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Campos Rueda & Co v Pacific Commercial (44 Phil 916)

Facts: Campos, Rueda & Co., a limited partnership, is indebted to the appellants: Pacific Commercial Co. , Asiatic Petroleum Co, and International Banking Corporation amounting to not less than P1,000.00 (which were not paid more than 30 days prior to the date of the filing by petitioners of the application for voluntary insolvency). The trial court denied their petition on the ground that it was not proven, nor alleged, that the members of the firm were insolvent at the time the application was filed. It also held that the partners are personally and solidarily liable for the consequences of the transactions of the partnership. Issue: Whether or not a limited partnership may be held to have committed an act of insolvency. Held: Yes. A limited partnerships juridical personality is different from the personality of its members. On general principle, the limited partnership must answer for and suffer the consequence of its acts. Under our Insolvency Law, one of the acts of bankruptcy upon w/c an adjudication of involuntary insolvency can be predicated is the failure to pay obligations. The failure of Campos, Rueda & Co., to pay its obligations constitutes an act w/c is specifically provided for in the Insolvency Law for declaration of involuntary insolvency. The petitioners have a right to a judicial decree declaring the involuntary insolvency of said partnership.

Catalan Vs. Gatchalian 105 Phil 1270 G.R. No. L-11648 April 22, 1959

Facts: Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the improvements thereon to secure a credit from the latter. The partnership failed to pay the obligation. The properties were sold to Dr. Marave at a public auction. Catalan redeemed the property and he contends that title should be cancelled and a new one must be issued in his name.

Issue: Did Catalans redemption of the properties make him the absolute owner of the lands?

Ruling: No. Under Article 1807 of the NCC every partner becomes a trustee for his

copartner with regard to any benefits or profits derived from his act as a partner. Consequently, when Catalan redeemed the properties in question, he became a trustee and held the same in trust for his copartner Gatchalian, subject to his right to demand from the latter his contribution to the amount of redemption. Art. 1830. The marriage of the general partner to a limited partner did not result in the dissolution of the partnership.

Commissioner of Internal Revenue Vs. Sutter 27 SCRA 152 G.R. No. L-25532 February 28, 1969

Facts: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by herein respondent William J. Sutter 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. The firm was duly registered with the Securities and Excangange Commission and engaged in lawful business. Later, Sutter and Spirig got married while Carlson sold his share to the spouses. The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, CIR, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of the partners-spouses Sutter and Spirig resulting in a determination of a deficiency income tax against respondent Sutter. Respondent Sutter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the CTA, which ruled in favor of Sutter. Issue: Was the partnership dissolved by the marriage of Sutter and Spirig and the subsequent sale of Carlson of his share to the spouses? Ruling: No. The appellant's view, that by the marriage of both partners the company became a single proprietorship, is erroneous. The capital contributions of partners William J. Sutter 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; .... It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate from that of its partners (unlike American and English law that does not recognize such separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership's separate individuality makes it impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compaias colectivas) with the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited partnerships. As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of respondent Sutter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case of compaias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). (Art. 1816) Island Sales, Inc vs. United Pioneers General Construction G.R. No. L-22493 July 31, 1975 65 SCRA 554

Facts: United Pioneer bought a motorcycle on installment basis from Island Sales, Inc. It issued a promissory note in the amount of P9440 payable in 12 monthly instalments of P786.63. The first installment was to be paid on May 22, 1961, however, on July 22, 1961 it defaulted and Island Sales instituted a case enforcing the agreement in the promissory note making the entire balance due and demandable upon default. The Court found the defendant liable for the balance amounting to P7, 119.07. Furthermore, the general partners were held liable if the defendant company is not able to pay. Subsequently, one of the general partners liability was condoned by the plaintiff.

Issue: Whether the condonation of a partners share in the debts of the company increases the remaining partners liability?

Ruling: No. In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

(Art. 1816) Island Sales, Inc vs. United Pioneers General Construction G.R. No. L-22493 July 31, 1975 65 SCRA 554

Facts: United Pioneer bought a motorcycle on installment basis from Island Sales, Inc. It issued a promissory note in the amount of P9440 payable in 12 monthly instalments of P786.63. The first installment was to be paid on May 22, 1961, however, on July 22, 1961 it defaulted and Island Sales instituted a case enforcing the agreement in the promissory note making the entire balance due and demandable upon default. The Court found the defendant liable for the balance amounting to P7, 119.07. Furthermore, the general partners were held liable if the defendant company is not able to pay. Subsequently, one of the general partners liability was condoned by the plaintiff.

Issue: Whether the condonation of a partners share in the debts of the company increases the remaining partners liability?

Ruling: No. In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff. Arbes Vs. Polistico 53 Phil 489

Facts: This case has been brought for the second time to the SC. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as defendants. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) Hence, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present. The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the objection, found the same sufficiently explained and rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said plaintiffs, with costs against the defendants. The defendants contend that because "Turnuhan Polistico & Co.," is unlawful, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which provides: A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

Issue: Should the charitable institutions be considered as necessary parties for the total disposition of this case? Ruling: No. Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary party in the present case of determination of the rights of the parties. The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution. The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

Art. 1807. 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.