1 BUSINESS ORGANIZATION

1783)

CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568

CLASSES OF PARTNERSHIPS (ARTICLES 1776 TO 1783
ORTEGA VS CA
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now
Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
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. We quote, with
approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or
undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the
death or legal incapacity of one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not a
partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel and advise such persons and entities
with respect to their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite
undertaking. There would therefore be no need to provide for articles on partnership at will as none would so
exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or
definable period of completion. 3
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 4 but that it can result in a
liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose
for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual
agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to
dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.
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. 8 Upon its dissolution,
the partnership continues and its legal personality is retained until the complete winding up of its business culminating in
its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil
Code; 10 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. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

Bad faith. Seventh Judicial District.000. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final.07 (Decision.A. Salcedo Village. As found by the trial court. 1955 to April 30. During the period from January 14. in a generic sense to mean the dissociation by a partner. . 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf of the duly registered partnership EDE. Aside from the slight difference in the purpose of the second partnership which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty (30) years. A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located at Cateel and Baganga. WHEREFORE. nor for the purpose of unduly visiting harm and damage upon the partnership. P10. the antecedent facts of the case are as follows: On January 14. One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and concessions over public and/or private forest lands and to operate. is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. It is also provided in the said articles of co-partnership that all profits and losses of the partnership shall be divided share and share alike between the partners. dismissing appellant's complaint." (Rollo. their true value at the time of such death or retirement shall be determined by two (2) independent appraisers. No pronouncement on costs. certainly. On March 4. p.00 in the case of the new Junior Partner. An income was derived from the proceeds of the logs in the sum of P643. i. .2 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 . develop and promote such forests rights and concessions. that with respect to the two (2)floors of office condominium which the partnership is now acquiring. Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them as partners. Because of the difficulties encountered. 1956.e. The share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20. Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE).00 in the case of two (2) existing Junior Partners and P5.] p. as we so hold. 1955 with the Securities and Exchange Commission. not against their will. It would not be right. Davao with the Bureau of Forestry which was approved and Timber License No. 1956. In the event of the death or retirement of any partner. we agree. Metro Manila.A. provided. bad faith cannot be said to characterize the act. that Attorney Misa did not act in bad faith.. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. 1956. consisting of the 5th and the 6th floors of the Alpap Building. one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner. On the third and final issue. Maglana. from the partnership that thereby dissolves it. including marketing and handling of cash and is authorized to sign all papers and instruments relating to the partnership. Under the said Articles of Co-Partnership. we accord due respect to the appellate court and respondent Commission on their common factual finding. appellee Maglana shall manage the businessaffairs of the partnership. while appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership. in Civil Case No. . for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness.633. 114). The partnership formed by Maglana. his interest in the partnership shall be liquidated and paid in accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine. 140 Alfaro Street. Branch III.11 The term "retirement" must have been used in the articles.000. 1955. ROJAS VS MAGLANA T his is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao. 3518. 12 Indeed. as the case may be. inclusive of resignation or withdrawal. the decision appealed from is AFFIRMED. there was no operation of said partnership (Record on Appeal [R. Makati. Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner. Pahamotang and Rojas started operation on May 1.000. 946). in the context here used. everything else is the same. however. and was able to ship logs and realize profits. R. The partnership EDE with an indefinite term of existence was duly registered on January 21. 919). to let any of the partners remain in the partnership under such an atmosphere of animosity.00 for the Senior Partners.

.3 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 On October 25. 1957. The motion to dismiss the complaint filed by Maglana on June 21. R. 102-114) was denied by Judge Romero for want of merit (Ibid.A. 949). Accordingly. Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties. the dispositive portion of which reads as follows: . pp. in a letter dated February 21. 446-451). Rojas filed his motion for reconsideration of the order dated May 27. On February 4. 921).A. Inc. On May 27. 1965.A. He left and abandoned the partnership (Decision. the lower court rendered its decision on March 11. (b) Their sharing basis: whether in proportion to their contribution or share and share alike. 337). appellant's motion for reconsideration was denied (Ibid. Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. attaching thereto the amended answer (Ibid. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision. 948).501. 1964.A. 1961 (Ibid. 336). On January 28. 26-336).A. On June 29. 1961. Maglana then told Rojas that the latter's share will just be 20% of the net profits.A.A. 3518 (Record on Appeal. (c) The ownership of properties bought by Maglana in his wife's name. 949). p. 948).nad After trial. 1961 of Maglana dissolving the partnership (Decision. the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision. Maglana wrote Rojas reminding the latter of his obligation to contribute.12. which were compiled in three (3) volumes.G.. 894).. pp. p. Maglana filed his motion for leave of court to amend his answer with counterclaim. share and participation in the Partnership of Pahamotang assessed in the amount of P31. docketed as Civil Case No. Rojas entered into a management contract with another logging enterprise. (d) The damages suffered and who should be liable for them. the CMS Estate. 1957. 138-143). Judge Romero appointed commissioners to examine the long and voluminous accounts of the Eastcoast Development Enterprises (Ibid. 1964. pp. 125). p. and (e) The legal effect of the letter dated February 23.. 1964 and the following issues were agreed upon to be submitted to the trial court: (a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership. which was granted on May 22. No other rights and obligations accrued in the name of the second partnership (R. pp. the name also given to the second partnership. the two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES.. R. 1968.12 to Pahamotang including the amount of loansecured by Pahamotang in favor of the partnership. On March 17. the commissioners started examining the records and supporting papers of the partnership as well as the information furnished them by the parties. 1-26). Pahamotang. 1964 (Ibid. pp. Judge Romero also required the inclusion of the entire year 1961 in the report to be submitted by the commissioners (Ibid. to the capital investments of the partnership as well as his obligation to perform his duties as logging superintendent. Upon motion of Rojas on May 23. by way of chattel mortgage (Decision. Rojas took funds from the partnership more than his contribution. R.501. 894-895). On September 19.. pp. 948). A mandatory pre-trial was conducted on September 8 and 9. R. 1957. On April 7.. The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate. 947). p.. EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas shall purchase the interest. Rojas withdrew his equipment from the partnership for use in the newly acquired area (Decision. either in cash or in equipment. Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP. Rojas' petition for appointment of a receiver was denied (R. Inc. Two weeks after March 17. 895-896). On May 11. : nad Meanwhile. Reyes approved the submitted Commissioners' Report (Ibid. 1957. 1957.. Pahamotang was paid in fun on August 31. be dissolved. 1964 approving the report of the commissioners which was opposed by the appellee. 1964. R.A. 1961. It was also agreed in the said instrument that after payment of the sum of P31. Judge M. After the withdrawal of Pahamotang. R. accounting. receivership and damages. 1956. 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. pp. Thus.

Further. the above facts and issues duly considered. "6. As to whether damages were suffered and. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second partnership. when Pahamotang was finally paid his share — the partnership of the defendant and the plaintiff is one of a de facto and at will.988. — the COURT DECLARES THE SAME AS NOT BELONGING TO THE PARTNERSHIP. Whether the sharing of partnership profits should be on the basis of computation. "10.00 which according to him he is still entitled to receive from the CMS Estate. if so. the Court relative to the canteen. the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of P69.000. Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14. Rojas interposed the instant appeal. but from 1960 to the date of dissolution. 1955 (Exhibit "A") has not been novated. and further the receipt is merely based upon an expectancy and/or still speculative. pp. 1961. which sells foodstuffs. 985-989).19 his personal account to the partnership. for as already stated above it is not a wise policy to place a price on the right of a person to litigate and/or to come to Court for the assertion of the rights they believe they are entitled to. On the other hand. superseded and/or dissolved by the unregistered articles of copartnership among appellant Rojas. The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the second partnership. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23. 1956 (Exhibit "C") and accordingly. the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and Maglana. that is the ratio and proportion of their respective contributions. 1957. the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the profits. executed by Pablo Angeles David — is VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP. "3. that is. "4. is hereby denied considering that it has not yet been actually received. : rd "SO ORDERED. R. or on the basis of share and share alike — this covered by actual contributions of the plaintiff and the defendant and by their verbal agreement. The complaint is hereby dismissed with costs against the plaintiff. Inc. "11. the plaintiff is not entitled to any share in the profits of the said partnership. 962-963). The claim that plaintiff Rojas should be ordered to pay the further sum of P85. pp.00 the amount he should have received as logging superintendent. express or implied. supplies. Hence. judgment is hereby rendered by the Court declaring that: "1. how much. and which was not paid to him. 1961. "2. so that when the second partnership was dissolved there was no written contract of co-partnership. no period was fixed. The Court also directs and orders plaintiff Rojas to pay the sum of P62. in effect dissolved the partnership. Further. Inc. expressly or impliedly (Decision.000. and who caused them and who should be liable for them — the Court declares that neither parties is entitled to damages.00 the profits he received from the CMS Estate. considering his indebtedness to the partnership. Rojas and Pahamotang partnership contract. the legally constituted partnership EDE . dated March 4.A. that from 1957 to 1959. The lower court is of the view that the second partnership superseded the first. February 23. As to whether the properties which were bought by the defendant and placed in his or in his wife's name were acquired with partnership funds or with funds of the defendant and — the Court declares that there is no evidence that these properties were acquired by the partnership funds. It was considered as a partnership at will because there was no term. after August 31. "8. 1961. and "12." Decision. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"). "9. appellee Maglana and Agustin Pahamotang. the plaintiff's share will be on the basis of his actual contribution and. that the sharing of profits and losses is on the basis of actual contributions. the partnership which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. "7.4 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 "WHEREFORE. did it dissolve the partnership or not — the Court declares that the letter of the defendant to the plaintiff dated February 23. The Court also credits the defendant the amount of P85. "5. and other merchandise to the laborers and employees of the Eastcoast Development Enterprises.000. Record on Appeal. That the alleged sale of forest concession Exhibit 9-B. operated by him. and this should be considered as part of Maglana's contribution likewise to the partnership. there was no reconstitution as provided for in the Maglana. and therefore the same should not belong to the partnership.

upon the constitution of the second one. 24-25). nor a Partnership at Will.5 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 (Exhibit "A") continues to govern the relations between them and it was legal error to consider a de facto partnership between said two partners or a partnership at will. appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of CoPartnership (Exhibit "A"). pp. After a careful study of the records as against the conflicting claims of Rojas and Maglana. But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose. being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). there is no dispute that the second partnership was dissolved by common consent. As earlier stated.A. share and participation in the second partnership of Pahamotang and that thereafter. Except for the fact that they took in one industrial partner. all business transactions were carried out under the duly registered articles. is the fact that Maglana on March 17. Under the circumstances. To all intents and purposes therefore. Rojas replied that he will not be able to comply with the promised contributions and he will not work as logging superintendent. With his withdrawal.00 while Maglana who should have contributed P160. Even more convincing. the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. 950-957). 95). Rather. 976).. 5). Rojas is not entitled to any profits. On the basis of the Commissioners' Report. the original licensee. it is in effect a notice of withdrawal. It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so. Being a contract of partnership. the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. par. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. contributed only P18. p.A. one partner can cause its dissolution by expressly withdrawing even before the expiration of the period. that is. there are still subsisting obligations and contracts of the latter (Decision. R. 35-36 were secured in favor of the First Partnership.. hence. each partner must share in the profits and losses of the venture. Maglana and Rojas agreed to purchase the interest. Civil Code) and for interests and damages from the time he should have complied with his obligation (Article 1788. as reported in the Commissioners' Report. did not legally dissolve the registered partnership between them. In their voluminous reports which was approved by the trial court. gave him an equal share in the profits and fixed the term of the second partnership to thirty (30) years. if the cause is not justified or no cause was given. Otherwise stated. 1957. everything else was the same. pp. Of course. they adopted the same name. Rojas will be liable in . And in whatever way he may view the situation. R. 133 SCRA 94 [1984]).750. even during the existence of the second partnership. there is an existing partnership.984. the corresponding contribution of the partners from 19561961 are as follows: Eufracio Rojas who should have contributed P158. Said dissolution did not affect the first partnership which continued to exist. R. Just as important is the fact that all subsequent renewals of Timber License No. contributed P267. the answer is in the affirmative. 2 of the Civil Code. it is obvious that Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves governed by the articles of the duly registered partnership. As found by the trial court.158. Hence. duly registered. which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee. all profits and losses of the partnership shall be divided "share and share alike" between the partners. By such statements. even if there is a specified term. the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership. Thus. 1961. they pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. with or without justifiable cause. Hence. No rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which was fully paid by the duly registered partnership (Decision. he becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786. the dissolution. it appears evident that it was not the intention of the partners to dissolve the first partnership. as there are only two parties when Maglana notified Rojas that he dissolved the partnership. the letter of appellee Maglana dated February 23. Civil Code) (Moran.A. Court of Appeals. v. it is an admitted fact that even up to now. Thus. EASTCOAST DEVELOPMENT ENTERPRISES. As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar.00. to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. the First Articles of Partnership were only amended. wrote Rojas. reminding the latter of his obligation to contribute either in cash or in equipment. the number of members is decreased. p. pp. the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto Partnership. 919-921). p. they showed that on 50-50% basis. That is the essence of a partnership (Ibid. Significantly. for as stressed. Jr.00.541.44 (Decision. Under Article 1830. On the other hand. in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant.

in accordance with the computation of the commissioners. said Cardinal Rattan is merely the business name or style used by the partnership Stasikinocey. due to the failure of the partnership to make the required payment.134. the mortgagor waiving the 30. Louis F. 11872718 and with plate No.00. as alleged in various instruments appearing of record. William Kusik and Emma Badong Gavino. refused to contribute either in cash or in equipment to the capital investment and to perform his duties as logging superintendent. Rizal. 1949. 58. San Juan. da Costa and Alan Gorcey (Exhibit D). is treated as a copartnership. 1949. he will be liable for P40. Serial No. sometimes called the CARDINAL RATTAN FACTORY.day notice of foreclosure. which account. “(b) Plymouth Sedan automobile motor No. On June 3. 1949. “Prior to June 3. 81410206 and with plate No. The records also show that Rojas not only abandoned the partnership but also took funds in an amount more than his contribution (Decision. Defendant Stasikinocey had an overdraft account with The National City Bank of New York. the assailed decision of the Court of First Instance of Davao. at Pasig. p. 1949. Branch III. General Partner for and in the name of Stasikinocey. except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which should be on the basis of share and share alike as provided for in the duly registered Articles of CoPartnership. da Costa. da Costa. Rojas entered into a management contract with another logging enterprise. R. 8869225 and with plate No. : nad As to whether Maglana is liable for damages because of such withdrawal. on 80-20%.31. he will be liable for P52. by a chattel mortgage executed by Louis F. We also hereby AFFIRM the decision of the trial court in all other respects. by Louis F. Jr. a foreign banking association duly licensed to do business in the Philippines. San Juan.’ ..A. of which Defendants Gorcey and da Costa are considered general partners. 10372. the overdraft showed a balance of P6. a company engaged in the same business as the partnership. after breach of any condition thereof. PREMISES CONSIDERED.040. as stipulated in their partnership agreement. was converted into an ordinary loan for which the corresponding promissory ‘joint note non-negotiable’ was executed on June 3.. Louis F. and chan roblesvirt ualawlibrary “(c) Fargo Pick-Up FKI-16. T-7333 (1949). Gorcey. it will be recalled that after the withdrawal of Pahamotang.166. with principal office at 69 Riverside. 949). Jr. This promissory note was secured on June 7.092.. doing business under the name and style of Cardinal Rattan. and chan roblesvirt ualawlibrary “‘(b) That the mortgagee may foreclose the mortgage at any time..92 against theDefendant Stasikinocey or the Cardinal Rattan (Exhibit D). T-7222 (1949). Serial No. 1949. the CMS Estate. The mortgage deed was fully registered by the mortgagee on June 11.96 and finally on the basis of actual capital contribution. is hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership. In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages. no plausible reason could be found to disturb the findings and conclusions of the trial court. This partnership was denied registration in the Securities and Exchange Commission. Aurora Boulevard. and while it is confusing to see in this case that the CARDINAL RATTAN. T-5638876. alleged to be a duly registered Philippine partnership.6 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 the amount of P131. Consequently. He withdrew his equipment. with motor No. and formed by Alan W. da Costa for and in the name of the Cardinal Rattan. Serial No. and among other provisions it contained the following: chanroblesv irtuallawlibrary “‘(a) That the mortgagor shall not sell or otherwise dispose of the said chattels without the mortgagee’s written consent. : nad PAUL MACDONALD VS NATIONAL CITY BANK OF NEW YORK This is an appeal by certiorari from the decision of the Court of Appeals from which we are reproducing the following basic findings of fact: chanroblesvirt uallawlibrary “STASIKINOCEY is a partnership doing business at No. we are satisfied that. T-112800032. Inc. in the Office of the Register of Deeds for the province of Rizal. T-118-202839. (Exhibit A). The chattels mortgaged were the following motor vehicles: chanroblesv irtuallawlibrary “(a) Fargo truck with motor No. Rizal (Exhibit A).

. IN NOT MAKING chan roblesvirt ualawlibrary . relieving Appellant William Shaeffer of the obligation of paying. IT NEED NOT BE REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS WHO EXECUTED SAME. 1949. Defendantpartnership. Da Costa. AS A CONSEQUENCE THEREOF. chan roblesvirt ualawlibrary “III IN NOT RULING THAT.92. upon learning of the transfers made by the partnership Stasikinocey to William Shaeffer.. notwithstanding Plaintif’s existing mortgage lien. Only Paul McDonald and Benjamin Gonzales appealed to the Court of Appeals which rendered a decision the dispositive part of which reads as follows: chan roblesvirt ualawlibrary chan chan chan roblesvirt ualawlibrary roblesv irtualawlibrary roblesvirt ualawlibrary chanroblesv irtuallawlibrary “WHEREFORE. Gorcey may take against their co-partners in the Stasikinocey unregistered partnership. Petitionersherein.. The Fargo pickup was also sold on June 28. sentencing the Petitioner Gonzales to deliver the vehicles in question to the Respondent for sale at public auction if Da Costa and Gorcey should fail to pay the money judgment. Paul Mcdonald. Gorcey had not paid the amount of the judgment debt. Jr. AND. With this modification the decision appealed from is in all other respects affirmed. sentencing Da Costa and Gorcey to pay to the Respondent jointly and severally the sum of P6. who have assigned the following errors: chanroblesvirt uallawlibrary “I “IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A ‘DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT ‘DOMICILE’ WOULD BIND THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE. any deficiency that may remain unpaid after applying the proceeds of the sale of the said motor vehicles which shall be undertaken upon the lapse of 90 days from the date this decision becomes final. 1949. which transaction is said to be in violation of the Bulk Sales Law (Act No. WHEN A CHATTEL MORTGAGOR EXECUTES AN AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE TERRITORIAL JURISDICTION OF THE LATTER. McDonald and Gonzales were made Defendants because they claimed to have a better right over the pledged vehicle. by William Shaeffer to Paul McDonald. 1949 (Exhibit L).” This appeal by certiorari was taken by Paul McDonald and Benjamin Gonzales. DESPITEAPPELLANTS’ RAISING THAT QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING THEREON. if by then Defendants Louis F. to recover its credit and to foreclose the corresponding chattel mortgage. the same day of the execution of the chattel mortgage aforementioned. Gorcey and Louis F. AS A CONSEQUENCE THEREOF. McDonald and Shaeffer to pay the costs. and Alan W. 3952 of the Philippine Legislature). jointly and severally. of the vehicles previously pledged by Stasikinocey to the Respondent.” The National City Bank of New York. with legalinterest from the debt of the promissory note involved. Gorcey and Shaeffers to pay to the Respondent jointly and severally any deficiency that may remain unpaid should the proceeds of the sale not be sufficient. through Defendants Gorcey and Da Costa transferred to Defendant McDonald the Fargo truck and Plymouth sedan on June 24. the decision appealed from is hereby modified. together with Alan W. allegedly in consideration of the cancellation of an indebtedness of P25. After trial the Court of First Instance of Manila rendered judgment in favor of the Respondent. This decision is without prejudice to whatever action Louis F. da Costa. da Costa. with costs against Appellants. Gorcey and Da Costa executed an agreement purporting to convey and transfer all their rights. AND. and sentencing Da Costa.7 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 “On June 7. Jr. as well as Paul McDonald and Benjamin Gonzales. 1944. IN NOT MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID CHATTEL MORTGAGOR. Jr. and sentencing Gorcey. “On or about July 19.000 owed by them and Defendant partnership to the latter (Exhibit J). from the latter to Paul McDonald. title and participation in Defendant partnership to Shaeffer. and from Paul McDonald to Benjamin Gonzales. Respondent herein. “While the said loan was still unpaid and the chattel mortgage subsisting. in turn transferred the Fargo truck and the Plymouth sedan to Benjamin Gonzales. filed an action against Stasikinocey and its alleged partners Gorcey and Da Costa. and Alan W.134. “II “IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS. THE AFFIDAVIT IS VOID AND THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE. annulling the sale of the vehicles in question to Benjamin Gonzales. da Costa.

660. GRANTED WITHOUT SECURITY.. may the Court of Appeals refuse to make a finding of fact as to where the deed was executed. DRAFTS. 5 Phil. DESPITEAPPELLANTS’ RAISING THAT QUESTION PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A RULING THEREON. Pacific Commercial Co. WITH THE NATIONAL CITY BANK OF NEW YORK IN ORDER TO SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS. Petitioner 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. Ltd. because in all their transactions with the Respondent they represented themselves as such. the transfer from the latter to Petitioner Benjamin Gonzales is also void. the residence or place of business of the partnership Stasikinocey being San Juan.” The registration of the chattel mortgage in question with the Office of the Register of Deeds of Rizal. it was held that although “it has no legal standing. is a chattel mortgage executed by only one of the ‘partners’ of an unregistered commercial partnership validly registered so as to constitute notice to the world if it is not registered at the place where the aforesaid ‘partner’ actually resides but only in the place where the deed states that he resides. The second question propounded by the Petitioners is: “If not. It results that if the law recognizes a defectively organized partnership as de facto as far as third persons are concerned. the law considers them as partners and the association is a partnership in so far as it is a favorable to third persons.’ This is the first question propounded by the Petitioners: “Since an unregistered commercial partnership unquestionably has no juridical personality. it shall be considered as “partnership by estoppel” and the persons dealing with it are estopped from denying its partnership existence. for purposes of its de facto existence it should have such attribute of a partnership as domicile. OR OTHER BANKING MEDIUMS.’ WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING OVERDRAFT. 145. it is a partnership de facto and the general provisions of the Code applicable to all partnerships apply to it. where a partnership not duly organized has been recognized as such in its dealings with certain persons.. 6 Phil. Stasikinocey had its domicile in San Juan.. The fourth question asked by the Petitioners is as follows: “Is a chattel mortgage executed by only one of the ‘partners’ of an unregistered commercial partnership valid as to third persons when that ‘partner’ executed the affidavit of good faith in Quezon City before a notary public whose appointment is only for the City of Manila? If not. 45 Phil. was therefore in accordance with section 4 of the Chattel Mortgage Law. can it have a domicile so that the registration of a chattel mortgage therein is notice to the world?”. vs. as the buyer cannot have a better right than the seller. Rizal. by reason of the equitable principle of estoppel.. which is not his real residence?” And the third question is as follows: “If the actual residence of the chattel mortgagor — not the residence stated in the deed of chattel mortgage — is controlling. Kieng-Chiong-Seng. despite yourPetitioners’ having properly raised that issue before it and expressly requested a ruling thereon?” chanroblesv irtuallawlibrary It is noteworthy that the chattel mortgage in question is in the form required by law. Rizal. “IV “IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN UNREGISTERED COMMERCIAL COPARTNERSHIP ‘TO MAKE ALL OFFICIAL AND BUSINESS ARRANGEMENTS .. and there is therefore the presumption of its due execution which cannot be easily destroyed by the biased . namely. nevertheless. As was held in Behn Meyer & Co. where two or more persons attempt to create a partnership failing to comply with all the legal formalities. In Hung-Man Yoc vs.. that as a de facto partnership. The sale of the vehicles in question being void as to Petitioner McDonald. chanroblesv irtuallawlibrary While an unregistered commercial partnership has no juridical personality. yet with respect to third persons it will be considered a partnership with all the consequent obligations for the purpose of enforcing the rights of such third persons. Rosatzin. WHICH THE BANK HAD CONVERTED INTO A DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL MORTGAGE WAS EXECUTED. In Jo Chung Chang vs.’ could not be regarded as a partnership de jure. may the Court of Appeals refuse to make a finding of fact as to where the mortgagor resided despite your Petitioners’ having properly raised that question before it and expressly requested a ruling thereon?” chanroblesvirt uallawlibrary chanroblesvirt uallawlibrary These two questions have become academic by reason of the answer to the first question. 498.” Da Costa and Gorcey cannot deny that they are partners of the partnership Stasikinocey. it was held “that although the partnership with the firm name of ‘Teck Seing and Co.8 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN FACT EXECUTED.

The firm engaged. P20. The interested version of Da Costa that the affidavit of good faith appearing in the chattel mortgage was executed in Quezon City before a notary public for and in the City of Manila was correctly rejected by the trial court and the Court of Appeals. Respondent Suter protested the assessment. Commissioner of Internal Revenue. rendered a decision. Olviga. and that even the partners considered him as such.” the “partner” who executed the chattel mortgage in question must be deemed to be so fully authorized. Unable to secure a reconsideration. Suter 'Morcoin' Co. without objection by the herein petitioner. in an assessment. until in 1959 when the latter. without guaranty.. which court. it should enjoy and be given priority. as stated in the affidavit of April 21.06 for 1954 and P4. CIR VS WILLIAM SUTER A limited partnership. Gorcey. duly approved managing partner of the said firm.. the limited partnership was registered with the Securities and Exchange Commission. and Da Costa appears as a co-manager in the letter of Gorcey to the Respondent and in the promissory note executed by Da Costa. cumbersome legal formalities are imposed to prevent fraud. handling and carrying merchandise. by the bank?” chanroblesv irtuallawlibrary In view of the conclusion that Stasikinocey is a de facto partnership. It raises these issues: . to execute a valid chattel mortgage over property owned by the unregistered commercial partnership in order to guarantee a pre-existing overdraft previously granted. not only as a partner but as a managing partner. the Respondent having transacted with Stasikinocey earlier than thePetitioners. general partner Suter and limited partner Spirig got married and. respectively. Indeed. limited partner Carlson sold his share in the partnership to Suter and his wife. P18. Ltd.00 and P2. and even assuming that the Petitioners are purchasers in good faith and for value. named "William J. reversing that of the Commissioner of Internal Revenue. of the tax court's aforesaid decision.000.00 to the partnership. in the importation. their parts and accessories.678. Petitioners invoke article 24 of the Code of Commerce in arguing that an unregistered commercial partnership has no juridical personality and cannot execute any act that would adversely affect innocent third persons. chan roblesvirt ualawlibrary Wherefore. maintaining its own books of accounts and bank accounts. filed by the Commissioner of Internal Revenue.000. The sale was duly recorded with the Securities and Exchange Commission on 20 December 1948. on 11 November 1965. Petitioners forget that theRespondent is a third person with respect to the partnership. It had an office and held itself out as a limited partnership." was formed on 30 September 1947 by herein respondent William J. Suter as the general partner.00. The partners contributed. “If the biased and interested testimony of a grantor and the vague and uncertain testimony of his son are deemed sufficient to overcome a public instrument drawn up with all the formalities prescribed by the law then there will have been established a very dangerous doctrine which would throw wide open the doors to fraud. the affidavit may be made and subscribed by one member thereof. The present case is a petition for review. thereafter. In this case the affidavit was executed and subscribed by Da Costa. distribution and operation of automatic phonographs. as the limited partners. marketing. In 1948. among other activities. and Julia Spirig and Gustav Carlson.” The last question raised by the Petitioners is as follows: “Does only one of several ‘partners’ of an unregistered commercial partnership have authority. using invoices. the appealed decision of the Court of Appeals is affirmed with costs against thePetitioners. On 1 October 1947. Section 6 of the Chattel Mortgage Law provides that when a partnership is a party to the mortgage. he appealed to the Court of Tax Appeals. by himself alone. and had a quota allocation with the Central Bank. As a matter of fact. bills and letterheads bearing its trade-name. As aptly pointed out in El Hogar Filipino vs. 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 in the amount of P2. the Respondent and the Petitioners are all third persons as regards the partnership Stasikinocey. on 18 December 1948. 17. to the effect that “That we as the majority partners hereby agree to appoint Louis da Costa co-managing partner of Alan W. There is no merit in Petitioners’ pretense that the motor vehicles in question are the common property of Da Costa and Gorcey. after trial. and the chattel mortgage executed by Da Costa cannot therefore be impugned by Gorcey on the ground that there is no partnership between them and that the vehicles in question belonged to them in common.567. radios.000. but his request was denied. and requested its cancellation and withdrawal..9 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 testimony of the one who executed it. as not in accordance with law. however. television sets and amusement machines.00 for 1955. 60 Phil. The limited partnership had been filing its income tax returns as a corporation. 1948.

We find the Commissioner's appeal unmeritorious. as the Court of Tax Appeals held. Gustav Carlson. Suter to the originally limited partner. as contra distinguished from a duly registered general partnership. is that the marriage of Suter and Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the limited partnership.. William J. Julia Spirig Suter actually formed a single taxable unit. or else "all that the partners may acquire by their industry or work during the existence of the partnership". page 546. In refutation of the foregoing. Ltd. page 58. P20.. that his marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948 is not a ground for dissolution of the partnership. The theory of the petitioner. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936. as contributed by them to the common fund. persons prohibited from making donations to each other are prohibited from entering into universal partnerships. The capital contributions of partners William J.000. only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses. in his Derecho Civil. has been dissolved by operation of law because of the marriage of the only general partner. Volume 4. 7th Edition. Vol. no pueden celebrar entre si el contrato de sociedad universal. which applies in the absence of express provision in the Code of Commerce. but a particular one. The appellant's view. either in the Code of Commerce or in the New Civil Code. D. 1952. Jose Casan. — In the case of married persons. As appears from Articles 1674 and 1675 of the Spanish Civil Code. which provides as follows: (d) Husband and wife. Suter "Morcoin" Co. footnote 1. Suter was not bound to include in his individual return the income of the limited partnership. (1 Guy de Montella 58) The petitioner-appellant has evidently failed to observe the fact that William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner. because under the Civil Code. since the contributions of the partners were fixed sums of money. the fiction of juridical personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business. a universal partnership requires either that the object of the association be all the present property of the partners. residents or non-residents.00 by Julia Spirig and neither one of them was an industrial partner.10 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 (a) Whether or not the corporate personality of the William J. pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido. was not a universal partnership.. says with regard to the prohibition contained in the aforesaid Article 1677: Los conyuges. (2 Echaverri 196) It follows that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership. and that since its juridical personality had not been affected and since.. segun esto. Suter and Julia Spirig were separately owned and . whether citizens. Suter "Morcoin" Co. should be disregarded for income tax purposes. as a limited partnership. mas parece cambiar de rumbo en la de 9 de marzo de 1943. It follows that William J. of his participation of P2. Ltd. of 1889 (which was the law in force when the subject firm was organized in 1947).000. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. Ltd. William J. Ltd. The former Chief Justice of the Spanish Supreme Court. y hay que estar a la norma general segun la que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley... Suter "Morcoin" Co. that by the marriage of both partners the company became a single proprietorship. William J.00 by William Suter and P18..00 in the partnership for a nominal amount of P1. consequently the income tax return of respondent Suter for the years in question should have included his and his wife's individual incomes and that of the limited partnership. Suter "Morcoin" Co. nos inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos. in accordance with Section 45 (d) of the National Internal Revenue Code.. respondent Suter maintains. Suter "Morcoin" Co. such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. 1. Ltd.000..00. was not such a universal partnership. . it is taxable on its income similarly with corporations. The thesis that the limited partnership. and (b) Whether or not the partnership was dissolved after the marriage of the partners. considering that respondent William J. ya que ningun precepto de nuestro Codigo los prohibe. Julia Spirig one year after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines. that reads as follows: A husband and a wife may not enter into a contract of general copartnership. Nor could the subsequent marriage of the partners operate to dissolve it. respondent William J.. and if they did not. Suter and his wife. is equally erroneous. 4th Ed. Commissioner of Internal Revenue.

and had been filing its own income tax returns as such independent entity.. Anno. Register of Deeds of Manila. 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. L-13554. not otherwise. Elser. What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities. the revenue code. Lyons against C. 77 Phil. of a general copartnership (compañia colectiva) and a limited partnership. 1 Appellant is.. in the cases cited. it conducted its own dealings with its customers prior to appellee's marriage. and after they were joined in wedlock.]. the decision under review is hereby affirmed. Resolution of 30 October 1964.11 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 contributed by them before their marriage. Regularity. as it presently stands. 779. tax wise. and can not be extended by mere implication to limited partnerships. the individual interest of each consort in William J. the appellant's argument erroneously confines itself to the question of the legal personality of the limited partnership. does not authorize it. S. The difference in tax rates between the income of the limited partnership being consolidated with. It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own. deceased. are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership (Section 26. pp. No costs. is presumed. In fact. Arañas. The rulings cited by the petitioner (Collector of Internal Revenue vs. as their contributions in the business partnership are not the same. 88-89). As far as the records show. & Juris. a factor that justified a disregard of their corporate personalities for tax purposes. This is not true in the present case. N. distinct and separate from that of its partners (unlike American and English law that does not recognize such separate juridical personality). Inc. The corporations. and not the firm. it was organized for legitimate business purposes.R. on the N. the code taxes the latter on its income. W. Thus. vs.. lawphi1. In the cited cases.. The limited partnership's separate individuality makes it impossible to equate its income with that of the component members. which it is not. is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws. As the limited partnership under consideration is taxable on its income.C. because it is in the case of compañias colectivas that the members. by E. it would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment. but not the former. and People's Bank vs. Thus.I. . Suter "Morcoin" Co. Then again. LYONS VS ROSENSTOCK This action was institute in the Court of First Instance of the City of Manila. Here. As Amended. University of the Visayas. is not a justification for requiring consolidation. Ltd.nêt But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and forms part of the conjugal partnership of gains. and when split from the income of the spouses. 1. brought about by the marriage of the partners and their subsequent acquisition of all interest therein. to require that income to be included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. Vol. consequent upon the taking of an appeal by the . did not become common property of both after their marriage in 1948. Molo 50 Phil. to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the partners-spouses in their individual capacities. merely served as business conduits or alter egos of the stockholders.. 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.R. when the code plainly differentiates the two. True. As pointed out in Agapito vs. This is not wholly correct. W. their consequences would be different.C. the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. 504) as authority for disregarding the fiction of legal personality of the corporations involved therein are not applicable to the present case. as executor of the estate of H. mistaken in that it assumes that the conjugal partnership of gains is a taxable unit.. Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year. and even bars it by requiring the limited partnership to pay tax on its own income. the corporations were already subject to tax when the fiction of their corporate personality was pierced. which is not essential to the income taxability of the partnership since the law taxes the income of even joint accounts that have no personality of their own. requiring it to pay income tax. Yatco. section 24 of the Internal Revenue Code merges registered general co-partnerships (compañias colectivas) with the personality of the individual partners for income tax purposes. The change in its membership. in the present case. and Koppel [Phil. the fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses for the administration and preservation of the paraphernal capital of the wife. the limited partnership is not a mere business conduit of the partner-spouses.I. Rosenstock. 60 Phil. 167. likewise. FOR THE FOREGOING REASONS.

Prior to his death on June 18. 1926.000. With this money and what he already had in bank Elser purchased the San Juan Estate on or about June 28. together with the sum of about P125. and the plaintiff appealed. The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. of the Methodist Episcopal Church. and when this option was about to expire without his having been able to raise the necessary funds.290 shares. In the spring of 1920 the attention of Elser was drawn to a piece of land. K. Accordingly. to the mutual advantage of both. On the eve of his departure Elser made a written statements showing that Lyons was.000. whose regular vocation was that of a missionary. The amounts paid for this option and its extension were supplied by Elser entirely from his own funds.000. with the improvements thereon. There is plenty of business for us all now and I believe we have started something that will keep us going for some time. he paid P15. under the name of J. Henry W. .000 more for an extension of the option. on June 21. and in order to get the money it was necessary for Elser not only to give a personal note signed by himself and his two associates in the projected enterprise. with lawful interest. the profits being shared by the two in equal parts. and added "have advised in my cable that you resign and I hope you can do so immediately and will come and join me on the lines we have so often spoken about. the two would be well fixed. and administering real estate. or missionary agent. The enthusiasm of Elser did not communicate itself in any marked degree to Lyons. if it should be acquired and Lyons would come in. a son of the lender. S. to acquire said estate. returning on September 21. Elser contemplated and hoped that Lyons might be induced to come in with him and supply part of the means necessary to carry the enterprise through. including the P20. near the City of Manila. Pickering & Co. selling. In this connection it appears that on May 20. 1920. leaving in his hands a single piece of property located at 616-618 Carried Street." In one or more communications prior to this. Ltd.000. and as Elser had available only about P120. Lyons wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding that from the standpoint of making money. which will be herein referred to as the San Juan Estate. Elser wrote Lyons a letter. No further efforts to this end were therefore made by Elser.000. containing about 1. In April. about this time. Elser had sought to impress Lyons with the idea that he should raise all the money he could for the purpose of giving the necessary assistance in future deals in real estate. For the purpose of the further development of the property a limited partnership had. On the same date he wrote Lyons a letter explaining some details of the purchase. and he discerned therein a fine opportunity for the promotion and development of a suburban improvement. Elser had been a resident of the City of Manila where he was engaged during the years with which we are here concerned in buying. In the end he was able from his own means. and when the transfer of the property was effected the deed was made directly to this company. . This loan was secured through Uy Cho Yee. had joined with him. with the understanding in both cases that. E. informing him that he had made an offer for a big subdivision and that. In fact upon this visit of Lyons to the United States a grave doubt had arisen as to whether he would ever return to Manila. While these negotiations were coming to a head.. representing the dividends which accrued on said stock prior to October 21. . meaning that he should resign his position with the mission board in New York.) On June 3. 1923. at that time. As Elser was the principal capitalist in the enterprise he received by far the greater number of the shares issued. in the City of Manila. Lyons. This property. it was necessary to raise the remainder by obtaining a loan for P50. the amounts thus paid should be credited as part of the first payment. and with the assistance which he obtained from others. half owner with Elser of three particular pieces of real property. and it was only in the summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer and one of its trustees. Upon hearing the cause the trial court absolved the defendant executor from the complaint. One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this venture. Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him to manage and dispose of said properties at will and to represent Lyons fully and amply. but also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by Uy Siuliong on June 24. Elser purchased an option on this property for P5.. was that the board of mission was averse to his engaging in business activities other than those in which the church was concerned. Pickering & Company. 1919. In several ventures which he had made in buying and selling property of this kind the plaintiff.000. To afford a little time for maturing his plans. Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13). 1920. and some of Lyons' missionary associates had apparently been criticizing his independent commercial activities. was offered by its owners for P570. been organized by Elser and three associates.000 square meters. 1920. he had passed up a good thing.500. The amount required for the first payment was P150. This amount was finally obtained from a Chinese merchant of the city named Uy Siuliong. eight days before the first option expired. (Exhibit M-5. Upon receipt of this letter Elser was of course informed that it would be out of the question to expect assistance from Lyons in carrying out the San Juan project. in case the option should be exercised.000 advanced upon the option. 1920. During the absence of Lyons two of the pieces of property above referred to were sold by Elser. This fact was dwelt upon in the letter above-mentioned. . 1920. went on leave to the United States and was gone for nearly a year and a half. and found him averse from joining in the purchase of the San Juan Estate. 1920. Lyons.12 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 executor from the allowance of the claim sued upon by the committee on claims in said estate. K. his portion amount in the beginning to 3. containing about 282 square meters of land.

It will be remembered that. as security. Elser executed in favor of the Fidelity & Surety Co. del Pilar property. apart from the modest financial participation of his three associates in the San Juan deal.000 to complete the amount needed for the first payment on the San Juan Estate. The trial court found in effect that the excess value of these shares over Elser's actual indebtedness was conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage placed upon Lyon's interest in the Carriedo property.000 shares of the J. on September 9. The financing of the purchase of the San Juan Estate. 1921. Manila. as half owner of said property. For this purpose. and when the J. and as that conversation supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo property. in the course of a conversation with Elser told him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). and when the latter returned to the Philippine Islands. the Fidelity & Surety Co. in our opinion. together with the 1. and on September 25. and no actual liability ever resulted therefrom. It is also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan Estate.000 to Uy Siuliong on January 18. Pickering & Company. The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on September 21. having a value of nearly P8. and on September 15. 1920. Elser indorsed to Lyons 200 of the shares allocated to himself.13 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 When Elser was concluding the transaction for the purchase of the San Juan Estate. as he then believed that Lyons would be one of his associates in the deal. K. in view of the abundant solvency of Elser.72. We should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board of directors of the J. K. insisted upon having security for the liability thus assumed by it. Whether the agreement was reached exactly upon this precise line of thought is of little moment. This view is manifestly untenable. 1920. . Elser paid the note of P50.669. that the latter had determined not to come into this deal. Pickering & Company. What really happened was the Elser merely subjected the property to a contingent liability. 1920. Pickering & Company. The Fidelity & Surety Co. when Elser placed a mortgage for P50. in consideration of this fact. the trial court was. possibly. when Elser obtained the loan of P50. But before signing the note with Elser and his associates. H. and it is insisted for him that. at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. Lyons. or at least strengthens the considerations involved in a feature of the case to be presently explained. Pickering & Company. was the work of Elser accomplished entirely upon his own account. P11. the lender. but in view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. This concession was not only reasonable under the circumstances. became. the new mortgage on the M. This mortgage was executed on June 30. a new mortgage on the M.. since the ratification of the transaction by Lyons and the appropriation by him of the shares which were issued to him leaves no ground whatever for treating the transaction as a source of further equitable rights in Lyons. his qualification for this office being derived precisely from the ownership of these shares. del Pillar property and delivered the same. to said company. in lieu of the Carriedo property. K.000 in excess of the amount which Elser in fact owed to Lyons. 1920. K. Pickering & Co. 1920. Pickering & Company was organized and stock issued. del Pilar Street. It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort of basis for the present action. K. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. But notwithstanding the fact that these documents were executed and delivered. and although the court refused to allow the defendant to prove the Elser was solvent at this time in an amount much greater than the entire encumbrance placed upon the property. asking it to permit him to substitute a property owned by himself at 644 M. 1920. with the earnings thereon.000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. K. he addressed a letter to the Fidelity & Surety Co. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to Elser.. involuntarily the owner of an undivided interest in the property acquired partly by that money. H. although it was not due until more than five months later. and he could scarcely have failed to take account of the use he had made of the joint property of the two. We now turn to the incident which supplies the main basis of this action. Uy Siuliong. thereafter. he is entitled to the four hundred forty-six and two-thirds shares of J. Pickering & Company which he had delivered to it. his book showed that he was indebted to Lyons to the extent of. with 1. But when he learned from the letter from Lyons of July 21. Elser testified to the conversation in which Lyons used the words above quoted. Mrs. on the note to be given for said loan. agreed to the proposition.000 shares of J.000 shares of the J. but the relations of the parties had been such that it was to be expected that Elser would be generous. H. The case for the plaintiff supposes that.000 upon the equity of redemption in the Carriedo property. Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had placed upon it. insisted that he should procure the signature of the Fidelity & Surety Co. which had accrued to Lyons from profits and earnings derived from other properties. it is evident that the risk imposed upon Lyons was negligible. To meet this requirements Elser mortgaged to the Fidelity & Surety Co. It will be noted that the par value of these 200 shares was more than P8. and shortly thereafter. as claimed in his complaint. It will thus be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent. he accepted these shares and sold them for his own benefit. well justified in accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. the new mortgage and the release of the old were never registered. As the development of the San Juan Estate was a success from the start. and 1. as it were. K. Elser returned the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety Co.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the United States with reference to trust supply a basis for this action. and we consider this point of fact of little moment. in our opinion. it is claimed. Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property. any error made by the trial court on this point was error without injury. however. 1920. what was the status of the proposed trade for the Ronquillo property. and much emphasis is laid in the appellant's brief upon the relation of partnership which. and it is so ordered. The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters that passed between him and Elser while the latter was still alive. and in this connection a letter of Elser of the latter part of May. in buying the San Juan Estate. Elser cabled Lyons something to this effect. only where money belonging to one person is used by another for the acquisition of property which should belong to both. be obligated to pay interest upon the money so applied to his own use. The judgment appealed from will be affirmed. He seems to have supposed that the Carried property had been mortgaged to aid in putting through another deal. and after his arrival in Manila he consented for the mortgage to remain on the property until it was paid off. thus introducing a doubt as to whether he could get it. In the purely legal aspect of the case. I wish you to join me in the San Juan Subdivision. with costs against the appellant. since the proof shows that Lyons knew that the Carriedo mortgage had been executed. to apprise him of the material factors in the situation. for no money belonging to Lyons or any partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. We therefore pass the point without further discussion. Of course. 25 Phil.000 thus obtained would be used in this way. But it is evident that Lyons was not prejudice by that act." Lyons says that no such cablegram was received by him. although Elser was angling for the Ronquillo property. . 1 Phil.000 loan on Carriedo property. namely. its price had gone up. and the law cannot be distorted into a proposition which would make Lyons a participant in this deal contrary to his express determination. but he knew enough. 641. It is clear that Elser. 1920. Elser's estate would be liable for such damage. If Elser had used any money actually belonging to Lyons in this deal. upon the arrival of Lyons in September. if any damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the Carriedo property. one of his first inquiries would have been. and it takes but little discernment to see that the situation here involved is not one for the application of that doctrine. 1920. Of course. untenable. the position of the appellant is. if the deal went through.14 BUSINESS ORGANIZATION 1783) CLASSES OF PARTNERSHIPS AND PARTNERS (1776TAU MU: 568 Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in the manner already explained had been used to held finance the purchase of the San Juan Estate. he would under article 1724 of the Civil Code and article 264 of the Code of Commerce.). Borrow all money you can. and Lyons leads us to infer that he thought that the money obtained by mortgaging the Carriedo property had been used in the purchase of this property. existed. Naturally. and we concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud. was not acting for any partnership composed of himself and Lyons. but certain consideration show that he was inattentive to the contents of the quotation from the letter above given. Olaguer. and the determination of the question is not necessary to this decision. Martinez.000) if the owner comes through. The doctrines referred to operate. if he did not know before. It may well be that Lyons did not at first clearly understand all the ramifications of the situation. secured by my personal note. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another (Martinez vs. and the quotation above given shows that the intended use of the money obtained by mortgaging the Carriedo property was that only part of the P50. as shortly occurred. the purchase of a property referred to in the correspondence as the "Ronquillo property". if an actual relation of partnership had existed in the money used. 647. While the admission of this testimony was of questionable propriety. He had already been informed that.: "I have mortgaged the property on Carriedo Street. Will use part of the money for Ronquillo buy (P60. under article 1678 of the Civil Code.. It doubtedless appeared so to him in the retrospect. can be quoted in which he uses this language: As stated in cablegram I have arranged for P50. we think. Elser's widow and one of his clerks testified that about June 15. But there was clearly no general relation of partnership. the case might be difference. Enriquez vs.. You are amply protected.