or the amount of P6,900, to Sergio Sison and despiterepeated demands,
she paid no heed by investing the whole sum of P13,800 for her own benefit.

Contention of the petitioner:

Aggrieved, Sergio Sison prays for judgment declaring the existence of the
partnership and requiring Helen McQuaid to pay him the amount of P6,900 plus
other costs and damages.

Contention of the defendant:

Defendant McQuaid filed a motion to dismiss on the grounds that plaintiff's action:

1. Had already prescribed,

2. Plaintiff's claim was not provable under the Statute of Frauds

3. The complaint stated no cause of action.

Issue:

Whether the petitioner is entitled to the amount demanded on the ground that a
partnership business exists between him and the defendant

Ruling:
It is clear that the plaintiff seeks to recover from defendant one-half of the
purchase price of lumber sold by the partnership to the United States Army. However,
his complaint does not show why he should be entitled to it.

In this case, a partnership business exists but a liquidation in the partnership


business has not been alleged as well as the fact that the amount demanded (income
and profits) is due him being the defendant's partner. It is noteworthy that the
proceeds from the sale of lumber products cannot be considered profits until costs
and expenses have been deducted (Liquidation). In addition, the profits of the
business cannot be ascertained by taking into account the result of one particular
transaction instead of all the transactions had. Thus, the need for a general liquidation
before a member of a partnership may claim a specific sum as his share of the profits.
The order of dismissal is affirmed, but on the ground that the complaint states no cause
of action and without prejudice to the filing of an action for accounting or liquidation.
Jose Ornum and Emerenciano Ornum(petitioners)
VS. Mariana Lasala et. Al (respondents)
July 16, 1943

FACTS:
In 1908, Pedro Lasala (father of the respondents) formed a partnership with
Emerenciano Ornum, Pedro Lasala contributed P1000.00 while Emerenciano Ornum
who was an industrial partner contributed his industry. Emerenciano Ornum following
the wishes of his wife asked for the dissolution of the partnership because the
partnership consisted of outstanding accounts and old stock of merchandise. At the
instance of Pedro Lasala, Emerenciano suggested the names of the petitioners who
eventually became the new partners. The petitioners contributed P550.54 and as
industrial partners were to run the business in Romblon. After the death of Pedro Lasala,
his children the respondents succeded to all his rights and interest in the partnership,
however no formal partnership agreement was ever executed and partners never
knew each other. During the course of business, the profits were declared and
divided. The petitioners accordingly let a greater part of their profits as additional
investment. After 20 years, the business grew to such amount of P44,618.67 . Statement
of accounts were periodically prepared by petitioners and sent to respondents who
did not make an objection. During the last and final Statement of accounts, the
petitoners prepared the Statement of Account after respondents had announced
desire to dissolve partnership. A letter was sent to the petitioners demanding an
accounting and liquidation of the assets of the partnership. The CFI of Manila ruled
that the final Statement of Account of the petitioners was tacitly approved and
accepted by respondents who lost their right to further accounting by virtue of the
letter of Father Mariano Lasala to petitioners. The C.A reversed the ruling of the CFI of
Manila because the last Statement of Account had not been signed by the
respondents.
ISSUE:
Whether the last Statement of Account of the partnership has been approved by the
respondents.

RULING:
Yes .the Supreme court ruled that:
The last and final Statement of Accounts herein above quoted, had been approved
by the respondents. This approval resulted, by virtue of the letter of Father Mariano
Lasala of JULY 19, 1932, quoted in part in the appealed decision, from the failure of
the respondents to object to the statement and from their promise to sign the same
as soon as they received their shares as shown in said statement. After such shares
had been paid by the petitioners and accepted by the respondents without any
reservation, the approval of the Statement of Accounts was virtually confirmed and
it’s signing thereby became a mere formality to be complied with by the respondents
exclusively. Their refusal to sign, after receiving their shares, amounted to a waiver of
that formality in favor of the petitioners who had already performed their obligation.
This approval preludes any right on the part of the respondents to a further liquidation,
unless the latter can show that there was fraud, deceit, error or mistake in said
approval.

Therefore, the doctrinal ruling in this case is that:

“That the last and final Statement of Accounts quoted in the decision had been
approved by the respondents. This approval resulted, by virtue of Father Mariano
Lasala of JULY 19, 1932, from the failure of the respondents to object to the statement
and from their promise to sign the same as soon as they received their shares as shown
in said statement. After such shares had been paid by the petitioners and accepted
by the respondents without any reservation, the approval of the Statement of
Accounts was virtually confirmed and it’s signing thereby became a mere formality to
be complied with by the respondents exclusively. Their refusal to sign, after receiving
their shares, amounted to a waiver of that formality in favor of the petitioners who had
already performed their obligation.
C. PROPERTY RIGHTS OF A PARTNER: ARTICLES 1810-1814

Clemente v Galvan
GR No. L-45662, April 26, 1939

Facts: Enrique Clemente and Dionisio Galvan organized a civil partnership which they
named “Galvan y Compañia” to engage in the manufacture and sale of paper and
other stationery. They agreed to invest a capital of P 100,000 but only covered not
more than one-fifth of the capital, contributing P 10,000 each. After a year, Clemente
commenced an action to dissolve the partnership and to compel Galvan to submit
an accounting of Galvan’s management and to give Clemente’s share as a partner.
In his answer, Galvan expressed his conformity to the dissolution of the partnership and
to the liquidation of its affairs but also filed a counterclaim for reimbursement of the
half of the sum of the deficiency he covered for the partnership which amounted to
P 4,500. Through a petition, a receiver was then appointed to take charge of the
properties of the partnership while the same was not yet dissolved. The person chosen
was Juan D. Mencarini. During the discharge of his duties, the court ordered him to
deliver to Clemente certain machines and also authorized Mencarino to charge the
P 4,500 against the portion which would eventually be due to Clemente. Mencarino
then delivered the keys of the place where the machines were found (which was also
the house of Galvan). But before Clemente could have actual possession of the
machines, Galvan petitioned the court to suspend the effects of the order. The court
granted the petition. Meanwhile, cases involving a sum of money involving Clemente
were decided against his favor. Hence,the machines were then mortgaged to one
Jose Echavarria to prevent them to attach to the claims against Clemente. The
agreement to fulfill the mortgage within one year has passed hence Echavarria filed
an action to collect his mortgage credit. Echavarria obtained a judgment in his favor
despite the fact that the machines were only in his custodia legis as Galvan and the
receiver made no action or defense against him.

Issue: Whether the mortgage between Clemente and Echavarria was valid

Ruling: No. The evidence of record shows that the machines in contention originally
belonged to the Galvan and from him were transferred to the partnership Galvan y
Compañia. This being the case, said machines belong to the partnership and not to
him, and shall belong to it until partition is effected according to the result thereof after
the liquidation. As such, the mortgage cannot be valid as the machines do not belong
to Galvan but to the partnership.
THE LEYTE-SAMAR SALES CO., AND RAYMUNDO TOMASSI, VS. SULPICIO V. CEA AND
OLEGARIO LASTRILLA,

FACTS:
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for
damages by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond
Tomassi against the Far Eastern Lumber & Commercial Co.), Arnold Hall, Fred Brown
and Jean Roxas, judgment against defendants jointly and severally for the amount of
P31,589.14 plus costs was rendered on October 29, 1948. The Court of Appeals
confirmed the award in November 1950, The decision having become final, the sheriff
sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias "all the rights,
interests, titles and participation" of the defendants in certain buildings and properties
described in the certificate, for a total price of eight thousand and one hundred
pesos. But on June 4, 1951 Olegario Lastrilla filed in the case a motion, wherein he
claimed to be the owner by purchase on September 29, 1949, of all the "shares and
interests" of defendant Fred Brown in the FELCO, and requested "under the law of
preference of credits" that the sheriff be required to retain in his possession so much of
the deeds of the auction sale as may be necessary "to pay his right". Over the plaintiffs'
objection the judge in his order of June 13, 1951, granted Lastrilla's motion by requiring
the sheriff to retain 17 per cent of the money "for delivery to the assignee, administrator
or receiver" of the FELCO. And on motion of Lastrilla, the court on August 14, 1951,
modified its order of delivery and merely declared that Lastrilla was entitled to 17 per
cent of the properties sold.

ISSUE:
Whether or not Lastrilla may get back the shares he bought from Brown to pay
the partnerships indebtedness.

RULING:
No. In this case, Lastrilla became a partner of FELCO when he bought Brown’s
share in 1949.
The record is not very clear, but there are indications, and we shall assume for
the moment, that Fred Brown was a partner of the FELCO, was defendant in Civil Case
No. 193 as such partner, and that the properties sold at auction actually belonged to
the FELCO partnership and the partners. We shall also assume that the sale made to
Lastrilla on September 29, 1949, of all the shares of Fred Brown in the FELCO was valid.
The result then, is that on June 9, 1951 when the sale was effected of the properties of
FELCO to Roberto Dorfe and Pepito Asturias, Lastilla was already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If he
was a creditor of the FELCO, perhaps or maybe. But he was no. The partner of a
partnership is not a creditor of such partnership for the amount of his shares. That is too
elementary to need elaboration.
D. OBLIGATIONS OF A PARTNER TO THIRD PERSONS: ARTICLES 1815-1827

PHILIPPINE NATIONAL BANK, VS. SEVERO EUGENIO LO, ET AL., SEVERIO


EUGENIO LO, NG KHEY LING AND YEP SENG, G.R. NO. L-26937

Facts:

Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao
Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership under the
name of "Tai Sing and Co.," with a capital of P40,000 contributed by said partners and
which was to last for five years from the date of its organization.

The purpose of the partnership was to do business in the City of Iloilo or in any
other part of the Philippines that the partners might desire, for the purchase and sale
of merchandise, goods, and native, as well as Chinese and Japanese, products, and
to carry on such business and speculations as they might consider profitable.

One of the partners, J. A. Say Lian Ping who was appointed general manager
of the partnership executed a power of attorney in favor of A. Y. Kelam, authorizing
him to act in his stead as manager and administrator of "Tai Sing & Co.,"

Say Lian Ping mortgaged certain personal property of "Tai Sing & Co., to PNB
as a security for the loan of P8,000 in current account from the plaintiff bank. This credit
was renewed several times.

On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling,
the latter represented by M. Pineda Tayenko, executed a power of attorney in favor
of Sy Tit by virtue of which Sy Tit, representing "Tai Sing & Co., obtained a credit of
P20,000 from plaintiff bank on January 7, 1921, executing a chattel mortgage on
certain personal property belonging to "Tai Sing & Co.

Defendants had been using this commercial credit in a current account with the
plaintiff bank and the debit balance of this account, with interest is P20, 239

PNB filed a complaint to collect such amount.

Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was
not a general partnership, and that the commercial credit in current account which
"Tai Sing & Co. obtained from the plaintiff bank had not been authorized by the board
of directors of the company, nor was the person who subscribed said contract
authorized to make the same, under the article of copartnership.

Issue:

WON Tai Sing & Co is a general partnership and can the partners thereof be held liable
to pay PNB.

Ruling:
Yes, Tai Sing & Co is a general partnership.

Appellants admit, and it appears from the context of its articles of


copartnership, that the association formed by the defendants is a general partnership,
as defined in article 126 of the Code Commerce. This partnership was registered in the
mercantile register of the Province of Iloilo.

The only anomaly noted in its organization is that instead of adopting for their firm
name the names of all of the partners, of several of them, or only one of them, the
partners agreed upon "Tai Sing & Co." as the firm name.

The anomalous adoption of the firm name does not affect the liability of the general
partners to third parties under article 127 of the Code of Commerce.

The Supreme Court in the case of Jo Chung Cang vs. Pacific Commercial Co., held
that the object of article 126 of the Code of Commerce in requiring a general
partnership to transact business under the name of all its members, of several of them,
or of one only, is to protect the public from imposition and fraud; and that the provision
of said article 126 is for the protection of the creditors rather than of the partners
themselves.

Consequently the doctrine was enunciated that the law must be unlawful and
unenforceable only as between the partners and at the instance of the
violating party, but not in the sense of depriving innocent parties of their rights
who may have dealt with the offenders in ignorance of the latter having
violated the law; and that contracts entered into by commercial associations
defectively organized are valid when voluntarily executed by the parties, and
the only question is whether or not they complied with the agreement.
Therefore, the defendants cannot invoke in their defense the anomaly in the
firm name which they themselves adopted.
NICOLAS CO-PITCO, plaintiff-appellee, vs. PEDRO YULO, defendant-appellant.

G.R. No. L-3146 September 14, 1907

Facts of the Case:

Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the
operation of a sugar estate in Victorias, Island of Negros, and had commercial
dealings with a Chinaman named Dy-Sianco, who furnished them with money and
goods, and used to buy their crop of sugar. In February, 1903, the defendant, Pedro
Yulo, father of the said Florencio, took charge of the latter's interest in the above-
mentioned partnership, and he became a general partner with the said Jaime
Palacios in the same business, and he continued as such partner until about the end
of 1904, dealing with Dy-Sianco in the same manner as the old partnership had dealt
with the latter.

Plaintiff then finds that the firm has a balance in the amount of P1,638.40 and prayed
for judgment against defendant Yulo, for him to pay the entire amount with interest

ISSUES:

1. Whether or not the defendant-appellant is liable for the entire amount of the debt.

RULING OF THE COURT

1. No. The partnership of Yulo and Palacios was engaged in the operation of a sugar
estate in Negros. It was, therefore a civil partnership, as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles 1698 and 1137
of the Civil Code, the partners are not liable each for the whole debt of the
partnership. The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff
for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left
the country cannot increase the liability of Pedro Yulo.
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN
C. DACO, defendant-appellant.
G.R. No. L-22493 July 31, 1975
FACTS:
Five persons, namely Benjamin C. Daco, the appellant, Daniel Guizona, Noel Sim,
Augusto Palisoc and Romulo Lumauig formed UNITED PIONEERS GENERAL
CONSTRUCTION CO. The partnership executed a promissory note in favor of Island
Sales Inc. for the purchase of a motor vehicle for the price of P9,440.00 payable in 12
equal monthly installments with a clause that failure to pay any of the installments
would render the entire balance due and demandable.
Because of an unpaid installment, Island Sales Inc. demanded the balance of
P7,119.07 from the partnership and eventually sued. On the motion of Island Sales Inc.,
Romulo Lumauig was dismissed as a defendant. A decision was rendered ordering the
partnership to pay the entire P7,119.07.
Benjamin claims that the liability of each of the general partners should not exceed
1/5 of the obligations of the company, and because Romulo was dismissed, they are
not to answer for Romulo’s share.

ISSUE: Should the dismissal of the complaint in favor of one of the general partners
increase the liability of each of the remaining partners for the partnership’s obligation?
HELD:
No. Under Article 1816 of the Civil Code, all partners shall be liable pro rata with all
their property and after all the partnership assets have been exhausted.
Thus, having 5 general partners, the liability of each of the partners must be limited
only to 1/5 of the partnership’s obligation. The dismissal of Romulo as a defendant
does not unmake him as a general partner. The dismissal, which was done upon the
instance of Island Sales Inc., must be viewed as a mere condonation of Romulo’s
individual liability.
LA COMPAÑIA MARITIMA vs. FRANCISCO MUÑOZ, ET AL

Facts:

On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz, and
Rafael Naval formed on ordinary general mercantile partnership under the name of
Francisco Muñoz & Sons for the purpose of carrying on the mercantile business in the
Province of Albay which had formerly been carried on by Francisco Muñoz. Francisco
Muñoz was a capitalist partner and Emilio Muñoz and Rafael Naval were industrial
partners.

It is said in the decision of the court below that in the articles of partnership it was
called an ordinary, general mercantile partnership, but that from the article it does
not appear to be such a partnership.

In the articles of partnership signed by the partners it is expressly stated that they have
agreed to form, and do form, an ordinary, general mercantile partnership.

The object of the partnership, as stated in the fourth paragraph of the articles, is a
purely mercantile one and all the requirements of the Code of Commerce in
reference to such partnership were complied with. The articles of partnership were
recorded in the mercantile registry in the Province of Albay.

The claim of the appellees that Emilio Muñoz contributed nothing to the partnership,
either in property, money, or industry, can not be sustained. He contributed as much
as did the other industrial partner, Rafael Naval, the difference between the two being
that Rafael Naval was entitled by the articles of agreement to a fixed salary of P2,500
as long as he was in charge of the branch office established at Ligao.

The argument of the appellees seems to be that, because no yearly or monthly salary
was assigned to Emilio Muñoz, he contributed nothing to the partnership and received
nothing from it. By the articles themselves he was to receive at the end of five years
one-eighth of the profits. It can not be said, therefore, that he received nothing from
the partnership.

The fact that the receipt of this money was postponed for five years is not important.
Industrial partners, by signing the articles, agree to contribute their work to the
partnership and article 138 of the Code of Commerce prohibits them from engaging
in other work except by the express consent of the partnership.

Issue:

Whether, as such general partner, he is liable to third persons for the obligations
contracted by the partnership, or whether he relieved from such liability, either
because he is an industrial partner or because he was so relieved by the express terms
of the articles of partnership.

Held:
Paragraph 12 of the articles of partnership is as follows:

Twelfth. All profits arising from mercantile transactions carried on, as well as such as
may be obtained from the sale of property and other assets which constitute the
corporate capital, shall be distributed, on completion of the term of five years agreed
to for the continuation of the partnership, in the following manner: Three-fourths
thereof for the capitalist partner Francisco Muñoz de Bustillo and one-eighth thereof
for the industrial partner Emilio Muñoz de Bustillo y Carpiso, and the remaining one-
eighth thereof for the partner Rafael Naval y Garcia. If, in lieu of profits, losses should
result in the winding up of the partnership, the same shall be for the sole and exclusive
account of the capitalist partner Francisco Muñoz de Bustillo, without either of the two
industrial partners participating in such losses.

The article do not, therefore, change the rights of the industrial partners as they are
declared by the code, and the question may be reduced to the very simple one
namely, Is an industrial partner in an ordinary, general mercantile partnership liable to
third persons for the debts and obligations contracted by the partnership?

In limited partnership the Code of Commerce recognizes a difference between


general and special partners, but in a general partnership there is no such distinction-
- all the members are general partners. The fact that some may be industrial and some
capitalist partners does not make the members of either of these classes alone such
general partners. There is nothing in the code which says that the industrial partners
shall be the only general partners, nor is there anything which says that the capitalist
partners shall be the only general partners.

Article 127 of the Code of Commerce is as follows:

All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property for the
results of the transactions made in the name and for the account of the partnership,
under the signature of the latter, and by a person authorized to make use thereof.

In all of these articles the industrial partners must be included. It can not have been
intended that, in such a partnership as the one in question, where there were two
industrial and only one capitalist

partner, the industrial partners should have no voice in the management of the
business when the articles of partnership were silent on that subject.

But it is said that article 141 expressly declares to the contrary. It is to be noticed in the
first place that this article does not say that they shall not be liable for losses. Article
140 declares how the profits shall be divided among the partners. This article simply
declares how the losses shall be divided among the partners. The use of the words se
imputaran is significant.

The claim of the appellees is that this article 141 fixes the liability of the industrial
partners to third persons for the obligations of the company.
If it does, then it also fixes the liability of the capitalist partners to the same persons for
the same obligations. If this article says that industrial partners are not liable for the
debts of the concern, it also says that the capitalist partners shall be only liable for
such debts in proportion to the amount of the money which they have contributed to
the partnership; that is to say, that if there are only two capitalist partners, one of whom
has contributed two-thirds of the capital and the other one-third, the latter is liable to
a creditor of the company for only one-third of the debt and the former for only two-
thirds.

There is no injustice in imposing this liability upon the industrial partners. They have a
voice in the management of the business, if no manager has been named in the
articles; they share in the profits and as to third persons it is no more than right that
they should share in the obligations. It is admitted that if in this case there had been a
capitalist partner who had contributed only P100 he would be liable for this entire debt
of P26,000.

That each one of the industrial partners is liable to third persons for the debts of the
firm; that if he has paid such debts out of his private property during the life of the
partnership, when its affairs are settled he is entitled to credit for the amount so paid,
and if it results that there is not enough property in the partnership to pay him, then
the capitalist partners must pay him. In this particular case that view is strengthened
by the provisions of article 12, above quoted.

There it is stated that if, when the affairs of the partnership are liquidated — that is, at
the end of five years — it turns out that there had been losses instead of gains, then
the capitalist partner, Francisco Muñoz, shall pay such losses — that is, pay them to
the industrial partners if they have been compelled to disburse their own money in
payment of the debts of the partnership.

If industrial partners in commercial partnerships are not responsible to third persons for
the debts of the firm, then industrial partners in civil partnerships are not. Waiving the
question as to whether there can be a commercial partnership composed entirely of
industrial partners, it seems clear that there can be such civil partnership, for article
1678 of the Civil Code provides as follows:

A particular partnership has for its object specified things only, their use of profits, or a
specified undertaking, or the exercise of a profession or art.

That is partnership has been formed without articles of association or capital other
than the personal work of each one of the partners, whose profits are to be equally
divided among themselves.

Article 1675 of the Civil Code is as follows:

General partnership of profits include all that the partners may acquire by their by their
industry or work during the continuation of the partnership.
Personal or real property which each of the partners may possess at the time of the
celebration of the agreement shall continue to be their private property, the usufruct
only passing to the partnership.

It might very well happen in partnership of this kind that no one of the partners would
have any private property and that if they did the usufruct thereof would be
inconsiderable.

In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it is


said that industrial partners are not liable for debts. The irregular partnership are those
which include one or more industrial partners. It may be said in passing that his views
can not apply to this case because the articles of partnership directly state that it is
an ordinary partnership and do not state that it is an irregular one.

This article would not need to be commented upon were it not because the writer
entirely overlooked the fact that there might exist industrial partners who did not
contribute with capital in money, credits, or goods, which partners generally
participate in the profits but not in the losses, and whose position must also be
determined in the articles of copartnership.

hil.netThe only defect that can be pointed out in this article is the fact that it has been
forgotten that in collective partnerships there are industrial partners who, not being
jointly liable for the obligations of the copartnership, should not include their names in
that of the firm.

As a logical result of his theory he says that an industrial partner has no right to
participate in the administration of the partnership and that his name can not appear
in the firm name.

It only remains to us to state that a partner who contributes his industry to the concern
can also confer upon it the name or the corporate name under which such industry
should be carried on. In this case, so long as the copartnership lasts, it can enjoy the
credit, reputation, and name or corporate name under which such industry is carried
on; but upon dissolution thereof the aforesaid name or corporate name pertains to
the partner who contributed the same, and he alone is entitled to use it, because such
a name or style is an accessory to the work of industrial partner, and upon recovering
his work or his industry he also recovers his name or the style under which he exercised
his activity.

Here are found two kinds of partners, one with unlimited responsibility and the other
with limited responsibility, but adopting his view as to industrial partners, it should be
said that there are three kinds of partners, one with unlimited responsibility, another
with limited responsibility, and the third, the industrial partner, with no responsibility at
all.

An examination of the works of Manresa and Sanchez Roman on the Civil Code, and
of Blanco's Mercantile Law, will shows that no one of these mentions in any way the
irregular general partnership spoken of by Dr. Benito, nor is there anything found in any
one of these commentaries which in any way indicates that an industrial partner is not
liable to third persons for the debts of the partnership. An examination of the French
law will also show that no distinction of that kind is therein anywhere made and
nothing can be found therein which indicates that the industrial partners are not liable
for the debts of the partnership. (Fuzier-Herman, Repertoire de Droit

Our conclusion is upon this branch of the case that neither on principle nor on authority
can the industrial partner be relieved from liability to third persons for the debts of the
partnership.

It is apparently claimed by the appellee in his brief that one action can not be
maintained against the partnership and the individual partners, this claim being based
upon the provisions of article 237 of the Code of Commerce which provides that the
private property of the partners shall not be taken until the partnership property has
been exhausted. But this article furnishes to argument in support of the appellee's
claim. An action can be maintained against the partnership and partners, but the
judgment should recognize the rights of the individual partners which are secured by
said article 237.lawphil.net

The judgment of the court below is reversed and judgment is ordered against all of
the defendants for the sum of P26,828.30, with interest thereon at the rate of 8 per cent
per annum.
GEORGE O. DIETRICH

vs.

O.K. FREEMAN, JAMES L. PIERCE, and BURTON WHITCOMB

Facts:

An action was brought against O.K. Freeman, James L. Pierce, and Burton Whitcomb,
as owners and operators of the Manila Steam Laundry, to recover the sum of P952
alleged to be the balance due to Dietrich for services performed during the period
from January 9, 1907, to December 31, 1908. Judgment was rendered in favor of the
plaintiff and against Freeman and Whitcomb, jointly and severally, for the sum of P752,
with interest at the rate of 6 per cent per annum from the 27th day of August, 1909,
and the costs of the cause. When the plaintiff was first employed on January 9 1907,
this steam laundry was owned and operated by Freeman and Pierce. Pierce, on
January 18 1907, sold all of his right, title, and interest in the said laundry to Whitcomb,
who, together with Freeman, then became the owners of this laundry and continued
to operate the same as long as the plaintiff was employed.

Issue: Whether or not the partners are liable jointly and severally.

Ruling: No, the partners are not liable jointly and severally.

The purpose for which this partnership was entered into by Freeman and Whitcomb
show clearly that such partnership was not a commercial one. Hence, the provisions
of the Civil Code and not the Code of Commerce must govern in determining the
liability of the partners. The plaintiff was employed by and performed services for the
Manila Steam Laundry and was not employed by nor did he perform services for
Freeman alone. The public did not deal with Freeman and Whitcomb personally, but
with the Manila Steam Laundry. These two partners were doing business under this
name and, as we have said, it was not a commercial partnership. Therefore, by the
express provisions of articles 1698 and 1137 of the Civil Code the partners are not liable
individually for the entire amount due the plaintiff. The liability is pro rata and in this
case the appellant is responsible to the plaintiff for only one-half of the debt.
SANTIAGO SYJUCO INC. V. CASTRO, 175 SCRA 171
Facts:
Eugenio Lim, for his own and in behalf of of his mother (deceased) and other
brothers and sisters, secured a loan from Syjuco totalling ₱2,460,000.00. The loan was
secured by a land registered with the Registry of Deeds as owned pro indiviso by the
Lims. The obligation matured and the Lims failed to pay despite demands for its
payment. Hence, Syjuco attempted to foreclose the property but was met by various
civil cases filed by the Lims with the intention to stop the foreclosure.
The Lims claimed that the mortgage was void because the subject property
was contributed by the Lims as partners in the partnership of “Heirs of Hugo Lim” and
the partners have no authority from the partnership when they individually constituted
the loan.
Isssue:
Is the partnership liable for the acts of its partners?
Held:
Yes, the partnership is liable and the property mortgaged should be foreclosed.
The court held that the partnership is estopped by the acts of its partners and
hence liable against third persons.
In this case, it was discovered that the land was not registered with the Register
of Deeds in the name of the partnership and up to now, remains in the name of the
Lims as common owners, thus, the partnership which is composed solely by the Lims
have knowledge of the mortgage from the moment of its execution. The silence of
the partnership and failure to impugn the mortgage within reasonable time, let alone
a space of 17 years, the partnership is estopped and is precluded to avoid the
mortgaged as unauthorized.
Under the Doctrine of Estoppel, the legal fiction of juridical personality and
existence will not shield the partnership who was chargeable with having knowledge
of matters commonly known to all the partners or of acts in which all of the latter,
without exception, have taken part, where such matters or acts affect property
claimed as its own by said partnership.
Also, under the last paragraph of Article 1819 of the New Civil Code, Where
the title to real property is in the names of all the partners and conveyance executed
by all the partners passes all their rights in such property. The right to convey includes
the right to mortgage.
BENITO LIWANAG and MARIA LIWANAG REYES,
vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL

G.R. No. L-12164 May 22, 1959

Facts: Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply. A commercial guard was killed while on duty. His heirs were granted P3,494.40
as compensation with the Workmen's Compensation Commission. It was further
ordered that the co-owners should pay the amount jointly and severally.

Liwanag and Reyes appealed on the ground that the compensation is divisible and
that nothing in the compensation Act which provides that the obligation of an
employer arising from compensable injury or death of an employee should be solidary
obligation, the same should have been specifically provided, and that, in absence of
such clear provision, the responsibility of appellants should not be solidary but merely
joint.

ISSUE: Whether or not Liwanag and Reyes should be solidarily liable in paying for the
compensation awarded

RULING: Yes, the obligation should be solidary in nature.

Ordinarily, the liability of the partners in a partnership is not solidary; but the law
governing the liability of partners is not applicable to the case because a claim for
compensation by dependents of an employee who died in line of duty is involved. It
was not expressly provided in the Workmen’s Compensation Act but there are other
provisions of law from which it could be gathered that their liability must be solidary.

Under the Civil code:

ART. 1711. Owners of enterprises and other employers are obliged to pay
compensation for the death of or injuries to their laborers, workmen, mechanics or
other employees, even though the event may have been purely accidental or entirely
due to a fortuitous cause, if the death or personal injury arose out of and in the course
of the employment. . . . .

ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter
and the employer shall be solidarily liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads in part as


follows:

. . . The right to compensation as provided in this Act shall not be defeated or


impaired on the ground that the death, injury or disease was due to the negligence
of a fellow servant or employee, without prejudice to the right of the employer to
proceed against the negligence party.
These provisions taken together reasonably indicate that in compensation cases, the
liability of business partners should be solidary; otherwise if one of them happens to be
insolvent, the amount awarded to the appellees would only be partially satisfied,
which is evidently contrary to the intent and purposes of the Act. The Workmen's
Compensation Act should be construed fairly, reasonably and liberally in favor of and
for the benefit of the employee and his dependents to promote its purpose.

Also Art. 1207 of the new Civil Code provides:

. . . . There is solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.

The Workmen's Compensation Act was enacted to give full protection to the
employee hence the nature of the obligation of the employers to pay compensation
should be solidary so as not to defeat this purpose of the law.
MCDONALD v. NATIONAL CITY BANK OF NEW YORK
G.R. No. L-7991. May 21, 1956

FACTS:
STASIKINOCEY is a partnership formed by Gorcey, da Costa, Jr., Kusik and
Gavino. However, it was denied registration in the Securities and Exchange
Commission because of the confusion between that partnership and another co-
partnership called Cardinal Rattan, wherein Gorcey and da Costa are considered
general partners. Cardinal Rattan is merely the business name or style used by the
partnership STASIKINOCEY. Sometime in 1949, STASIKINOCEY had an overdraft
account with The National City Bank of New York, a foreign banking association duly
licensed to do business in the Philippines. Due to the failure of the partnership to make
the required payment, the overdraft account was converted into an ordinary loan.
Da Costa executed a promissory note secured by a chattel mortgage over three
vehicles. During the subsistence of the loan, the vehicles were sold to McDonald and
later on, McDonald sold two of the three vehicles to Gonzales. The bank brought an
action for recovery of its credit and foreclosure of the chattel mortgage upon learning
of these transactions. The Court of First Instance of Manila and Court of Appeals
rendered judgment in favor of respondent bank.

ISSUE: Whether or not the partnership, Stasikinocey is estopped from asserting that it
does not have juridical personality since it is an unregistered commercial partnership.

RULING:
Yes. While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more persons attempt to create a partnership failing to
comply with all the legal formalities, the law considers them as partners and the
association is a partnership in so far as it is a favorable to third persons, by reason of
the equitable principle of estoppel. Likewise, where a partnership not duly organized
has been recognized as such in its dealings with certain persons, it shall be considered
as “partnership by estoppel” and the persons dealing with it are estopped from
denying its partnership existence. If the law recognizes a defectively organized
partnership as de facto as far as third persons are concerned, for purposes of its de
facto existence it should have such attribute of a partnership as domicile.
Hence, in this case Da Costa and Gorcey cannot deny that they are partners
of the partnership Stasikinocey, because in all their transactions with the National City
Bank they represented themselves as such. McDonald cannot disclaim knowledge of
the partnership STASIKINOCEY because he dealt with said entity in purchasing two of
the vehicles in question through Gorcey and Da Costa. The sale of the vehicles to
McDonald being void, the sale to Gonzales is also void since a buyer cannot have a
better right than the seller.
PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
Facts:
Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air
Lines (SAL) a single proprietorship.
He then proposed to Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio
Maglana on his desire to expand his airline business. With this, they supported him by
delivering their contirbutions to the expansion of the airline business (SAL).
Thereafter, Lim entered into and executed a sales contract with Japan Domestic
Airlines (JDA) for the sale and purchase of two Type aircrafts and one set of necessary
spare parts for the total agreed price to be paid in installments. The items then were
delivered to the Philippines. However, Lim defaulted in the payment of his purchase
with JDA.
Contrary to the agreement among the defendants, defendant Lim in connivance with
the plaintiff, signed and executed a chattel mortgage and surety bond agreement in
his personal capacity as the alleged proprietor of the SAL. The answering defendants
learned for the first time of this trickery and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim,
thereby forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco and
Cervanteses, to defendant Lim, to surrender the possession of the two planes and their
accessories and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter
ignored, omitted and refused to comply with them.

A decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants.

Issue:
Whether a defacto partnership was created among the parties and as a result, all
must share in the losses and/or gains of the venture in proportion to their contribution.
Ruling:
Defendant Lim should be held liable to pay his co-defendants' cross-claims in the total
amount of P184,878.74 as correctly found by the trial court, with interest from the filing
of the cross-complaints until the amount is fully paid
It is ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter se.
Thus, where persons associate themselves together under articles to purchase
property to carry on a business, and their organization is so defective as to come short
of creating a corporation within the statute, they become in legal effect partners inter
se, and their rights as members of the company to the property acquired by the
company will be recognized. So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third the difference in
the proportionate value of the land conveyed by him, and no stock was ever issued
in the corporation, it was treated as a trustee for the associates in an action between
them for an accounting, and its capital stock was treated as partnership assets, sold,
and the proceeds distributed among them in proportion to the value of the property
contributed by. However, such a relation does not necessarily exist, for ordinarily
persons cannot be made to assume the relation of partners, as between themselves,
when their purpose is that no partnership shall exist , and it should be implied only
when necessary to do justice between the parties; thus, one who takes no part except
to subscribe for stock in a proposed corporation which is never legally formed does
not become a partner with other subscribers who engage in business under the name
of the pretended corporation, so as to be liable as such in an action for settlement of
the alleged partnership and contribution. A partnership relation between certain
stockholders and other stockholders, who were also directors, will not be implied in the
absence of an agreement, so as to make the former liable to contribute for payment
of debts illegally contracted by the latter
It is therefore clear that the petitioner never had the intention to form a corporation
with the respondents despite his representations to them. This gives credence to the
cross-claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement.
LEONCIA VIUDA DE CHAN DIACO vs. JOSE S. Y. PENG

(G.R. No. L-29182 )

FACTS: On June 13, 1925, the San Miguel Brewery, Porta Pueco & Co., and Ruiz &
Rementaria S. en C. instituted insolvency proceedings against Leoncia Vda. de Chan
Diaco, owner of a grocery store known as "La Viuda de G. G. Chan Diaco." The firms
alleged that Leoncia was indebted to them in the sum of P26,234.47. On the hearing,
Leoncia did not appear allowing court to declare her insolvent and ordering the sheriff
to take possession of her property which afterwards sold at public auction for P3,300.
After various hearings, the referee appointed rendered a report from which the court
based an order for Leoncia to deliver all enumerated properties to satisfy payment of
debt.
Leoncia filed a motion to dismiss on the ground that it should have been
brought against the partnership "Lao Liong Naw & Co.," of which she was only a
member which was evidenced by an agreement from which it appeared that on that
Lao Liong Naw (Leoncia), Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le,
and Juan Maquitan Chan had formed a partnership with a capital of P21,000, of
which only P4,000 was contributed by Leoncia.
After hearings, Judge Del Rosario dismissed the motion having found that the
alleged partnership was only a fictitious organization created for the purpose of
deceiving the Bureau of Customs and enable some of the relatives, who were mere
coolies, to come to the Philippines under the status of merchants.
However, the temporary judge rendered decision disapproving the report,
dismissing the insolvency proceedings, and ordered the assignee to return to the
sheriff all the property of the insolvent which he might have in his possession and for to
the petitioners to file a new petition in insolvency against the partnership Lao Liong
Naw & Co. if they so desired.
ISSUE: Whether the insolvency proceedings should be filed against partnership Lao
Liong Niew & Co.
RULING: It clearly appears from the record that partnership has no visible assets,
therefore, the partners individually must, jointly and severally, respond for its debts
(Code of Commerce, art. 127). Leoncia is one of the partners and admits that she is
insolvent, thus there is no reason for the dismissal of the proceedings against her.
Further, both the partnership and the separate partners may be joined in the same
action, though the private property of the separate partners cannot be taken in
payment of the partnership debts until the common property of the concern is
exhausted and, under this rule, it seems clear that the alleged partnership here in
question may be included in the case by amendments to the insolvency petition.
The fact that the evidence clearly shows that the business, alleged to have been that
of the partnership, was carried on under the name "Leoncia Vda. de Chan Diaco" or
"La Vda. de G. G. Chan Diaco," both of which are names of the Leoncia, and thus it
can be held that a partnership may be adjudged bankrupt in the name of an
ostensible partner, when such name is the name under which the partnership did
business.
E. DISSOLUTION AND WINDING UP: ARTICLES 1828-1842

BENJAMIN YU V. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN


PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU
SHIAN JENG and CHEN HO-FU
G.R. No. 97212
June 30, 1993
FELICIANO, J.:
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in the termination of
the legal personality of the old partnership.
Facts:
The partnership business of Jade Mountain Products Company Limited
consisted of exploiting a marble deposit found on lands in Bulacan Province.
Yu was hired as Assistant General Manager by the partnership with a monthly
salary of P4,000.00. However, only half of his stipulated monthly salary is actually
received by Yu since he had accepted the promise of the partners that the balance
would be paid when the firm shall have secured additional operating funds from
abroad.
Sometime in 1988, the general partners (Lea Bendal and Rhodora Bendal) and
a limited partner (Mr. Yu Chang) sold and transferred their interests in the partnership
to Willy Co and to one Emmanuel Zapanta which continued to use the old firm name
of Jade Mountain.
Yu was informed by Willy Co that the latter had bought the business from the
original partners and that it was for him to decide whether or not he was responsible
for the obligations of the old partnership, including petitioner's unpaid salaries.
Petitioner was in fact not allowed to work anymore in the Jade Mountain business
enterprise. His unpaid salaries remained unpaid.
The Labor arbiter held that there was illegal dismissal and ordered the
partnership to pay Yu. The NLRC reversed the decision. Hence, this petition for
certiorari alleging grave abuse of discretion amounting to lack or excess of jurisdiction.
Contention of the Petitioner:
The NLRC has overlooked the principle that a partnership has a juridical
personality separate and distinct from that of each of its members. Such independent
legal personality subsists notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership
Jade Mountain could not have been affected by changes in the latter's membership.
Issue:
a) Whether a new partnership had come into existence.
b) Whether Yu is entitled to the unpaid wages.
Ruling:
a) A new partnership exists. The acquisition of 82% of the partnership interest by
new partners, coupled with the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to constitute a new partnership. The
new partnership was entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise take over (Meaning, no illegal
dismissal). The legal effect of the changes in the membership of the partnership was
the dissolution of the old partnership.
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Civil Code)
b) Yu is entitled to the unpaid wages. The legal consequence of dissolution of
a partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. There must be the winding up of the business affairs
of the old partnership, paying off its debts, liquidating and distributing its net assets,
and then re-assembling the said assets or most of them and opening a new business
enterprise.
Art. 1829. On dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.
Not only the retiring partners but also the new partnership itself which
continued the business of the old, dissolved, one, are liable for the debts of the
preceding partnership.
G.R. No. L-22825 February 14, 1925
TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs-appellants,
vs. SALVADOR SERRA, defendant-appellee
Doctrine:
PARTNERSHIP; DISSOLUTION; EFFECTS OF. — The dissolution of a partnership does not
extinguish its obligations already incurred, and the partnership continues until they are
liquidated, although it may not incur new obligations.

The dissolution of a partnership must not be understood in the absolute and strict sense
so that at the termination of the object for which it was created the partnership is
extinguished, pending the winding up of some incidents and obligations of the
partnership, but in such case, the partnership will be reputed as existing until the
juridical relations arising out of thec ontract are dissolved

PERIOD. — Obligations contracted by a partner with his copartners, for the fulfillment
of which a period was fixed, become pure obligations upon the immediate dissolution
of the partnership by agreement of the members, and the partner entitled to enforce
them may bring an action for the purpose after the dissolution agreed upon by the
parties, without the necessity of waiting for the expiration of the period originally fixed.

Facts:
At the beginning of the year 1919, Lazaro Mota, now deceased, and Salvador Serra
entered into a partnership to construct several kilometers of railroad in the
municipalities of Ylog and Kabankalan, Occidental Negros, in order to facilitate the
transportation of sugar cane to two sugar centrals named San Isidro and Palma of
which they were the respective owners. In January 1920 Serra transferred his half
interest to the defendants Concepcion and Whitaker in connection with the sale of
the Palma central. In December 1920, Mota also sold his half interest in the railroad to
the same purchasers, Concepcion and Whitaker. At this last sale, only part of the price
was paid down, and in order to secure the payment of the remainder, Concepcion
and Whitaker mortgage to Mota the entire railroad. The present action was brought
by the plaintiffs to recover the unpaid balance and to foreclose the mortgage. As the
mortgage included not only the railroad, which is real property, but also the rolling
stock, which is movable, and therefore personal property, Mota had the contract
recorded in the registry, not only as a mortgage upon registered reap property,
according to Act No. 3344, but also as a mortgage of personal property.
This gave rise to the fact that Concepcion, Whitaker and Luzuriaga executed another
deed of absolute sale of the said "Palma" Estate for the amount of P1,695,961.90, of
which the vendor received at the time of executing the deed the amount of
P945,861.90, & the balance was payable by installments in the form and manner
stipulated in the contract. The purchasers guaranteed the unpaid balance of the
purchase price by a first & special mortgage in favor of the vendor upon the hacienda
& the central with all the improvements, buildings, machineries, and appurtenances
then existing on the said hacienda. Messrs. Phil. C. Whitaker and Venancio
Concepcion, in Clause 6 of the deed, expressed awareness of contract of partnership
and their willingness to subrogate themselves into the obligations therefor.
Thereafter, Concepcion & Whitaker also bought from Serra and company the ½ of
the railroad line and they agreed that the partnership "Palma" and "San Isidro," formed
between Serra & Mota et al, should be totally cancelled and of no force and effect
whatever. The price of this sale was P237,722.15, excluding any amount which the
defendant might be owing to Mota. Of the purchase price of ½ of the railroad,
Concepcion &Whitaker paid the sum of P47,544.43 only. So it results that the
"Hacienda Palma," with the entire railroad (the subject-matter of the contract of
partnership between Ps and D) became the property of Whitaker & Concepcion.
However, Whitaker & Concepcion failed to pay to Mota a part of the purchase price
(P750,000), so the vendor/defendant Serra, foreclosed the mortgage upon the said
hacienda, which was adjudicated to him at the public sale held by the sheriff for the
amount of P500,000, and Serra put in possession thereof, including what was planted
at the time, together with all the improvements made by Whitaker &Concepcion.

ISSUE: Whether or not Defendant Serra is exempt from his obligation from the
partnership on the ground that the partnership was dissolved?

Ruling: No. The dissolution of a firm does not relieve any of its members from liability for
existing obligations, although it does save them from new obligations to which they
have not expressly or impliedly assented, and any of them may be discharged from
old obligations by novation or other form of release. A partnership continues, even
after dissolution, for the purpose of winding up its affairs. At the termination of the
object for which it was created the partnership is extinguished, pending the winding
up of some incidents and obligations of the partnership, but in such case, the
partnership will be reputed as existing until the juridical relations arising out of the
contract are dissolved. A partnership cannot be considered as extinguished until all
the obligations pertaining to it are fulfilled.
Serra's contention signifies that any person, who has contracted a valid
obligation with a partnership, is exempt from complying with his obligation by
the mere fact of the dissolution of the partnership. Serra's contention is untenable. The
dissolution of a partnership must not be understood in the absolute and strict sense so
that at the termination of the object for which it was created the partnership is
extinguished, pending the winding up of some incidents and obligations of the
partnership, but in such case, the partnership will be reputed as existing until the
juridical relations arising out of thec ontract are dissolved

Note on the novation contended by the defendant: There was no novation. There was
none intended; Mota et. al have not expressly consented to the substitution of Serra.
It should be noted that in order to give novation its legal effect, the law requires that
the creditor should consent to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation extinguishes the personality of the
first debtor who is to be substituted by new one, it implies on the part of the creditor a
waiver of the right that he had before the novation which waiver must be express
The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the
Serra's obligation to Mota et al. is of no avail, if the latter have not expressly consented
to the substitution of the first debtor. Letter presented as proof of alleged consent of
Mota et. al to the substitution of Whitaker & Concepcion only shows that they asked
the two to be their new partners (not substituted). It is natural that Mota et al. should
have done this. Still, there was nothing toshow the express consent, the manifest and
deliberate intention of Estate of Mota et al. to exempt Serra from his obligation and
totransfer it to his successors in interest, Whitaker & Concepcion.
DOMINGO BEARNEZA vs. BALBINO DEQUILLA
G.R. No. 17024
March 24, 1922
Facts: In 1903, Balbino Dequilla and Perpetua Bearneza formed a partnership for the
purpose of exploiting a fish pond situated in the Talisay, Barotac Nuevo, Iloilo. Perpetua
obligated herself to contribute to the payment of the expenses of the business, which
obligation she made good, and both agreed to divide the profits between
themselves, which they continued until the death of Perpetua in 1912.
The deceased left a will, and she appointed Domingo Bearnez as her heir to succeed
to all her rights and interests in the fish pond in question.
Domingo demanded Balbino for the delivery of the part of the fish pond belonging to
his decedent, Perpetua, and delivery having been refused, Domingo Bearneza
brought this action to recover said part of the fish pond and one-half of the profits
received by the defendant from the fish pond from 1913 to 1919, amounting to Php
13,100.
Defendant alleged that the formation of the supposed partnership between plaintiff
and defendant for the exploitation of the fish pond was not carried into effect when
the plaintiff refused to defray the expenses of reconstruction and exploitation of said
fish pond.
Issue: Whether the plaintiff has any right to maintain an action for the recovery of one-
half of the said fish pond
Ruling: No. The partnership formed by Perpetua and Balbino, as to the existence of
which the proof contained in the record is conclusive and there is no dispute, was of
a civil nature. It was a particular partnership, as defined in article 1678 of the Civil
Code, it having had for its subject-matter a specified thing, to with, the exploitation of
the subject fish pond.
Although the defendant, in his letters to Perpetua or her husband, makes reference to
the fish pond, calling it "our," or "your fish pond," this reference cannot be held to
include the land on which the said fish pond was built. It has not been proven that
Perpetua participated in the ownership of said land, and defendant showed that he
has been paying, as exclusive owner of the fish pond, the land tax thereon, although
in Exhibit X he says that the said land belongs to the State. The conclusion, therefore,
from the evidence is that the land on which the fish pond was constructed did not
constitute a part of the subject- matter of the aforesaid partnership.
This partnership was dissolved by the death of Perpetua. It cannot be maintained that
the partnership continued to exist after the death of Perpetua, inasmuch as it does
not appear that any stipulation to that effect has ever been made by her and the
defendant. It is true that the defendant’s act in requiring the heirs of Perpetua to
contribute to the payment of the expenses of exploitation of the aforesaid fishing
industry was an attempt to continue the partnership, but it is also true that neither the
said heirs collectively, nor the plaintiff individually, took any action in response to that
requirement, nor made any promise to that effect, and therefore no new contract of
partnership existed.
URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator of the
Estate of URBANO LOTA), plaintiff-appellant,
vs.
BENIGNO TOLENTINO, defendant-appellee.

FACTS:
The plaintiff filed an action against defendant to order the latter (a) to render an
accounting of his management of their partnership, and (b) to deliver to plaintiff
whatever share he may have in the assets of the partnership after the liquidation has
been has been approved by the Court.
The partnership was entered into by and between plaintiff and defendant in the
year 1918, whereby they agreed to engage in general business in Alabat, Batangas,
both to divide the profits and losses share alike, and defendant to be manager of the
partnership. Plaintiff alleges that from 1918 until 1928 defendant had rendered an
annual accounting, but has refused to do so from 1929 to 1937, hence, plaintiff's
complaint.
Defendant filed an answer, alleging that defendant was the industrial partner in
said partnership; that he rendered a yearly accounting and liquidation thereof from
1918 to 1932, and that in the latter year, 1932, the partnership was dissolved and
defendant delivered all its properties and assets to the plaintiff. The defendant prays
for the dismissal of plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939, he was substituted by the
administrator of his estate, Solomon Lota.
The Court ordered the dismissal of the case for lack of prosecution. This order was
reconsidered and set aside upon a showing by plaintiff that he had filed a petition for
the issuance of letters of administration to deceased defendant's surviving spouse,
Marta Sadiasa, for the purpose of substituting her for the deceased defendant.
It will thus be seen that from defendant's death to the present, or almost ten years,
no administrator or legal representative had been actually substituted to take the
place of said defendant. It was only on April 6, 1949, that plaintiff made another try to
substitute said deceased by filing his motion, referred to in the first paragraph of this
resolution, praying that defendant's heirs be substituted for him as parties defendant.
ISSUE:
Whether after the death of the defendant, plaintiff's action for accounting and
liquidation of the partnership may be continued against the heirs of Benigno Tolentino
RULING:
Plaintiff's action for accounting and liquidation of the partnership formed
between plaintiff and the deceased defendant who was the industrial and
managing partner can not be continued against the heirs of the deceased
defendant. It is well settled that when a member of a mercantile partnership dies, the
duty of liquidating its affairs devolves upon the surviving member, or members, of the
firm, not upon the legal representatives of the deceased partner.
The proceedings in this cause, considered in the character of an action for an
accounting, were futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the supposed liability of
his intestate to respond for the plaintiffs proportionate share of the capital and assets.
But of course the action was not maintenable in this aspect after the death of the
defendant; and the motion to discontinue the action against the administrator should
have been granted.
The theory of the appellant is that the heirs may properly be substituted for the
deceased Benigno Tolentino, because they are in possession of property allegedly
belonging to the partnership in question, and the appellant seeks the recovery
thereof. Apart from the fact that said allegation seems to refer to cause of action
foreign to the claim for accounting and liquidation against Tolentino, and should have
been made in proper pleading to duly admitted by the lower court, the filing of
appellant's motion for substitution more than twelve years after the institution of the
complaint came too late and already called for the prosecution. It is immaterial that,
before the appealed resolution was issued by the lower court, the appellant
attempted to have the deceased defendant had not yet been properly substituted.
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

G.R. No. L-11840 July 26, 1960

Strangers dealing with a partnership have the right to assume, in the absence of
restrictive clauses in the co-partnership agreement, that every general partner has
power to bind the partnership, specially those partners acting with ostensible authority.

FACTS:

On May 29, 1940 Tan Sin An and Antonio C. Goquiolay", entered into a general
commercial partnership under the partnership name "Tan Sin An and Antonio C.
Goquiolay", for the purpose in dealing in real state. The agreement added that Tan
Sin An be the sole management of the partnership affairs. The lifetime of the
partnership was fixed at ten (10) years and also that in the event of the death of any
of the partners at any time before the expiration of said term, the co-partnership shall
not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-
Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney in favour
of Tan Sin An to carry on to the best advantage and interest of the said co-partnership
“…including the power to mortgage and pledge real and personal properties, to
secure the obligation of the co-partnership, to buy real or personal properties for cash
or upon such terms as he may deem advisable, to sell personal or real properties, such
as lands and buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co-partnership, to borrow money on behalf of the co-
partnership and to issue promissory notes for the repayment thereof, to deposit the
funds of the co-partnership in any local bank or elsewhere and to draw checks against
funds so deposited.”

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased three
(3) parcels of land, assuming the payment of a mortgage obligation of P25,000.00,
payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a period of
ten (10) years, with 10% interest per annum. Another 46 parcels were purchased by
Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt
thereon for P35,000.00 with interest. The downpayment and the amortization were
advanced by Yutivo and Co., for the account of the purchasers.

On September 25, 1940, the two separate obligations were consolidated in an


instrument executed by the partnership and Tan Sin An, whereby the entire 49 lots
were mortgaged in favor of the "Banco Hipotecario de Filipinas" (as successor to "La
Urbana") and the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8
years, with 8% annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin,
and four minor children. Defendant Kong Chai Pin was appointed administratrix of the
intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the defendant Sing
Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans Hardware Co., paid
the remaining balance of the mortgage debt, and the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their
claims in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13,
respectively, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario".

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority
to sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose
preliminary of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant
to a court order of April 2, 1949, the administratrix executed on April 4, 1949, a deed
of sale of the 49 parcels of land to the defendants Washington Sycip and Betty Lee in
consideration of P37,000.00 and of vendees' assuming payments of the claims filed by
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular Development Co.,
Inc. a deed of transfer covering the said 49 parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay
filed, on or about July 25, 1949, a petition in the intestate proceedings seeking to set
aside the order of the probate court approving the sale in so far as his interest over
the parcels of land sold was concerned. In its order of December 29, 1949, the probate
court annulled the sale executed by the administratrix with respect to the 60% interest
of Antonio Goquiolay over the properties sold.

The second amended complaint in the case at bar prays, among other things, for
the annulment of the sale in favor of Washington Sycip and Betty Lee, and their
subsequent conveyance in favor of Insular Development Co., Inc., in so far as the
three (3) lots owned by the plaintiff partnership are concerned. The answer averred
the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan
Sin An. After hearing, the complaint was dismissed by the lower court in its decision
dated October 30, 1956. The plaintiff filed an appeal.

ISSUE:

1. Whether the lower court erred in holding that Kong Chai Pin became the
managing partner of the partnership upon the death of her husband, Tan
Sin An, by virtue of Partnership executed between Tan Sin An and Antonio
Goquiolay, and the general power of attorney granted by Antonio
Goquiolay.
2. Whether the lower court erred in holding that Kong Chai Pin had authority
to sell the partnership by virtue of the articles of partnership and the
general power of attorney granted to Tan sin An in order to pay the
partnership indebtedness without the consent of Goquiolay.

HELD:

1. There is a merit in the contention that the lower court erred in holding that the
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole
management of the partnership, upon the latter's death. While, as we
previously stated in our narration of facts, the Articles of Co-Partnership and the
power of attorney executed by Antonio Goquiolay, conferred upon Tan Sin An
the exclusive management of the business, such power, premised as it is upon
trust and confidence, was a mere personal right that terminated upon Tan's
demise. The provision in the articles stating that "in the event of death of any
one of the partners within the 10-year term of the partnership, the deceased
partner shall be represented by his heirs", could not have referred to the
managerial right given to Tan Sin An; more appropriately, it related to the
succession in the proprietary interest of each partner. The covenant that
Antonio Goquiolay shall have no voice or participation in the management of
the partnership, being a limitation upon his right as a general partner, must be
held coextensive only with Tan's right to manage the affairs, the contrary not
being clearly apparent.

Upon the other hand, consonant with the articles of co-partnership providing
for the continuation of the firm notwithstanding the death of one of the
partners, the heirs of the deceased, by never repudiating or refusing to be
bound under the said provision in the articles, became individual
partners with Antonio Goquiolay upon Tan's demise. The validity of like clauses
in partnership agreements is expressly sanctioned under Article 222 of the
Code of Commerce.

2. The consent of Goquiolay was not necessary. Strangers dealing with a


partnership have the right to assume, in the absence of restrictive clauses in
the co-partnership agreement, that every general partner has power to bind
the partnership, specially those partners acting with ostensible authority.

Article 129 of the Code of Commerce provides that:

If the management of the general partnership has not been limited by


special agreement to any of the members, all shall have the power to take
part in the direction and management of the common business, and the
members present shall come to an agreement for all contracts or obligations
which may concern the association.

This obligation is one imposed by law on the partners among themselves that
does not necessarily affect the validity of the acts of a partner, while acting
within the scope of the ordinary course of business of the partnership, as
regards third persons without notice. The latter may rightfully assume that the
contracting partner was duly authorized to contract for and in behalf of the
firm and that, furthermore, he would not ordinarily act to the prejudice of his
co-partners. The regular course of business procedure does not require that
each time a third person contracts with one of the managing partners, he
should inquire as to the latter's authority to do so, or that he should first ascertain
whether or not the other partners had given their consent thereto. In fact,
Article 130 of the same Code of Commerce provides that even if a new
obligation was contracted against the express will of one of the managing
partners, "it shall not be annulled for such reason, and it shall produce its effects
without prejudice to the responsibility of the member or members who
contracted it, for the damages they may have caused to the common fund."

Appellants argue, however, that since the "new" members' liability in the partnership
was limited merely to the value of the share or estate left by the deceased Tan Sin
An, they became no more than limited partners and, as such, were disqualified from
the management of the business under Article 148 of the Code of Commerce.
Although ordinarily, this effect follows from the continuance of the heirs in the
partnership,3 it was not so with respect to the widow Kong Chai Pin, who, by her
affirmative actions, manifested her intent to be bound by the partnership agreement
not only as a limited but as a general partner. Thus, she managed and retained
possession of the partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In
fact, by executing the deed of sale of the parcels of land in dispute in the name of
the partnership, she was acting no less than as a managing partner. Having thus
preferred to act as such, she could be held liable for the partnership debts and
liabilities as a general partner, beyond what she might have derived only from the
estate of her deceased husband. By allowing her to retain control of the firm's
property from 1942 to 1949, plaintiff estopped himself to deny her legal
representation of the partnership, with the power to bind it by the proper contracts.

.Although the partnership under consideration is a commercial partnership and,


therefore, to be governed by the Code of Commerce, the provisions of the old Civil
Code may give us some light on the right of one partner to bind the partnership.
States Art. 1695 thereof:

Should no agreement have been made with respect to the form of


management, the following rules shall be observed:

1. All the partners shall be considered agents, and whatever any one of the
may do individually shall bind the partnership; but each one may oppose any
act of the others before it has become legally binding.

The records fail to disclose that appellant Goquiolay made any opposition to the
sale of the partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it
appears that he (Goquiolay) only interposed his objections after the deed of
conveyance was executed and approved by the probate court, and,
consequently, his opposition came too late to be effective
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY", Plaintiffs-Appellants, v. WASHINGTON Z. SYCIP, ET AL., Defendants-
Appellees.
9 SCRA 663 December 10, 1963
(Resolution of the Motion for Reconsideration)
FACTS: The Supreme Court, in its previous decision, upheld the validity of the
sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by
the widow of the managing partner, Tan Sin An (executed in her dual capacity of
Administratrix of her husband’s estate and as partner, in lieu of the husband), in favor
of buyers Washington Sycip and Betty Lee for P153,726.04.
Appellant Goquiolay, in his motion for reconsideration, insists among others
that, contrary to SC’s holding, Kong Chai Pin, widow of the deceased partner Tan Sin
An, never became more than a limited partner and therefore, incapacitated by law
to manage the affairs of the partnership.
The dispute herein is with the transfer of partnership property by one partner,
acting in behalf of the firm, to a stranger. There is no question between partners inter
se, and this aspect of the case was expressly reserved in the main decision of 26 July
1960. It is important to note that the partnership was expressly organized "to engage
in real estate business, either by buying and selling real estate."
Appellant avers that there is "not one iota of evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it to point out
that appellant Goquiolay himself admitted that he allowed Kong Chai Pin to take care
of the properties in order to help her as she had no other means of income and he is
not interested in agricultural lands.
Further, it is argued that the authority given by Goquiolay to the widow Kong
Chai Pin was only to manage the property, and that it did not include the power to
alienate, citing Article 1713 of the Civil Code of 1889.
ISSUE: Whether the widow Kong Chai Pin has the authority to alienate the partnership
property.
RULING: The appellant’s argument overlooks that the widow was not a mere agent,
because she had become a partner upon her husband’s death, as expressly provided
by the articles of co-partnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only became a limited partner, Goquiolay’s
authorization to manage the partnership property was proof that he considered and
recognized her as general partner, at least since 1945. The reason is plain: Under the
law (Article 148, last paragraph, Code of Commerce), appellant could not empower
the widow, if she were only a limited partner, to administer the properties of the firm,
even as a mere agent:
"Limited partners may not perform any act of administration with respect to the
interests of the co-partnership, not even in the capacity of agents of
the managing partners."
By seeking authority to manage partnership property, Tan Sin An’s widow
showed that she desired to be considered a general partner. By authorizing the widow
to manage partnership property (which a limited partner could not be authorized to
do), Goquiolay recognized her as such partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate partnership
property.
Besides, as pointed out in the main decision, the heir ordinarily (and not
"necessarily") becomes a limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the estate inherited so as
not to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become
a collective or general partner, with all the rights and privileges of one, and answering
for the debts of the firm not only with the inheritance but also with the heir’s personal
fortune. This choice pertains exclusively to the heir, and does not require the assent of
the surviving partner.
It is next urged that the widow, even as a partner, had no authority to sell the
real estate of the firm. This argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as stock-in-trade and real estate
held merely as business site (Vivante’s "taller ó banco social") for the partnership.
Where the partnership business is to deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is not within the ordinary powers of
a partner, because it is not in line with the normal business of the firm. But where the
express and avowed purpose of the partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the firm form part of its stock-in-trade,
and the sale thereof is in pursuance of partnership purposes, hence within the ordinary
powers of the partner.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage . . . in buying and selling real estate" (Art. IV, No. 1, Articles of
Copartnership), it cannot be maintained that the sale was made in excess of her
powers as general partner.
Premises considered, the motion for reconsideration is denied.
NG CHO CIO vs. NG DIONG, 1 SCRA 275
Facts:
Ng Cho Cio Ng Sian King and Ng Due King filed an action in the Court of First Instance
to recover their three-fourths (3/4) pro-indiviso share on seven (7) parcels of land
situated in the City of Iloilo which were sold by Ng Diong as manager of the
commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges. The latter had
sold four of those parcels of land to Jose C. Tayengco and the other three parcels to
Julian Go, and for that reason these two were included as party defendants.
Ng Diong, Ng Be Chuat, Ng Feng Tuan, Ng Be Kian, Ng Cho Cio, Ng Sian King and Ng
Due King entered into a contract of general co-partnership under the name NG CHIN
BENG HERMANOS. The partnership was to exist for a period of 10 and Ng Diong was
appointed as the managing partner.
In 1938, the partnership obtained two loans from National Loan and Investment Board
(Agricultural and Industrial Bank) and to guarantee its payment the partnership
mortgaged a total of 7 parcel of lands. Also later in the year 1938, the partnership was
declared insolvent wherein Crispino Melocoton was elected assignee. The creditors
filed their claims in the said special proceeding which totaled to 192, 901.12. In
attempt to settle the claims, the majority of the creditors with claims amounting to 139,
704.81 and the partners of the firm entered into a composition agreement which was
approved by the court whereby it was agreed that said creditors would receive 20%
of the amount of their claims in full payment thereof. Before this agreement, Julian Go,
defendant had already acquired the rights of 24 of the creditors of the insolvent
partners which claims totaled to 139, 323.10.
National Loan and Investment (Agricultural and Industrial Bank) assigned its rights and
interests in favor of C.N Hodges. When the loans became due and no payment was
made, Hodges asked permission from the insolvency court to file a complaint against
Melocoton to foreclose the mortgage which was granted. Hodges filed a complaint
praying that the assignee be ordered to pay him.
War started and nothing have been done to the proceedings, the court records were
destroyed but they were reconstituted and given due course. The court ordered the
closure of the insolvency proceedings and directed the assignee to turn and reconvey
the properties. Assignee then executed a deed of reconveyance of the properties to
the partnership and as of date, indebtedness of the partnership to C. N. Hodges which
was the subject of the foreclosure proceedings in a separate case was P103, 883.34.
Deed of sale in favor of Hodges for the sum of P124, 580.00 was executed by Ng Diong
over the properties mortgaged in order to pay off the debt and raise necessary funds
to pay the other obligations of the partnership.
Issue:
Whether the sale made by Ng Diong in behalf of the partnership in favor of C. N.
Hodges on April 2, 1946 is null and void.
Ruling:
It would be well to state the following facts by way of clarification that on August 8,
1940 the majority of the creditors of the partnership, as well as the representatives of
the latter, submitted to the court taking cognizance of the insolvency proceedings a
composition agreement whereby it was agreed that said creditors would receive 20%
of the amount of their claims in full payment thereof. This agreement was approved
on October 10, 1940 which, in contemplation of law, has the effect of putting an end
to the insolvency proceedings. However, no further step was taken thereon because
of the outbreak of the war. Later, the record of the case was reconstituted and the
parties on August 15, 1945 filed a petition with the court praying for the dismissal and
closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an
order declaring the proceedings terminated and ordering the assignee to return and
reconvey the properties the partnership. The actual reconveyance was done by an
assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency ended
on said date. Since then partnership became, restored to its status quo. It again
reacquired its personality as such with Ng Diong as its general manager. From that
date on its properties ceased to be in custodia legis. Such being the case, it is obvious
that when Ng Diong as manager of the partnership sold the seven parcels of land to
C. N. Hodges on April 2, 1946 by virtue of a deed of sale acknowledged before a
notary public on April 6, 1946, the properties were already was at liberty to do what it
may deem convenient and proper to protect its interest. And acting accordingly, Ng
Diong made the sale in the exercise of the power granted to him by the partnership
in its articles of co-partnership. We do not, therefore, find anything irregular in this
actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the
manager may wind up its business affairs and still execute the sale of its properties to
C. N. Hodges. Ng Diong was still the managing partner of the partnership and he had
the necessary authority to liquidate its affairs under its articles of co-partnership. And
considering that war had intervened and the affairs of the partnership were placed
under receivership up to October 6, 1945, we are of the opinion that Ng Diong could
still exercise his power as liquidator when he executed the sale in question in favor of
C. N. Hodges. This is sanctioned by Article 228 of the Code of Commerce which was
the law in force at the time.
G.R. No. L-10040 January 31, 1916

EUGENIA LICHAUCO, ET AL., vs. FAUSTINO LICHAUCO,

Facts:

This action was brought by two of the partners of an enterprise of which the defendant
was manager, to secure an accounting of its affairs, and the payment to the plaintiffs
of their respective shares of capital and profits. library

In October, 1901, a notarial instrument was executed in Manila, by the terms of which
a partnership was duly organized for the purpose of carrying on a rice-cleaning
business at Dagupan, and for the purchase and sale of "palay" and rice.
The business thus organized was carried on until May, 1904, when it was found to be
unprofitable and discontinued by the defendant manager and thereafter, the
machinery of the rice mil was dismantled by his orders, and offered for sale. No
accounting ever was made to his associates by the defendant until this action was
instituted in October, 1912, although it appears that in the year 1905, Mariano Limjap,
one of the participants in the venture, demanded a rendition of accounts and that
Eugenia Lichauco, one of the plaintiffs in this action, made repeated unsuccessful
demands for the return of her share of the capital invested in the enterprise. And yet
it further appears that during all that time the defendant manager of the defunct
enterprise had in his possession not less than P20,000, the cash balance on hand, over
and above all claims of indebtedness after suspending operations in 1904, that since
that time he received or should have received substantial sums of money from the
sale of the machinery of the dismantled mill.
Respondent’s defense:
“It is our contention, and we believe it to be unanswerable, that the dissolution and
liquidation, either in whole or in part, of the association is absolutely prohibited by
paragraph 10 of the articles of association, except by and with the conformity and
agreement of two-thirds of the partners, and that as a consequence thereof the court,
without allegations or proof of compliance with that paragraph and without making
the other partners parties to the action, had no power to decree a distribution either
in whole or in part of the capital or assets of the association.
It certainly cannot be seriously contended that part of the capital and assets of this
association can be lawfully returned to and distributed between the plaintiffs who
constitute one-fifth of the total number of partners, as required by paragraph 10 of the
articles of association.
It is elementary that no lawful liquidation and distribution of capital and assets of any
company or association can ever take place except upon dissolution thereof.”
Ruling:
These contentions of counsels for the defendant take no account of the provisions of
both the Civil and Commercial Codes for the dissolution and liquidation of the
different classes of partnerships and mercantile associations upon the occurrence of
certain contingencies not within the control of the partners. The provisions of
paragraph 10 of the articles of partnership prohibiting the dissolution of the association
under review, except by the consent and agreement of two-thirds of its partners,
denied the right to a less number of the partners to effect a dissolution of the
partnership through judicial intervention or otherwise; but in no wise limited or
restricted the rights of the individual partners in the event the dissolution of the
association was effected, not by any act of theirs, but by the express mandate of
statutory law.
It would be absurd and unreasonable to hold that such an association could never
be dissolved and liquidated without the consent and agreement of two-thirds of its
partners notwithstanding that it had lost all its capital, or had become bankrupt, or
that the enterprise for which it had been organized had been concluded or utterly
abandoned.
Duty of manager to liquidate affairs
Upon the dissolution of the association in 1904 it became the duty of the defendant
to liquidate its affairs and account to his associates for their respective shares in the
capital invested - this not merely from the very nature of his relation to the enterprise
and of his duties to those associated with him as partners, but also by the express
mandate of the law. The association having been dissolved by the termination and
abandonment of the enterprise for which it was organized, he owed this duty to
liquidate and account to all and to each of his associates, and upon his failure to
perform that duty, all or any of them had a clear legal right to compel him to fulfill it.
Each of his associates had a perfect right to demand for himself a full, complete and
satisfactory accounting, and in the event that he conceived himself aggrieved in this
regard, to institute the appropriate judicial proceedings to secure relief,
The duty of the defendant to liquidate the affairs of the enterprise and to account to
his associates promptly upon the dissolution of the association in the year 1904 is
expressly prescribed in the Commercial Code, whether we regard the association, so
far as it affects the mutual rights and obligations of the partners, as clothed with the
forms of a "sociedad de cuentas en participacion" (joint account partnership) or a
"sociedad en comindata."
Article 243 of the Code of Commerce prescribes with reference to "cuentas en
participacion" (joint accounts) that:
243. The liquidation shall be effected by the manager, and after the transactions have
been concluded he shall render a proper account of its results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited copartnerships, should there be no opposition on the part of
any of the partners, the persons who managed the common funds shall continue in
charge of the liquidation; but should all the partners not agree thereto a general
meeting shall be called without delay, and the decision adopted at the same shall
be enforced with regard to the appointment of liquidators from among the members
of the association or not, as well as in all that refers to the form and proceedings of
the liquidation and the management of the common funds.
230. Under the penalty of removal the liquidators shall -
(1) Draw up and communicate to the members, within the period of twenty days, an
inventory of the common property, with a balance of the association in liquidation
according to its books.
(2) Communicate in the same manner to the members every month the condition of
the liquidation.
We conclude that an express statutory obligation imposed upon the defendant an
imperative obligation to proceed without delay to the liquidation of the association in
the year 1904 and the further duty to account to his associates for the result of that
liquidation. While he appears to have gone forward with the liquidation far enough to
collect all the cash resources of the association into his own hands, how utterly failed
neglected to account therefor to his associates or to make any attempt so to do, and
we are of opinion that the plaintiffs were clearly entitled to bring this action to compel
an accounting, and the payment of their respective shares of the capital invested,
together with damages resulting from the failure of the defendant to perform the duty
expressly imposed upon him by statute. The damages arising from the failure to
account consisted of the loss of the use of the money to which they would have been
entitled upon a proper accounting, from the date at which it should have been turned
over by the defendant until it is actually paid by him, that is to say, interest on that
amount at the rate of six per centum per annum until paid
Soncuya v. de Luna April 28, 1939,

Facts:

Petitioner filed a complaint against respondent for damages as a result of the


fraudulent administration of the partnership, “Centro Escolar de Senoritas” of which
petitioner and the deceased Avelino Librada were members. For the purpose of
adjudicating to plaintiff damages which he alleges to have suffered as a partner, it is
necessary that a liquidation of the business be made that the end profits and losses
maybe known and the causes of the latter and the responsibility of the defendant as
well as the damages in which each partner may have suffered, maybe determined.

Issue: Whether the petitioner is entitled to damages.

Ruling:

According to the Supreme Court the complaint is not sufficient to constitute a cause
of action on the part of the plaintiff as member of the partnership to collect
damages from defendant as managing partner thereof, without previous liquidation.
Thus, for a partner to be able to claim from another partner who manages the
general co-partnership, allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said partnership is necessary.
SINGSON V. ISABELA SAWMILL
FACTS: In 1951, defendants Leon Garibay, Timoteo Tubungbanua, and Margarita
Saldajeno entered into a Contract of Partnership under the firm name “Isabela
Sawmill”. In 1956, plaintiff sold a motor truck and two tractors to the partnership for a
sum of ₱20, 500.00. The partnership was not able to pay the whole amount, leaving
an unpaid balance of ₱1,288.89. “Isabela Sawmill” incurred other debts from other
plaintiffs after this transaction.
In 1958, Saldajeno withdrew from the partnership. She filed Civil case No. 4797
entitled “In the matter of: Dissolution of Isabela Sawmill as partnership, etc. Margarita
Saldajeno et al. V. Isabela Sawmill et al.,” They eventually entered into a
Memorandum Agreement and executed an Assignment of Rights with Chattel
Mortgage. Thereafter,the remaining partners, Garibay and Tubungbanua did not
divide the assets and properties of “Isabela Sawmill” between them and they
continued the business of the partnership under the same firm name “ Isabela
Sawmill”.
In 1959, the Provincial Sheriff held a public auction of the movable properties of
“Isabela Sawmill” that were involved in the Civil case. Defendant Saldajeno bought
the properties and a Certificate of Sale was executed in her favor. The plaintiffs seek
the annulment of the Assignment of Rights with Chattel Mortgage entered into by the
withdrawing partner and the remaining partners as null and void for being in fraud of
creditors.
ISSUE: Whether or not the withdrawal of one of the partners dissolved the partnership.
HELD: It is true that the dissolution of a partnership is caused by any partner ceasing to
be associated in the carrying on of the business. However, on dissolution, the
partnership is not terminated but continuous until the winding up of the business. The
remaining partners did not terminate the business of the partnership “Isabela Sawmill”.
Instead of winding up the business of the partnership, they still continued the business
under the same name. Also, it is expressly stipulated in the memorandum-agreement
that the remaining partners had constituted themselves as the partnership entity, the
“Isabela Sawmill”.

Furthermore, the withdrawal of Saldajeno from the partnership was not published
in the newspaper. The plaintiffs and the public in general had a right to expect that
whatever credit they extended to Garibay and Tubungbanua doing the business in
the name of the partnership “Isabela Sawmill” could be enforced against the
properties of the partnership.

And so, Saldajeno was correctly held liable to the creditors because she
purchased at the public auction the properties of the partnership which were
mortgaged to her. She is partly to blame for not insisting the liquidation of the assets
of the partnership and instead she even agreed to let Garibay and Tubungbanua
continue the business of doing the partnership “Isabela Sawmill”. The withdrawing
partner was ordered to pay the plaintiffs, but is entitled to reimbursement from the
remaining parties.
PO YENG CHEO v. LIM KA YAM

G.R. No. L-18707

December 9, 1922

FACTS: The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and
as such Po Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted
in Manila under the style of Kwong Cheong Tay. This business had been in existence in
Manila for many years prior to 1903, as a mercantile partnership, with a capitalization
of P160,000, engaged in the import and export trade. After the death of Po Gui Yao
the following seven persons were interested therein as partners: Po Yeng Cheo, Chua
Chi Yek, Lim Ka Yam, Lee Kom Chuen, Ley Wing Kwong, Chan Liong Chao, Lee Ho
Yuen. Po Yeng Cheo contributed P60,000. The manager of Kwong Cheong Tay, for
many years prior of its complete cessation from business in 1910, was Lim Ka Yam, the
original defendant herein. The defendant having died during the pendency of the
cause in the court and the death suggested of record, his administrator, one Lim Yock
Tock, was required to appear and make defense.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business,
owing principally to the fact that the plaintiff ceased at that time to transmit
merchandise from Hongkong, where he then resided. Lim Ka Yam appears at no time
to have submitted to the partners any formal liquidation of the business, though
repeated demands to that effect have been made upon him by the plaintiff.

The trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to recover
of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty
thousand pesos (P60,000), constituting the interest of the plaintiff in the capital of
Kwong Cheong Tay, plus the plaintiff's proportional interest in shares of the Yut Siong
Chyip Konski and Manila Electric Railroad and Light Company, estimated at P11,000,
together with the costs.

ISSUE:

1. Whether the liquidation of partnership was proper


2. Whether after the death of the original defendant, the action to proceed
against Lim YockTock, as his administrator, was proper

RULING:

1. No. It was erroneous in any event to give judgment in favor of the plaintiff to
the extent of his share of the capital of Kwong Cheong Tay. The managing
partner of a mercantile enterprise is not a debtor to the shareholders for the
capital embarked by them in the business; and he can only be made liable for
the capital when, upon liquidation of the business, there are found to be assets
in his hands applicable to capital account. That the sum of one hundred and
sixty thousand pesos (P160,000) was embarked in this business many years ago
reveals nothing as to the condition of the capital account at the time the
concern ceased to do business; and even supposing--as the court possibly did-
-that the capital was intact in 1908, this would not prove it was intact in 1910
when the business ceased to be a going concern; for in that precise interval of
time the capital may have been diminished or dissipated from causes in no
wise chargeable to the negligence or misfeasance of the manager.

But under the circumstances revealed in this case, it was erroneous to give
judgment in favor of the plaintiff for his aliquot part of the par value of said
shares It is elementary that one partner, suing alone, cannot recover of the
managing partner the value of such partner's individual interest; and a
liquidation of the business is an essential prerequisite.

In the present case, the shares referred to--constituting the only assets of Kwong
Cheong Tay--have not been converted into ready money and doubtless still
remain in the name of Kwong Cheong Tay as owner. Under these
circumstances it is impossible to sustain a judgment in favor of the plaintiff for
his aliquot part of the par value of said shares, which would be equivalent to
allowing one of several coowners to recover from another, without process of
division, a part of an undivided property.

2. No. It is well settled that when a member of a mercantile partnership dies, the
duty of liquidating its affair devolves upon the surviving member, or members,
of the firm, not upon the legal representative of the deceased partner. Upon
the death of Lim Ka Yam it therefore became the duty of his surviving
associates to take the proper steps to settle the affairs of the firm, and any
claim against him, or his estate, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or for damages resulting
from his wrongful acts as manager, should be prosecuted against his estate in
administration in the manner pointed out in sections 686 to 701, inclusive, of the
Code of Civil Procedure.
LAGUNA TRANSPORTATION CO. INC., v. SOCIAL SECURITY SYSTEM
G.R. No. L-14606. April 28, 1960

Facts:
In 1949, the Biñan Transportation Co., a corporation duly registered with the Securities
and Exchange Commission, sold part of the lines and equipment it operates to
Gonzalo Mercado, Artemio Mercado, Florentino Mata and Dominador Vera Cruz.
Thereafter said vendeed formed an unregistered partnership under the name of
Laguna Transportation Company which continued to operate the lines and
equipment bought from the Biñan Transportation Company. The Company together
with two additional new members, organized a corporation known as the Laguna
Transportation Company, Inc., which was registered with the Securities and Exchange
Commission on June 20, 1956.

The corporation continued the same transportation business of the unregistered


partnership. On November 11, 1957, plaintiff requested for exemption from coverage
by the System on the ground that it started operation only on June 20, 1956, when it
was registered with the Securities and Exchange Commission but on November 11,
1957, the Social Security System notified plaintiff that it was covered and ordered the
payments of premiums from the past years. Petitioner argues that, since it was
registered as a corporation with the Securities and Exchange Commission only on June
20, 1956, it must be considered to have been in operation once formed is conferred
a juridical personality separate and distinct from the persons composing it.

Basing from the facts the court rendered a decision that the petitioner was an
employer engaged in business as common carrier which had been in operation for at
least two years prior to the enactment of Republic Act No. 1161, as amended by
Republic Act 1792 and by virtue thereof, it was subject to compulsory coverage under
said law. Petitioner appealed the decision.

Issue: Whether an unregistered partnership later converted to a corporation, which


continued the same line of business, is still liable to the debts incurred at the time it was
still an unregistered partnership.

Ruling:
Yes, a corporation will be looked upon as a legal entity as a general rule, and until
sufficient reason to the contrary appears; but, when the notion of legal entity is used
to defeat public convenience, justify wrong, protect fraud, or defend crime, the law
will regard the corporation as an association of persons. To adopt petitioner’s
argument would defeat, rather than promote, the ends for which the Social Security
Act was enacted. An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then claim exemption from
contribution to the System as required, on the theory that, as a new entity, it has not
been in operation for a period of at least 2 years. The door to fraudulent circumvention
of the statute would, thereby, be opened.

Finally, the weight of authority supports the view that where a corporation was formed
by, and consisted of members of a partnership whose business and property was
conveyed and transferred to the corporation for the purpose of continuing its business,
in payment for which corporate capital stock was issued, such corporation is
presumed to have assumed partnership debts, and is prima facie liable therefor. The
reason for the rule is that the members of the partnership may be said to have simply
put on a new coat, or taken on a corporate cloak, and the corporation is a mere
continuation of the partnership.
SERGIO V. SISON, Plaintiff-Appellant, v. HELEN J. MCQUAID, Defendant-Appellee.)
94 Phil. 201

FACTS:
Sison, the plaintiff, during the year 1938 lent to Mcquiad, the defendant, various sums
of money, aggregating P2, 210, to enable her to pay her obligation to the Bureau of
Forestry and to add to her capital in her lumber business. Mcquiad was not able to
pay the loan in 1938, as she had promised. She proposed to take in Sison as a partner
in her lumber business. Sison was to contribute to the partnership the said sum of P2,210
due him from defendant in addition to his personal services. Sison agreed to
Mcquiad’s proposal, as a result, a partnership was formed between them, under the
provisions of the Civil Code, in which they were to share alike in the income or profits
of the business, each to get one-half thereof.

Before the last World War, the partnership sold to the United States Army 230,000 board
feet of lumber for P13, 800, for the collection of which sum Mcquiad, as manager of
the partnership, filed the corresponding claim with the said army after the war.
However, Mcquiad refused to deliver half of it to Sison. Despite Sison’s repeated
demands, Mcquiad persistently refused to give him ½ of the proceeds or P6,900.
Plaintiff brought an action in the CFI of Manila against Mcquiad to pay him the sum of
P6,900 plus damages and cost. Mcquiad filed a motion to dismiss. Court dismissed the
case on the ground of prescription.

ISSUE:
Whether Sison is entitled to recover a share in the proceeds of the sale.

RULING:
No, Sison has no cause of action.

Sison seeks to recover from Mcquiad one-half of the purchase price of lumber sold by
the partnership to the United States Army. But his complaint does not show why he
should be entitled to the sum he claims. It does not allege that there has been a
liquidation of the partnership business and the said sum has been found to be due him
as his share of the profits. The proceeds from the sale of a certain amount of lumber
cannot be considered profits until costs and expenses have been deducted.
Moreover, the profits of a business cannot be determined by taking into account the
result of one particular transaction instead of all the transactions had. Hence, the
need for a general liquidation before a member of a partnership may claim a specific
sum as his share of the profits.
Ildelfonso De la Rosa v Enrique Go-Cotay
48 Phil. 605
PARTNERSHIPS; LIQUIDATION OF THEIR BUSINESS; DETERMINING PROFITS- When in
liquidating a partnership the profits for a given period of time cannot be exactly
determined for lack of evidence, but the profits for certain periods prior and
subsequent thereto are known, the profits corresponding to the said given time may
be determined by finding the average of those profits already known and multiplying
it by the length of the time included between said periods.
Facts:
During the Spanish regime, Go- Lio and Vicente Go-Sengco formed a society for the
purchase and sale of the articles of commerce, opening a store in San Isidro, Nueva
Ecija. Vicente Go-Sengco died and his son Enrique Go-Cotay took charge of the
business. Go-Lio died in China. Ildelfonso De la Rosa the son of Go-Lio became the
administrator of the intestate estate of the deceased.
De la Rosa in his capacity as the administrator of the intestate estate of the deceased
Go-Lio, requested Go-Cotay to wind up the business and deliver to him the portion
corresponding to the deceased Go-Lio. Go-Cotay denied the petition, alleging that
the business was his exclusively. De la Rosa filed a complaint before the CFI of Nueva
Ecija praying that Go-Cotay be sentenced to deliver to him one-half of all the property
of the partnership formed by Go-Lio and Vicente Go-Sengco and that he be
appointed receiver for the property of said partnership.
The court assigned Justo Cabo-Chan, Francisco Tantengco and Go-Tiao, as
commissioners to make an inventory, liquidate and determine the one-half belonging
to De la Rosa of all the property of the store in question. The said commissioners
submitted to the court their report showing the net profits of the business between the
periods from 1913 to1917 which amounted to the total sum of P25,038.70. The inventory
for the year 1919 to 1922 ,Cabo-Chan-as the appointed commissioner suggested by
Go-Sengco alleged that the business had suffered a net loss of P89,099.22.
Commissioners Tantengco and Cua Poco said that the examined books appeared
“to have been prepared by some person in a careful way at a certain time”. The trial
court approved the report of Cabo-Chan, holding that the result of the liquidation
showed liabilities to the amount of P89,690.45 in view of which De la Rosa had nothing
to recover from Go-Cotay as there was no profit to divide. From this decision, De la
Rosa appealed alleging that the lower court erred in not holding that his share, as his
capital and profits, until the end of 1917, is equivalent P27,755.47 and an annual quota
of at least P2,503.87 as his portion of the profits since the beginning of 1918 until the
delivery to him of his share in the partnership.
Issue: Whether De la Rosa is entitled to a sum equivalent to P27,755.74 and an annual
quota of at least P2,503.87?
Ruling:
From the evidence it appears that the partnership capital was P4,779.39, and the net
profits until the year 1915 amounted to P5,551.40. Because some books of account
had been destroyed by white ants (anay), the liquidation of the business of partnership
for the period from 1906 to 1912 could not be made. But knowing the net profit for the
period between 1904 and 1905, which is P5,5541.40, and finding the average of the
profits for each of these years, which is P2,775,70; and knowing the net profit for the
year 1913, which is P2,979, we can find the average between the net profit for
1905,namely P2,979. Said average is the sum of P2,877.35, which may be considered
as the average of the net annual profits for the period between 1906 and 1912, which
in seven years make a total of P20,141.45. The assets of the partnership, as well as the
value of its property, could not be determined when making the liquidation because
there was no inventory and for this reason it was not possible to determine the capital
of partnership. The plaintiff, however, seems to be agreeable considering the initial
partnership capital as the capital at the time of the winding up of the business.
In conclusion we have now the profits of the business of the partnership in liquidation
amounting to P60,598.28. One-half of this total, that is, P30,299.14 pertains to the
plaintiff as administrator of the intestate-estate of Go-Lio.
GREGORIO MAGDUSA ET. AL V. GERUNDIO ALBARAN ET.AL
June 30, 1962
FACTS: Gregorio Magdusa, Gerundio Albaran, Pascual Albaran, Zosimo Albaran,
Telefoso Bebero with various other person verbally formed a partnership de facto for
the sale of general merchandize in Surigao, Surigao. Gregorio contributed Php 2,000
and the others their labor with the agreement that 25% of their net profit shall be
added to the original capital and 75% thereof would be divided among the members.
Sometime in 1953 and 1954, Gerundio Albaran, Pascual Albaran, Zosimo Albaran, and
Telefoso Bebero expressed their desire to withdraw from the partnership which
Gregorio computed their share but upon demand for payment of share Gregorio did
not accede which cause the filing of a complaint in the Court of First Instance (CFI) in
Bohol. The CFI dismissed the complaint on ground of failure to implead the other
partners. However, on appeal, the Court of Appeals ruled that the other parties have
no interest in the case and ruled that the case was not for the dissolution of the
partnership but an action for recovery of sum of money and that the liability is personal
to Gregorio and not against the partnership. The partnership is impleaded only as an
alternative defendant.
ISSUE:
a. whether a partner can get his share without dissolution
b. whether Gregorio is personally liable
RULING:
a. No, a partner’s share cannot be returned without first dissolving and liquidating the
partnership, for the return is dependent on the discharge of the creditors, whose claim
enjoys preference over those of the partners; unless a proper accounting and
liquidation of the partnership affairs is first had, the capital share of the retiring partners,
cannot be repaid, for the firm’s outside creditors have preference over the assets of
the enterprise and the firm’s property cannot be diminished to their prejudice.
b. No, Gregorio cannot be held personally liable for the payment of partner’s shares,
for he does not hold them except as a manager of, or trustee for, the partnership. It is
the partnership that must refund the share of the retiring partners.
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO v.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT

G.R. No. L-40098 August 29, 1975

DOCTRINE: Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the consent of the other partners from
any transaction connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (Art. 1807 NCC)

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the absence
of any agreement to the contrary. (Art. 1842 NCC)

FACTS:
In respondent Tan Put’s amended complaint, she instituted a claim against the
spouses-petitioners Antonio Lim Tanhu and Dy Ochay including their son Lim Teck
Chuan and the other spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo and
their son Eng Chong Leonardo as defendants. Tan alleged that she is the widow of
Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership, “Glory
Commercial Company” with Antonio Lim Tanhu and Alfonso Ng Sua, that defendant
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and conspiracy, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of the
commercial partnership, defendants managed to use the funds of the partnership to
purchase lands and building in the cities of Cebu, Lapu-Lapu, Mandaue, and the
municipalities of Talisay and Minglanilla.
Also, she alleged in her complaint that at the time of death of her husband Tee
Hoon Lim Po Chuan, the defendants, without liquidation, continued the business of
glory commercial company, by purportedly organizing a corporation known as the
glory commercial company, incorporated and sometime in the month of November
1967, defendants, particularly Antonio Lim Tan Hu, by means of fraud deceit, and
misrepresentations did then and there , induce and convince her to execute a
quitclaim of all her rights and interests, in the assets of the partnership of glory
commercial company.
Thereafter, in the following years, the complained defendants who had
promised to liquidate the properties and assets in favor of Tan Put and until the middle
of the year 1970 when the same formally demanded from the defendants the
accounting of real and personal properties of glory commercial company,
defendants refused and stated that they would not give the share of the plaintiff.
ISSUE:
Whether Tan is entitled to an accounting?
RULING:
No, Tan is not entitled to an accounting or right over the liquidated properties
of the partnership.
The supreme court hold that there is no alternative but to hold Tan Put’s
allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record convincingly shows
that her relation with said deceased was that of common-law wife. Moreover, the
Supreme Court said that the lower courts committed an error by awarding 1/3 of the
partnership properties to Tan because there has been no liquidation proceedings yet.
And if there has not been any liquidation of the partnership, the only rights plaintiff
could have would be to what might result after much liquidation to belong to the
deceased partner (her alleged husband) and before this is finished, it is impossible to
determine, what rights or interest, if any the deceased had. In other words no specific
amounts or properties may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first terminated.
Since Po Chuan was in control of the affairs of the partnership, the more logical
inference is that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the knowledge and consent of Po
Chuan, for which reason no accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to what is taken by a partner
without the consent of the other partner or partners. Incidentally again, this theory
about Po Chuan having been actively managing the partnership up to his death is a
substantial deviation from the allegation in the amended complaint to the effect that
"defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng
Chong Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. and should not have been permitted
to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and
land titles listed in the decision, most if not all of the properties supposed to have been
acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership
appear to have been transferred to their names only in 1969 or later, that is, long after
the partnership had been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to account to anyone, even Tan
Put, for such acquisitions in the absence of clear proof that they had violated the trust
of Po Chuan during the existence of the partnership.
Bonnevie s. Hernandez
95 Phil. 175
FACTS:
This is an action for the recovery of the sum of P115,312.50, with interests, as
plaintiffs' alleged share in the profits of a partnership. It appears that prior to January,
1947, plaintiffs with other associates formed a syndicate or secret partnership for the
purpose of acquiring the plants, franchises and other properties of the Manila Electric
Co. hereinafter called the Meralco in the provinces of Camarines Sur, Albay, and
Sorsogon, with the idea of continuing that company's business in that region. No
formal articles were drawn for it was the purpose of the members to incorporate once
the deal had been consummated. But in the meantime they elected Pedro
Serranzana and David Serrano general manager and secretary-treasurer,
respectively, of the partnership.
Negotiations for the purchase was commenced, but the results were not good.
Defendant was taken in as a member of the partnership so that he could push the
deal through, and to that end he was given the necessary power of attorney. Using
partnership funds, defendant was able to buy the Meralco
properties for P122,000. P40,000 was paid as initial investment. The remaining P82,000
will be paid in two installments on July 31, 1947 and Jan 31, 1948. A penal clause was
included that in case of default the initial payment will be forfeited in favor of Meralco.
They formed a corporation named “Bicol Electric Company”. Before the incorporation
Judge Reyes (not a party) and the plaintiffs withdrew from the partnership. The
withdrawing partners were given their original investments right after. Following the
dissolution of the partnership, the members who preferred to remain in the business
went ahead with the formation of the corporation, taking in new associates as
stockholders. Hernandez, in fulfillment of his trust, made a formal assignment of the
Meralco properties to the treasurer of the corporation, giving them a book value of
P365,000, in return for which the corporation issued, to the various subscribers to its
capital stock, shares of stock of the total face value of P225,000 and assumed the
obligation of paying what was still due the Meralco on the purchase price.
On its first year, the company was losing money but the business became
profitable eventually. Two years from their withdrawal from the partnership, plaintiffs
brought the present suit against Jaime Hernandez, claiming a share in the profit the
latter is supposed to have made from the assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225,000 and their share of it to be
P115,312.50. Defendant's answer denies that he has made any profit out of the
assignment in question and alleges that in any event plaintiffs, after their withdrawal
from the partnership, ceased to have any further interest in the subsequent
transactions of the remaining members.

ISSUE:
Whether the partnership had realized profit out of the Meralco properties
made by the defendant to the corporation

RULING:
The profit alleged to have been realized from the assignment of the Meralco
properties to the new corporation, the Bicol Electric Company, is more apparent than
real. It is true that the value set for those properties in the deed of assignment was
P365,000 when the acquisition price was only P122,000. But one should not jump to the
conclusion that a profit, consisting of the difference between the two sums was really
made out of the transaction, for the assignment was not made for cash but in
payment for subscriptions to shares of stock in the assignee, and while those shares
had a total face value of P225,000, this is not necessarily their real worth. Needless to
say, the real value of the shares of stock of a corporation depends upon the value of
its assets over and above its liabilities. It does not appear that the Bicol Electric
Company had any assets other than those acquired from the Meralco, and
according to the evidence the company, aside from owing the Meralco, P82,000 was,
in the language of the court below, actually "in the red."

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