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

]
5. ID.; ID.; ESTOPPEL. By allowing defendant Kong Chai Pin to retain
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and control of the partnership properties from 1942 to 1949, plaintiff Goquiolay
ANTONIO C. GOQUIOLAY", Plaintiffs-Appellants, v. WASHINGTON Z. estopped himself from denying her (Kong Chai Pins) legal representation of
SYCIP, ET AL., Defendants-Appellees. the partnership, with the power to bind it by proper contracts.

Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for Appellants. 6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF
MANAGING PARTNER AUTHORIZED BY OTHER PARTNER TO MANAGE
Sycip, Quisumbing, Salazar & Associates for Appellees. PARTNERSHIP. By authorizing the widow of the managing partner to
manage partnership property (which a limited partner could not be authorized
SYLLABUS to do), the other general partner recognized her as a general partner, and is
now in estoppel to deny her position as a general partner, with authority to
1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL administer and alienate partnership property.
RIGHT; TERMINATION UPON MANAGER-PARTNERS DEATH. The
right of exclusive management conferred upon Tan Sin An, being premised 7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED PARTNER
upon trust and confidence, was a mere personal right that terminated upon BUT MAY WAIVE IT AND BECOME AS GENERAL PARTNER. Although
Tans demise. the heir of a partner ordinarily becomes a limited partner for his own
protection, yet the heir may disregard it and instead elect to become a
2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT collective or general partner, with all the rights and obligations of one. This
DECEASED PARTNER; MANAGERIAL RIGHT; PROPRIETARY choice pertains exclusively to the heir, and does not require the assent of the
INTEREST. The provision in the Articles of Co-Partnership stating that "in surviving partner.
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 8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH
not have referred to the managerial right given to Tan Sin An; more PROPERTY. A third person has the right to presume that a general
appropriately, it relates to the succession in the proprietary interest of each partner dealing with partnership property has the requisite authority from his
partner. co-partners.

3. ID.; ID.; EFFECT OF HEIRS FAILURE TO REPUDIATE; HEIRS 9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN
BECOME INDIVIDUAL PARTNERS; MINORITY OF HEIRS. Consonant CONSIDERED WITHIN THE ORDINARY POWERS OF A GENERAL
with the articles of co-partnership providing for the continuation of the firm PARTNER. Where the express and avowed purpose of the partnership is
notwithstanding the death of one of the partners, the heirs of the deceased, to buy and sell real estate (as in the present case), the immovables thus
by never repudiating or refusing to be bound under the said provision in the acquired by the firm form part of its stock-in-trade, and the sale thereof is in
articles, became individual partners with Antonio Goquiolay upon Tans pursuance of partnership purposes, hence within the ordinary powers of the
demise. Minority of the heirs is not a bar to the application of that clause in partner.
the articles of co-partnership. Heirs liability in the partnership being limited to
the value of their importance, they become no more than limited partners, 10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION
when they manifest their intent to be bound as general partners. ON GROUND OF FRAUD; NO INADEQUACY OF PRICE; CASE AT BAR.
Appellants claim that the price was inadequate, relies on the testimony of
4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL a realtor, who in 1955, six years after the sale in the question, asserted that
PARTNERS UNNECESSARY; STRANGERS DEALING WITH the land was by then worth double the price for which it was sold. But taking
PARTNERSHIPS; POWER TO BIND PARTNERSHIP. As to whether or into account the continued rise of real estate values since liberation, and the
not the consent of the other partners was necessary to perfect the sale of the fact that the sale in question was practically a forced sale because the
partnership properties, the Court believes that it is not. Strangers dealing with partnership has no other means to pay the legitimate debts, this evidence
a partnership have the right to assume, in the absence of restrictive clauses certainly does not show such "gross inadequacy" as to justify the rescission
in the co- partnership agreement, that every general partner has power to of the sale.
bind the partnership.
11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD. The and in his name, place and stead to do anything for it or on his behalf which
Supreme court has ruled that relationship alone is not a badge of fraud (Oria he as such managing and partner (sic) might do or cause to be done.
Hnos. v. McMicking, 21 Phil., 243; Hermandad de Smo. Nombre de Jesus v.
Sanchez, 40 Official Gazette 1685). "IX. The co-partner shall have no voice or participation in the management of
the affairs of the co-partnership; but he may examine its accounts once every
12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD six (6) months at any time during ordinary business hours, and in accordance
TO OBTAIN CONSENT. Fraud used to obtain a partys consent to a with the provisions of the Code of Commerce." (Articles of Co-Partnership).
contract (deceit or dolus in contrahendo) is different from fraud of creditors
that gives rise to a rescission of contract. The lifetime of the partnership was fixed at ten (10) years and also that

13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER "In the event of the death of any of the partners at any time before the
MEANS TO OBTAIN REPARATION, NECESSARY. The action for expiration of said term, the co-partnership shall not be dissolved but will have
rescission is subsidiary; it can not be instituted except when the party to be continued and the deceased partner shall be represented by his heirs
suffering damage has no other legal means to obtain reparation for the or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).
same. hence, if there is no allegation or evidence that the plaintiff can not
obtain reparation from the widow and heirs of the deceased partner, the suit However, the partnership could be dissolved and its affairs liquidated at any
to rescind the sale in question s not maintainable, even if the fraud charged time upon mutual agreement in writing of the partners (Art. XIII, articles of
actually did exist. Co-Partnership).

DECISION On May 31, 1940, Antonio Goquiolay executed a general power of attorney
to this effect:jgc:chanrobles.com.ph
REYES, J.B.L., J.:
"That besides the powers and duties granted the said Tan Sin An by the
Direct appeal from the decision of the Court of First Instance of Davao (the articles of co-partnership of said co-partnership "Tan Sin An and Antonio
amount involved being more than P200,000) dismissing the plaintiffs- Goquiolay", the said Tan Sin An should act as my Manager for said co-
appellants complaint. partnership for the full period of the term for which said co-partnership was
organized or until the whole period that the said capital of P30,000.00 of the
From the stipulation of facts of the parties and the evidence on record, it co-partnership should last, to carry on to the best advantage and interest of
would appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay the said co-partnership, to make and execute, sign, seal and deliver for the
entered into a general commercial partnership under the partnership name co-partnership, and in its name, all bills, bonds, notes, specialties, and trust
"Tan Sin An and Antonio C. Goquiolay", for the purpose of dealing in real receipts or other instruments or documents in writing whatsoever kind or
estate. The partnership had a capital of P30,000.00, P18,000.00 of which nature which shall be necessary to the proper conduction of the said
was contributed by Goquiolay and P12,000.00 by Tan Sin An. The businesses, including the power to mortgage and pledge real and personal
agreement lodged upon Tan Sin An the sole management of the partnership properties, to secure the obligation of the co-partnership, to buy real or
affairs, stipulating that 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-
"III. The co-partnership shall be composed of said Tan Sin An as sole partnership in any manner he may deem advisable for the best interest of
managing and partner (sic), and Antonio C. Goquiolay as co-partner. 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
"VIII. The affairs of the co-partnership shall be managed exclusively by the co-partnership in any local bank or elsewhere and to draw checks against
managing and partner (sic) or by his authorized agent, and it is expressly funds so deposited . . .
stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co- partnership by irrevocable power of On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
attorney to any person, firm or corporation he may select upon such terms as purchased the three (3) parcels of land, known as Lots Nos. 526, 441 and
regards compensation as he may deem proper, and vest in such person, firm 521 of the Cadastral Survey of Davao, subject-matter of the instant litigation,
or corporation full power and authority, as the agent of the co-partnership assuming the payment of a mortgage obligation of P25,000.00, payable to
"La Urbana Sociedad Mutua de Construccin y Prestamos" for a period of
ten (10) years, with 10% interest per annum. Another 46 parcels were Learning about the sale to Sycip and Lee, the surviving partner Antonio
purchased by Tan Sin An in his individual capacity, and he assumed Goquiolay filed, on or about July 25, 1949, a petition in the intestate
payment of a mortgage debt thereon for P35,000.00, with interest. The down proceedings seeking to set aside the order of the probate court approving the
payment and the amortization were advanced by Yutivo and Co., for the sale in so far as his interest over the parcels of land sold was concerned. In
account of the purchasers. 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
On September 25, 1940, the two separate obligations were consolidated in over the properties sold. King Chai Pin appealed to the Court of Appeals,
an instrument executed by the partnership and Tan Sin An, whereby the which court later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307).
entire 49 lots were mortgaged in favor of the "Banco Hipotecario de Filipinas" On June 30, 1953, we rendered decision setting aside the orders of the
(as successor to "La Urbana") and the covenantors bound themselves to probate court complained of and remanding the case for new trial, due to the
pay, jointly and severally, the remaining balance of their unpaid accounts non-inclusion of indispensable parties. Thereafter, new pleadings were filed.
amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments. 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
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Lee, and their subsequent conveyance in favor of the Insular Development
Kong Chai Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are
Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was appointed concerned. The answer averred the validity of the sale by Kong Chai Pin as
administratrix of the intestate estate of her deceased husband. 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;
In the meantime, repeated demands for payment were made by the Banco hence, this appeal taken directly to us by the plaintiffs, as the amount
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the involved is more than P200,000.00. Plaintiffs-appellants assign as errors that
defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo
Sons Hardware Co., paid the remaining balance of the mortgage debt, and
the mortgage was cancelled. "I. 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
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. An, by virtue of the articles of Partnership executed between the Tan Sin An
filed their claims in the intestate proceedings of Tan Sin An for P62,415.91 and Antonio Goquiolay, and the general power of attorney granted by
and P54,310.13, respectively, as alleged obligations of the partnership "Tan Antonio Goquiolay.
Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interests
and taxes paid in amortizing and discharging their obligations to "La Urbana" II The lower court erred in holding that Kong Chai Pin could act alone as
and the "Banco Hipotecario." Disclaiming knowledge of said claims at first, sole managing partner in view of the minority of the other heirs.
Kong Chai Pin later admitted the claims in her amended answer and they
were accordingly approved by the Court. III The lower court erred in holding that Kong Chai Pin was the only heir
qualified to act as managing partner.
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. IV The lower court erred in holding that Kong Chai Pin had authority to sell
Lee, for the purpose primarily of settling the aforesaid debts of Tan Sin An the partnership properties by virtue of the articles of partnership and the
and the partnership. Pursuant to a court order of April 2, 1949, the general power of attorney granted to Tan Sin An in order to pay the
administratrix executed on April 4, 1949, a deed of sale 1 of the 49 parcels of partnership indebtedness.
land to the defendants Washington Sycip and Betty Lee in consideration of
P37,000.00 and of vendees assuming payment of the claims filed by Yutivo V The lower court erred in finding that the partnership did not pay its
Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949, obligation to the Banco Hipotecario.
defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49 parcels of VI The lower court erred in holding that the consent of Antonio Goquiolay
land. was not necessary to consummate the sale of the partnership properties.
Minority of the heirs is not a bar to the application of that clause in the articles
VII The lower court erred in finding that Kong Chai Pin managed the of co-partnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol,
business of the partnership after the death of her husband, and that Antonio Traite Elementaire de Droit Civil, English translation by the Louisiana State
Goquiolay knew it. Law Institute, Vol. 2, Pt. 2, p. 177).

VIII The lower court erred in holding that the failure of Antonio Goquiolay Appellants argue, however, that since the "new" members liability in the
to oppose the management of the partnership by Kong Chai Pin estops him partnership was limited merely to the value of the share or estate left by the
now from attacking the validity of the sale of the partnership properties. deceased Tan Sin An, they became no more than limited partners and, as
such, were disqualified from the management of the business under Article
IX The lower court erred in holding that the buyers of the partnership 148 of the Code of Commerce. Although ordinarily, this effect follows from
properties acted in good faith. the continuance of the heirs in the partnership, 2 it was not so with respect to
the widow Kong Chai Pin, who, by her affirmative actions, manifested her
X The lower court erred in holding that the sale was not fraudulent against intent to be bound by the partnership agreement not only as a limited but as
the partnership and Antonio Goquiolay. a general partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income therefrom up to
XI The lower court erred in holding that the sale was not only necessary and until the same were sold to Washington Sycip and Betty Lee. In fact, by
but beneficial to the partnership. 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
XII The lower court erred in dismissing the complaint and in ordering preferred to act as such, she could be held liable for the partnership debts
Antonio Goquiolay to pay the costs of suit."cralaw virtua1aw library 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
There is merit in the contention that the lower court erred in holding that the the firms property from 1942 to 1949, plaintiff estopped himself to deny her
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole legal representation of the partnership, with the power to bind it by proper
management of the partnership, upon the latters death. While, as we contracts.
previously stated in our narration of facts, the Articles of Co-Partnership and
the power of attorney executed by Antonio Goquiolay conferred upon Tan The question now arises as to whether or not the consent of the other
Sin An the exclusive management of the business, such power, premised as partners was necessary to perfect the sale of the partnership properties to
it is upon trust and confidence, was a mere personal right that terminated Washington Sycip and Betty Lee. The answer is, we believe, in the negative.
upon Tans demise. The provision in the articles stating that "in the event of Strangers dealing with a partnership have the right to assume, in the
death of any one of the partners within the 10-year term of the partnership, absence of restrictive clauses in the co-partnership agreement, that every
the deceased partner shall be represented by his heirs", could not have general partner has power to bind the partnership, specially those partners
referred to the managerial right given to Tan Sin An; more appropriately, it acting with ostensible authority. And so, we held in one
related to the succession in the proprietary interest of each partner. The case:jgc:chanrobles.com.ph
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 ". . . Third persons, like the plaintiff, are not bound in entering into a contract
partner, must be held coextensive only with Tans right to manage the affairs, with any of the two partners, to ascertain whether or not this partner with
the contrary not being clearly apparent. whom the transaction is made has the consent of the other partner. The
public need not make inquiries as to the agreements had between the
Upon the other hand, consonant with the articles of co- partnership providing partners. Its knowledge is enough that it is contracting with the partnership
for the continuation of the firm notwithstanding the death of one of the which is represented by one of the managing partners.
partners, the heirs of the deceased, by never repudiating or refusing to be
bound under the said provision in the articles, became individual partners There is a general presumption that each individual partner is an agent for
with Antonio Goquiolay upon Tans demise. The validity of like clauses in the firm and that he has authority to bind the firm in carrying on the
partnership agreements is expressly sanctioned under Article 222 of the partnership transactions. [Mills v. Riggle, 112 Pac., 617]
Code of Commerce. 1
The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of the members of the firm acting apparently confia al espiritu de reciproca confianza que deberia animar la colaboracin
in its behalf and within the scope of his authority. [Le Roy v. Johnson, 7 U.S. de los socios, y en la ley inflexible de responsabilidad que implica comunidad
Law, Ed., 391](George Litton v. Hill & Ceron, Et Al., 67 Phil., 513- en los intereses de los mismos.
514)."cralaw virtua1aw library
En esta hiptesis, cada socio puede ejercer todos los negocios
We are not unaware of the provision of Article 129 of the Code of Commerce comprendidos en el contrato social sin dar de ello noticia a los otros, porque
to the effect that cada uno de ellos ejerce la administracin en la totalidad de sus relaciones,
salvo su responsabilidad en el caso de una administracin culpable. Si
"If the management of the general partnership has not been limited by debiera dar noticia, el beneficio de su simultania actividad, frecuentemente
special agreement to any of the members, all shall have the power to take distribuida en lugares y en tiempos diferentes, se echaria a perder. Se
part in the direction and management of the common business, and the objetara el que de esta forma, el derecho de oposicin de cada uno de los
members present shall come to an agreement for all contracts or obligations socios puede quedar frustrado. Pero se puede contestar que este derecho
which may concern the association." (Emphasis supplied) de oposicin concedido por la ley como un remedio excepcional, debe
subordinarse al derecho de ejercer el oficio de Administrador, que el Cdigo
but this obligation is one imposed by law on the partners among themselves, concede sin limite: se presume que los socios se han concedido
that does not necessarily affect the validity of the acts of a partner, while reciprocamente la facultad de administrar uno para otro. Se haria precipitar
acting within the scope of the ordinary course of business of the partnership, esta hiptesis en la otra de una administracin colectiva (art. 1.721, Cdigo
as regards third persons without notice. The latter may rightfully assume that Civil) y se acabaria con pedir el consentimiento, a lo menos tacito, de todos
the contracting partner was duly authorized to contract for and in behalf of los socios lo que el Cdigo excluye . . ., si se obligase al socio
the firm and that, furthermore, he would not ordinarily act to the prejudice of Administrador a dar noticia previa del negocio a los otros, a fin de que
his co- partners. The regular course of business procedure does not require pudieran oponerse si no consintieran."cralaw virtua1aw library
that each time a third person contracts with one of the managing partners, he
should inquire as to the latters authority to do so, or that he should first Commenting on the same subject, Gay de Montella (Cdigo de Comercio,
ascertain whether or not the other partners had given their consent thereto. Tomo II, 147-148) opines:jgc:chanrobles.com.ph
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 "Para obligar a las Compaias enfrente de terceros (art. 128 del Cdigo), no
managing partners, "it shall not be annulled for such reason, and it shall es bastante que los actos y contratos hayan sido ejecutados por un socio o
produce its effects without prejudice to the responsibility of the member or varios en nombre colectivo, sino que es preciso el concurso de estos dos
members who contracted it, for the damages they may have caused to the elementos, uno, que el socio o socios tengan reconocida la facultad de
common fund."cralaw virtua1aw library administrar la Compaia, y otro, que el acto o contrato haya sido ejecutado
en nombre de la Sociedad y usando de su firma social. Asi es que toda
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points obligacin contraida bajo la razon social, se presume contraida por la
out:jgc:chanrobles.com.ph Compaia. Esta presuncion es impuesta por motivos de necesidad practica.
El tercero no puede cada vez que trata con la Compaia, inquirir si
"367. Primera hipotesis. A falta de factos especiales, la facultad de realmente el negocio concierne a la Sociedad. La presuncion es juris tantum
administrar corresponde a cada socio personalmente. No hay que esperar y no juris et de jure, de modo que si el gerente suscribe bajo la razn social
ciertamente concordia con tantas cabezas, y para cuando no vayan de una obligacin que no interesa a la Sociedad, ste podra rechazar la accin
acuerdo, la disciplina del Cdigo no ofrece un sistema eficaz que evite los del tercero probando que el acreedor conocia que la obligacin no tenia
inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador ninguna relacin con ella. Si tales actos y contratos no comportasen la
privar de la administracin a uno de los socios en beneficio del otro? Seria concurrencia de ambos elementos, serian nulos y podria decretarse la
una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya responsabilidad civil o penal contra sus autores.
elegido Administrador? El remedio seria peor que el mal. Debera, tal vez,
pretender que todos los socios concurran en todo acto de la Sociedad? Pero En el caso que tales actos o contratos hayan sido tacitamente aprobados por
este concurso de todos habria reducido a la impotencia la administracin, la Compaia, o contabilizados en sus libros, si el acto o contrato ha sido
que es asunto de todos los dias y de todas horas. Hubieran sido convalidado sin protesta y se trata de acto o contrato que ha producido
disposiciones menos oportunas que lo adoptado por el Cdigo, el cual se beneficio social, tendria plena validez, aun cuando le faltase algunos o
ambos de aquellos requisitos antes sealados. Lastly, appellants point out that the sale of the partnership properties was
only a fraudulent device by the appellees, with the connivance of Kong Chai
Cuando los Estatutos o la escritura social no contienen ninguna clausula Pin, to ease out Antonio Goquiolay from the partnership. The "devise",
relativa al nombramiento o designacin de uno o mas de un socio para according to the appellants, started way back sometime in 1945, when one
administrar la Compaia (art. 129 del Cdigo) todos tienen por un igual el Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his
derecho de concurir a la decisin y manejo de los negocios comunes . . share in the partnership; and upon his refusal to sell, was followed by the
."cralaw virtua1aw library filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. in the intestate estate proceedings of Tan Sin An. As creditors of Tan Sin
Although the partnership under consideration is a commercial partnership An and the plaintiff partnership (whose liability was alleged to be joint and
and, therefore, to be governed by the Code of Commerce, the provisions of several), Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. had
the old Civil Code may give us some light on the right of one partner to bind every right to file their claims in the intestate proceedings. The denial of the
the partnership. States Art. 1695 thereof:jgc:chanrobles.com.ph claims at first by Kong Chai Pin (for lack of sufficient knowledge) negatives
any conspiracy on her part in the alleged fraudulent scheme, even if she
"Should no agreement have been made with respect to the form of subsequently decided to admit their validity after studying the claims and
management, the following rules shall be observed:chanrob1es virtual 1aw finding it best to admit the same. It may not be amiss to remark that the
library probate court approved the questioned claims.

1. All the partners shall be considered agents, and whatever any one of them There is complete failure of proof, moreover, that the price for which the
may do individually shall bind the partnership; but each one may oppose any properties were sold was unreasonably low, or in any way unfair, since
act of the others before it has become legally binding."cralaw virtua1aw appellants presented no evidence of the market value of the lots as of the
library time of their sale to appellees Sycip and Lee. The alleged value of
P31,056.58 in May of 1955 is no proof of the market value in 1949, specially
The records fail to disclose that appellant Goquiolay made any opposition to because in the interval, the new owners appear to have converted the land
the sale of the partnership realty to Washington Z. Sycip and Betty Lee; on into a subdivision, which they could not do without opening roads and
the contrary, it appears that he (Goquiolay) only interposed his objections otherwise improving the property at their own expense. Upon the other hand,
after the deed of conveyance was executed and approved by the probate Kong Chai Pin hardly had any choice but to execute the questioned sale, as
court, and, consequently, his opposition came too late to be effective. it appears that the partnership had neither cash nor other properties with
which to pay its obligations. Anyway, we cannot consider seriously the
Appellants assail the correctness of the amounts paid for the account of the inferences freely indulged in by the appellants as allegedly indicating fraud in
partnership as found by the trial court. This question, however, need not be the questioned transactions, leading to the conveyance of the lots in dispute
resolved here, as in the deed of conveyance executed by Kong Chai Pin, the to the appellee Insular Development Co., Inc.
purchasers Washington Sycip and Betty Lee assumed, as part consideration
of the purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Wherefore, finding no reversible error in the appealed judgment, we affirm
Inc. and Yutivo Sons Hardware Co. the same, with costs against appellant Antonio Goquiolay.

Appellants also question the validity of the sale covering the entire firm realty, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia,
on the ground that it, in effect, threw the partnership into dissolution, which Barrera and Gutierrez David, JJ., concur.
requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work its RESOLUTION
dissolution, since the firm was not organized to exploit these precise lots but
to engage in buying and selling real estate, and "in general real estate December 10, 1963
agency and brokerage business." Incidentally, it is to be noted that the
payment of the solidary obligation of both the partnership and the late Tan REYES, J.B.L., J.:
Sin An, leaves open the question of accounting and contribution between the
co-debtors, that should be ventilated separately. The matter now pending is the appellants motion for reconsideration of our
main decision, wherein we have upheld the validity of the sale of the lands
owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the (c) That the properties sold were not part of the contributed capital (which
widow of the managing partner, Tan Sin An (executed in her dual capacity of was in cash) but land precisely acquired to be sold, although subject to a
Administratrix of her husbands estate and as partner, in lieu of the husband), mortgage in favor of the original owners, from whom the partnership had
in favor of buyers Washington Sycip and Betty Lee for the following acquired them.
consideration:chanrob1es virtual 1aw library
With these points firmly in mind, let us turn to the points insisted upon by
Cash paid P37,000.00 Appellant.

Debts assumed by purchaser:chanrob1es virtual 1aw library It is first averred that there is "not one iota of evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it to
To Yutivo 62,415.91 point out that appellant Goquiolay himself admitted that

To Sing Yee Cuan & Co. 54,310.13 ". . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said,
__________ because I wanted to help Mrs. Kong Chai Pin, she could just do it and
besides I am not interested in agricultural lands. I allowed her to take care of
TOTAL P153,726.04 the properties in order to help her and because I believe in God and I wanted
to help her."cralaw virtua1aw library
Appellant Goquiolay, in his motion for reconsideration, insists that, contrary
to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, Q. So the answer to my question is you did not take any steps?
never became more than a limited partner, incapacitated by law to manage
the affairs of the partnership; that the testimony of her witnesses Young and A. I did not.
Lim belies that she took over administration of the partnership property; and
that, in any event, the sale should be set aside because it was executed with Q. And this conversation which you had with Mrs. Yu Eng Lai was few
the intent to defraud appellant of his share in the properties sold. months after 1945?

Three things must be always held in mind in the discussion of this motion to A. In the year 1945." (Emphasis supplied)
reconsider, being basic and beyond controversy:chanrob1es virtual 1aw
library The appellant subsequently ratified this testimony in his deposition of 30
June 1956, page 8-9, wherein he stated:jgc:chanrobles.com.ph
(a) That we are dealing here with the transfer of partnership property by one
partner, acting in behalf of the firm, to a stranger. There is no question "that plantation was being occupied at that time by the widow, Mrs. Tan Sin
between partners inter se, and this aspect of the case was expressly An, and of course they are receiving quite a lot of benefit from that
reserved in the main decision of 26 July 1960; plantation."cralaw virtua1aw library

(b) That the partnership was expressly organized "to engage in real estate Discarding the self-serving expressions, these admissions of Goquiolay are
business, either by buying and selling real estate." The Articles of co- certainly entitled to greater weight than those of Hernando Young and Rufino
partnership, in fact, expressly provided that:jgc:chanrobles.com.ph Lim, having been made against the partys own interest.

"IV. The object and purpose of the co-partnership are as follows:chanrob1es Moreover, the appellants reference to the testimony of Hernando Young,
virtual 1aw library that the witness found the properties "abandoned and undeveloped", omits to
mention that said part of the testimony started with the
1. To engage in real estate business, either by buying and selling real question:jgc:chanrobles.com.ph
estates; to subdivide real estates into lots for the purpose of leasing and
selling them." ; "Now, you said that about 1942 or 1943 you returned to Davao. Did you meet
Mrs. Kong Chai Pin there in Davao at that time?
alienate, citing Article 1713 of the Civil Code of 1889. What this argument
Similarly, the testimony of Rufino Lim, to the effect that the properties of the overlooks is that the widow was not a mere agent, because she had become
partnership were undeveloped, and the family of the widow (Kong Chai Pin) a partner upon her husbands death, as expressly provided by the articles of
did not receive any income from the partnership properties, was given in co-partnership. Even more, granting that by succession to her husband, Tan
answer to the question:jgc:chanrobles.com.ph Sin An, the widow only became a limited partner, Goquiolays authorization
to manage the partnership property was proof that he considered and
"According to Mr. Goquiolay, during the Japanese occupation Tan Sin An recognized her as general partner, at least since 1945. The reason is plain:
and his family lived on the plantation of the partnership and derived their Under the law (Article 148, last paragraph, Code of Commerce), appellant
subsistence from that plantation. What can you say to that?" (Dep. 19 July could not empower the widow, if she were only a limited partner, to
1956, p. 8) administer the properties of the firm, even as a mere
agent:jgc:chanrobles.com.ph
And also
"Limited partners may not perform any act of administration with respect to
"What can you say as to the development of these other properties of the the interests of the co-partnership, not even in the capacity of agents of the
partnership which you saw during the occupation?" (Dep., p. 13, Emphasis managing partners." (Emphasis supplied)
supplied)
By seeking authority to manage partnership property, Tan Sin Ans widow
to which witness gave the following answer:chanrob1es virtual 1aw library showed that she desired to be considered a general partner. By authorizing
the widow to manage partnership property (which a limited partner could not
I saw the properties in Mamay still undeveloped. The third property which is be authorized to do), Goquiolay recognized her as such partner, and is now
in Tigatto is about eleven (11) hectares and planted with abaca seedlings in estoppel to deny her position as a general partner, with authority to
planted by Mr. Sin An. When I went there with Hernando Young we saw all administer and alienate partnership property.
the abaca destroyed. The place was occupied by the Japanese Army. They
planted camotes and vegetables to feed the Japanese Army. Of course they Besides, as we pointed out in our main decision, the heir ordinarily (and we
never paid any money to Tan Sin An or his family." (Dep., Lim, pp. 13-14. did not say "necessarily") becomes a limited partner for his own protection,
(Emphasis supplied) 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
Plainly, Both Young and Lims testimonies do not belie, or contradict, statutory limitation of responsibility being designed to protect the heir, the
Goquiolays admission that he told Mr. Yu Eng Lai that the widow "could just latter may disregard it and instead elect to become a collective or general
do it" (i. e., continue to manage the properties). Witnesses Lim and Young partner, with all the rights and privileges of one, and answering for the debts
referred to the period of Japanese occupation; but Goquiolays authority was, of the firm not only with the inheritance but also with the heirs personal
in fact, given to the widow in 1945, after the occupation. fortune. This choice pertains exclusively to the heir, and does not require the
assent of the surviving partner.
Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation It must be remembered that the articles of co-partnership here involved
(1942-1944) does not mean that she did not do so from 1945 to 1949. expressly stipulated that:jgc:chanrobles.com.ph

We thus find that Goquiolay did not merely rely on reports from Lim and "In the event of the death of any of the partners at any time before the
Young; he actually manifested his willingness that the widow should manage expiration of said term, the co-partnership shall not be dissolved but will have
the partnership properties. Whether or not she complied with this authority is to be continued and the deceased partner shall be represented by his heirs
a question between her and the appellant, and is not here involved. But the or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).
authority was given, and she did have it when she made the questioned sale,
because it was never revoked. The Articles did not provide that the heirs of the deceased would be merely
limited partner; on the contrary, they expressly stipulated that in case of
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin death of either partner "the co-partnership . . . will have to be continued" with
was only to manage the property, and that it did not include the power to the heirs or assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership, since the pay, or settle, the firm debts that were overdue since before the outbreak of
difference between the two kinds of associations is fundamental; and the last war. He did not even take steps, after Tan Sin An died, to cancel, or
specially because the conversion into a limited association would leave the modify, the provisions of the partnership articles that he (Goquiolay) would
heirs of the deceased partner without a share in the management. Hence, have no intervention in the management of the partnership. This laches
the contractual stipulation does actually contemplate that the heirs would certainly contributed to confirm the view that the widow of Tan Sin An had, or
become general partners rather than limited ones. was given, authority to manage and deal with the firms properties, apart from
the presumption that a general partner dealing with partnership property has
Of course, the stipulation would not bind the heirs of the deceased partner the requisite authority from his co-partners (Litton v. Hill and Cern, Et Al., 67
should they refuse to assume personal and unlimited responsibility for the Phil., 513; quoted in our main decision, p. 11).
obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so "The stipulation in the articles of partnership that any of the two managing
compellable, it does not legitimately follow that they may not voluntarily partners may contract and sign in the name of the partnership with the
choose to become general partners, waiving the protective mantle of the consent of the other, undoubtedly creates an obligation between the two
general laws of succession. And in the latter event, it is pointless to discuss partners, which consists in asking the others consent before contracting for
the legality of any conversion of a limited partner into a general one. The heir the partnership. This obligation of course is not imposed upon a third person
never was a limited partner, but chose to be, and became, a general partner who contracts with the partnership. Neither is it necessary for the third
right at the start. person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has a
It is immaterial that the heirs name was not included in the firm name, since right to presume that the partner with whom he contracts has, in the ordinary
no conversion of status is involved, and the articles of co-partnership and natural course of business, the consent of his co-partner; for otherwise
expressly contemplated the admission of the partners heirs into the he would not enter into the contract. The third person would naturally not
partnership. presume that the partner with whom he enters into the transaction is violating
the articles of partnership, but on the contrary, is acting in accordance
It must never be overlooked that this case involves the rights acquired by therewith. And this finds support in the legal presumption that the ordinary
strangers, and does not deal with the rights arising between partners course of business has been followed (No. 18, section 334, Code of Civil
Goquiolay and the widow of Tan Sin An. The issues between the partners Procedure), and that the law has been obeyed (No. 31, section 334). This
inter se were expressly reserved in our main decision. Now, in determining last presumption is equally applicable to contracts which have the force of
what kind of partner the widow of partner Tan Sin An had elected to become, law between the parties." (Litton v. Hill & Cern, Et Al., 67 Phil., 509, 516)
strangers had to be guided by her conduct and actuations and those of (Emphasis supplied)
appellant Goquiolay. Knowing that by law a limited partner is barred from
managing the partnership business or property, third parties (like the It is next urged that the widow, even as a partner, had no authority to sell the
purchasers) who found the widow possessing and managing the firm real estate of the firm. This argument is lamentably superficial because it fails
property with the acquiescence (or at least without apparent opposition) of to differentiate between real estate acquired and held as stock-in-trade and
the surviving partners were perfectly justified in assuming that she had real state held merely as business site (Vivantes "taller banco social") for
become a general partner, and, therefore, in negotiating with her as such a the partnership. Where the partnership business is to deal in merchandise
partner, having authority to act for, and in behalf of, the firm. This belief, be it and goods, i.e., movable property, the sale of its real property (immovables)
noted, was shared even by the probate court that approved the sale by the is not within the ordinary powers of a partner, because it is not in line with the
widow of the real property standing in the partnership name. That belief was normal business of the firm. But where the express and avowed purpose of
fostered by the very inaction of appellant Goquiolay. Note that for seven long the partnership is to buy and sell real estate (as in the present case), the
years, from partner Tan Sin Ans death in 1942 to the sale in 1949, there was immovables thus acquired by the firm form part of its stock-in-trade, and the
more than ample time for Goquiolay to take up the management of these sale thereof is in pursuance of partnership purposes, hence within the
properties, or at least ascertain how its affairs stood. For seven years ordinary powers of the partner. This distinction is supported by the opinion of
Goquiolay could have asserted his alleged rights, and by suitable notice in Gay de Montella 1 , in the very passage quoted in the appellants motion for
the commercial registry could have warned strangers that they must deal reconsideration:jgc:chanrobles.com.ph
with him alone, as sole general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not even take steps to "La enajenacin puede entrar en las facultades del gerente: cuando es
conforme a los fines sociales. Pero esta facultad de enajenar limitada a las then belonging to the firm, including the counters, shelving, and other
ventas conforme a los fines sociales, viene limitada a los objetos de comecio furnishings and fixtures necessary for, and used in carrying on, its business,
a los productos de la fabrica para explotacin de los cuales se ha and signed the same in this form: "In witness whereof, the said Cowen &
constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto de la McGrath, a firm, and Owen McGrath, surviving partner of said firm, and
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente Owen McGrath, individually, have hereunto set their hands, this 20th day of
estaria facultado para otorgar las ventas que fuere necesario." (Montella) May, A. D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath,
(Emphasis supplied) Surviving partner of Cowen & McGrath. Owen McGrath" At the same time,
the plaintiff had prepared, ready for filing, the petition for the dissolution of
The same rule obtains in American law. the partnership and appointment of a receiver, which he subsequently filed,
as hereinafter stated. On the day the mortgages were signed, they were
In Rosen v. Rosen, 212 N. Y. Supp. 405, 406, it was placed in the hands of the mortgagees, which was the first intimation to them
held:jgc:chanrobles.com.ph that there was any intention to make then. At that time none of the claims
secured by the mortgages were due, except, it may be, a small part of one of
"a partnership to deal in real estate may be created and either partner has them, and none of the creditors to whom the mortgages were made had
the legal right to sell the firm real estate" requested security, or were pressing for the payment of their debts . . . The
mortgages appear to be without a sufficient condition of defeasance, and
In Chester v. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:jgc:chanrobles.com.ph contain a stipulation authorizing the mortgagees to take immediate
possession of the property, which they did as soon as the mortgages were
"And hence, when the partnership business is to deal in real estate, one filed, through the attorney who then represented them, as well as the plaintiff;
partner has ample power, as a general agent of the firm, to enter into an and the stores were at once closed, and possession delivered by them to the
executory contract for the sale of real estate."cralaw virtua1aw library receiver appointed upon the filing of the petition. The avowed purpose of the
plaintiff in the course pursued by him, was to terminate the partnership, place
And in Rovelsky v. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. its property beyond the control of the firm, and insure the preference of the
83:jgc:chanrobles.com.ph mortgages, all of which was known to them at the time; . . ." (Cas cit., p. 343,
Italics supplied)
"If the several partners engaged in the business of buying and selling real
estate can not bind the firm by purchases or sales of such property made in It is natural that from these facts the Supreme Court of Ohio should draw the
the regular course of business, then they are incapable of exercising the conclusion that conveyances were made with intent to terminate the
essential rights and powers of general partners and their association is not partnership, and that they were not within the powers of McGrath as partner.
really a partnership at all, but a several agency."cralaw virtua1aw library But there is no similarity between those acts and the sale by the widow of
Tan Sin An. In the McGrath case, the sale included even the fixtures used in
Since the sale by the widow was in conformity with the express objective of the business, in our case, the lands sold were those acquired to be sold. In
the partnership, "to engage . . . in buying and selling real estate" (Art. IV, No. the McGrath case, none of the creditors were pressing for payment; in our
1, Articles of Copartnership), it can not be maintained that the sale was made case, the creditors had been unpaid for more than seven years, and their
in excess of her powers as general partner. claims had been approved by the probate court for payment. In the McGrath
case, the partnership received nothing beyond the discharge of its debts; in
Considerable stress is laid by appellant in the ruling of the Supreme Court of the present case, not only were its debts assumed by the buyers, but the
Ohio in McGrath, Et Al., v. Cowen, Et Al., 49 N. E., 338. But the facts of that latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the
case are vastly different from the one before us. In the McGrath case, the partnership. Clearly, the McGrath ruling is not applicable.
Court expressly found that:jgc:chanrobles.com.ph
We will now turn to the question of fraud. No direct evidence of it exists; but
"The firm was then, and for some time had been, insolvent, in the sense that appellant points out, as indicia thereof, the allegedly low price paid for the
its property was insufficient to pay its debts, though it still had good credit, property, and the relationship between the buyers, the creditors of the
and was actively engaged in the prosecution of its business. On that day, partnership, and the widow of Tan Sin An.
which was Saturday, the plaintiff caused to be prepared, ready for execution,
the four chattel mortgages in question, which cover all the tangible property First, as to the price: As already noted, this property was actually sold for a
total of P153,726.04, of which P37,000.00 was in cash, and the rest in partnership assets. Were it true that the conspiracy to defraud him arose (as
partnership debts assumed by the purchaser. These debts (P62,415.91 to he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai
Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they asked him to do so, it is certainly strange that the conspirators should wait 4
were approved by the Court, and its approval is now final. The claims were, years, until 1949, to have the sale effected by the widow of Tan Sin An, and
in fact, for the balance on the original purchase price of the land sold (due that the sale should have been routed through the probate court taking
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and cognizance of Tan Sin Ans estate, all of which increased the risk that the
taxes, redeemed by the two creditors-claimants. To show that the price was supposed fraud should be detected.
inadequate, appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land was worth Neither was there any anomaly in the filing of the claims of Yutivo and Sing
P312,000.00. Taking into account the continued rise of real estate values Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for
since liberation, and the fact that the sale in question was practically a forced the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
sale because the partnership had no other means to pay its legitimate debts, Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and
this evidence certainly does not show such "gross inadequacy" as to justify several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and Rule
rescission of the sale. If at the time of the sale (1949) the price of 87, section 6, is to the effect that:jgc:chanrobles.com.ph
P153,726.04 was really low, how is it that appellant was not able to raise the
amount, even if the creditors representative, Yu Khe Thai, had already "Where the obligation of the decedent is joint and several with another
warned him four years before (1945) that the creditors wanted their money debtor, the claim shall be filed against the decedent as if he were the only
back, as they were justly entitled to? debtor, without prejudice to the right of the estate to recover contribution from
the other debtor." (Emphasis supplied)
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged, and Secondly, the solidary obligation was guaranteed by a mortgage on the
had been mortgaged since 1940, first to La Urbana, and then to the Banco properties of the partnership and those of Tan Sin An personally, and a
Hipotecario. Was it reasonable to expect that other persons would loan mortagage in indivisible, in the sense that each and every parcel under
money to the partnership when it was unable even to pay the taxes on the mortgage answers for the totality of the debt (Civ. Code of 1889, Article
property, and the interest on the principal since 1940? If it had been possible 1860; New Civil Code, Art. 2089).
to find lenders willing to take a chance on such a bad financial record, would
not Goquiolay have taken advantage of it? But the fact is clear on the record A final and conclusive consideration. The fraud charged not being one used
that since liberation until 1949 Goquiolay never lifted a finger to discharge the to obtain a partys consent to a contract (i.e., not being deceit or dolus in
debts of the partnership. Is he entitled now to cry fraud after the debts were contrahendo), if there is fraud at all, it can only be a fraud of creditors that
discharged with no help from him? gives rise to a rescission of the offending contract. But by express provision
of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the
With regard to the relationship between the parties, suffice it to say that the action for rescission is subsidiary; it can not be instituted except when the
Supreme Court has ruled that relationship alone is not a badge of fraud (Oria party suffering damage has no other legal means to obtain reparation for the
Hnos. v. McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre de same." Since there is no allegation, or evidence, that Goquiolay can not
Jesus v. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original obtain reparation from the widow and heirs of Tan Sin An, the present suit to
buyers, Washington Sycip and Betty Lee, were without independent means rescind the sale in question is not maintenable, even if the fraud charged
to purchase the property. That the Yutivos should be willing to extend credit actually did exist.
to them, and not to appellant, is neither illegal nor immoral; at the very least,
these buyers did not have a record of inveterate defaults like the partnership Premises considered, the motion for reconsideration is denied.
"Tan Sin An & Goquiolay."
G.R. No. L-39780 November 11, 1985
Appellant seeks to create the impression that he was the victim of a ELMO MUASQUE, petitioner,
conspiracy between the Yutivo firm and their component members. But no vs.
proof is adduced. If he was such a victim, he could have easily defeated the COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
conspirators by raising money and paying off the firms debts between 1945 COMPANY and RAMON PONS, respondents.
and 1949; but he did not; he did not even care to look for a purchaser of the GUTTIERREZ, JR., J.:
(1) Whether or not there existed a partners between Celestino Galan and
In this petition for certiorari, the petitioner seeks to annul and set added the Elmo Muasque; and
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and holding (2) Whether or not there existed a justifiable cause on the part of respondent
both of them liable to the two intervenors which extended credit to their Tropical to disburse money to respondent Galan.
partnership. The petitioner wants to be excluded from the liabilities of the
partnership. The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
Petitioner Elmo Muasque filed a complaint for payment of sum of money matter in litigation.
and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into After trial, the court rendered judgment, the dispositive portion of which
a contract with respondent Tropical through its Cebu Branch Manager Pons states:
for remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner IN VIEW WHEREOF, Judgment is hereby rendered:
in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of (1) ordering plaintiff Muasque and defendant Galan to pay jointly and
compensation in the form of some percentages or commission; that Tropical, severally the intervenors Cebu and Southern Hardware Company and Blue
under the terms of the contract, agreed to give petitioner the amount of Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
P7,000.00 soon after the construction began and thereafter, the amount of respectively;
P6,000.00 every fifteen (15) days during the construction to make a total sum
of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a (2) absolving the defendants Tropical Commercial Company and Ramon
check for P7,000.00 not to the plaintiff but to a stranger to the contract, Pons from any liability,
Galan, who succeeded in getting petitioner's indorsement on the same check
persuading the latter that the same be deposited in a joint account; that on No damages awarded whatsoever.
January 26, 1967 when the second check for P6,000.00 was due, petitioner
refused to indorse said cheek presented to him by Galan but through later The petitioner and intervenor Cebu Southern Company and its proprietor,
manipulations, respondent Pons succeeded in changing the payee's name Tan Siu filed motions for reconsideration.
from Elmo Muasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial On January 15, 197 1, the trial court issued 'another order amending its
Bank (PCIB) placing the petitioner in great financial difficulty in his judgment to make it read as follows:
construction business and subjecting him to demands of creditors to pay' for
construction materials, the payment of which should have been made from IN VIEW WHEREOF, Judgment is hereby rendered:
the P13,000.00 received by Galan; that petitioner undertook the construction
at his own expense completing it prior to the March 16, 1967 deadline;that (1) ordering plaintiff Muasque and defendant Galan to pay jointly and
because of the unauthorized disbursement by respondents Tropical and severally the intervenors Cebu Southern Hardware Company and Blue
Pons of the sum of P13,000.00 to Galan petitioner demanded that said Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
amount be paid to him by respondents under the terms of the written contract respectively,
between the petitioner and respondent company.
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern
The respondents answered the complaint by denying some and admitting Hardware Company and Tan Siu jointly and severally interest at 12% per
some of the material averments and setting up counterclaims. annum of the sum of P6,229.34 until the amount is fully paid;

During the pre-trial conference, the petitioners and respondents agreed that (3) ordering plaintiff and defendant Galan to pay P500.00 representing
the issues to be resolved are: attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical Commercial Company and Ramon The two remaining checks, each in the amount of P6,000.00,were
Pons from any liability, subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
No damages awarded whatsoever.
As stated earlier, the petitioner filed a complaint for payment of sum of
On appeal, the Court of Appeals affirmed the judgment of the trial court with money and damages against the respondents,seeking to recover the
the sole modification that the liability imposed in the dispositive part of the following: the amounts covered by the first and second checks which fell into
decision on the credit of Cebu Southern Hardware and Blue Diamond Glass the hands of respondent Galan, the additional expenses that the petitioner
Palace was changed from "jointly and severally" to "jointly." incurred in the construction, moral and exemplary damages, and attorney's
fees.
Not satisfied, Mr. Muasque filed this petition.
Both the trial and appellate courts not only absolved respondents Tropical
The present controversy began when petitioner Muasque in behalf of the and its Cebu Manager, Pons, from any liability but they also held the
partnership of "Galan and Muasque" as Contractor entered into a written petitioner together with respondent Galan, hable to the intervenors Cebu
contract with respondent Tropical for remodelling the respondent's Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit
branch building. A total amount of P25,000.00 was to be paid under the which the intervenors extended to the partnership of petitioner and Galan
contract for the entire services of the Contractor. The terms of payment were
as follows: thirty percent (30%) of the whole amount upon the signing of the In this petition the legal questions raised by the petitioner are as follows: (1)
contract and the balance thereof divided into three equal installments at the Whether or not the appellate court erred in holding that a partnership existed
lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days. between petitioner and respondent Galan. (2) Assuming that there was such
a partnership, whether or not the court erred in not finding Galan guilty of
The first payment made by respondent Tropical was in the form of a check malversing the P13,000.00 covered by the first and second checks and
for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the therefore, accountable to the petitioner for the said amount; and (3) Whether
check in favor of respondent Galan to enable the latter to deposit it in the or not the court committed grave abuse of discretion in holding that the
bank and pay for the materials and labor used in the project. payment made by Tropical through its manager Pons to Galan was "good
payment, "
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00 Petitioner contends that the appellate court erred in holding that he and
came and Galan asked the petitioner to indorse it again, the petitioner respondent Galan were partners, the truth being that Galan was a sham and
refused. a perfidious partner who misappropriated the amount of P13,000.00 due to
the petitioner.Petitioner also contends that the appellate court committed
The check was withheld from the petitioner. Since Galan informed the Cebu grave abuse of discretion in holding that the payment made by Tropical to
branch of Tropical that there was a"misunderstanding" between him and Galan was "good" payment when the same gave occasion for the latter to
petitioner, respondent Tropical changed the name of the payee in the second misappropriate the proceeds of such payment.
check from Muasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under The contentions are without merit.
which name a permit to do construction business was issued by the mayor of
Cebu City. This enabled Galan to encash the second check. The records will show that the petitioner entered into a con-tract with Tropical
for the renovation of the latter's building on behalf of the partnership of
Meanwhile, as alleged by the petitioner, the construction continued through "Galan and Muasque." This is readily seen in the first paragraph of the
his sole efforts. He stated that he borrowed some P12,000.00 from his friend, contract where it states:
Mr. Espina and although the expenses had reached the amount of
P29,000.00 because of the failure of Galan to pay what was partly due the
laborers and partly due for the materials, the construction work was finished This agreement made this 20th day of December in the year 1966 by Galan
ahead of schedule with the total expenditure reaching P34,000.00. and Muasque hereinafter called the Contractor, and Tropical Commercial
Co., Inc., hereinafter called the owner do hereby for and in consideration
agree on the following: ... . When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
There is nothing in the records to indicate that the partnership organized by made allegations as to the alleged malversations of Galan, these were the
the two men was not a genuine one. If there was a falling out or same allegations in his original complaint. The malversation by one partner
misunderstanding between the partners, such does not convert the was not an issue actually raised in the amended complaint but the alleged
partnership into a sham organization. connivance of Pons with Galan as a means to serve the latter's personal
purposes.
Likewise, when Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the The petitioner, therefore, should be bound by the delimitation of the issues
check in favor of Galan. Respondent Tropical therefore, had every right to during the pre-trial because he himself agreed to the same. In Permanent
presume that the petitioner and Galan were true partners. If they were not Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other xxx xxx xxx
creditors as well. The payments made to the partnership were, therefore,
valid payments. ... The appellant is bound by the delimitation of the issues contained in the
trial court's order issued on the very day the pre-trial conference was held.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled: Such an order controls the subsequent course of the action, unless modified
before trial to prevent manifest injustice.In the case at bar, modification of the
Although it may be presumed that Margarita G. Saldajeno had acted in good pre-trial order was never sought at the instance of any party.
faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who Petitioner could have asked at least for a modification of the issues if he
gave occasion for the damages to be caused must bear the consequences. really wanted to include the determination of Galan's personal liability to their
partnership but he chose not to do so, as he vehemently denied the
No error was committed by the appellate court in holding that the payment existence of the partnership. At any rate, the issue raised in this petition is
made by Tropical to Galan was a good payment which binds both Galan and the contention of Muasque that the amounts payable to the intervenors
the petitioner. Since the two were partners when the debts were incurred, should be shouldered exclusively by Galan. We note that the petitioner is not
they, are also both liable to third persons who extended credit to their solely burdened by the obligations of their illstarred partnership. The records
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. show that there is an existing judgment against respondent Galan, holding
513, 514), we ruled: him liable for the total amount of P7,000.00 in favor of Eden Hardware which
extended credit to the partnership aside from the P2, 000. 00 he already paid
There is a general presumption that each individual partner is an authorized to Universal Lumber.
agent for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle,112 Pan, 617). We, however, take exception to the ruling of the appellate court that the trial
court's ordering petitioner and Galan to pay the credits of Blue Diamond and
The presumption is sufficient to permit third persons to hold the firm liable on Cebu Southern Hardware"jointly and severally" is plain error since the liability
transactions entered into by one of members of the firm acting apparently in of partners under the law to third persons for contracts executed
its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. inconnection with partnership business is only pro rata under Art. 1816, of
(Law. ed.), 391.) the Civil Code.

Petitioner also maintains that the appellate court committed grave abuse of While it is true that under Article 1816 of the Civil Code,"All partners,
discretion in not holding Galan liable for the amounts which he "malversed" including industrial ones, shall be liable prorate with all their property and
to the prejudice of the petitioner. He adds that although this was not one of after all the partnership assets have been exhausted, for the contracts which
the issues agreed upon by the parties during the pretrial, he, nevertheless, may be entered into the name and fm the account cd the partnership, under
alleged the same in his amended complaint which was, duly admitted by the its signature and by a person authorized to act for the partner-ship. ...". this
court. provision should be construed together with Article 1824 which provides that:
"All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while WHEREFORE, the decision appealed from is hereby AFFIRMED with the
the liability of the partners are merely joint in transactions entered into by the MODIFICATION that the liability of petitioner and respondent Galan to
partnership, a third person who transacted with said partnership can hold the intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to
partners solidarily liable for the whole obligation if the case of the third person be joint and solidary. Petitioner may recover from respondent Galan any
falls under Articles 1822 or 1823. amount that he pays, in his capacity as a partner, to the above intervenors.

Articles 1822 and 1823 of the Civil Code provide: DIGESTS:


G.R. No. L-39780 November 11, 1985 ELMO MUASQUE, petitioner, vs.
Art. 1822. Where, by any wrongful act or omission of any partner acting in COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
the ordinary course of the business of the partner-ship or with the authority of COMPANY and RAMON PONS, respondents. GUTTIERREZ, JR., J.:
his co-partners, loss or injury is caused to any person, not being a partner in Facts: Munasque (petitioner) entered into a partnership with Galan under the
the partnership or any penalty is incurred, the partnership is liable therefor to registered name Galan and Associates as Contractor. They entered into a
the same extent as the partner so acting or omitting to act. written contract with respondent Tropical for remodeling the latters Cebu
branch building. Under the contract, the project totaled 25,000 to be paid in
Art. 1823. The partnership is bound to make good: installments; 7, 000 upon signing and 6, 000 every 15 working days. Tropical
made the first payment by check in the name of Munasque. Munasque
(1) Where one partner acting within the scope of his apparent authority indorsed the check in favor of Galan to enable Galan to deposit it in the bank
receives money or property of a third person and misapplies it; and and pay for the materials and labor used in the project. However, Galan
allegedly spent P6, 183.37 for his personal use. When the second check
(2) Where the partnership in the course of its business receives money or came, Munasque refused to indorse it again to Galan. Galan informed
property of a third person and t he money or property so received is Tropical of the misunderstanding between him and Munasque as partners.
misapplied by any partner while it is in the custody of the partnership. Hence upon second payment, Tropical changed the name of the payee on
the second check from Munasque to Galan and Associates which enabled
The obligation is solidary, because the law protects him, who in good faith Galan to encash the second check. Meanwhile, the construction was
relied upon the authority of a partner, whether such authority is real or continued through Munasques sole efforts by incurring debts from various
apparent. That is why under Article 1824 of the Civil Code all partners, suppliers. The construction work was finished ahead of schedule with the
whether innocent or guilty, as well as the legal entity which is the partnership, total expenditure reaching P 34, 000 (note yung contract nila 25k lang).
are solidarily liable. Munasque filed a complaint for payment of sum of money and damages
against Galan, Tropical, and Tropicals Cebu branch manager Pons. Cebu
In the case at bar the respondent Tropical had every reason to believe that a Southern Hardware Company and Blue Diamond Glass Palace intervened in
partnership existed between the petitioner and Galan and no fault or error the case for the credit which they extended to the partnership of Munasque
can be imputed against it for making payments to "Galan and Associates" and Galan for the construction project. Both trial court and Court of Appeals
and delivering the same to Galan because as far as it was concerned, Galan absolved respondents Tropical and its Cebu manager, Pons, from any
was a true partner with real authority to transact on behalf of the partnership liability. TC held Galvan and Munasque jointly and severally liable to its
with which it was dealing. This is even more true in the cases of Cebu creditors which decision was modified by CA and held them jointly liable.
Southern Hardware and Blue Diamond Glass Palace who supplied materials Issues: Whether the obligation of Munasque and Galan is joint or solidary?
on credit to the partnership. Thus, it is but fair that the consequences of any Held: Solidary. While it is true that under Article 1816 of CC, All partners,
wrongful act committed by any of the partners therein should be answered including industrial ones, shall be liable pro rata with all their property and
solidarily by all the partners and the partnership as a whole. after all the partnership assets have been exhausted, for the contracts which
may be entered into the name and for account of the partnership, under its
However. as between the partners Muasque and Galan,justice also dictates signature and by a person authorized to act for the partnership. xxx, this
that Muasque be reimbursed by Galan for the payments made by the provision should be construed together with Article 1824 which provides that:
former representing the liability of their partnership to herein intervenors, as it All partners are liable solidarily with the partnership for everything
was satisfactorily established that Galan acted in bad faith in his dealings chargeable to the partnership under Articles 1822 and 1823. While the
with Muasque as a partner. liability of the partners are merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership can hold the An for advances, interest and taxes paid in amortizing and discharging their
partners solidarily liable for the whole obligation if the case of the third person obligations to La Urbana and Banco Hipotecario. Kong Chai Pin filed a
falls under Articles 1822 and 1823. The obligation is solidary because the law petition with the probate court for authority to sell all the 49 parcels of land.
protects him, who in good faith relied upon the authority of a partner, whether She then sold it to Sycip and Lee in consideration of P37K and of the
such authority is real or apparent. Tropical had every reason to believe that a vendees assuming payment of the claims filed by Yutivo Sons and Sing Yee.
partnership existed between Munasque and Galan and no fault or error can Later, Sycip and Lee executed in favor of Insular Development a deed of
be imputed against it for making payments to Galan and Associates transfer covering the 49 parcels of land.When Goquiolay learned about the
because as far as it was concerned, Galan was a true partner with real sale to Sycip and Lee, he filed a petition in the intestate proceedings to set
authority to transact in behalf of the partnership it was dealing with (because aside the order of the probate court approving the sale in so far as his
in the first place they entered into a duly registered partnership name and interest over the parcels of land sold was concerned. Probate court annulled
secondly, Munasque endorsed the first check payment to Galan). This is the sale executed by the administratrix w/ respect to the 60% interest of
even more true in the cases of the intervenors who supplied materials on Goquiolay over the properties Administratrix appealed.The decision of
credit to the partnership. Thus, it is but fair that the consequences of any probate court was set aside for failure to include the indispensable parties.
wrongful act committed by any of the partners therein should be answered New pleadings were filed. The second amended complaint prays for the
solidarily by all the partners and the partnership as a whole. However, as annulment of the sale in favor of Sycip and Lee and their subsequent
between Munasque and Galan, Galan must reimburse Munasque for the conveyance to Insular Development. The complaint was dismissed by the
payments made to the intervenors as it was satisfactorily established that lower court hence this appeal.
Galan acted in bad faith in his dealings with Munasque as a partner. ISSUE/S: Whether or not a widow or substitute become also a general
partner or only a limited partner. Whether or not the lower court err in holding
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. that the widow succeeded her husband Tan Sin An in the sole management
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO. L- of the partnership upon Tans death Whether or not the consent of the other
11840, December 10, 1963 partners was necessary to perfect the sale of the partnership properties to
FACTS: Sycip and Lee?
Tan Sin An and Goquiolay entered into a general commercial partnership HELD:
under the partnership name Tan Sin An and Antonio Goquiolay for the Kong Chai Pin became a mere general partner. By seeking authority to
purpose of dealing in real estate. The agreement lodged upon Tan Sin An manage partnership property, Tan Sin Ans widow showed that she desired
the sole management of the partnership affairs. The lifetime of the to be considered a general partner. By authorizing the widow to manage
partnership was fixed at ten years and the Articles of Co-partnership partnership property (which a limited partner could not be authorized to do),
stipulated that in the event of death of any of the partners before the Goqulay recognized her as such partner, and is now in estoppel to deny her
expiration of the term, the partnership will not be dissolved but will be position as a general partner, with authority to administer and alienate
continued by the heirs or assigns of the deceased partner. But the partnership property. The articles did not provide that the heirs of the
partnership could be dissolved upon mutual agreement in writing of the deceased would be merely limited partners; on the contrary, they expressly
partners. Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff stipulated that in case of death of either partner, the co partnership will have
partnership purchased 3 parcels of land which was mortgaged to La to be continued with the heirs or assignees. It certainly could not be
Urbana as payment of P25,000. Another 46 parcels of land were purchased continued if it were to be converted from a general partnership into a limited
by Tan Sin An in his individual capacity which he assumed payment of a partnership since the difference between the two kinds of associations is
mortgage debt for P35K. A downpayment and the amortization were fundamental, and specially because the conversion into a limited association
advanced by Yutivo and Co. The two obligations were consolidated in an would leave the heirs of the deceased partner without a share in the
instrument executed by the partnership and Tan Sin An, whereby the entire management. Hence, the contractual stipulation actually contemplated that
49 lots were mortgaged in favor of Banco HipotecarioTan Sin An died the heirs would become general partners rather than limited ones.
leaving his widow, Kong Chai Pin and four minor children. The widow
subsequently became the administratrix of the estate. Repeated demands
were made by Banco Hipotecario on the partnership and on Tan Sin An.
Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the
remaining balance of the mortgage debt, the mortgage was cancelled Yutivo
Sons and Sing Yee filed their claim in the intestate proceedings of Tan Sin