Articles 1767-1783 CORPORATION.
REDMONT REASONED THAT SINCE
1. NARRA NICKEL MINING VS REDMONT (G.R.
NO. 195580 APRIL 21, 2014)
FACTS:
SOMETIME IN DECEMBER 2006, RESPONDENT
REDMONT CONSOLIDATED MINES CORP.
(REDMONT), A DOMESTIC CORPORATION
ORGANIZED AND EXISTING UNDER PHILIPPINE LAWS,
TOOK INTEREST IN MINING AND EXPLORING CERTAIN
AREAS OF THE PROVINCE OF PALAWAN. AFTER
INQUIRING WITH THE DEPARTMENT OF ENVIRONMENT
AND NATURAL RESOURCES (DENR), IT LEARNED THAT
THE AREAS WHERE IT WANTED TO UNDERTAKE
EXPLORATION AND MINING ACTIVITIES WHERE
ALREADY COVERED BY MINERAL PRODUCTION
SHARING AGREEMENT (MPSA) APPLICATIONS OF
PETITIONERS NARRA, TESORO AND MCARTHUR.
PETITIONER MCARTHUR, THROUGH ITS PREDECESSOR-
IN-INTEREST SARA MARIE MINING, INC. (SMMI), FILED
AN APPLICATION FOR AN MPSA AND EXPLORATION
PERMIT (EP) WITH THE MINES AND GEO-SCIENCES
BUREAU (MGB), REGION IV-B, OFFICE OF THE
DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES (DENR). SUBSEQUENTLY, SMMI WAS
ISSUED MPSA-AMA-IVB-153 COVERING AN AREA OF
OVER 1,782 HECTARES IN BARANGAY SUMBILING,
MUNICIPALITY OF BATARAZA, PROVINCE OF
PALAWAN AND EPA-IVB-44 WHICH INCLUDES AN
AREA OF 3,720 HECTARES IN BARANGAY
MALATAGAO, BATARAZA, PALAWAN. THE MPSA AND
EP WERE THEN TRANSFERRED TO MADRIDEJOS
MINING CORPORATION (MMC) AND, ON NOVEMBER
6, 2006, ASSIGNED TO PETITIONER MCARTHUR.
PETITIONER NARRA ACQUIRED ITS MPSA FROM ALPHA
RESOURCES AND DEVELOPMENT CORPORATION
AND PATRICIA LOUISE MINING & DEVELOPMENT
CORPORATION (PLMDC) WHICH PREVIOUSLY FILED
AN APPLICATION FOR AN MPSA WITH THE MGB,
REGION IV-B, DENR ON JANUARY 6, 1992. THROUGH
THE SAID APPLICATION, THE DENR ISSUED MPSA-IV-1-
12 COVERING AN AREA OF 3.277 HECTARES IN
BARANGAYS CALATEGAS AND SAN ISIDRO,
MUNICIPALITY OF NARRA, PALAWAN. SUBSEQUENTLY,
PLMDC CONVEYED, TRANSFERRED AND/OR
ASSIGNED ITS RIGHTS AND INTERESTS OVER THE MPSA
APPLICATION IN FAVOR OF NARRA. ANOTHER MPSA
APPLICATION OF SMMI WAS FILED WITH THE DENR
REGION IV-B, LABELED AS MPSA-AMA-IVB-154
(FORMERLY EPA-IVB-47) OVER 3,402 HECTARES IN
BARANGAYS MALINAO AND PRINCESA URDUJA,
MUNICIPALITY OF NARRA, PROVINCE OF PALAWAN.
SMMI SUBSEQUENTLY CONVEYED, TRANSFERRED AND
ASSIGNED ITS RIGHTS AND INTEREST OVER THE SAID
MPSA APPLICATION TO TESORO. ON JANUARY 2,
2007, REDMONT FILED BEFORE THE PANEL OF
ARBITRATORS (POA) OF THE DENR THREE (3) SEPARATE
PETITIONS FOR THE DENIAL OF PETITIONERS’
APPLICATIONS FOR MPSA DESIGNATED AS AMA-IVB-
153, AMA-IVB-154 AND MPSA IV-1-12. IN THE
PETITIONS, REDMONT ALLEGED THAT AT LEAST 60% OF
THE CAPITAL STOCK OF MCARTHUR, TESORO AND
NARRA ARE OWNED AND CONTROLLED BY MBMI
RESOURCES, INC. (MBMI), A 100% CANADIAN
MBMI IS A CONSIDERABLE STOCKHOLDER OF
PETITIONERS, IT WAS THE DRIVING FORCE BEHIND
PETITIONERS’ FILING OF THE MPSAS OVER THE AREAS
COVERED BY APPLICATIONS SINCE IT KNOWS THAT IT
CAN ONLY PARTICIPATE IN MINING ACTIVITIES
THROUGH CORPORATIONS WHICH ARE DEEMED
FILIPINO CITIZENS. REDMONT ARGUED THAT GIVEN
THAT PETITIONERS’ CAPITAL STOCKS WERE MOSTLY
OWNED BY MBMI, THEY WERE LIKEWISE DISQUALIFIED
FROM ENGAGING IN MINING ACTIVITIES THROUGH
MPSAS, WHICH ARE RESERVED ONLY FOR FILIPINO
CITIZENS.
ISSUE: WHETHER OR NOT THE PETITIONER
CORPORATIONS ARE FILIPINO AND CAN VALIDLY BE
ISSUED MPSA AND EP.
HELD:
NO. THE SEC RULES PROVIDE FOR THE MANNER OF
CALCULATING THE FILIPINO INTEREST IN A
CORPORATION FOR PURPOSES, AMONG OTHERS, OF
DETERMINING COMPLIANCE WITH NATIONALITY
REQUIREMENTS (THE ‘INVESTEE CORPORATION’).
SUCH MANNER OF COMPUTATION IS NECESSARY
SINCE THE SHARES IN THE INVESTEE CORPORATION
MAY BE OWNED BOTH BY INDIVIDUAL
STOCKHOLDERS (‘INVESTING INDIVIDUALS’) AND BY
CORPORATIONS AND PARTNERSHIPS (‘INVESTING
CORPORATION’). THE SAID RULES THUS PROVIDE FOR
THE DETERMINATION OF NATIONALITY DEPENDING
ON THE OWNERSHIP OF THE INVESTEE CORPORATION
AND, IN CERTAIN INSTANCES, THE INVESTING
CORPORATION.
UNDER THE SEC RULES, THERE ARE TWO CASES IN
DETERMINING THE NATIONALITY OF THE INVESTEE
CORPORATION. THE FIRST CASE IS THE ‘LIBERAL RULE’,
LATER COINED BY THE SEC AS THE CONTROL TEST IN
ITS 30 MAY 1990 OPINION, AND PERTAINS TO THE
PORTION IN SAID PARAGRAPH 7 OF THE 1967 SEC
RULES WHICH STATES, ‘(S)HARES BELONGING TO
CORPORATIONS OR PARTNERSHIPS AT LEAST 60% OF
THE CAPITAL OF WHICH IS OWNED BY FILIPINO
CITIZENS SHALL BE CONSIDERED AS OF PHILIPPINE
NATIONALITY.’ UNDER THE LIBERAL CONTROL TEST,
THERE IS NO NEED TO FURTHER TRACE THE OWNERSHIP
OF THE 60% (OR MORE) FILIPINO STOCKHOLDINGS OF
THE INVESTING CORPORATION SINCE A
CORPORATION WHICH IS AT LEAST 60% FILIPINO-
OWNED IS CONSIDERED AS FILIPINO.
THE SECOND CASE IS THE STRICT RULE OR THE
GRANDFATHER RULE PROPER AND PERTAINS TO THE
PORTION IN SAID PARAGRAPH 7 OF THE 1967 SEC
RULES WHICH STATES, “BUT IF THE PERCENTAGE OF
FILIPINO OWNERSHIP IN THE CORPORATION OR
PARTNERSHIP IS LESS THAN 60%, ONLY THE NUMBER OF
SHARES CORRESPONDING TO SUCH PERCENTAGE
SHALL BE COUNTED AS OF PHILIPPINE NATIONALITY.”
UNDER THE STRICT RULE OR GRANDFATHER RULE
PROPER, THE COMBINED TOTALS IN THE INVESTING
CORPORATION AND THE INVESTEE CORPORATION
MUST BE TRACED (I.E., “GRANDFATHERED”) TO
DETERMINE THE TOTAL PERCENTAGE OF FILIPINO
OWNERSHIP. MOREOVER, THE ULTIMATE FILIPINO
OWNERSHIP OF THE SHARES MUST FIRST BE TRACED TO
THE LEVEL OF THE INVESTING CORPORATION AND
ADDED TO THE SHARES DIRECTLY OWNED IN THE
INVESTEE CORPORATION.
IN OTHER WORDS, BASED ON THE SAID SEC RULE AND
DOJ OPINION, THE GRANDFATHER RULE OR THE
SECOND PART OF THE SEC RULE APPLIES ONLY WHEN
THE 60-40 FILIPINO-FOREIGN EQUITY OWNERSHIP IS IN
DOUBT (I.E., IN CASES WHERE THE JOINT VENTURE
CORPORATION WITH FILIPINO AND FOREIGN
STOCKHOLDERS WITH LESS THAN 60% FILIPINO
STOCKHOLDINGS [OR 59%] INVESTS IN OTHER JOINT
VENTURE CORPORATION WHICH IS EITHER 60-40%
FILIPINO-ALIEN OR THE 59% LESS FILIPINO). STATED
DIFFERENTLY, WHERE THE 60-40 FILIPINO- FOREIGN
EQUITY OWNERSHIP IS NOT IN DOUBT, THE
GRANDFATHER RULE WILL NOT APPLY.
2. CHARLES F. WOODHOUSE, PLAINTIFF-
APPELLANT, VS. FORTUNATO F. HALILI,
DEFENDANT-APPELLANT. G.R. NO. L-4811
JULY 31, 1953
FACTS:
ON NOVEMBER 29, 1947, PLAINTIFF WOODHOUSE
ENTERED INTO A WRITTEN AGREEMENT WITH
DEFENDANT HALILI STATING AMONG OTHERS THAT: 1)
THAT THEY SHALL ORGANIZE A PARTNERSHIP FOR THE
BOTTLING AND DISTRIBUTION OF MISSIONSOFT
DRINKS, PLAINTIFF TO ACT AS INDUSTRIAL PARTNER OR
MANAGER, AND THE DEFENDANT AS A CAPITALIST,
FURNISHING THE CAPITAL NECESSARY THEREFORE; 2)
THAT PLAINTIFF WAS TO SECURE THE MISSION SOFT
DRINKS FRANCHISE FOR AND IN BEHALF OF THE
PROPOSED PARTNERSHIP AND 3) THAT THE PLAINTIFF
WAS TO RECEIVE 30 PER CENT OF THE NET PROFITS OF
THE BUSINESS.
PRIOR TO ENTERING INTO THIS AGREEMENT, PLAINTIFF
HAD INFORMED THE MISSION DRY CORPORATION OF
LOS ANGELES, CALIFORNIA, THAT HE HAD INTERESTED
A PROMINENT FINANCIER (DEFENDANT HEREIN) IN THE
BUSINESS, WHO WAS WILLING TO INVEST HALF A
MILLIONDOLLARS IN THE BOTTLING AND DISTRIBUTION
OF THE SAID BEVERAGES, AND REQUESTED, IN ORDER
THAT HE MAY CLOSE THE DEAL WITH HIM, THAT THE
RIGHT TO BOTTLE AND DISTRIBUTE BE GRANTED HIM
FOR A LIMITED TIME UNDER THE CONDITION THAT IT
WILL FINALLY BE TRANSFERRED TO THE
CORPORATION. PURSUANT TO THIS REQUEST,
PLAINTIFF WAS GIVEN “A THIRTY DAYS’ OPTION ON
EXCLUSIVE BOTTLING AND DISTRIBUTION RIGHTS FOR
THE PHILIPPINES”. THE CONTRACT WAS FINALLY
SIGNED BY PLAINTIFF ON DECEMBER 3, 1947.
WHEN THE BOTTLING PLANT WAS ALREADY IN
OPERATION, PLAINTIFF DEMANDED OF DEFENDANT
THAT THE PARTNERSHIP PAPERS BE EXECUTED.
DEFENDANT HALILI GAVE EXCUSES AND WOULD NOT
EXECUTE SAID AGREEMENT, THUS THE COMPLAINT BY
THE PLAINTIFF.
PLAINTIFF PRAYS FOR THE : 1.EXECUTION OF THE
CONTRACT OF PARTNERSHIP; 2) ACCOUNTING OF
PROFITS AND 3)SHARE THEREOF OF 30 PERCENT WITH
4) DAMAGES IN THE AMOUNT OF P200,000. THE
DEFENDANT ON THE OTHER HAND CLAIMS THAT: 1)
THE DEFENDANT’S CONSENT TO THE AGREEMENT,
WAS SECURED BY THE REPRESENTATION OF PLAINTIFF
THAT HE WAS THE OWNER, OR WAS ABOUT TO
BECOME OWNER OF AN EXCLUSIVE BOTTLING
FRANCHISE, WHICH REPRESENTATION WAS FALSE,
AND THAT PLAINTIFF DID NOT SECURE THE FRANCHISE
BUT WAS GIVEN TO DEFENDANT HIMSELF 2) THAT
DEFENDANT DID NOT FAIL TO CARRY OUT HIS
UNDERTAKINGS, BUT THAT IT WAS PLAINTIFF WHO
FAILED AND 3)THAT PLAINTIFF AGREED TO
CONTRIBUTE TO THE EXCLUSIVE FRANCHISE TO THE
PARTNERSHIP, BUT PLAINTIFF FAILED TO DO SO WITH A
4) COUNTERCLAIM FOR P200,00 AS DAMAGES.
THE CFI RULING: 1) ACCOUNTING OF PROFITS AND TO
PAY PLAINTIFF 15 % OF THE PROFITS AND THAT THE 2)
EXECUTION OF CONTRACT CANNOT BE ENFORCED
UPON PARTIES. LASTLY, THE 3) FRAUD WASN’T
PROVED
ISSUES:
1. WON PLAINTIFF FALSELY REPRESENTED THAT HE HAD
AN EXCLUSIVE FRANCHISE TO BOTTLE MISSION
BEVERAGES
2. WON FALSE REPRESENTATION, IF IT EXISTED, ANNULS
THE AGREEMENT TO FORM THE PARTNERSHIP
HELD:
1. YES. PLAINTIFF DID MAKE FALSE REPRESENTATIONS
AND THIS CAN BE SEEN THROUGH HIS LETTERS TO
MISSION DRY CORPORATION ASKING FOR THE LATTER
TO GRANT HIM TEMPORARY FRANCHISE SO THAT HE
COULD SETTLE THE AGREEMENT WITH DEFENDANT. THE
TRIAL COURT REASONED, AND THE PLAINTIFF ON THIS
APPEAL ARGUES, THAT PLAINTIFF ONLY UNDERTOOK
IN THE AGREEMENT “TO SECURE THE MISSION DRY
FRANCHISE FOR AND IN BEHALF OF THE PROPOSED
PARTNERSHIP.” THE EXISTENCE OF THIS PROVISION IN
THE FINAL AGREEMENT DOES NOT MILITATE AGAINST
PLAINTIFF HAVING REPRESENTED THAT HE HAD THE
EXCLUSIVE FRANCHISE; IT RATHER STRENGTHENS
BELIEF THAT HE DID ACTUALLY MAKE THE
REPRESENTATION. THE DEFENDANT BELIEVED, OR WAS
MADE TO BELIEVE, THAT PLAINTIFF WAS THE GRANTEE
OF AN EXCLUSIVE FRANCHISE. THUS IT IS THAT IT WAS
ALSO AGREED UPON THAT THE FRANCHISE WAS TO BE
TRANSFERRED TO THE NAME OF THE PARTNERSHIP,
AND THAT, UPON ITS DISSOLUTION OR TERMINATION,
THE SAME SHALL BE REASSIGNED TO THE PLAINTIFF.
AGAIN, THE IMMEDIATE REACTION OF DEFENDANT,
WHEN IN CALIFORNIA HE LEARNED THAT PLAINTIFF DID
NOT HAVE THE EXCLUSIVE FRANCHISE, WAS TO
REDUCE, AS HE HIMSELF TESTIFIED, PLAINTIFF’S
PARTICIPATION IN THE NET PROFITS TO ONE HALF OF
THAT AGREED UPON. HE COULD NOT HAVE HAD
SUCH A FEELING HAD NOT PLAINTIFF ACTUALLY MADE
HIM BELIEVE THAT HE(PLAINTIFF) WAS THE EXCLUSIVE
GRANTEE OF THE FRANCHISE.
2. NO. IN CONSEQUENCE, ARTICLE 1270 OF THE
SPANISH CIVIL CODE DISTINGUISHES TWO KINDS OF
(CIVIL) FRAUD, THE CAUSAL FRAUD, WHICH MAY BE
GROUND FOR THE ANNULMENT OF A CONTRACT,
AND THE INCIDENTAL DECEIT, WHICH ONLY RENDERS
THE PARTY WHO EMPLOYS IT LIABLE FOR DAMAGES
ONLY. THE SUPREME COURT HAS HELD THAT IN ORDER
THAT FRAUD MAY VITIATE CONSENT, IT MUST BE THE
CAUSAL (DOLO CAUSANTE), NOT MERELY THE
INCIDENTAL (DOLO INCIDENTE) INDUCEMENT TO THE
MAKING OF THE CONTRACT.
THE RECORD ABOUNDS WITH CIRCUMSTANCES
INDICATIVE OF THE FACT THAT THE PRINCIPAL
CONSIDERATION, THE MAIN CAUSE THAT INDUCED
DEFENDANT TO ENTER INTO THE PARTNERSHIP
AGREEMENT WITH PLAINTIFF, WAS THE ABILITY OF
PLAINTIFF TO GET THE EXCLUSIVE FRANCHISE TO
BOTTLE AND DISTRIBUTE FOR THE DEFENDANT OR FOR
THE PARTNERSHIP. THE ORIGINAL DRAFT PREPARED BY
DEFENDANT’S COUNSEL WAS TO THE EFFECT THAT
PLAINTIFF OBLIGATED HIMSELF TO SECURE A
FRANCHISE FOR THE DEFENDANT. BUT IF PLAINTIFF
WAS GUILTY OF A FALSE REPRESENTATION, THIS WAS
NOT THE CAUSAL CONSIDERATION, OR THE
PRINCIPAL INDUCEMENT, THAT LED PLAINTIFF TO
ENTER INTO THE PARTNERSHIP AGREEMENT. ON THE
OTHER HAND, THIS SUPPOSED OWNERSHIP OF AN
EXCLUSIVE FRANCHISE WAS ACTUALLY THE
CONSIDERATION OR PRICE PLAINTIFF GAVE IN
EXCHANGE FOR THE SHARE OF 30 PER CENT
GRANTED HIM IN THE NET PROFITS OF THE
PARTNERSHIP BUSINESS. DEFENDANT AGREED TO GIVE
PLAINTIFF 30 PER CENT SHARE IN THE NET PROFITS
BECAUSE HE WAS TRANSFERRING HIS EXCLUSIVE
FRANCHISE TO THE PARTNERSHIP.
HAVING ARRIVED AT THE CONCLUSION THAT THE
CONTRACT CANNOT BE DECLARED NULL AND VOID,
MAY THE AGREEMENT BE CARRIED OUT OR
EXECUTED? THE SC FINDS NO MERIT IN THE CLAIM OF
PLAINTIFF THAT THE PARTNERSHIP WAS ALREADY A
FAIT ACCOMPLI FROM THE TIME OF THE OPERATION
OF THE PLANT, AS IT IS EVIDENT FROM THE VERY
LANGUAGE OF THE AGREEMENT THAT THE PARTIES
INTENDED THAT THE EXECUTION OF THE AGREEMENT
TO FORM A PARTNERSHIP WAS TO BE CARRIED OUT AT
A LATER DATE. , THE DEFENDANT MAY NOT BE
COMPELLED AGAINST HIS WILL TO CARRY OUT THE
AGREEMENT NOR EXECUTE THE PARTNERSHIP PAPERS.
THE LAW RECOGNIZES THE INDIVIDUAL’S FREEDOM
OR LIBERTY TO DO AN ACT HE HAS PROMISED TO DO,
OR NOT TO DO IT, AS HE PLEASES.
3. EVANGELISTA & CO. v. ABAD SANTOS G.R. No.
L-31684; June 28, 1973
FACTS:
ON OCTOBER 9, 1954 A CO-PARTNERSHIP WAS
FORMED UNDER THE NAME OF "EVANGELISTA & CO."
ON JUNE 7, 1955 THE ARTICLES OF CO-PARTNERSHIP
WERE AMENDED SO AS TO INCLUDE HEREIN
RESPONDENT, ESTRELLA ABAD SANTOS, AS
INDUSTRIAL PARTNER, WITH HEREIN PETITIONERS
DOMINGO C. EVANGELISTA, JR., LEONARDA ATIENZA
ABAD SANTOS AND CONCHITA P. NAVARRO, THE
ORIGINAL CAPITALIST PARTNERS, REMAINING IN THAT
CAPACITY, WITH A CONTRIBUTION OF P17,500 EACH
ON DECEMBER 17, 1963 HEREIN RESPONDENT
FILED SUIT AGAINST THE THREE OTHER PARTNERS,
ALLEGING THAT THE PARTNERSHIP, WHICH WAS ALSO
MADE A PARTY-DEFENDANT, HAD BEEN PAYING
DIVIDENDS TO THE PARTNERS EXCEPT TO HER; AND
THAT NOTWITHSTANDING HER DEMANDS THE
DEFENDANTS HAD REFUSED AND CONTINUED TO
REFUSE TO LET HER EXAMINE THE PARTNERSHIP BOOKS
OR TO GIVE HER INFORMATION REGARDING THE
PARTNERSHIP AFFAIRS OR TO PAY HER ANY SHARE IN
THE DIVIDENDS DECLARED BY THE PARTNERSHIP
THE DEFENDANTS, IN THEIR ANSWER, DENIED
EVER HAVING DECLARED DIVIDENDS OR DISTRIBUTED
PROFITS OF THE PARTNERSHIP; DENIED LIKEWISE THAT
THE PLAINTIFF EVER DEMANDED THAT SHE BE
ALLOWED TO EXAMINE THE PARTNERSHIP BOOKS;
AND BY WAY OF AFFIRMATIVE DEFENSE ALLEGED
THAT THE AMENDED ARTICLES OF CO-PARTNERSHIP
DID NOT EXPRESS THE TRUE AGREEMENT OF THE
PARTIES, WHICH WAS THAT THE PLAINTIFF WAS NOT AN
INDUSTRIAL PARTNER; THAT SHE DID NOT IN FACT
CONTRIBUTE INDUSTRY TO THE PARTNERSHIP.
ISSUE:
WHETHER ABAD SANTOS IS ENTITLED TO SEE THE
PARTNERSHIP BOOKS BECAUSE SHE IS AN INDUSTRIAL
PARTNER IN THE PARTNERSHIP
HELD:
YES, ABAD SANTOS IS ENTITLED TO SEE THE
PARTNERSHIP BOOKS.
THE SUPREME COURT RULED THAT ACCORDING TO
ART. 1299. ANY PARTNER SHALL HAVE THE RIGHT TO A
FORMAL ACCOUNT AS TO PARTNERSHIP AFFAIRS:
(1)IF HE IS WRONGFULLY EXCLUDED FROM THE
PARTNERSHIP BUSINESS OR POSSESSION OF ITS
PROPERTY BY HIS CO-PARTNERS;
(2)IF THE RIGHT EXISTS UNDER THE TERMS OF ANY
AGREEMENT;
(3)AS PROVIDED BY ARTICLE 1807;
(4)WHENEVER OTHER CIRCUMSTANCES RENDER IT
JUST AND REASONABLE."
IN THE CASE AT HAND, THE COMPANY IS ESTOPPED
FROM DENYING ABAD SANTOS AS AN INDUSTRIAL
PARTNER BECAUSE IT HAS BEEN 8 YEARS AND THE
COMPANY NEVER CORRECTED THEIR AGREEMENT IN
ORDER TO SHOW THEIR TRUE INTENTIONS. THE
COMPANY NEVER BOTHERED TO CORRECT THOSE UP
UNTIL ABAD SANTOS FILED A COMPLAINT.
4. ESCOLASTICO DUTERTE Y ROSALES, PLAINTIFF-
APPELLANT, VS. FLORENTINO RALLOS,
DEFENDANT-APPELLEE. G.R. NO. L-1147
SEPTEMBER 24, 1903
FACTS:
DUTERTE (PLAINTIFF-APPELLANT) CLAIMED THAT
RALLOS (DEFENDANT), AND ONE CASTRO WERE
PARTNERS IN THE MANAGEMENT OF A COCKPIT.
HOWEVER, RALLOS DENIED SAID CLAIM. THE COURT
FOUND THAT NO SUCH PARTNERSHIP EXISTED AND
ORDERED JUDGMENT IN FAVOR WITH RALLOS.
IT IS UNDISPUTED THAT THE PLAINTIFF RENDERED
SERVICES IN THE MANAGEMENT OF THE COCKPIT,
AND THAT THE DEFENDANT PAID HIM MONEY ON
ACCOUNT OF THE COCKPIT.
RALLOS, AFTER DENYING THAT THE PLAINTIFF WAS HIS
PARTNER, TESTIFIED THAT THE PROFITS WERE DIVIDED.
A PORTION OF WHICH WAS GIVEN TO TWO FRIENDS,
DUTERTE AND CASTRO, BUT NOT AS PARTNERS. A
PORTION WAS GIVEN TO DUTERTE SOLELY BECAUSE
HE WAS A FRIEND WHO AIDED AND ENCOURAGED
THE COCKPIT AND HAD NO DUTY TO PERFORM,
EXCEPT WHEN HE HAD TO PRESIDE AT THE COCKPIT.
HE ADDED THAT HE ONLY PAID THEM FOR HIS
PLEASURE, AS FRIENDS, DUTERTE HAD NO LEGAL
INTEREST.
DUTERTE TESTIFIED THAT HE MADE A VERBAL
CONTRACT OF PARTNERSHIP WITH THE RALLOS FOR
THIS BUSINESS, UNCONTRADICTED EVIDENCE THAT HE
PERFORMED SERVICES IN CONNECTION WITH IT; THAT
RALLOS PAID HIM THE MONEY ON ACCOUNT
THEREOF AND SENT HIM ACCOUNTS FOR THREE
MONTHS SHOWING HIS INTEREST TO BE ONE-THIRD OF
THE PROFITS IN ADDITION TO THE $5 EACH DAY, AND
WROTE HIM A LETTER IN WHICH HE SAID THAT HE
ADMITTED THE DUTERTE INTO THE PARTNERSHIP IN
ORDER TO COLLECT WHAT DUTERTE OWED HIM ON
ANOTHER TRANSACTION. THE LOWER COURT FOUND
THAT NO SUCH PARTNERSHIP EXISTED AND ORDERED
JUDGMENT FOR THE DEFENDANT. THE PLAINTIFF
MOVED FOR A NEW TRIAL, WHICH WAS DENIED.
ISSUE: WHETHER OR NOT DUTERTE AND RALLOS
ENTERED INTO A CONTRACT OF PARTNERSHIP.
HELD:
YES, DUTERTE AND RALLOS ENTERED INTO A •
CONTRACT OF PARTNERSHIP.
THE SC HAVE EXAMINED THE EVIDENCE AND ARE OF
THE OPINION THAT THE FINDING OF THE LOWER
COURT AS TO THE EXISTENCE OF THE COPARTNERSHIP
IS MANIFESTLY AGAINST THE EVIDENCE. THE COURT
SEE NO OTHER WAY OF EXPLAINING THE ACCOUNTS
SUBMITTED BY THE DEFENDANT TO THE PLAINTIFF. THE
EVIDENCE (LETTERS AND TESTIMONIES) PRESENTED
CLEARLY SHOWED THAN THAT THERE WAS A
PARTNERSHIP BETWEEN THEM UP. THAT THERE WAS AN
AGREEMENT TO SHARE THE PROFITS IS CLEARLY
PROVED BY THE ACCOUNTS SUBMITTED. THE PLAINTIFF
TESTIFIED THAT THE PROFITS AND LOSSES WERE TO BE
SHARED EQUALLY. BUT EVEN OMITTING THIS
TESTIMONY, THE CASE IS COVERED BY ARTICLE 1689
OF THE CIVIL CODE, WHICH PROVIDES THAT, IN THE
ABSENCE OF AGREEMENT AS TO THE LOSSES, THEY
SHALL BE SHARED AS THE GAINS ARE. ARTICLE 1668 OF
THE CIVIL CODE IS NOT APPLICABLE TO THE CASE. NO
REAL ESTATE WAS CONTRIBUTED BY ANY MEMBER. THE
PARTNERSHIP DID NOT BECOME THE OWNER OF THE
COCKPIT. IT IS UNDISPUTED THAT THIS WAS OWNED BY
THE DEFENDANT AND THAT THE PARTNERSHIP PAID
HIM TEN DOLLARS A DAY FOR THE USE OF IT. THE
FINDING OF FACT BY THE COURT BELOW, THAT THERE
WAS NO PARTNERSHIP, AT LEAST TO SEPTEMBER 1,
1901, WAS PLAINLY AND MANIFESTLY AGAINST THE
EVIDENCE, AND FOR THAT REASON A NEW TRIAL OF
THIS CASE MUST BE HAD.
5. G.R. NO. L-49982 APRIL 27, 1988ELIGIO
ESTANISLAO, JR., PETITIONER,VS. THE
HONORABLE COURT OF APPEALS, REMEDIOS
ESTANISLAO, EMILIO ANDLEOCADIO
SANTIAGO, RESPONDENTS.
FACTS:
PETITIONER AND PRIVATE RESPONDENTS ARE
BROTHERS AND SISTERS WHO ARE CO-OWNERS OF
CERTAIN LOTS AT THE CORNER OF ANNAPOLIS AND
AURORA BLVD., QUEZON CITY WHICH WERE THEN
BEING LEASED TO THE SHELL COMPANY OF THE
PHILIPPINES LIMITED (SHELL). THEY AGREED TO OPEN
AND OPERATE A GAS STATION THEREAT TO BE
KNOWN AS ESTANISLAO SHELL SERVICE STATION WITH
AN INITIAL INVESTMENT OF P15,000.00 TO BE TAKEN
FROM THE ADVANCE RENTALS DUE TO THEM FROM
SHELL FOR THE OCCUPANCY OF THE SAID LOTS
OWNED IN COMMON BY THEM.
ON MAY 26, 1966, THE PARTIES HEREIN ENTERED INTO
AN ADDITIONAL AGREEMENT WITH A PROVISO THAT
SAID AGREEMENT CANCELS AND SUPERSEDES THE
ORIGINAL AGREEMENT EXECUTED BY THE CO-
OWNERS.
FOR SOMETIME, THE PETITIONER SUBMITTED
FINANCIAL STATEMENTS REGARDING THE OPERATION
OF THE BUSINESS TO PRIVATE RESPONDENTS, BUT
THEREAFTER PETITIONER FAILED TO RENDER
SUBSEQUENT ACCOUNTING.
A DEMAND WAS MADE ON PETITIONER:
• TO RENDER AN ACCOUNTING OF THE PROFITS;
TO EXECUTE A PUBLIC DOCUMENT EMBODYING
ALL THE PROVISIONS OF THE PARTNERSHIP
AGREEMENT;
• TO PAY THE PLAINTIFFS THEIR LAWFUL SHARES
AND PARTICIPATION IN THE NET PROFITS OF THE
BUSINESS.
ISSUE:
IS A PARTNERSHIP A FORMED WHERE MEMBERS OF THE
SAME FAMILY BIND THEMSELVES TO CONTRIBUTE
MONEY TO A COMMON FUND WITH THE INTENTION OF
DIVIDING THE PROFITS AMONG THEMSELVES?
HELD:
YES. THE JOINT AFFIDAVIT OF APRIL 11, 1966 (EXHIBIT
A), CLEARLY STIPULATED BY THE MEMBERS OF THE
SAME FAMILY THAT THE P15,000.00 ADVANCE RENTAL
DUE TO THEM FROM SHELL SHALL AUGMENT THEIR
"CAPITAL INVESTMENT" IN THE OPERATION OF THE
GASOLINE STATION.
OTHER EVIDENCE IN THE RECORD:
⁃ PETITIONER SUBMITTED TO PRIVATE RESPONDENTS
PERIODIC ACCOUNTING OF THE BUSINESS.
⁃ PETITIONER GAVE A WRITTEN AUTHORITY TO
PRIVATE RESPONDENT REMEDIOS ESTANISLAO, HIS
SISTER, TO EXAMINE AND AUDIT THE BOOKS OF THEIR
"COMMON BUSINESS" (AMING NEGOSYO).
⁃ RESPONDENT REMEDIOS ASSISTED IN THE
RUNNING OF THE BUSINESS.
6. G.R. NO. L-59956 OCTOBER 31, 1984 ISABELO
MORAN, JR.,PETITIONER, VS. THE HON. COURT
OF APPEALS AND MARIANO E. PECSON,
RESPONDENTS.
FACTS:
IN FEBRUARY 1971, ISABELO MORAN AND MARIANO
PECSON ENTERED INTO A PARTNERSHIP AGREEMENT
WHERE THEY AGREED TO CONTRIBUTE P15K EACH
FOR THE PURPOSE OF PRINTING 95K POSTERS OF THE
DELEGATES TO THE THEN 1971 CONSTITUTIONAL
COMMISSION. MORAN SHALL BE IN CHARGE IN
MANAGING THE PRINTING OF THE POSTERS. IT WAS
FURTHER AGREED THAT PECSON WILL RECEIVE A
COMMISSION OF P1K A MONTH STARTING FROM
APRIL 1971 TO DECEMBER 1971; THAT THE
PARTNERSHIP IS TO BE LIQUIDATED ON DECEMBER 15,
1971.
PECSON PARTIALLY FULFILLED HIS OBLIGATION TO THE
PARTNERSHIP WHEN HE ISSUED P10K IN FAVOR OF THE
PARTNERSHIP. HE GAVE THE P10K TO MORAN AS THE
MANAGING PARTNER. MORAN HOWEVER DID NOT
ADD ANYTHING AND, INSTEAD, HE ONLY USED P4K
OUT OF THE P10K IN PRINTING 2,000 POSTERS. HE ONLY
PRINTED 2,000 POSTERS BECAUSE HE FELT THAT
PRINTING ALL 95K POSTERS IS A LOSING VENTURE
BECAUSE OF THE DELAY BY THE COMELEC IN
ANNOUNCING THE FULL DELEGATES. ALL THE POSTERS
WERE SOLD FOR A TOTAL OF P10K.
PECSON SUED MORAN. THE TRIAL COURT ORDERED
MORAN TO PAY PECSON DAMAGES. THE COURT OF
APPEALS AFFIRMED THE DECISION OF THE TRIAL
COURT BUT MODIFIED THE SAME AS IT ORDERED
MORAN TO PAY P47.5K FOR UNREALIZED PROFIT; P8K
FOR PECSON’S MONTHLY COMMISSIONS; P7K AS
RETURN OF INVESTMENT BECAUSE THE VENTURE
NEVER TOOK OFF; PLUS INTEREST.
ISSUE:
WHETHER OR NOT THE CA JUDGMENT IS CORRECT.
HELD:
NO. THE AWARD OF P47.5K FOR UNREALIZED PROFIT
IS SPECULATIVE. THERE IS NO EVIDENCE WHATSOEVER
THAT THE PARTNERSHIP BETWEEN THE MORAN AND
PECSON WOULD HAVE BEEN A PROFITABLE VENTURE
(BECAUSE BASE ON THE CIRCUMSTANCES THEN I.E.
THE DELAY OF THE COMELEC IN PROCLAIMING THE
CANDIDATES, PROFIT IS HIGHLY UNLIKELY). IN FACT, IT
WAS A FAILURE DOOMED FROM THE START. THERE IS
THEREFORE NO BASIS FOR THE AWARD OF
SPECULATIVE DAMAGES IN FAVOR OF PECSON.
FURTHER, THERE IS MUTUAL BREACH IN THIS CASE,
PECSON ONLY GAVE P10K INSTEAD OF P15K WHILE
MORAN GAVE NOTHING AT ALL.
AS FOR THE P8K MONTHLY COMMISSION, THIS IS
WITHOUT BASIS. THE AGREEMENT DOES NOT STATE THE
BASIS OF THE COMMISSION. THE PAYMENT OF THE
COMMISSION COULD ONLY HAVE BEEN PREDICATED
ON RELATIVELY EXTRAVAGANT PROFITS. THE PARTIES
COULD NOT HAVE INTENDED THE GIVING OF A
COMMISSION INSPITE OF LOSS OR FAILURE OF THE
VENTURE. SINCE THE VENTURE WAS A FAILURE,
PECSON IS NOT ENTITLED TO THE P8K COMMISSION.
AS FOR THE P7K AWARD AS RETURN FOR PECSON’S
INVESTMENT, THE CA ERRED IN HIS RULING TOO.
THOUGH THE VENTURE FAILED, IT DID TOOK OFF THE
GROUND AS EVIDENCED BY THE 2,000 POSTERS
PRINTED. HENCE, RETURN OF INVESTMENT IS NOT
PROPER IN THIS CASE. THERE ARE RISKS IN ANY
BUSINESS VENTURE AND THE FAILURE OF THE
UNDERTAKING CANNOT ENTIRELY BE BLAMED ON THE
MANAGING PARTNER ALONE, SPECIALLY IF THE
LATTER EXERCISED HIS BEST BUSINESS JUDGMENT,
WHICH SEEMS TO BE TRUE IN THIS CASE.
MORAN MUST HOWEVER RETURN THE UNUSED P6K OF
PECSON’S CONTRIBUTION TO THE PARTNERSHIP PLUS
P3K REPRESENTING PECSON’S PROFIT SHARE IN THE
SALE OF THE PRINTED POSTERS. COMPUTATION OF
P3K PROFIT SHARE IS AS FOLLOWS: (P10K PROFIT
FROM THE SALE OF THE 2,000 POSTERS PRINTED) – (P4K
EXPENSE IN PRINTING THE 2K POSTERS) = (P6K PROFIT);
PROFIT ÷ 2 = P3K EACH.
7. G.R. No. 31057 September 7, 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees, vs.
VICENTE POLISTICO, ET AL., defendants-appellants.
FACTS:
THIS CASE HAS BEEN BROUGHT FOR THE SECOND TIME
TO THE SC. THE FIRST ONE WAS WHEN THE SAME
PLAINTIFFS APPEARED FROM THE ORDER OF THE
COURT BELOW SUSTAINING THE DEFENDANT'S
DEMURRER, AND REQUIRING THE FORMER TO AMEND
THEIR COMPLAINT WITHIN A PERIOD, SO AS TO
INCLUDE ALL THE MEMBERS OF "TURNUHAN
POLISTICO & CO.," EITHER AS PLAINTIFFS OR AS
DEFENDANTS. THIS COURT HELD THEN THAT IN AN
ACTION AGAINST THE OFFICERS OF A VOLUNTARY
ASSOCIATION TO WIND UP ITS AFFAIRS AND ENFORCE
AN ACCOUNTING FOR MONEY AND PROPERTY IN
THEIR POSSESSIONS, IT IS NOT NECESSARY THAT ALL
MEMBERS OF THE ASSOCIATION BE MADE PARTIES TO
THE ACTION. (BORLASA VS. POLISTICO, 47 PHIL., 345.)
HENCE, THE COURT APPOINTED AMADEO R.
QUINTOS, OF THE INSULAR AUDITOR'S OFFICE,
COMMISSIONER TO EXAMINE ALL THE BOOKS,
DOCUMENTS, AND ACCOUNTS OF "TURNUHAN
POLISTICO & CO.," AND TO RECEIVE WHATEVER
EVIDENCE THE PARTIES MIGHT DESIRE TO PRESENT. THE
DEFENDANTS OBJECTED TO THE COMMISSIONER'S
REPORT, BUT THE TRIAL COURT, HAVING EXAMINED
THE REASONS FOR THE OBJECTION, FOUND THE SAME
SUFFICIENTLY EXPLAINED AND RENDERED JUDGMENT,
HOLDING THAT THE ASSOCIATION "TURNUHAN
POLISTICO & CO." IS UNLAWFUL, AND SENTENCING
THE DEFENDANTS JOINTLY AND SEVERALLY TO RETURN
THE AMOUNT OF P24,607.80, AS WELL AS THE
DOCUMENTS SHOWING THE UNCOLLECTED CREDITS
OF THE ASSOCIATION, TO THE PLAINTIFFS IN THIS CASE,
AND TO THE REST OF THE MEMBERS OF THE SAID
ASSOCIATION REPRESENTED BY SAID PLAINTIFFS, WITH
COSTS AGAINST THE DEFENDANTS. THE DEFENDANTS
CONTEND THAT BECAUSE "TURNUHAN POLISTICO &
CO.," IS UNLAWFUL, SOME CHARITABLE INSTITUTION
TO WHOM THE PARTNERSHIP FUNDS MAY BE ORDERED
TO BE TURNED OVER, SHOULD BE INCLUDED, AS A
PARTY DEFENDANT. THE APPELLANTS REFER TO
ARTICLE 1666 OF THE CIVIL CODE, WHICH PROVIDES:
A PARTNERSHIP MUST HAVE A LAWFUL OBJECT, AND
MUST BE ESTABLISHED FOR THE COMMON BENEFIT OF
THE PARTNERS. WHEN THE DISSOLUTION OF AN
UNLAWFUL PARTNERSHIP IS DECREED, THE PROFITS
SHALL BE GIVEN TO CHARITABLE INSTITUTIONS OF THE
DOMICILE OF THE PARTNERSHIP, OR, IN DEFAULT OF
SUCH, TO THOSE OF THE PROVINCE.
ISSUE:
SHOULD THE CHARITABLE INSTITUTIONS BE
CONSIDERED AS NECESSARY PARTIES FOR THE TOTAL
DISPOSITION OF THIS CASE?
RULING:
NO. APPELLANT'S CONTENTION ON THIS POINT IS
UNTENABLE. ACCORDING TO SAID ARTICLE, NO
CHARITABLE INSTITUTION IS A NECESSARY PARTY IN
THE PRESENT CASE OF DETERMINATION OF THE RIGHTS
OF THE PARTIES. THE ACTION WHICH MAY ARISE FROM
SAID ARTICLE, IN THE CASE OF UNLAWFUL
PARTNERSHIP, IS THAT FOR THE RECOVERY OF THE
AMOUNTS PAID BY THE MEMBER FROM THOSE IN
CHARGE OF THE ADMINISTRATION OF SAID
PARTNERSHIP, AND IT IS NOT NECESSARY FOR THE SAID
PARTIES TO BASE THEIR ACTION TO THE EXISTENCE OF
THE PARTNERSHIP, BUT ON THE FACT THAT OF HAVING
CONTRIBUTED SOME MONEY TO THE PARTNERSHIP
CAPITAL. AND HENCE, THE CHARITABLE INSTITUTION
OF THE DOMICILE OF THE PARTNERSHIP, AND IN THE
DEFAULT THEREOF, THOSE OF THE PROVINCE ARE NOT
NECESSARY PARTIES IN THIS CASE. THE ARTICLE CITED
ABOVE PERMITS NO ACTION FOR THE PURPOSE OF
OBTAINING THE EARNINGS MADE BY THE UNLAWFUL
PARTNERSHIP, DURING ITS EXISTENCE AS RESULT OF
THE BUSINESS IN WHICH IT WAS ENGAGED, BECAUSE
FOR THE PURPOSE, AS MANRESA REMARKS, THE
PARTNER WILL HAVE TO BASE HIS ACTION UPON THE
PARTNERSHIP CONTRACT, WHICH IS TO ANNUL AND
WITHOUT LEGAL EXISTENCE BY REASON OF ITS
UNLAWFUL OBJECT; AND IT IS SELF EVIDENT THAT
WHAT DOES NOT EXIST CANNOT BE A CAUSE OF
ACTION. HENCE, PARAGRAPH 2 OF THE SAME
ARTICLE PROVIDES THAT WHEN THE DISSOLUTION OF
THE UNLAWFUL PARTNERSHIP IS DECREED, THE PROFITS
CANNOT INURE TO THE BENEFIT OF THE PARTNERS, BUT
MUST BE GIVEN TO SOME CHARITABLE INSTITUTION.
THE PROFITS ARE SO APPLIED, AND NOT THE
CONTRIBUTIONS, BECAUSE THIS WOULD BE AN
EXCESSIVE AND UNJUST SANCTION FOR, AS WE HAVE
SEEN, THERE IS NO REASON, IN SUCH A CASE, FOR
DEPRIVING THE PARTNER OF THE PORTION OF THE
CAPITAL THAT HE CONTRIBUTED, THE
CIRCUMSTANCES OF THE TWO CASES BEING ENTIRELY
DIFFERENT.
ART. 1807. EVERY PARTNER MUST ACCOUNT TO THE
PARTNERSHIP FOR ANY BENEFIT, AND HOLD AS
TRUSTEE FOR IT ANY PROFITS DERIVED BY HIM WITHOUT
THE CONSENT OF THE OTHER PARTNERS FROM ANY
TRANSACTION CONNECTED WITH THE FORMATION,
CONDUCT, OR LIQUIDATION OF THE PARTNERSHIP OR
FROM ANY USE BY HIM OF ITS PROPERTY.
8. EUFEMIA EVANGELISTA, MANUELA
EVANGELISTA, AND FRANCISCA
EVANGELISTA ,PETITIONERS, VS. THE
COLLECTOR OF INTERNAL REVENUE AND THE
COURT OFTAX APPEALS, RESPONDENTS. G.R.
NO. L-9996, OCTOBER 15, 1957
FACTS:
PETITIONERS BORROWED SUM OF MONEY FROM THEIR
FATHER AND TOGETHER WITH THEIR OWN PERSONAL
FUNDS THEYUSED SAID MONEY TO BUY SEVERAL REAL
PROPERTIES. THEY THEN APPOINTED THEIR BROTHER
(SIMEON) AS MANAGER OF THESAID REAL
PROPERTIES WITH POWERS AND AUTHORITY TO SELL,
LEASE OR RENT OUT SAID PROPERTIES TO THIRD
PERSONS. THEYREALIZED RENTAL INCOME FROM THE
SAID PROPERTIES FOR THE PERIOD 1945-1949.ON
SEPTEMBER 24, 1954 RESPONDENT COLLECTOR OF
INTERNAL REVENUE DEMANDED THE PAYMENT OF
INCOME TAX ONCORPORATIONS, REAL ESTATE
DEALER'S FIXED TAX AND CORPORATION RESIDENCE
TAX FOR THE YEARS 1945-1949. THE LETTER OF
DEMAND AND CORRESPONDING ASSESSMENTS
WERE DELIVERED TO PETITIONERS ON DECEMBER 3,
1954, WHEREUPON THEYINSTITUTED THE PRESENT CASE
IN THE COURT OF TAX APPEALS, WITH A PRAYER THAT
"THE DECISION OF THE RESPONDENT CONTAINED IN
HIS LETTER OF DEMAND DATED SEPTEMBER 24, 1954"
BE REVERSED, AND THAT THEY BE ABSOLVED FROM
THEPAYMENT OF THE TAXES IN QUESTION. CTA DENIED
THEIR PETITION AND SUBSEQUENT MR AND NEW TRIALS
WERE DENIED.HENCE THIS PETITION.
ISSUE:
WHETHER OR NOT PETITIONERS HAVE FORMED A
PARTNERSHIP AND CONSEQUENTLY, ARE SUBJECT TO
THE TAX ONCORPORATIONS PROVIDED FOR IN
SECTION 24 OF COMMONWEALTH ACT. NO. 466,
OTHERWISE KNOWN AS THE NATIONALINTERNAL
REVENUE CODE, AS WELL AS TO THE RESIDENCE TAX
FOR CORPORATIONS AND THE REAL ESTATE DEALERS
FIXED TAX.
HELD: YES.
THE ESSENTIAL ELEMENTS OF A PARTNERSHIP ARE TWO,
NAMELY:
(A) AN AGREEMENT TO CONTRIBUTE
MONEY,PROPERTY OR INDUSTRY TO A COMMON
FUND; AND
(B) INTENT TO DIVIDE THE PROFITS AMONG THE
CONTRACTINGPARTIES.
THE FIRST ELEMENT IS UNDOUBTEDLY PRESENT IN THE
CASE AT BAR, FOR, ADMITTEDLY, PETITIONERS HAVE
AGREED TO,AND DID, CONTRIBUTE MONEY AND
PROPERTY TO A COMMON FUND. UPON
CONSIDERATION OF ALL THE FACTS
ANDCIRCUMSTANCES SURROUNDING THE CASE, WE
ARE FULLY SATISFIED THAT THEIR PURPOSE WAS TO
ENGAGE IN REAL ESTATETRANSACTIONS FOR
MONETARY GAIN AND THEN DIVIDE THE SAME
AMONG THEMSELVES, BECAUSE OF THE
FOLLOWINGOBSERVATIONS, AMONG OTHERS: (1)
SAID COMMON FUND WAS NOT SOMETHING THEY
FOUND ALREADY IN EXISTENCE; (2)THEY INVESTED THE
SAME, NOT MERELY IN ONE TRANSACTION, BUT IN A
SERIES OF TRANSACTIONS; (3) THE AFORESAID
LOTSWERE NOT DEVOTED TO RESIDENTIAL PURPOSES,
OR TO OTHER PERSONAL USES, OF PETITIONERS
HEREIN.ALTHOUGH, TAKEN SINGLY, THEY MIGHT NOT
SUFFICE TO ESTABLISH THE INTENT NECESSARY TO
CONSTITUTE A PARTNERSHIP, THECOLLECTIVE EFFECT
OF THESE CIRCUMSTANCES IS SUCH AS TO LEAVE NO
ROOM FOR DOUBT ON THE EXISTENCE OF SAID INTENT
INPETITIONERS HEREIN.FOR PURPOSES OF THE TAX ON
CORPORATIONS, OUR NATIONAL INTERNAL REVENUE
CODE, INCLUDES THESE PARTNERSHIPS— WITH THE
EXCEPTION ONLY OF DULY REGISTERED GENERAL
COPARTNERSHIPS — WITHIN THE PURVIEW OF THE
TERM"CORPORATION." IT IS, THEREFORE, CLEAR TO
OUR MIND THAT PETITIONERS HEREIN CONSTITUTE A
PARTNERSHIP, INSOFAR AS SAIDCODE IS
CONCERNED AND ARE SUBJECT TO THE INCOME TAX
FOR CORPORATIONS.
9. G.R. No. L-2484 April 11, 1906 JOHN
FORTIS, plaintiff-appellee, vs. GUTIERREZ
HERMANOS, defendants-appellants.
FACTS:
PLAINTIFF FORTIS IS AN EMPLOYEE OF DEFENDANT
GUTIERREZ HERMANOS. THEFORMER BROUGHT AN
ACTION TO RECOVER A BALANCE DUE HIM AS
SALARY FORTHE YEAR 1902. HE ALSO ALLEGED THAT
HE WAS ENTITLED, AS SALARY, TO 5 PERCENT OF THE
NET PROFITS OF THE BUSINESS OF THE DEFENDANTS
FOR SAID YEAR. THE COMPLAINT ALSO CONTAINED A
CAUSE OF ACTION FOR THE SUM OF 600PESOS,
MONEY EXPENDED BY PLAINTIFF FOR THE
DEFENDANTS DURING THE YEAR1903. THE LOWER
COURT RULED IN FAVOR OF THE PLAINTIFF. THE TOTAL
JUDGMENTRENDERED AMOUNTED TO P13, 025.40,
WHICH WAS REDUCED TO PHILIPPINECURRENCY. THE
DEFENDANTS MOVED FOR NEW TRIAL BUT WERE
DENIED. THEY BROUGHT THE CASE IN THE SC THRU BILL
OF EXCEPTIONS; THE APPELLANTS(DEFENDANTS)
ALLEGED THAT THAT THE CONTRACT MADE THE
PLAINTIFF ACOPARTNER OF THE DEFENDANTS IN THE
BUSINESS, WHICH THEY WERE CARRYING ON.
ISSUE:
WON THE PLAINTIFF IS A CO-PARTNER OF THE
DEFENDANTS IN THE BUSINESS.
RULING:
NO. IT WAS A MERE CONTRACT OF EMPLOYMENT. THE
PLAINTIFF HAD NEITHERVOICE NOR VOTE IN THE
MANAGEMENT OF THE AFFAIRS OF THE COMPANY.
THEFACT THAT THE COMPENSATION RECEIVED BY HIM
WAS TO BE DETERMINED WITHREFERENCE TO THE
PROFITS MADE BY THE DEFENDANTS IN THEIR BUSINESS
DIDNOT IN ANY SENSE MAKE BY A PARTNER THEREIN.
THE ARTICLES OF PARTNERSHIPBETWEEN THE
DEFENDANTS PROVIDED THAT THE PROFITS SHOULD BE
DIVIDEDAMONG THE PARTNERS NAMED IN A CERTAIN
PROPORTION. THE CONTRACT MADEBETWEEN THE
PLAINTIFF AND THE THEN MANAGER OF THE
DEFENDANTPARTNERSHIP DID NOT IN ANY WAY VARY
OR MODIFY THIS PROVISION OF THEARTICLES OF
PARTNERSHIP.
10. G.R. No. L-1256 October 23, 1903
VICENTE W. PASTOR, plaintiff-appellant,
vs.
MANUEL GASPAR, ET AL., defendants-appellees.
FACTS:
On November, 1900, there existed in Manila a
partnership composed of Macario Nicasio and the
defendant Gaspar under the name "Nicasio and
Gaspar." It owned the steam launch Luisa, and its
only business was the relating to this launch.
Desiring to increase this business, on the 24th day of
November, 1900, a contract was made between the
firm of Nicasio and Gaspar on the one side, and on
the other side the plaintiff, the defendants Eguia,
Iboleon, and Monserrat, and one Hermoso. This
contract recites that Nicasio and Gaspar, by writing
of the same date, have enlarged the business of
their partnership; have bought six lorchas, which are
named, and that, needing money with which to pay
for the lorchas and the necessary repairs thereon,
the parties of the second part have furnished them
28,000 pesos as loan, the amount furnished by each
being named. The firm of Nicasio and Gaspar then
acknowledges the receipt of these amounts.
In the contract, Nicasio and Gaspar undertakes to
return the amount loaned to the plaintiff within a
period of ten years from the date of the instrument
and to guarantee the fulfillment of the said payment
they pledge to the same parties the 6 launches. It
was provided in the seventh clause that the
launch Luisa was not included in this contract.
It is alleged in the complaint, and not denied by the
answer, that the contract thus entered into on
November 24, 1900, was in July, 1901, dissolved and
terminated, and the lorchas sold by mutual consent.
The cause of action set forth in the complaint is that
there was actually a partnership between the parties
to the contract of November 24, and that the
consent of the agent of the plaintiff to its dissolution
and the sale of the lorchas was obtained by fraud of
the defendants. The prayer of the complaint is that
the dissolution of the partnership and the sale of the
lorchas be declared null, and that the plaintiff be
restored to his rights therein, and if this cannot be
done that he recover of the defendants damages in
the sum of 42,500 pesos.

Issue: WON the transaction between the parties a
loan or a contract of partnership.
Ruling:
It was a LOAN in view of the ff. features contained in
the contract as found by the SC:
(a) It is twice stated positively that Nicasio and
Gaspar are the only partners and the only persons
interested in the partnership of Nicasio and Gaspar,
to which statements Pastor and his associates
assented to when he signed the document;
(b) It is stated, also distinctly and positively, that the
money has been furnished as a loan;
(c) Nicasio and Gaspar bind themselves in the
contract to repay the amount something that they
would not be bound to do were the contract one of
partnership;
(d) In the contract, Nicasio and Gaspar create in
favor of Pastor and his associates a right of pledge
over the launches, a thing inconsistent with the idea
of partnership;
(e) Nicasio and Gaspar are to be considered as
consignees only as long as they do not pay the debt.
This indicates that they had a right to pay it;
(f) They bind themselves not to alienate the launches
until they had paid the debt indicating clearly that
by paying the debt they could do so, a thing
inconsistent with the idea of a partnership; and
(g) It is also stated that the launch Luisa is not
included in the contract.
It was also ruled that, the fact that Pastor et. al., was
to share in the profits and losses of the business and
that Nicasio and Gaspar should answer for the
payment of the debt only with the launches and not
with their property, indicate that the petitioner was a
partner. But these provisions are not conclusive. The
rights of third persons are not concerned. The parties
could, in making the contract, if they choose, take
some provisions from the law of partnership and
others from the law of loans. Loans with a right to
receive a part of the profits in lieu of interests are not
uncommon. As between the parties, such a contract
is not one of a partnership.
11. [G.R. No. 127347. November 25, 1999] ALFREDO N.
AGUILA, JR vs. CA and FELICIDAD S. VDA. DE
ABROGAR
FACTS:
Aguila Jr., is the manager of A.C. Aguila & Sons, Co.,
a partnership engaged in lending
activities. Felicidad Abrogar and her late husband,
Ruben M. Abrogar, were the registered owners of a
house and lot, in Marikina, Metro Manila.
Felicidad with the consent of her late husband, and
A.C. Aguila & Sons, Co., represented by Aguila,
entered into a Memorandum of Agreement, which
provided that Felicidad has the right to repurchase
the lot from Aguila within 90 days. If Felicidad fails to
repurchase the lot within the said period, Felicidad is
obliged to deliver the property to Aguila within 15
days and the MOA is deemed cancelled with the
Deed of absolute sale (N.B.: buyer in the contract is
A.C.Aguila & Sons Co. not Aguilar Jr., himself) taking
its place which was executed on the same day.
Felicidad also executed an SPA authorizing Aguila to
cause the cancellation of the earlier TCT and
issuance of new certificate in the name of A.C.
Aguila & Sons, Co., in the event Felicidad failed to
redeem the subject property as provided in the
MOA.
Felicidad failed to redeem the property within the
90-day period. Hence, pursuant to the SPA
mentioned above, Aguila Jr., caused the
cancellation of TCT No. 195101 and the issuance of
a new certificate of title in the name of A.C. Aguila
and Sons, Co.
Felicidad then received a letter from the counsel for
A.C. Aguila & Sons, Co., demanding she vacate the
premises within 15 days after receipt of the letter and
surrender its possession peacefully to A.C. Aguila &
Sons, Co. Otherwise, the latter would bring the
appropriate action in court, but Felicidad refused to
vacate so A.C. Aguila & Sons Co. filed an ejectment
suit.
The MTC Marikina, RTC Pasig, CA, and SC- all ruled in
favor of A.C. Aguila & Sons
Felicidad filed a petition for declaration of nullity of
a deed of sale with the RTC Marikina on December
4, 1993. She alleged the signature of her husband on
the deed of sale was a forgery because he was
already dead when the deed was supposed to
have been executed on June 11, 1991.
The RTC dismissed the case but the CA reversed the
RTC’s decision and held that the MOA executed was
a pactum commissorium.
One of Aguila Jr.’s contentions was that he is not the
real party in interest but A.C. Aguila & Co., against
which this case should have been brought.
ISSUE/HELD:
WON Aguila Jr. is the real party in interest
RULING:
NO, it is A.C. Aguila & Sons. Rule 3.2 of the Rules of
Court of 1964, under which the complaint in this case
was filed, provided that every action must be
prosecuted and defended in the name of the real
party in interest. A real party in interest is one who
would be benefited or injured by the judgment, or
who is entitled to the avails of the suit. Any decision
rendered against a person who is not a real party in
interest in the case cannot be executed. Hence, a
complaint filed against such a person should be
dismissed for failure to state a cause of action
Under Art. 1768 of the Civil Code, a partnership has
a juridical personality separate and distinct from that
Respondent Suter protested the assessment, and
of each of the partners. The partners cannot be held
requested its cancellation and withdrawal, as not in
liable for the obligations of the partnership unless it is
accordance with law, but his request was denied.
shown that the legal fiction of a different juridical
Unable to secure a reconsideration, he appealed to
personality is being used for fraudulent, unfair, or
the Court of Tax Appeals, which court, after trial,
illegal purposes. In this case, Felicidad has not shown
rendered a decision, on 11 November 1965,
that A.C. Aguila & Sons, Co., as a separate juridical
reversing that of the Commissioner of Internal
entity, is being used for fraudulent, unfair, or illegal
Revenue.
purposes. Moreover, the title to the subject property
is in the name of A.C. Aguila & Sons, Co. and the ISSUE:
Memorandum of Agreement was executed
between Felicidad, with the consent of her late Whether or not the partnership was dissolved after
husband, and A. C. Aguila & Sons, Co., represented the marriage of the partners, respondent William J.
by Aguila Jr. Hence, it is the partnership, not its Suter and Julia Spirig Suter and the subsequent sale
officers or agents, which should be impleaded in any to them by the remaining partner, Gustav Carlson, of
litigation involving property registered in its name. A his participation of P2,000.00 in the partnership for a
violation of this rule will result in the dismissal of the nominal amount of P1.00.
complaint.
RULING:
Since Aguila Jr. is not the real party in interest against
No, the limited partnership was not dissolved.
whom this action should be prosecuted makes it
unnecessary to discuss the other issues raised by him. “A husband and a wife may not enter into a
contract of general copartnership, because under
12. G.R. No. L-25532 February 28, 1969
the Civil Code, which applies in the absence of
COMMISSIONER OF INTERNAL
express provision in the Code of Commerce, persons
REVENUE, petitioner, vs. WILLIAM J. SUTER and THE
prohibited from making donations to each other are
COURT OF TAX APPEALS, respondents.
prohibited from entering into universal partnerships.
FACTS: (2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a
A limited partnership, named "William J. Suter pre-existing partnership.”
'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the What the law prohibits was when the spouses
general partner, and Julia Spirig and Gustav Carlson, entered into a general partnership. In the case at
as the limited partners. The partners contributed, bar, the partnership was limited.
respectively, P20,000.00, P18,000.00 and P2,000.00 to
The petitioner-appellant has evidently failed to
the partnership. On 1 October 1947, the limited
observe the fact that William J. Suter "Morcoin" Co.,
partnership was registered with the Securities and
Ltd. was not a universal partnership, but a particular
Exchange Commission. The firm engaged, among
one.
other activities, in the importation, marketing,
distribution and operation of automatic As appears from Articles 1674 and 1675 of the
phonographs, radios, television sets and amusement Spanish Civil Code, of 1889 (which was the law in
machines, their parts and accessories. It had an force when the subject firm was organized in 1947),
office and held itself out as a limited partnership, a universal partnership requires either that the object
handling and carrying merchandise, using invoices, of the association be all the present property of the
bills and letterheads bearing its trade-name, partners, as contributed by them to the common
maintaining its own books of accounts and bank fund, or else "all that the partners may acquire by
accounts, and had a quota allocation with the their industry or work during the existence of the
Central Bank. partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the
In 1948, however, general partner Suter and limited
contributions of the partners were fixed sums of
partner Spirig got married and, thereafter, on 18
money, P20,000.00 by William Suter and P18,000.00
December 1948, limited partner Carlson sold his
by Julia Spirig and neither one of them was an
share in the partnership to Suter and his wife. The sale
industrial partner. It follows that William J. Suter
was duly recorded with the Securities and Exchange
"Morcoin" Co., Ltd. was not a partnership that
Commission on 20 December 1948.
spouses were forbidden to enter by Article 1677 of
The limited partnership had been filing its income tax the Civil Code of 1889.
returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue,
until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and
Spirig resulting in a determination of a deficiency
income tax against respondent Suter in the amount
of P2,678.06 for 1954 and P4,567.00 for 1955.
13. In The Matter of the Petition for Authority to the deceased partner It is clearly tacit in the above
liable for any debts provision that names in a firm name
Continue Use of the Firm Name “Ozaeta, Romulo, De
contracted by such of a partnership must either be those
Leon…” etc. 92 SCRA 1 July 30, 1979 person or partnership of living partners and in the case of
non-partners, should be living
FACTS: persons who can be subjected to
liability.
Two separate Petitions were filed before the
Supreme Court 1) by the surviving partners of Atty.
Alexander Sycip, who died on May 5, 1975, and 2) Article 1840 treats more of
by the surviving partners of Atty. Herminio Ozaeta, a commercial partnership with a
who died on February 14, 1976, praying that they be good will to protect rather than of a
professional partnership, with no
allowed to continue using, in the names of their firms,
saleable good will but whose
the names of partners who had passed away. In the reputation depends on the personal
Court's Resolution of September 2, 1976, both qualifications of its individual
Petitions were ordered consolidated. members.

Petitioners contend that the continued use of the

name of a deceased or former partner when - a professional partnership has no
permissible by local custom, is not unethical but care good will to be distributed (based
on individual skills)
should be taken that no imposition or deception is
practiced through this use. They also contend that
no local custom prohibits the continued use of a
A partnership for the practice of law
deceased partner’s name in a professional firm’s cannot be likened to partnerships
name; there is no custom or usage in the Philippines, formed by other professionals or for
or at least in the Greater Manila Area, which business.
recognizes that the name of a law firm necessarily
identifies the individual members of the firm.
A partnership for the practice of law
ISSUE: is not a legal entity. It is a mere
relationship or association for a
2. In regulating other
WON the two law firms are entitled to continue using professions, such as
particular purpose. ... It is not a
the name or including the name of their deceased partnership formed for the purpose
accountancy and
of carrying on trade or business or of
partner. engineering (a
holding property." Thus, it has been
profession requiring the
stated that "the use of a nom de
RULING NO. same degree of trust
plume (pen name), assumed or
and confidence), the
trade name in law practice is
Petitions were DENIED - petitioners were advised to legislature has
improper.
drop the names "SYCIP" and "OZAETA" from their authorized the
adoption of firm names
respective firm names. Those names may, however, without any restriction
be included in the listing of individuals who have as to the use, in such
been partners in their firms indicating the years firm name, of the name
during which they served as such. of a deceased partner
(Indication that no
Petitioners' desire to preserve the Identity of their fundamental policy is
offended by the
firms in the eyes of the public must bow to legal and practice in issue –
ethical impediment characteristics of trade
name) (COMPARISON
PETITIONER’S COURT’S RULING OF PRACTICE OF LAW
ARGUMENT TO OTHER PARTNERSHIPS
FORMED BY OTHER
1. Under the law, a Although said parties were indeed
PROFESSIONALS OR FOR
partnership is not in partnerships with the deceased,
BUSINESS).
prohibited from the continued use in their
continuing its business partnership names of the names of
under a firm name deceased partners will run counter
which includes the to Article 1815 of the Civil Code
name of a deceased which provides:
partner; in fact, Article 3. The Canons of
1840 of the Civil Code Professional Ethics are
explicitly sanctions the not transgressed by the
Art. 1815. Every partnership shall continued use of the
practice. (SEE LAST PAR.
operate under a firm name, which name of a deceased
ART. 1840)
may or may not include the name partner in the firm name
of one or more of the partners. of a law partnership
(SEE CANON 33) /(AND
The use by the person or 3.1. No local custom
partnership continuing prohibits the continued
Those who, not being members of
the business of the use of a deceased
the partnership, include their names
partnership name, partner's name in a
in the firm name, shall be subject to
or the name of a professional firm's
the liability, of a partner.
deceased partner as name.)
part thereof, shall not of
itself make the
individual property of
... The continued use of
the name of a
deceased or former
partner when
permissible by local
custom, is not unethical
but care should be
taken that no
imposition or deception
is practiced through this
use.

It is true that Canon 33 does not

4. There is no possibility consider as unethical the continued
of imposition or use of the name of a deceased or
deception because former partner in the firm name of a
the deaths of their law partnership when such a
respective deceased practice is permissible by local
partners were well- custom but the Canon warns that
publicized in all care should be taken that no
newspapers of general imposition or deception is practiced
circulation for several through this use.
days; the stationeries
now being used by
them carry new It must be conceded that in the
letterheads indicating Philippines, no local custom permits
the years when their or allows the continued use of a
respective deceased deceased or former partner's name
partners were in the firm names of law
connected with the partnerships. Firm names, under our
firm; petitioners will custom, Identify the more active
notify all leading and/or more senior members or
national and partners of the law firm.
international law
directories of the fact of
their respective
deceased partners'
deaths. (Common
Knowledge and
Initiative to inform the
public)

5. The continued use of

a deceased partner's
name in the firm name
of law partnerships has
U.S. Courts have consistently
been consistently
allowed the continued use of a
allowed by U.S. Courts
deceased partner's name in the firm
and is an accepted name of law partnerships. But that is
practice in the legal
so because it is sanctioned by
profession of most custom.
countries in the world.

Not so in this jurisdiction where there

is no local custom that sanctions the
Possibility of deception cannot be
practice.
ruled out (people might be guided
by the familiar ring in seach of a
distinguisehd lawyer)
Moreover, judicial decisions
applying or interpreting the laws
form part of the legal system. Deen
and Perkins cases (issued its
Resolutions directing lawyers to
desist from including the names of
deceased partners in their firm
designation) it laid down a legal rule
against which no custom or
practice to the contrary, even if
proven, can prevail.

This is not to speak of our civil law

which clearly ordains that a
partnership is dissolved by the
death of any partner.
14. G.R. No. 109248 July 3, 1995 GREGORIO F.
ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN
T. BACORRO vs.
HON. COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and JOAQUIN L. MISA
FACTS:
On December 19, 1980, respondent Misa associated
himself together, as senior partner with petitioners
Ortega, del Castillo, Jr., and Bacorro, as junior
partners. On Feb. 17, 1988, respondent Misa wrote a
letter stating that he is withdrawing and retiring from
the firm and asking for a meeting with the petitioners
to discuss the mechanics of the liquidation.
On June 30, 1988, petitioner filed a petition to the
Commission's Securities Investigation and Clearing
Department for the formal dissolution and liquidation
of the partnership. On March 31, 1989, the hearing
officer rendered a decision ruling that the
withdrawal of the petitioner has not dissolved the
partnership.
On appeal, the SEC en banc reversed the decision
of the Hearing Officer and held that the withdrawal
of Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm
could be dissolved by any partner at anytime, such
as by his withdrawal therefrom, regardless of good
faith or bad faith, since no partner can be forced to
continue in the partnership against his will.
The Court of Appeals, finding no reversible error on
the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from.
Hence, this petition.
ISSUES
1. WON the partnership is a partnership at will.
2. WON the withdrawal of private respondent
dissolved the partnership regardless of his
good or bad faith.
RULINGS
1. YES. The SC upheld the ruling of the CA
regarding the nature of the partnership.
A partnership that does not fix its term is a partnership
at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored.
The 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 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.
2. 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
partnership4 but that it can result in a liability
for damages.
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. 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.
15. G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS
ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO,respondents.
FACTS:
Petitioner and private respondents are brothers and
sisters who are co-owners of certain lots at the corner
of Annapolis and Aurora Blvd., Quezon City which
were then being leased to the Shell Company of the
Philippines Limited (SHELL). They agreed to open and
operate a gas station thereat to be known as
Estanislao Shell Service Station with an initial
investment of P 15,000.00 to be taken from the
advance rentals due to them from SHELL for the
occupancy of the said lots owned in common by
them.
A joint affidavit was executed by them on April 11,
1966 which was prepared by Atty. Democrito
Angeles They agreed to help their brother, petitioner
herein, by allowing him to operate and manage the
gasoline service station of the family. They
negotiated with SHELL. For practical purposes and in
order not to run counter to the company's policy of
appointing only one dealer, it was agreed that
petitioner would apply for the dealership.
Respondent Remedios helped in managing the
bussiness with petitioner from May 3, 1966 up to
February 16, 1967.
On May 26, 1966, the parties herein entered into an
Additional Cash Pledge Agreement with SHELL
wherein it was reiterated that the P 15,000.00
advance rental shall be deposited with SHELL to
cover advances of fuel to petitioner as dealer with a
proviso that said agreement "cancels and
supersedes the Joint Affidavit dated 11 April 1966
executed by the co-owners." 2

For sometime, the petitioner submitted financial
statements regarding the operation of the business
to private respondents, but therafter petitioner failed
to render subsequent accounting. Hence through
Atty. Angeles, a demand was made on petitioner to
render an accounting of the profits.
The financial report of December 31, 1968 shows that
the business was able to make a profit of P 87,293.79
and that by the year ending 1969, a profit of P
150,000.00 was realized.
Thus, on August 25, 1970 private respondents filed a
complaint in the Court of First Instance of Rizal
against petitioner praying among others that the
latter be ordered:
 to render an accounting of the profits;
• to execute a public document embodying all
the provisions of the partnership agreement;
• to pay the plaintiffs their lawful shares and
participation in the net profits of the business.
After trial on the merits, on October 15, 1975, Hon.
Lino Anover who was then the temporary presiding
judge of Branch IV of the trial court, rendered
judgment dismissing the complaint and
counterclaim and ordering private respondents to
pay petitioner P 3,000.00 attorney's fee and costs.
Private respondent filed a motion for reconsideration
of the decision.
On December 10, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the
same branch, set aside the aforesaid derision and
rendered another decision in favor of said
respondents.
Petitioner then interposed an appeal to the Court of
Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a
decision was rendered by the Court of Appeals on
November 28,1978 affirming in toto the decision of
the lower court with costs against petitioner.
Hence, this petition.
ISSUE
WON a partnership was established by and among
the petitioner and the private respondents as regards
the ownership and or operation of the gasoline
service station business.
RULING:
YES. The Joint Affidavit of April 11, 1966 (Exhibit A),
clearly stipulated by the members of the same family
that the P15,000.00 advance rental due to them
from SHELL shall augment their "capital
investment" in the operation of the gasoline station.
Moreover other evidence in the record shows that
there was in fact such partnership agreement
between the parties. This is attested by the
testimonies of private respondent Remedies
Estanislao and Atty. Angeles. Petitioner submitted to
private respondents periodic accounting of the
business. 4 Petitioner gave a written authority to
private respondent Remedies Estanislao, his sister, to
examine and audit the books of their "common
business' aming negosyo). 5 Respondent Remedios
assisted in the running of the business. There is no
doubt that the parties hereto formed a partnership
when they bound themselves to contribute money
to a common fund with the intention of dividing the
profits among themselves.
16. G.R. No. L-18703 August 28, 1922
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA &
CO., S. en C., appellee,
vs. PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM
CO., and INTERNATIONAL BANKING
CORPORATION,petitioners-appellants.
FACTS:
Campos, Rueda & Co., a limited partnership, is
indebted to the appellants: Pacific Commercial Co.
, Asiatic Petroleum Co, and International Banking
Corporation amounting to not less than P1,000.00
(which were not paid more than 30 days prior to the
date of the filing by petitioners of the application for
voluntary insolvency).
The partnership Campos Rueda & Co., voluntarily
filed an application for a judicial decree adjudging
itself insolvent.
The trial court denied the petition on the ground that
it was not proven, nor alleged, that the members of
the aforesaid firm were insolvent at the time the
application was filed; and that was said partners are
personally and solidarily liable for the consequence
of the transactions of the partnership, it cannot be
adjudged insolvent so long as the partners are not
alleged and proven to be insolvent.
From this judgment the petitioners appeal to the
Supreme Court, on the ground that the finding of the
lower court’s erroneous.
ISSUE
Whether or not a limited partnership, such as the
which has failed to pay its obligation with three
creditors for more than thirty days, may be held to
have committed an act of insolvency, and thereby
be adjudged insolvent against its will.
RULING:
The Philippine statutes consider a limited partnership
as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts
(art. 116, Code of Commerce). This being so and the
juridical personality of a limited partnership being
different from that of its members, it must, on general
principle, answer for, and suffer, the consequence of
its acts as such an entity capable of being the
subject of rights and obligations. If, as in the instant
case, the limited partnership of Campos Rueda &
Co. Failed to pay its obligations with three creditors
for a period of more than thirty days, which failure
constitutes, under our Insolvency Law, one of the
acts of bankruptcy upon which an adjudication of
involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a
failure, and must be adjudged insolvent.
17. G.R. No. L-8576 February 11, 1915
VARGAS and COMPANY, plaintiff-appellee,
vs. CHAN HANG CHIU, ET AL., defendants-appellants.
FACTS:
On the 19th day of August, 1911, an action was
begun by Chan Hang Chiu against the plaintiff in this
case as a mercantile association duly organized
under the laws of the Philippine Islands, to recover a
sum of money. The summons and complaint were
placed in the hands of the sheriff, delivering to and
leaving with one Jose Macapinlac personally true
copies thereof, he being the managing agent of
said Vargas & Co. at the time of such service. On July
2, 1912, the justice's court of Manila rendered
judgment against Vargas & Co. for the sum of 372.28.
It is plaintiff’s contention that Vargas & Co. being a
partnership, it is necessary, in bringing an action
against it, to serve the summons on all of the
partners, delivering to each one of them personally
a copy thereof; and that the summons in this case
having been served on the managing agent of the
company only, the service was of no effect as
against the company and the members thereof and
the judgment entered by virtue of such a service was
void.
Issue:
Whether or not it is indispensable in bringing an
action to a partnership to serve summons to all
parties thereof.
Held:
No, it is dispensable.
REASONS
It has been the universal practice in the Philippine
Islands since American occupation, and was the
practice prior to that time, to treat companies of the
class to which the plaintiff belongs as legal or
juridical entities and to permit them to sue and be
sued in the name of the company, the summons
being served solely on the managing agent or other
official of the company specified by the section of
the Code of Civil Procedure referred to. The plaintiff
brings this action in the company name and not in
the name of the members of the firm. Actions
against companies of the class to which plaintiff
belongs are brought, according to the uninterrupted
practice, against such companies in their company
names and not against the individual partners
constituting the firm. In case the individual members
of the firm must be separately served with process,
the rule also prevails that they must be parties to the
action, either plaintiffs or defendant, and that the
action cannot be brought in the name of or against
the company itself.
If it is necessary to serve the partners individually,
they are entitled to be heard individually in the
action and they must, therefore, be made parties
thereto so that they can be heard. It would be idle
to serve process on individual members of a
partnership if the litigation were to be conducted in
the name of the partnership itself and by the duly
constituted officials of the partnership exclusively.
In this case, it is apparent that the plaintiff is acting
contrary to its own contention by bringing the action
in the name of the company. If not served with
process, then the action should be brought in the
individual names of the partners and not in the name
of the company itself.
18. G.R. No. L-48113 April 7, 1947
NGO TIAN TEK and NGO HAY, petitioner,
vs.
PHILIPPINE EDUCATION CO., INC., respondent.
FACTS:
As far back as the year 1925, the Modern Box Factory
was established at 603 Magdalena Street, Manila. It
was at first owned by Ngo Hay, who three years later
was joined by Ngo Tian Tek as a junior partner. The
modern Box Factory dealt in pare and similar
merchandise and purchased goods from the
plaintiff and its assignors in the names of the Modern
Box Factory, Ngo Hay and Co., Go Hay Box Factory,
or Go Hay.
When that concern, through Vicente Tan, sought
credit with the plaintiff and its assignors, Ngo Hay, in
conversations and interviews with their officers and
employees, represented that he was the principal
owner of such factory, that the Lee Guan Box
Factory and the Modern Box Factory belonged to
the same owner, and that the Lee Guan Box Factory
was a subsidiary of the Modern Box Factory.
There is evidence that many goods purchased in the
name of the Lee Guan Box Factory were delivered
to the Modern Box Factory by the employees of the
plaintiff and its assignors upon the express direction
of Vicente Tan. There is also evidence that the
collectors of the sellers were requested by Vicente
Tan to collect — and did collect — from the Modern
Box Factory the bills against the Lee Guan Box
Factory. In the fact the record shows many checks
signed by Ngo Hay or Ngo Tian Tek in payment of
accounts of the Lee Guan Box Factory.
Furthermore, — and this seems to be conclusive-Ngo
Hay, testifying for the defense, admitted that 'he'
was the owner of the Lee Guan Box Factory in and
before the year 1934, but that in January, 1935, 'he'
sold it, by the contract of sale to Vicente Tan, who
had been his manager of the business. Tan declared
also that before January, 1935, the Lee Guan Box
Factory pertained to Ngo Hay and Ngo Tian Tek.
The Philippine Education Co., Inc., instituted in the
Court of First Instance of Manila an action against
the defendants, Vicente Tan alias Chan Sy and the
partnership of Ngo Tian Tek and Ngo Hay, for the
recovery of some P16,070.14, unpaid cost of
merchandise purchased by Lee Guan Box Factory
from the plaintiff and five other corporate entities
which, though not parties to the action, had
previously assigned their credits to the plaintiff,
together with attorney's fees, interest and costs.
By agreement of the parties, the case was heard
before a referee, Attorney Francisco Dalupan, who
in due time submitted his report holding the
defendants jointly and severally liable to the plaintiff
for the sum of P16,070.14 plus attorney's fees and
interest at the rates specified in the report. On March
6, 1939, the Court of First Instance of Manila rendered
judgment was affirmed by the Court of Appeals in its
decision of January 31, 1941, now the subject of the
Supreme Court’s review at the instance of the
partnership Ngo Tian Tek and Ngo Hay, petitioner
herein.
During the pendency of the case, Ngo Hay died.
ISSUE:
Whether or not the case filed against the partnership
will be dismissed because of the death of the
partner, Ngo Hay.
RULING:
NO. It is sufficient to state that the petitioner Ngo
Tian Tek and Ngo Hay is sued as a partnership
possessing a personality distinct from any of the
partners.
19. G.R. No. L-17295 July 30, 1962
ANG PUE & COMPANY, ET AL., plaintiffs-appellants,
vs.
SECRETARY OF COMMERCE AND
INDUSTRY, defendant-appellee.
FACTS:
On May 1, 1953, Ang Pue and Tan Siong, both
Chinese citizens, organized the partnership Ang Pue
& Company for a term of five years from May 1, 1953,
extendible by their mutual consent. The purpose of
the partnership was "to maintain the business of
general merchandising, buying and selling at
wholesale and retail, particularly of lumber,
hardware and other construction materials for
commerce, either native or foreign." The
corresponding articles of partnership (Exhibit B) were
registered in the Office of the Securities & Exchange
Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was
enacted to regulate the retail business. It provided,
among other things, that, after its enactment, a
partnership not wholly formed by Filipinos could
continue to engage in the retail business until the
expiration of its term.
On April 15, 1958 — prior to the expiration of the five-
year term of the partnership Ang Pue & Company,
but after the enactment of the Republic Act 1180,
the partners already mentioned amended the
original articles of part ownership (Exhibit B) so as to
extend the term of life of the partnership to another
five years. When the amended articles were
presented for registration in the Office of the
Securities & Exchange Commission on April 16, 1958,
registration was refused upon the ground that the
extension was in violation of the aforesaid Act.
Issue:
RULING:
To organize a corporation or a partnership that could
claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but
a privilege which may be enjoyed only under such
terms as the State may deem necessary to impose.
That the State, through Congress, and in the manner
provided by law, had the right to enact Republic Act
No. 1180 and to provide therein that only Filipinos
and concerns wholly owned by Filipinos may
engage in the retail business can not be seriously
disputed. That this provision was clearly intended to
apply to partnership already existing at the time of
the enactment of the law is clearly showing by its
provision giving them the right to continue engaging
in their retail business until the expiration of their term
or life.
To argue that because the original articles of
partnership provided that the partners could extend
the term of the partnership, the provisions of
Republic Act 1180 cannot be adversely affect
appellants herein, is to erroneously assume that the
aforesaid provision constitute a property right of
which the partners cannot be deprived without due
process or without their consent. The agreement
contain therein must be deemed subject to the law
existing at the time when the partners came to
agree regarding the extension. In the present case,
as already stated, when the partners amended the
articles of partnership, the provisions of Republic Act
1180 were already in force, and there can be not the
slightest doubt that the right claimed by appellants
to extend the original term of their partnership to
another five years would be in violation of the clear
intent and purpose of the law aforesaid.
20. G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P.
DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and
COURT OF TAX APPEALS, respondents.
The distinction between co-ownership and an
unregistered partnership or joint venture for income
tax purposes is the issue in this petition.
FACTS:
On June 22, 1965, petitioners bought two (2) parcels
of land from Santiago Bernardino, et al. and on May
28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land
were sold by petitioners in 1968 to Marenir
Development Corporation, while the three parcels
of land were sold by petitioners to Erlinda Reyes and
Maria Samson on March 19,1970. Petitioners realized
a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The
corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax
amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then
Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount
of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter
of June 26, 1979 asserting that they had availed of
tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent
Commissioner informed petitioners that in the years
1968 and 1970, petitioners as co-owners in the real
estate transactions formed an unregistered
partnership or joint venture taxable as a corporation
under Section 20(b) and its income was subject to
the taxes prescribed under Section 24, both of the
National Internal Revenue Code 1 that the
unregistered partnership was subject to corporate
income tax as distinguished from profits derived from
the partnership by them which is subject to individual
income tax; and that the availment of tax amnesty
under P.D. No. 23, as amended, by petitioners
relieved petitioners of their individual income tax
liabilities but did not relieve them from the tax liability
of the unregistered partnership. Hence, the
petitioners were required to pay the deficiency
income tax assessed.
Petitioners filed a petition for review with the
respondent Court of Tax Appeals docketed as CTA
Case No. 3045. In due course, the respondent court
by a majority decision of March 30, 1987, 2 affirmed
the decision and action taken by respondent
commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated
in Evangelista 3 an unregistered partnership was in
fact formed by petitioners which like a corporation
was subject to corporate income tax distinct from
that imposed on the partners.
Issue:
Ruling: WON PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX,
AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.
Ruling:
There is no evidence that petitioners entered into an
agreement to contribute money, property or industry
to a common fund, and that they intended to divide
the profits among themselves. Respondent
commissioner and/ or his representative just
assumed these conditions to be present on the basis
of the fact that petitioners purchased certain
parcels of land and became co-owners thereof.
When petitioners bought two (2) parcels of land in
1965, they did not sell the same nor make any
improvements thereon. In 1966, they bought another
three (3) parcels of land from one seller. It was only
1968 when they sold the two (2) parcels of land after
which they did not make any additional or new
purchase. The remaining three (3) parcels were sold
by them in 1970. The transactions were isolated. The
character of habituality peculiar to business
transactions for the purpose of gain was not present.
The sharing of returns does not in itself establish a
partnership whether or not the persons sharing
therein have a joint or common right or interest in the
property. There must be a clear intent to form a
partnership, the existence of a juridical personality
different from the individual partners, and the
freedom of each party to transfer or assign the whole
property.
In the present case, there is clear evidence of co-
ownership between the petitioners. There is no
adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two
isolated transactions whereby they purchased
properties and sold the same a few years thereafter
did not thereby make them partners. They shared in
the gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they
cannot be considered to have formed an
unregistered partnership which is thereby liable for
corporate income tax, as the respondent
commissioner proposes.
And even assuming for the sake of argument that
such unregistered partnership appears to have been
formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets
that can be held liable for said deficiency corporate
income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the
partnership p. 7 However, as petitioners have availed
of the benefits of tax amnesty as individual taxpayers
in these transactions, they are thereby relieved of
any further tax liability arising therefrom.
21. G.R. No. L-19342 May 25, 1972
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES,
namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA,
JR., petitioners, vs. THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
FACTS:
Julia Buñales died on March 23, 1944, leaving as heirs
her surviving spouse, Lorenzo T. Oña and her five
children. In 1948, Civil Case No. 4519 was instituted in
the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oña the
surviving spouse was appointed administrator of the
estate of said deceased.
On April 14, 1949, the administrator submitted the
project of partition, which was approved by the
Court on May 16, 1949. Because three of the heirs,
namely Luz, Virginia and Lorenzo, Jr., all surnamed
Oña, were still minors when the project of partition
was approved, Lorenzo T. Oña, their father and
administrator of the estate, filed a petition in Civil
Case No. 9637 of the Court of First Instance of Manila
for appointment as guardian of said minors. On
November 14, 1949, the Court appointed him
guardian of the persons and property of the
aforenamed minors.
The project of partition shows that the heirs have
undivided one-half (1/2) interest in ten parcels of
land with a total assessed value of P87,860.00, six
houses with a total assessed value of P17,590.00 and
an undetermined amount to be collected from the
War Damage Commission. Later, they received from
said Commission the amount of P50,000.00, more or
less. This amount was not divided among them but
was used in the rehabilitation of properties owned by
them in common. Of the ten parcels of land
aforementioned, two were acquired after the death
of the decedent with money borrowed from the
Philippine Trust Company in the amount of
P72,173.00.
The project of partition also shows that the estate
shares equally with Lorenzo T. Oña, the administrator
thereof, in the obligation of P94,973.00, consisting of
loans contracted by the latter with the approval of
the Court.
Although the project of partition was approved by
the Court on May 16, 1949, no attempt was made to
divide the properties therein listed. Instead, the
properties remained under the management of
Lorenzo T. Oña who used said properties in business
by leasing or selling them and investing the income
derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result,
petitioners' properties and investments gradually
increased from P105,450.00 in 1949 to P480,005.20 in
1956.
From said investments and properties petitioners
derived such incomes as profits from installment sales
of subdivided lots, profits from sales of stocks,
dividends, rentals and interests.
Every year, petitioners returned for income tax
purposes their shares in the net income derived from
said properties and securities and/or from
transactions involving them . However, petitioners
did not actually receive their shares in the yearly
income. The income was always left in the hands of
Lorenzo T. Oña who, as heretofore pointed out,
invested them in real properties and securities.
On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of
the Tax Code. Accordingly, he assessed against the
petitioners the amounts of P8,092.00 and P13,899.00
as corporate income taxes for 1955 and 1956,
respectively.
Issue: WON Petitioners formed an unregistered
partnership?
Ruling:
Pondering on these questions, the first thing that has
struck the Court is that whereas petitioners'
predecessor in interest died way back on March 23,
1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and
presumably petitioners have been holding their
respective shares in their inheritance since those
dates admittedly under the administration or
management of the head of the family, the widower
and father Lorenzo T. Oña, the assessment in
question refers to the later years 1955 and 1956.
We believe this point to be important because,
apparently, at the start, or in the years 1944 to 1954,
the respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered
partnership. At least, there is nothing in the record
indicating that an earlier assessment had already
been made. Such being the case, and We see no
reason how it could be otherwise, it is easily
understandable why petitioners' position that they
are co-owners and not unregistered co-partners, for
the purposes of the impugned assessment, cannot
be upheld. Truth to tell, petitioners should find
comfort in the fact that they were not similarly
assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually
distributing the estate of the deceased among
themselves pursuant to the project of partition
approved in 1949, "the properties remained under
the management of Lorenzo T. Oña who used said
properties in business by leasing or selling them and
investing the income derived therefrom and the
proceed from the sales thereof in real properties and
securities," as a result of which said properties and
investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00 in
"building account" in 1949 to P175,028.68 in
"investment account," P135.714.68 in "land account"
and P169,262.52 in "building account" in 1956. And all
these became possible because, admittedly,
petitioners never actually received any share of the
income or profits from Lorenzo T. Oña and instead,
they allowed him to continue using said shares as
part of the common fund for their ventures, even as
they paid the corresponding income taxes on the
basis of their respective shares of the profits of their
common business as reported by the said Lorenzo T.
Oña.
It is thus incontrovertible that petitioners did not,
contrary to their contention, merely limit themselves
to holding the properties inherited by them. Indeed,
it is admitted that during the material years herein
involved, some of the said properties were sold at
considerable profit, and that with said profit,
petitioners engaged, thru Lorenzo T. Oña, in the
purchase and sale of corporate securities. It is
likewise admitted that all the profits from these
ventures were divided among petitioners 2. Gregoria Cristobal
proportionately in accordance with their respective ........................................................... .18
....................................
shares in the inheritance. In these circumstances, it is
Our considered view that from the moment
3. Saturnina Silva
petitioners allowed not only the incomes from their ........................................................... .08
respective shares of the inheritance but even the .........................................

inherited properties themselves to be used by

Lorenzo T. Oña as a common fund in undertaking 4. Guillermo Tapia
........................................................... .13
several transactions or in business, with the intention ........................................
of deriving profit to be shared by them
proportionally, such act was tantamonut to actually 5. Jesus Legaspi
contributing such incomes to a common fund and, ........................................................... .15
...........................................
in effect, they thereby formed an unregistered
partnership within the purview of the above-
6. Jose Silva
mentioned provisions of the Tax Code. ........................................................... .07
..................................................
It is but logical that in cases of inheritance, there
should be a period when the heirs can be
7. Tomasa Mercado
considered as co-owners rather than unregistered ........................................................... .08
co-partners within the contemplation of our .....................................

corporate tax laws aforementioned. Before the

partition and distribution of the estate of the 8. Julio Gatchalian
........................................................... .13
deceased, all the income thereof does belong ........................................
commonly to all the heirs, obviously, without them
becoming thereby unregistered co-partners, but it 9. Emiliana Santiago
does not necessarily follow that such status as co- ........................................................... .13
.....................................
owners continues until the inheritance is actually and
physically distributed among the heirs, for it is easily
10. Maria C. Legaspi
conceivable that after knowing their respective ........................................................... .16
shares in the partition, they might decide to continue ....................................
holding said shares under the common
management of the administrator or executor or of 11. Francisco Cabral
........................................................... .13
anyone chosen by them and engage in business on ....................................
that basis. Withal, if this were to be allowed, it would
be the easiest thing for heirs in any inheritance to 12. Gonzalo Javier
circumvent and render meaningless Sections 24 and ........................................................... .14
84(b) of the National Internal Revenue Code. .........................................

Petitioners' reliance on Article 1769, paragraph (3), 13. Maria Santiago

of the Civil Code, providing that: "The sharing of gross ........................................................... .17
........................................
returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint
14. Buenaventura Guzman
or common right or interest in any property from ........................................................... .13
which the returns are derived," and, for that matter, ...........................

on any other provision of said code on partnerships

is unavailing. 15. Mariano Santos
........................................................... .14
......................................
22. G.R. No. L-45425 April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants, Total

vs. ...........................................................
............................................. 2.00
THE COLLECTOR OF INTERNAL REVENUE, defendant-
appellee.
3. the said ticket was registered in the name of Jose
FACTS: Gatchalian and Company;

1. Plaintiff are all residents of the municipality of
Pulilan, Bulacan, and that defendant is the Collector
of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order
to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid
therefor the amounts as follows:
1. Jose Gatchalian
...........................................................
.........................................
4. As a result of the drawing of the sweepstakes on
December 15, 1934, the ticket won one of the third
prizes in the amount of P50,000 and that the
corresponding check covering the above-
mentioned prize of P50,000 was drawn by the
National Charity Sweepstakes Office in favor of Jose
Gatchalian & Company against the Philippine
National Bank, which check was cashed during the
latter part of December, 1934 by Jose Gatchalian &
P0.18
Company;
5. That on December 29, 1934, Jose Gatchalian was
required by income tax examiner Alfredo David to
file the corresponding income tax return covering
the prize won;
6. That on January 8, 1935, an assessment against
Jose Gatchalian & Company requesting the
payment of the sum of P1,499.94
7. Plaintiffs requested exemption from payment of
the income tax which was however denied;
9. That in view of the failure of the plaintiffs to pay the
amount, defendant on May 13, 1935 issued a
warrant of distraint and levy against the property of
the plaintiffs;
10. That to avoid embarrassment, plaintiff paid under
protest the sum of P601.51 as part of the tax and
penalties;
Issue: Whether the plaintiffs formed a partnership, or
merely a community of property without a
personality of its own; in the first case it is admitted
that the partnership thus formed is liable for the
payment of income tax, whereas if there was merely
a community of property, they are exempt from such
payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated
among them and paid individually.
Ruling:
There is no doubt that if the plaintiffs merely formed
a community of property the latter is exempt from
the payment of income tax under the law. But
according to the stipulation facts the plaintiffs
organized a partnership of a civil nature because
each of them put up money to buy a sweepstakes
ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the
amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the
organization thereof and the winning of the prize,
Jose Gatchalian personally appeared in the office
of the Philippines Charity Sweepstakes, in his
capacity as co-partner, as such collection the prize,
the office issued the check for P50,000 in favor of
Jose Gatchalian and company, and the said
partner, in the same capacity, collected the said
check. All these circumstances repel the idea that
the plaintiffs organized and formed a community of
property only.
Having organized and constituted a partnership of a
civil nature, the said entity is the one bound to pay
the income tax which the defendant collected
under the aforesaid section 10 (a) of Act No. 2833,
as amended by section 2 of Act No. 3761. There is no
merit in plaintiff's contention that the tax should be
prorated among them and paid individually,
resulting in their exemption from the tax.
23. G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J.
ACOJEDO, respondents.
FACTS:
Petitioner brought an action in the City Court of
Dipolog for collection of a sum of P5,217.25 based on
promissory notes executed by the herein private
respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on
Exhibits B, C, D, E, F, and G executed on different
dates and signed by private respondent Nobio
Sardane. Exhibit B is a printed promissory note
involving Pl,117.25 and dated May 13, 1972. Exhibit C
is likewise a printed promissory note and denotes on
its face that the sum loaned was Pl,400.00. Exhibit D
is also a printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what is
commonly known to the layman as 'vale' which
reads: 'Good for: two hundred pesos (Sgd) Nobio
Sardane'. Exhibit F is stated in the following tenor:
'Received from Mr. Romeo Acojedo the sum Pesos:
Two Thousand Two Hundred (P2,200.00) ONLY, to be
paid on or before December 25, 1975. (Sgd) Nobio
Sardane.' Exhibit G and H are both vales' involving
the same amount of one hundred pesos, and dated
August 25, 1972 and September 12, 1972
respectively.
It has been established in the trial court that on many
occasions, the petitioner demanded the payment
of the total amount of P5,217.25. The failure of the
private respondent to pay the said amount
prompted the petitioner to seek the services of
lawyer who made a letter formally demanding the
return of the sum loaned. Because of the failure of
the private respondent to heed the demands
extrajudicially made by the petitioner, the latter was
constrained to bring an action for collection of sum
of money.
During the scheduled day for trial, private
respondent failed to appear and to file an answer.
On motion by the petitioner, respondent was
declared in default. Based on petitioner's evidence,
the City Court of Dipolog rendered judgment by
default in favor of the petitioner.
The Order of default was however lifted.
After the trial on the merits, the City Court of Dipolog
rendered its decision in favor of the plaintiff and
against the defendant.
Therein defendant Sardane appealed to the Court
of First Instance of Zamboanga del Norte which
reversed the decision of the lower court by dismissing
the complaint. Plaintiff-appellee then sought the
review of said decision by petition to the respondent
Court.
The then Court of First Instance held that "the
pleadings of the parties herein put in issue the
imperfection or ambiguity of the documents in
question", hence "the appellant can avail of the
parol evidence rule to prove his side of the case, that
is, the said amount taken by him from appellee is or
was not his personal debt to appellee, but expenses
of the partnership between him and appellee."
Consequently, said trial court concluded that the
promissory notes involved were merely receipts for
the contributions to said partnership and, therefore,
upheld the claim that there was ambiguity in the
promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the
represented loan contract.
Issue:
RULING:
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.—When the
terms of an agreement have been reduced to
writing, it is to be considered as containing all such
terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence
of the terms of the agreement other than the
contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing or
its failure to express the the true intent and
agreement of the parties, or the validity of the
agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the
exceptions to the rule do not apply in this case as
there is no ambiguity in the writings in question.
The Court of Appeals held, and We agree, that even
if evidence aliunde other than the promissory notes
may be admitted to alter the meaning conveyed
thereby, still the evidence is insufficient to prove that
a partnership existed between the private parties
hereto.
As manager of the basnig Sarcado naturally some
degree of control over the operations and
maintenance thereof had to be exercised by herein
petitioner. The fact that he had received 50% of the
net profits does not conclusively establish that he
was a partner of the private respondent herein.
Article 1769(4) of the Civil Code is explicit that while
the receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner
in the business, no such inference shall be drawn if
such profits were received in payment as wages of
an employee. Furthermore, herein petitioner had no
voice in the management of the affairs of
the basnig.
The foregoing factual findings, which belie the
further claim that the aforesaid promissory notes do
not express the true intent and agreement of the
parties, are binding on Us since there is no showing
that they fall within the exceptions to the rule limiting
the scope of appellate review herein to questions of
law.
24. G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-
appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
FACTS:
In 1940 Nicanor Casteel filed a fishpond application
for a big tract of swampy land in the then Sitio of
Malalag (now the Municipality of Malalag),
Municipality of Padada, Davao. No action was
taken thereon by the authorities concerned. During
the Japanese occupation, he filed another fishpond
application for the same area, but because of the
conditions then prevailing, it was not acted upon
either. On December 12, 1945 he filed a third
fishpond application for the same area, which, after
a survey, was found to contain 178.76 hectares.
Upon investigation conducted by a representative
of the Bureau of Forestry, it was discovered that the
area applied for was still needed for firewood
production. Hence on May 13, 1946 this third
application was disapproved.
Meanwhile, several applications were submitted by
other persons for portions of the area covered by
Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond
application 1202 covering 10 hectares of land found
inside the area applied for by Casteel; he was later
granted fishpond permit F-289-C covering 9.3
hectares certified as available for fishpond purposes
by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond
application 762 over a portion of the land applied
for by Casteel. Alejandro Cacam's fishpond
application 1276, filed on December 26, 1946, was
given due course on December 9, 1947 with the
issuance to him of fishpond permit F-539-C. On
November 17, 1948 Felipe Deluao filed his own
fishpond application for the area covered by
Casteel's application.
Because of the threat poised upon his position by the
above applicants who entered upon and spread
themselves within the area, Casteel realized the
urgent necessity of expanding his occupation
thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new
squatters from usurping the land. But lacking
financial resources at that time, he sought financial
aid from his uncle Felipe Deluao who then extended
loans totalling more or less P27,000 with which to
finance the needed improvements on the fishpond.
Hence, a wide productive fishpond was built.
On November 25, 1949 Inocencia Deluao (wife of
Felipe Deluao) as party of the first part, and Nicanor
Casteel as party of the second part, executed a
contract — denominated a "contract of service".
On the same date the above contract was entered
into, Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa, extending to the
latter the authority "To represent me in the
administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao,
Philippines, which has been applied for fishpond
permit by Nicanor Casteel, but rejected by the
Bureau of Fisheries, and to supervise, demand,
receive, and collect the value of the fish that is being
periodically realized from it...."
Sometime in January 1951 Nicanor Casteel forbade
Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit
A) entered into between Inocencia Deluao and
Nicanor Casteel, Felipe Deluao and Inocencia
Deluao on April 3, 1951 filed an action in the Court of
First Instance of Davao for specific performance and
damages against Nicanor Casteel and Juan Depra
(who, they alleged, instigated Casteel to violate his
contract)
On April 18, 1951 the plaintiffs filed an ex parte
motion for the issuance of a preliminary injunction,
praying among other things, that during the
pendency of the case and upon their filling the
requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel
from doing the acts complained of, and that after
trial the said injunction be made permanent. The
lower court on April 26, 1951 granted the motion,
and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel.
On the basis of the plaintiffs' evidence, a decision
was rendered on May 4, 1956 the dispositive portion
of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor
de los demandantes y en contra del demandado
Nicanor Casteel. xxx
Issue: WON the agreement made by the parties
created a contract of co-ownership or partnership?
Too well-settled to require any citation of authority is
the rule that everyone is conclusively presumed to
know the law. It must be assumed, conformably to
such rule, that the parties entered into the so-called
"contract of service" cognizant of the mandatory
and prohibitory laws governing the filing of
applications for fishpond permits. And since they
were aware of the said laws, it must likewise be
assumed — in fairness to the parties — that they did
not intend to violate them. This view must perforce
negate the appellees' allegation that exhibit A
created a contract of co-ownership between the
parties over the disputed fishpond. Were we to
admit the establishment of a co-ownership violative
of the prohibitory laws which will hereafter be
discussed, we shall be compelled to declare
altogether the nullity of the contract. This would
certainly not serve the cause of equity and justice,
considering that rights and obligations have already
arisen between the parties. We shall therefore
construe the contract as one of partnership, divided
into two parts — namely, a contract of partnership
to exploit the fishpond pending its award to either
Felipe Deluao or Nicanor Casteel, and a contract of
partnership to divide the fishpond between them
after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia
Deluao and the appellant entered into the so-called
"contract of service" on November 25, 1949, there
were two pending applications over the fishpond.
One was Casteel's which was appealed by him to
the Secretary of Agriculture and Natural Resources
after it was disallowed by the Director of Fisheries on
October 25, 1949. The other was Felipe Deluao's
application over the same area which was likewise
rejected by the Director of Fisheries on November 29,
1949, refiled by Deluao and later on withdrawn by
him by letter dated March 15, 1950 to the Secretary
of Agriculture and Natural Resources. Clearly,
although the fishpond was then in the possession of
Casteel, neither he nor, Felipe Deluao was the holder
of a fishpond permit over the area. But be that as it
may, they were not however precluded from
exploiting the fishpond pending resolution of
Casteel's appeal or the approval of Deluao's
application over the same area — whichever event
happened first. No law, rule or regulation prohibited
them from doing so. Thus, rather than let the fishpond
remain idle they cultivated it.
The evidence preponderates in favor of the view
that the initial intention of the parties was not to form
a co-ownership but to establish a partnership —
Inocencia Deluao as capitalist partner and Casteel
as industrial partner — the ultimate undertaking of
which was to divide into two equal parts such portion
of the fishpond as might have been developed by
the amount extended by the plaintiffs-appellees,
with the further provision that Casteel should
reimburse the expenses incurred by the appellees
over one-half of the fishpond that would pertain to
him. This can be gleaned, among others, from the
letter of Casteel to Felipe Deluao on November 15,
1949, which states, inter alia:
... [W]ith respect to your allowing me to use your
money, same will redound to your benefit
because you are the ones interested in half of the
work we have done so far, besides I did not insist on
our being partners in my fishpond permit, but it was
you "Tatay" Eping the one who wanted that we be
partners and it so happened that we became
partners because I am poor, but in the midst of my
poverty it never occurred to me to be unfair to you.
Therefore so that each of us may be secured, let us
have a document prepared to the effect that we
are partners in the fishpond that we caused to be
made here in Balasinon, but it does not mean that
you will treat me as one of your "Bantay" (caretaker)
on wage basis but not earning wages at all, while the
truth is that we are partners. In the event that you are
not amenable to my proposition and consider me as
"Bantay" (caretaker) instead, do not blame me if I
withdraw all my cases and be left without even a
little and you likewise.
(emphasis supplied) 9
Pursuant to the foregoing suggestion of the
appellant that a document be drawn evidencing
their partnership, the appellee Inocencia Deluao
and the appellant executed exhibit A which,
although denominated a "contract of service," was
actually the memorandum of their partnership
agreement. That it was not a contract of the services
of the appellant, was admitted by the appellees
themselves in their letter10 to Casteel dated
December 19, 1949 wherein they stated that they
did not employ him in his (Casteel's) claim but
because he used their money in developing and
improving the fishpond, his right must be divided
between them. Of course, although exhibit A did not
specify any wage or share appertaining to the
appellant as industrial partner, he was so entitled —
this being one of the conditions he specified for the
execution of the document of partnership.11
25. G.R. No. 21639 September 25, 1924
ALBERT F. KIEL, plaintiff-appellee,
vs.
ESTATE OF P. S. SABERT, defendant-appellant.
Facts:
In 1907, Albert F. Kiel along with William Milfeil
commenced to work on certain public lands
situated in the municipality of Parang, Province of
Cotabato, known as Parang Plantation Company.
Kiel subsequently took over the interest of Milfeil. In
1910, Kiel and P. S. Sabert entered into an
agreement to develop the Parang Plantation
Company. Sabert was to furnish the capital to run
the plantation and Kiel was to manage it. They were
to share and share alike in the property. It seems that
this partnership was formed so that the land could
be acquired in the name of Sabert, Kiel being a
German citizen and not deemed eligible to acquire
public lands in the Philippines.
By virtue of the agreement, from 1910 to 1917, Kiel
worked upon and developed the plantation. During
the World War, he was deported from the Philippines.
On August 16, 1919, five persons, including P. S.
Sabert, organized the Nituan Plantation Company,
with a subscribed capital of P40,000. On April 10,
1922, P. S. Sabert transferred all of his rights in two
parcels of land situated in the municipality of
Parang, Province of Cotabato, embraced within his
homestead application No. 21045 and his purchase
application No. 1048, in consideration of the sum of
P1, to the Nituan Plantation Company.
In this same period, Kiel appears to have tried to
secure a settlement from Sabert. At least in a letter
dated June 6, 1918, Sabert wrote Kiel that he had
offered "to sell all property that I have for P40,000 or
take in a partner who is willing to develop the
plantation, to take up the K. & S. debt no matter
which way I will straiten out with you." But Sabert's
death came before any amicable arrangement
could be reached and before an action by Kiel
against Sabert could be decided. So these
proceedings against the estate of Sabert.
ISSUE: WON a partnership agreement was entered
into by Kiel and Sabert?
Ruling:
No partnership agreement in writing was entered
into by Kiel and Sabert. The question consequently is
whether or not the alleged verbal copartnership
formed by Kiel and Sabert has been proved, if we
eliminate the testimony of Kiel and only consider the
relevant testimony of other witnesses. In performing
this task, we are not unaware of the rule of
partnership that the declarations of one partner, not
made in the presence of his copartner, are not
competent to prove the existence of a partnership
between them as against such other partner, and
that the existence of a partnership cannot be
established by general reputation, rumor, or
hearsay. (Mechem on Partnership, sec. 65; 20 R. C.
L., sec. 53; Owensboro Wagon Company vs. Bliss
[1901], 132 Ala., 253.)
The testimony of the plaintiff's witnesses, together
with the documentary evidence, leaves the firm
impression with us that Kiel and Sabert did enter into
a partnership, and that they were to share equally.
Applying the tests as to the existence of partnership,
we feel that competent evidence exists establishing
the partnership. Even more primary than any of the
rules of partnership above announced, is the
injunction to seek out the intention of the parties, as
gathered from the facts and as ascertained from
their language and conduct, and then to give this
intention effect. (Giles vs. Vette [1924], 263 U. S., 553.)
26. G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-
appellants.
Facts:
Following the presentation of an application to be
adjudged an insolvent by the "Sociedad Mercantil,
Teck Seing & Co., Ltd.," the creditors, the Pacific
Commercial Company, Piñol & Company, Riu
Hermanos, and W. H. Anderson & Company, filed a
motion in which the Court was prayed to enter an
order: "(A) Declaring the individual partners as
described in paragraph 5 parties to this proceeding;
(B) to require each of said partners to file an
inventory of his property in the manner required by
section 51 of Act No. 1956; and (C) that each of said
partners be adjudicated insolvent debtors in this
proceeding." The trial judge first granted the motion,
but, subsequently, on opposition being renewed,
denied it. It is from this last order that an appeal was
taken in accordance with section 82 of the
Insolvency Law.
Issue: what is the nature of the mercantile
establishment which operated under the name of
Teck Seing & co., Ltd., and this issue requires us to
look into, and analyze, the document constituting
Teck Seing & Co., Ltd. (NOTE: document in Spanish
Text)
Ruling:
Proceeding by process of elimination, it is self-
evident that Teck Seing & Co., Ltd., is not a
corporation. Neither is it contended by any one that
Teck Seing & Co., Ltd., is accidental partnership
denominated cuenta en participacion (joint
account association).
The document providing for the partnership contract
purported to form "una sociedad mercantil
limitada," and counsel for the petitioner's first
contention was that Teck Seing & Co., Ltd., was
not "una sociedad regular colectiva, ni siquiera
comanditaria, sino una sociedad mercantil
limitada." Let us see if the partnership contract
created a "sociedad en comandita," or, as it is
known in English, and will hereafter be spoken of, "a
limited partnership."
To establish a limited partnership there must be, at
least, one general partner and the name of the least
one of the general partners must appear in the firm
name. (Code of Commerce, arts. 122 [2], 146, 148.)
But neither of these requirements have been fulfilled.
The general rule is, that those who seek to avail
themselves of the protection of laws permitting the
creation of limited partnerships must show a
substantially full compliance with such laws. A limited
partnership that has not complied with the law of its
creation is not considered a limited partnership at all,
but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412;
Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that
the partnership contract established a general
partnership.
Article 125 of the Code of Commerce provides that
the articles of general copartnership must estate the
names, surnames, and domiciles of the partners; the
firm name; the names, and surnames of the partners
to whom the management of the firm and the use
of its signature is instrusted; the capital which each
partner contributes in cash, credits, or property,
stating the value given the latter or the basis on
which their appraisement is to be made; the
duration of the copartnership; and the amounts
which, in a proper case, are to be given to each
managing partner annually for his private expenses,
while the succeeding article of the Code provides
that the general copartnership must transact
business under the name of all its members, of
several of them, or of one only. Turning to the
document before us, it will be noted that all of the
requirements of the Code have been met, with the
sole exception of that relating to the composition of
the firm name. We leave consideration of this phase
of the case for later discussion.
The remaining possibility is the revised contention of
counsel for the petitioners to the effect that Teck
Seing & Co., Ltd., is "una sociedad mercantil "de
facto" solamente" (only a de facto commercial
association), and that the decision of the Supreme
court in the case of Hung-Man-Yoc vs. Kieng-
Chiong-Seng [1906], 6 Phil., 498), is controlling. It was
this argument which convinced the trial judge, who
gave effect to his understanding of the case last
cited and which here must be given serious
attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, discloses that the firm Kieng-Chiong-
Seng was not organized by means of any public
document; that the partnership had not been
recorded in the mercantile registry; and that Kieng-
Chiong-Seng was not proven to be the firm name,
but rather the designation of the partnership. The
conclusion then was, that the partnership in question
was merely de facto and that, therefore, giving
effect to the provisions of article 120 of the Code of
Commerce, the right of action was against the
persons in charge of the management of the
association.
Laying the facts of the case of Hung-Man-Yoc vs.
Kieng-Chiong-Seng, supra, side by side with the facts
before us, a marked difference is at once disclosed.
In the cited case, the organization of the partnership
was not evidenced by any public document; here,
it is by a public document. In the cited case, the
partnership naturally could not present a public
instrument for record in the mercantile registry; here,
the contract of partnership has been duly registered.
But the two cases are similar in that the firm name
failed to include the name of any of the partners.
We come then to the ultimate question, which is,
whether we should follow the decision in Hung-Man-
Yoc vs. Kieng-Chiong-Seng, supra, or whether we
should differentiate the two cases, holding Teck
Seing & Co., Ltd., a general copartnership,
notwithstanding the failure of the firm name to
include the name of one of the partners. Let us now
notice this decisive point in the case.
Article 119 of the Code of Commerce requires every
commercial association before beginning its
business to state its article, agreements, and
conditions in a public instrument, which shall be
presented for record in the mercantile registry.
Article 120, next following, provides that the persons
in charge of the management of the association
who violate the provisions of the foregoing article
shall be responsible in solidum to the persons not
members of the association with whom they may
have transacted business in the name of the
association. Applied to the facts before us, it would
seem that Teck Seing & Co., Ltd. has fulfilled the
provisions of article 119. Moreover, to permit the
creditors only to look to the person in charge of the
management of the association, the partner Lim
Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce
relating to the general copartnership transacting
business under the name of all its members or of
several of them or of one only, is wisely included in
our commercial law. It would appear, however, that
this provision was inserted more for the protection of
the creditors than of the partners themselves. A
distinction could well be drawn between the right of
the alleged partnership to institute action when
failing to live up to the provisions of the law, or even
the rights of the partners as among themselves, and
the right of a third person to hold responsible a
general copartnership which merely lacks a legal
firm name in order to make it a partnership de jure.
The civil law and the common law alike seem to
point to a difference between the rights of the
partners who have failed to comply with the law and
the rights of third persons who have dealt with the
partnership.
The supreme court of Spain has repeatedly held that
notwithstanding the obligation of the members to
register the articles of association in the commercial
registry, agreements containing all the essential
requisites are valid as between the contracting
parties, whatever the form adopted, and that, while
the failure to register in the commercial registry
necessarily precludes the members from enforcing
rights acquired by them against third persons, such
failure cannot prejudice the rights of third persons.
(See decisions of December 6, 1887, January 25,
1888, November 10, 1890, and January 26, 1900.) The
same reasoning would be applicable to the less
formal requisite pertaining to the firm name.
The common law is to the same effect. The State of
Michigan had a statute prohibiting the transaction
of business under an assumed name or any other
than the real name of the individual conducting the
same, unless such person shall file with the county
clerk a certificate setting forth the name under
which the business is to be conducted and the real
name of each of the partners, with their residences
and post-office addresses, and making a violation
thereof a misdemeanor.
On the question of whether the fact that the firm
name "Teck Seing & Co., Ltd." does not contain the
name of all or any of the partners as prescribed by
the Code of Commerce prevents the creation of a
general partnership, Professor Jose A. Espiritu,
as amicus curiæ, states:
My opinion is that such a fact alone cannot and will
not be a sufficient cause of preventing the formation
of a general partnership, especially if the other
requisites are present and the requisite regarding
registration of the articles of association in the
Commercial Registry has been complied with, as in
the present case. I do not believe that the adoption
of a wrong name is a material fact to be taken into
consideration in this case; first, because the mere
fact that a person uses a name not his own does not
prevent him from being bound in a contract or an
obligation he voluntarily entered into; second,
because such a requirement of the law is merely a
formal and not necessarily an essential one to the
existence of the partnership, and as long as the
name adopted sufficiently identity the firm or
partnership intended to use it, the acts and
contracts done and entered into under such a
name bind the firm to third persons; and third,
because the failure of the partners herein to adopt
the correct name prescribed by law cannot shield
them from their personal liabilities, as neither law nor
equity will permit them to utilize their own mistake in
order to put the blame on third persons, and much
less, on the firm creditors in order to avoid their
personal possibility.
The legal intention deducible from the acts of the
parties controls in determining the existence of a
partnership. If they intend to do a thing which in law
constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such
relation. Here, the intention of the persons making up
Teck Seing & co., Ltd. was to establish a partnership
which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges
resorted to in order to evade liability for possible
losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be
disregarded. The partners who have disguised their
identity under a designation distinct from that of any
of the members of the firm should be penalized, and
not the creditors who presumably have dealt with
the partnership in good faith.
We reach the conclusion that the contract of
partnership found in the document hereinbefore
quoted established a general partnership or, to be
more exact, a partnership as this word is used in the
Insolvency Law.
27. G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD
COMPANY, defendants-appellees.
FACTS:
Alleging that he and defendant Severino Mabato
are — pursuant to a public instrument dated August
29, 1952, copy of which is attached to the complaint
as Annex "A" — partners in a fishpond business, to the
capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from 1952 up
to and including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts of
the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused
to render accounts for the years 1957 to 1963, Agad
prayed in his complaint against Mabato and
Mabato & Agad Company, filed on June 9, 1964,
that judgment be rendered sentencing Mabato to
pay him (Agad) the sum of P14,000, as his share in
the profits of the partnership for the period from 1957
to 1963, in addition to P1,000 as attorney's fees, and
ordering the dissolution of the partnership, as well as
the winding up of its affairs by a receiver to be
appointed therefor.
In his answer, Mabato admitted the formal
allegations of the complaint and denied the
existence of said partnership, upon the ground that
the contract therefor had not been perfected,
despite the execution of Annex "A", because Agad
had allegedly failed to give his P1,000 contribution to
the partnership capital. Mabato prayed, therefore,
that the complaint be dismissed; that Annex "A" be
declared void ab initio; and that Agad be
sentenced to pay actual, moral and exemplary
damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss,
upon the ground that the complaint states no cause
of action and that the lower court had no jurisdiction
over the subject matter of the case, because it
involves principally the determination of rights over
public lands. After due hearing, the court issued the
order appealed from, granting the motion to dismiss
the complaint for failure to state a cause of action.
This conclusion was predicated upon the theory that
the contract of partnership, Annex "A", is null and
void, pursuant to Art. 1773 of our Civil Code,
because an inventory of the fishpond referred in said
instrument had not been attached thereto. A
reconsideration of this order having been denied,
Agad brought the matter to us for review by record
on appeal.
Issue: Whether or not immovable property or real
rights have been contributed to the partnership?
Ruling:
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any
form, except where immovable property or real
rights are contributed thereto, in which case a public
instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if
inventory of said property is not made, signed by the
parties; and attached to the public instrument.
The issue before us hinges on whether or not
"immovable property or real rights" have
been contributed to the partnership under
consideration. Mabato alleged and the lower court
held that the answer should be in the affirmative,
because "it is really inconceivable how a partnership
engaged in the fishpond business could exist without
said fishpond property (being) contributed to the
partnership." It should be noted, however, that, as
stated in Annex "A" the partnership was established
"to operate a fishpond", not to "engage in a fishpond
business". Moreover, none of the partners
contributed either a fishpond or a real right to any
fishpond. Their contributions were limited to the sum
of P1,000 each. Indeed, Paragraph 4 of Annex "A"
provides:
That the capital of the said partnership is Two
Thousand (P2,000.00) Pesos Philippine Currency, of
which One Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio
Agad.
xxx xxx xxx
The operation of the fishpond mentioned in Annex
"A" was the purpose of the partnership. Neither said
fishpond nor a real right thereto was contributed to
the partnership or became part of the capital
thereof, even if a fishpond or a real right thereto
could become part of its assets.
28. ) G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it
Managing PARTNER, GREGORIA ARANETA,
INC., plaintiff-appellee, vs. QUIRINO
BOLAÑOS, defendant-appellant.
FACTS:
This case involves an action to recover
possesion of registered land situated in barrio
Tatalon, Quezon City. Plaintiff's complaint was
amended three times with respect to the extent and
description of the land sought to be recovered. The
original complaint described the land as a portion of
a lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record of
Rizal Province and as containing an area of 13
hectares more or less. But the complaint was
amended by reducing the area of 6 hectares, more
or less. In the course of trial, the plaintiff again
amended its complaint to make its allegations
conform to the evidence. Defendant sets up
prescription and title in himself thru "open,
continuous, exclusive and public and notorious
possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant
and his predecessor in interest" from "time in-
memorial".
The lower court rendered judgment for
plaintiff, declaring defendant to be without any right
to the land in question and ordering him to restore
possession thereof to plaintiff.
The defendant appealed directly to this
court. He contended that the trial court erred in not
dismissing the case on the ground that the case was
not brought by the real party in interest and that
Gregorio Araneta, Inc. cannot act as managing
partner for plaintiff on the theory that it is illegal for
two corporations to enter into a partnership.
ISSUE: WON Gregorio Araneta, Inc. may represent
J.M. Tuason & Co., Inc. as the latter’s managing
partner in a suit in court. YES
RULING: There is nothing to the contention that the
present action is not brought by the real party in
interest, that is, by J. M. Tuason and Co., Inc. What
the Rules of Court require is that an action be
brought in the name of, but not necessarily by, the
real party in interest. (Section 2, Rule 2.)
In fact the practice is for an attorney-at-law
to bring the action, that is to file the complaint, in the
name of the plaintiff. That practice appears to have
been followed in this case, since the complaint is
signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its
undersigned counsel."
It is true that the complaint also states that the
plaintiff is "represented herein by its Managing
Partner Gregorio Araneta, Inc.", another corporation,
but there is nothing against one corporation being
represented by another person, natural or juridical,
in a suit in court. The contention that Gregorio
Araneta, Inc. cannot act as managing partner for
plaintiff on the theory that it is illegal for two
corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation
has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another
where the nature of that venture is in line with the
business authorized by its charter." (Wyoming-
Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043,
citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing
in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as
"its managing partner" is not in line with the
corporate business of either of them.
29. ) G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs. SANITARY WARES MANUFACTURING
CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F.
LEE, RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG
and AVELINO V. CRUX, petitioners, vs. THE COURT OF
APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN,
DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner, vs. SANITARY
WARES MANUFACTURING CORPORATION, ERNESTO
V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE
R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN,
BALDWIN YOUNG, AVELINO V. CRUZ and the COURT
OF APPEALS, respondents.
DOCTRINE: The rule is that whether the parties to a
particular contract have thereby established
among themselves a joint venture or some other
relation depends upon their actual intention which is
determined in accordance with the rules governing
the interpretation and construction of contracts. A
joint venture is a form of partnership and should thus
be governed by the law of partnerships. SC has
however recognized a distinction between these
two business forms, and has held that although a
corporation cannot enter into a partnership
contract, it may however engage in a joint venture
with others.
FACTS: Sanitary Wares Mftg. Corp. (Saniware) is a
domestic corp. incorporated for the primary purpose
of manufacturing and marketing sanitary wares.
Baldwin Young, one of the incorporators, went
abroad to look for foreign partners for its expansion.
Aug. 15, 1962: American Standard Inc. (ASI), a
foreign corp., entered into an Agreement with
Saniwares & some Filipino investors whereby ASI and
the Filipino investors agreed to participate in the
ownership of an enterprise which would engage
primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous
china and sanitary wares. The parties agreed that
the business operations in the Philippines shall be
carried on by an incorporated enterprise and that
the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."
The Agreement contained provisions relevant to the
nomination and election of the directors of the corp.
including:
o Sec. 3. (a) - Articles of Incorporation: (a)
The Articles of Incorporation of the
Corporation shall be substantially in the
form annexed hereto as Exhibit A and,
insofar as permitted under Philippine law,
shall specifically provide for: (1)
Cumulative voting for directors
o Sec. 5. (a) - Management: (a) The
management of the Corporation shall be
vested in a Board of Directors, which shall
consist of 9 individuals. As long as
American-Standard shall own at least
30% of the outstanding stock of the
Corporation, 3 of the 9 directors shall be
designated by American-Standard, and
the other 6 shall be designated by the
other stockholders of the Corporation.
The dispute arose between American Standard Inc.
(ASI) and the group Lagdameo, one of the
incorporators, during the election of the board of
directors with respect to the issue of who were the
duly elected board of directors of Saniwares. In
resolving such issue it was necessary to also
determine the nature of the business established by
the parties.
The ASI Group and petitioner Salazar (G.R. Nos.
75975-76) contended that the actual intention of the
parties should be viewed strictly on the "Agreement"
wherein it is clearly stated that the parties' intention
was to form a corporation and not a joint venture
while the group of Lagdameo claimed that the
intention of the parties was to form a joint venture
and not a corporation.
ISSUE: Whether the nature of the business established
by the parties was a joint venture or a corporation?
RULING: Joint Venture
The rule is that whether the parties to a particular
contract have thereby established among
themselves a joint venture or some other relation
depends upon their actual intention which is
determined in accordance with the rules governing
the interpretation and construction of contracts.
In the instant cases, our examination of important
provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo
and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The
history of the organization of Saniwares and the
unusual arrangements which govern its policy
making body are all consistent with a joint venture
and not with an ordinary corporation.
Section 5 (a) of the agreement uses the word
"designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio.
Each group is assured of a fixed number of directors
in the board.
Moreover, ASI in its communications referred to the
enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that
"Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise
being treated as partnership for tax purposes and
liabilities to third parties.
The legal concept of a joint venture is of common
law origin. It has no precise legal definition but it has
been generally understood to mean an organization
formed for some temporary purpose. It is in fact
hardly distinguishable from the partnership, since
their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual
right of control.
The main distinction cited by most opinions in
common law jurisdictions is that the partnership
contemplates a general business with some degree
of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a
temporary nature.
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular
partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is
a form of partnership and should thus be governed
by the law of partnerships. The Supreme Court has
however recognized a distinction between these
two business forms, and has held that although a
corporation cannot enter into a partnership
contract, it may however engage in a joint venture
with others.
30.) G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners, vs.
COURT OF APPEALS and MANUEL
TORRES, respondents.
FACTS: Petitioners entered into a "joint venture
agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name.
By mortgaging the property, respondent obtained
from Equitable Bank a loan of P40,000 which, under
the Joint Venture Agreement, was to be used for the
development of the subdivision. All three of them
also agreed to share the proceeds from the sale of
the subdivided lots. However, the project did not
push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because
the respondent used the loan not for the
development of the subdivision, but in furtherance
of his own company, Universal Umbrella Company.
Respondent alleged that he used the loan to
implement the Agreement. With the said amount, he
was able to effect the survey and the subdivision of
the lots. He secured the Lapu Lapu City Council's
approval of the subdivision project which he
advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he
entered into a contract with an engineering firm for
the building of sixty low-cost housing units and
actually even set up a model house on one of the
subdivision lots.
Petitioners filed a criminal case for estafa against
respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil
case which was dismissed by the trial court. On
appeal, the CA affirmed the trial court’s ruling.
Hence, this Petition. Petitioners contended that the
transaction between them and respondent was not
that of a partnership, that the joint venture
agreement was void because of the absence of
inventory of immovable properties and for lack of
consideration.
ISSUE: 1.) WON the transaction between the
petitioners and respondent was a joint
venture/partnership. YES
2.) WON the alleged joint venture agreement
is void. NO
3.) WON the agreement is void due to lack of
consideration. NO
RULING: 1.) Article 1767 of the Civil Code, which
provides:
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Under the joint venture agreement, petitioners
would contribute property to the partnership in the
form of land which was to be developed into a
subdivision; while respondent would give, in addition
to his industry, the amount needed for general
expenses and other costs. Furthermore, the income
from the said project would be divided according to
the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a
partnership.
It should be stressed that the parties
implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in
the name of the respondent. On the other hand,
respondent caused the subject land to be
mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As noted
earlier, he developed the roads, the curbs and the
gutters of the subdivision and entered into a
contract to construct low-cost housing units on the
property. Respondent's actions clearly belie
petitioners' contention that he made no contribution
to the partnership. Under Article 1767 of the Civil
Code, a partner may contribute not only money or
property, but also industry.
2.) Petitioners argue that the Joint Venture
Agreement is void under Article 1773 of the Civil
Code, which provides:
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.
They contend that since the parties did not make,
sign or attach to the public instrument an inventory
of the real property contributed, the partnership is
void.
We clarify. First, Article 1773 was intended primarily to
protect third persons. Thus, the eminent Arturo M.
Tolentino states that under the aforecited provision
which is a complement of Article 1771, "The
execution of a public instrument would be useless if
there is no inventory of the property contributed,
because without its designation and description,
they cannot be subject to inscription in the Registry
of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who
contract with the partnership in the belief [in] the
efficacy of the guaranty in which the immovables
may consist. Thus, the contract is declared void by
the law when no such inventory is made." The case
at bar does not involve third parties who may be
prejudiced.
Second, petitioners themselves invoke the allegedly
void contract as basis for their claim that respondent
should pay them 60 percent of the value of the
property. They cannot in one breath deny the
contract and in another recognize it, depending on
what momentarily suits their purpose. Parties cannot
adopt inconsistent positions in regard to a contract
and courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the
parties' rights and obligations to each other may be
inferred and enforced.
3.) The Joint Venture Agreement clearly
states that the consideration for the sale was the
expectation of profits from the subdivision project.
Consideration, more properly denominated
as cause, can take different forms, such as the
prestation or promise of a thing or service by
another. In this case, the cause of the contract of
sale consisted not in the stated peso value of the
land, but in the expectation of profits from the
subdivision project, for which the land was intended
to be used.
31.) G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner, vs. THE
INSURANCE COMMISSION and TRAVELLERS MULTI-
INDEMNITY CORPORATION, respondents.
FACTS: Azucena Palomo obtained a loan from Tai
Tong Chuache Inc. in the amount of P100,000.00. To
secure the payment of the loan, a mortgage was
executed over the land and the building in favor of
Tai Tong Chuache & Co.). Arsenio
Chua, representative of Thai Tong Chuache &
Co. insured the latter's interest with Travellers Multi-
Indemnity Corporation.
Pedro Palomo secured a Fire Insurance Policy with
Zenith Insurance Corporation, Philippine British
Assurance Co. and S.S.S. Group of Accredited
Insurers. The building and the contents were totally
razed by fire. Spouses Palomo claimed the proceeds
of the insurance policies from the four insurers.
However, Travellers Multi-Indemnity refused to pay
the amount of P30,894.31. Hence, a complaint was
filed against Travellers Multi-Indemnity.
Subsequently, petitioner filed a complaint in
intervention claiming the proceeds of the insurance
policy issued by respondent.
Respondent insurance commission dismissed the
complaint of spouses Palomos on the ground that
the insurance policy subject of the complaint was
taken out by Tai Tong Chuache & Company,
petitioner herein, for its own interest only as
mortgagee of the insured property and thus
complainant as mortgagors of the insured property
have no right of action against herein respondent.
Also, respondent insurance commission absolved
Travellers Mulit-Indemnity from liability on the basis
that at the time of the occurrence of the peril,
petitioner as mortgagee had no more insurable
interest over the insured property since the credit
secured by the mortgaged property was already
paid by the Palomos before the said property was
gutted down by fire and it is Antonio Lopez Chua
and not Tai Tong Chuache & Company who is
entitled to the insurance proceeds since he was
named as the complainant in the certification issued
by the Court of First Instance of Davao. Petitioner’s
motion was denied, hence this appeal.
It is the contention of the petitioner that respondent
erred in ruling that a certain Arsenio Lopez Chua is
the one entitled to the insurance proceeds and not
Tai Tong Chuache & Company.Public respondent
argued that the civil case should have been brought
by Tai Tong Chuache or by its representative in its
own behalf and since it was filed by Arsenio Chua,
he was deemed as the personal creditor of Spouses
Palomo.
ISSUE: WON the civil case was filed by Arsenio Chua
in his capacity as personal creditor of spouses or as
a representative of petitioner. – As representative of
petitioner
RULING: It should be borne in mind that petitioner
being a partnership may sue and be sued in its name
or by its duly authorized representative. The fact that
Arsenio Lopez Chua is the representative of
petitioner is not questioned. Petitioner's declaration
that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by
respondent insurance company. Thus, Chua as the
managing partner of the partnership may execute
all acts of administration including the right to sue
debtors of the partnership in case of their failure to
pay their obligations when it became due and
demandable. Or at the very least, Chua being a
partner of petitioner Tai Tong Chuache & Company
is an agent of the partnership. Being an agent, it is
understood that he acted for and in behalf of the
firm.
The record of the case shows that the petitioner to
support its claim for the insurance proceeds offered
as evidence the contract of mortgage which has
not been cancelled nor released. It has been held in
a long line of cases that when the creditor is in
possession of the document of credit, he need not
prove non-payment for it is presumed. The
respondent insurance company having issued a
policy in favor of herein petitioner which policy was
of legal force and effect at the time of the fire, it is
bound by its terms and conditions. Upon its failure to
prove the allegation of lack of insurable interest on
the part of the petitioner, respondent insurance
company is and must be held liable.
32. ) G.R. No. L-414 November 9, 1903
HONGKONG BANK, plaintiffs-appellants, vs. JURADO
& CO., defendants-appellees.
FACTS:
An order was issued by the court including Don
Ricardo Regidor in the bankruptcy of Jurado & Co.
being a general partner thereof. However, the entire
proceeding was dismissed. Señor Regidor filed a
motion to be made as a co-defendant in which he
claimed that he was not properly included in the
bankruptcy of Jurado & Co.
Also, a motion was filed for the court to reschedule
the day of the hearing due to the death of the
liquidator of the defendant firm.
ISSUE: 1.) WON Don Ricardo Regidor, as a general
partner of Jurado & Co., should be made a co-
defendant in the case.
RULING: 1.) NO. It appears from the records of the
court that, during the hearing, Señor Regidor as one
of such partners, in open court, appointed an
attorney to argue for the firm. As a partner of Jurado
& Co. he is represented by the firm and has no right
to appear as an individual separate from the firm. If
he has this right, then every partner would have the
same right. We see nothing in the case to indicate
that his rights will not be protected by the lawyers
whom the firm may see fit to employ. Thus, his motion
to be made a co-defendant was denied.
The fact that the liquidator of the firm died cannot
interfere with the progress of this suit. With the
appointment of a new liquidator the court has
nothing to do. The defendants are Jurado & Co. and
not the liquidator. If they do not see fit to appoint a
new liquidator, or to select attorneys in place of
those who it said were appointed only by the
deceased liquidator, any notices required to be
served upon the defendants by the plaintiff, or
usually given by the clerk, can be served upon and
given to any partner of Jurado & Co, who may be
found in the Islands.lawphi1.net
33. ) G.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. WILLIAM J. SUTER and THE COURT OF TAX
APPEALS, respondents
FACTS: A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on 1947 by
respondent William J. Suter as the general partner,
and Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the
partnership. The firm engaged, among other
activities, in the importation, marketing, distribution
and operation of automatic phonographs, radios,
television sets and amusement machines, their parts
and accessories.
In 1948, general partner Suter and limited partner
Spirig got married and, thereafter, limited partner
Carlson sold his share in the partnership to Suter and
his wife.
The limited partnership had been filing its income tax
returns as a corporation, without objection by
petitioner,until in 1959 when the latter, in an
assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter
and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for
1955.
Respondent Suter protested the assessment, and
requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied.
Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court rendered a
decision reversing that of the Commissioner of
Internal Revenue.
Petitioner claimed 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, and if it
did not, 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; 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.
On the other hand, respondent Suter maintained
that his marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership is
not a ground for dissolution of the partnership, either
in the Code of Commerce or in the New Civil Code,
and that since its juridical personality had not been
affected, Suter was not bound to include in his
individual return the income of the limited
partnership.
ISSUES: 1.) WON partnership was dissolved after the
marriage of the partners, respondent William J. Suter
and Julia Spirig Suter and their subsequent
acquisition of the interests of remaining the partner,
Carlson, in the partnership. NO
RULING: The opinion of Senator Tolentino in
Commentaries and Jurisprudence on Commercial
Laws of the Philippines, Vol. 1, 4th Ed., page 58, reads
as follows:
A husband and a wife may not enter into a
contract of general co-partnership, because
under the Civil Code, which applies in the
absence of express provision in the Code of
Commerce, persons prohibited from making
donations to each other are prohibited from
entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of
partners necessarily brings about the
dissolution of a pre-existing partnership. (1
Guy de Montella 58)
The petitioner has evidently failed to observe the
fact that William J. Suter "Morcoin" Co., Ltd. was not
a universal partnership, but a particular one. As
appears from Articles 1674 and 1675 of the Spanish
Civil Code, of 1889 (which was the law in force when
the subject firm was organized in 1947),
a universal partnership requires either that the
object of the association be all the present
property of the partners, as contributed by them to
the common fund, or else "all that the partners may
acquire by their industry or work during the existence
of the partnership". William J. Suter "Morcoin" Co., Ltd.
was not such a universal partnership, since the
contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00
by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter
"Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.
Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one
of the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce. The
capital contributions of partners William J. Suter and
Julia Spirig were separately owned and contributed
by them before their marriage; and after they were
joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil
Code. Thus, the individual interest of each in William
J. Suter "Morcoin" Co., Ltd. did not become common
property of both after their marriage in 1948.
34. ) G.R. No. L-2888 October 23, 1906
HUNG-MAN-YOC, in the name of KWONG-WO-
SING, plaintiff-appellee, vs.KIENG-CHIONG-SENG, ET
AL., defendants-appellants.
FACTS: Private respondents came into an
agreement to engage in the importation of goods
for sale at a profit under the firm name of Kieng-
Chiong-Seng. The private respondents were as
follows:
a. Chua-Che-Co
b. Yu-Tec-Pin - Manager
c. Ang-Chu-Keng
d. Kiong-Tiao-Eng - Manager
The problem arose when Yu-Tec-Pin and Kiong-Tiao-
Eng contracted obligations in favor of the petitioner.
When the respondents failed to comply with the
alleged obligation, the petitioner instituted an action
for its enforceability. The lower court entered
judgment against each and all respondents for the
sum of 7,372.75 pesos with 6% interest per annum. It
further ruled that the respondents were partners
under the firm name of Kieng-Chiong-Seng.
Aggrieved by the decision, Chua-Che-Co appealed
the decision contending that there was no
partnership that existed and that they only formed
an association. In fact, such organization was never
registered and is not evidenced by any public
document. Also he never contracted with the
petitioner.
The petitioner contended that there is no doubt that
the partnership of Kieng-Chiong-Seng was a
mercantile partnership organized for the purpose of
engaging in commercial pursuits, although such
organization was not evidenced by any public
document as required by Article 119 of the Code of
Commerce, nor was it registered as required by
Article 17 of the said code.
ISSUES: 1.What kind of partnership existed? – a de
facto partnership
2. WON all the respondents can be held
liable to the petitioner. NO
RULING: 1.The partnership in dispute was a de facto
partnership. Although it had no legal standing, since
it contracted obligations in favor of the plaintiff, the
liability arising from such obligations must be
enforceable against someone.
The partnership in question not being included in any
of the classes of partnership defined by the Code of
Commerce there should be applied to it the general
provisions applicable to all partnerships contained in
Article 120 of the Code of Commerce, which reads
as follows:
“The persons in charge of the management
of the association who do not comply with the
provisions of the foregoing article (art. 119, which
requires that the articles of partnership be recorded
in the Mercantile Register) shall be responsible
together with the persons not members of the
association with whom they may have transacted
business in the name of the same.”
It has not been proven that Kieng-Chiong-
Seng was the firm name, but rather the designation
of the partnership.
It cannot be the firm name of a general
partnership because this should contain the names
of all the partners, or some of them, or at least one
of them to be, followed in the two latter cases by the
words “and company”, whereas in this case none of
the four names of those who it is alleged were
members of the firm appear in the firm name of the
partnership.
 Neither can it be considered as the firm
name of a limited partnership for the reason that this
should contain the same requisites as the firm name
of a general partnership, and in addition thereto the
word “limited”. The firm name in question has
absolutely none of these requisites.
2. Not all respondents cannot be held liable.
The defendant, Chua-Che-Co, was not in charge of
the management of the association, nor did he
make any contract at all with the plaintiff, as clearly
appears from the testimony of the various witnesses,
the agent of the partnership, Yu-Yec-Pin, being the
person who made all the contracts for the
partnership; also Kieng-Tiao-Eng according to two of
the witnesses. It is evident, therefore, that Chua-
Che-Co has incurred no liability and that he cannot
be held individually responsible for the payment of
the plaintiff’s claims, as the court below found.
35.) [ G.R. No. L-7991, May 21, 1956 ]
PAUL MACDONALD, ET AL., PETITIONERS, VS. THE
NATIONAL CITY BANK OF NEW YORK, RESPONDENT.
FACTS: Stasikinocey is a partnership formed by Alan
Gorcey, Louis Da Costa Jr., William Kusik and Emma
Badong Gavino. It was denied registration in the SEC
due to the confusion between this partnership and
the business Cardinal Rattan, which is treated as a
co-partnership where Gorcey and Da Costa are the
general partners. It appears that Cardinal Rattan is
merely the business name or style used by the
partnership, Stasikinocey.
Stasikinocey had an overdraft account with the
National City Bank of New York. The said overdraft
account has a P6,134.92 balance. Due to the failure
of Stasikinocey to make the required payment, said
balance was converted into an ordinary loan for
which a promissory joint note, non-negotiable was
executed on the same day by Da Costa for and in
the name of Cardinal Rattan, himself and Gorcey.
The promissory note was secured by a chattel
mortgage executed by Da Costa, general partner
for and in the name of Stasikinocey. Said mortgage
was constituted over the following: Fargo truck,
Plymouth Sedan and Fargo Pick-Up FKI-16.
Gorcey and Da Costa executed an agreement
purporting to convey and transfer all their rights, title
and participation in Stasikinocey to Shaeffer,
allegedly in consideration of the cancellation of an
indebtedness of P25,000 owed by them and
Stasikinocey to the latter.
During the subsistence of the loan and chattel
mortgage, Stasikinocey, through Gorcey and Da
Costa transferred to MacDonald the Fargo truck and
Plymouth sedan. Thereafter, Shaeffer sold the Fargo
pick-up to MacDonald. Paul MacDonald sold the
Fargo truck and Plymouth sedan to Benjamin
Gonzales.
When the National City Bank learned of these
transactions, it filed an action against Stasikinocey,
Da Costa, Gorcey, MacDonald and Gonzales to
recover its credit and to foreclose the chattel
mortgage.
The Court of First Instance annulled the sale of the
vehicles to Gonzales; ordered Da Costa and Gorcey
to pay the Bank jointly and severally; ordered
Gonzales to deliver the vehicles to the Bank for sale
at public auction if Da Costa and Gorcey fails to
pay; ordered Da Costa, Gorcey and MacDonald to
pay the Bank jointly and severally any deficiency
that remains unpaid should the proceeds of the
auction sale be insufficient.
MacDonald and Gonzales appealed to the CA. CA
modified the CFI decision by ruling that MacDonald
is not jointly and severally liable with Gorcey and Da
Costa to pay any deficiency
Issue: WON the partnership, Stasikinocey, is
estopped from asserting that it does not have
juridical personality considering that it is an
unregistered commercial partnership.
Held: YES
While an unregistered commercial partnership has
no juridical personality, nevertheless, where two or
more persons attempt to create a partnership failing
to comply with all the legal formalities, the law
considers them as partners and the association is a
partnership in so far as it is a favorable to third
persons, by reason of the equitable principle of
estoppel.
Da Costa and Gorcey cannot deny that they are
partners of the partnership Stasikinocey, because in
all their transactions with the National City Bank they
represented themselves as such. McDonald cannot
disclaim knowledge of the partnership Stasikinocey
because he dealt with said entity in purchasing two
of the vehicles in question through Gorcey and Da
Costa. The sale of the vehicles to MacDonald being
void, the sale to Gonzales is also void since a buyer
cannot have a better right than the seller.
As was held in Behn Meyer & Co. vs. Rosatzin, where
a partnership not duly organized has been
recognized as such in its dealings with certain
persons, it shall be considered as “partnership by
estoppel” and the persons dealing with it are
estopped from denying its partnership existence.
If the law recognizes a defectively organized
partnership as de facto as far as third persons are
concerned, for purposes of its de facto existence it
should have such attribute of a partnership as
domicile. In Hung-Man Yoc vs. Kieng-Chiong-Seng, 6
Phil.., 498, it was held that although "it has no legal
standing, it is a partnership de facto and the general
provisions of the Code applicable to all partnerships
apply to it." The registration of the chattel mortgage
in question with the Office of the Register of Deeds
of Rizal, the residence or place of business of the
partnership Stasikinocey being San Juan, Rizal, was
therefore in accordance with section 4 of the
Chattel Mortgage Law. Thus, for purposes of
registration of chattel mortgage, its domicile is its
place of business of partnership.
36.) G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY
CORPORATION, petitioner, vs.THE HON. COURT OF
APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT,
INC., (BORMAHECO), CONSTANCIO M. MAGLANA
and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner, vs. COURT OF APPEALS,
PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
FACTS: Jacob Lim was the owner of Southern Air
Lines, a single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes,
Francisco Cervantes, and Border Machinery and
Heavy Equipment Company (BORMAHECO) to
contribute funds and to buy two aircrafts which
would form part a corporation which will be the
expansion of Southern Air Lines. Maglana et al then
contributed and delivered money to Lim.
But instead of using the money given to him to pay
in full the aircrafts, Lim, without the knowledge of
Maglana et al,
Lim made an agreement with Pioneer Insurance and
Surety Corp. wherein as surety, Pioneer executed a
surety bond in favor of Japan Domestic Aircraft
(JDA) to insure the two aircrafts which were bought
in installment from (JDA) and using said aircrafts as
security in favor of Pioneer. So when Lim defaulted
from paying JDA, Pioneer paid JDA and
subsequently foreclosed the chattel mortgage.
Maglana, Bormaheco and the Cervantes’s filed
cross-claims against Lim alleging that they were not
privies to the contracts signed by Lim and for
recovery of the sum of money they advanced to Lim
for the purchase of the aircrafts. The decision was
rendered holding Lim liable to pay.
It was established that no corporation was formally
formed between Lim and Maglana et al.
ISSUE: Whether failure to incorporate automatically
resulted to de facto partnership. NO
HELD: There was no de facto partnership. Ordinarily,
when co-investors agreed to do business through a
corporation but failed to incorporate, a de facto
partnership would have been formed, and as such,
all must share in the losses and/or gains of the
venture in proportion to their contribution.
But in this case, it was shown that Lim did not have
the intent to form a corporation with Maglana et al.
This can be inferred from acts of unilaterally taking
out a surety from Pioneer Insurance and not using
the funds he got from Maglana et al. The record
shows that Lim was acting on his own and not in
behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
37. CO. MARITIMA vs. MUÑOZ
FACTS:
In 1905, Francisco Muñoz, Emilio Muñoz, and Rafael
Naval formed an ordinary general mercantile
partnership in accordance with the Code of
Commerce. They named the partnership “Francisco
Muñoz & Sons”. Francisco was the capitalist partner
while the other two were industrial partners. In the
articles of partnership, it was agreed upon by the
three that for profits, Francisco shall have a 3/4th
share while the other two would have 1/8th each.
For losses, only Francisco shall bear it. Later, the
partnership was sued by La Compañia Martitama for
collection of sum of money amounting to P26,828.30.
The partnership lost the case and was ordered to
make said payment; that in case the partnership
can’t pay the debt, all the partners should be liable
for it.
The ruling is in accordance with Article 127 of the
Code of Commerce which states: All the members
of the general copartnership, be they or be they not
managing partners of the same, are liable personally
and in solidum with all their property for the results of
the transactions made in the name and for the
account of the partnership, under the signature of
the latter, and by a person authorized to make use
thereof.
Francisco now argues that the industrial partners
should NOT be liable pursuant to Article 141 of the
Code of Commerce which states:
Losses shall be charged in the same proportion
among the partners who have contributed capital,
without including those who have not, unless by
special agreement the latter have been constituted
as participants therein.
ISSUE: Whether or not the industrial partners are liable
to third parties like La Compañia Martitama.
HELD: Yes. The controlling law is Article 127. There is
no injustice in imposing this liability upon the industrial
partners. They have a voice in the management of
the business, if no manager has been named in the
articles; they share in the profits and as to third
persons it is no more than right that they should share
in the obligations. It is admitted that if in this case
there had been a capitalist partner who had
contributed only P100 he would be liable for this
entire debt of P26,000.
Article 141 relates exclusively to the settlement of the
partnership affairs among the partners themselves
and has nothing to do with the liability of the partners
to third persons; that each one of the industrial
partners is liable to third persons for the debts of the
firm; that if he has paid such debts out of his private
property during the life of the partnership, when its
affairs are settled he is entitled to credit for the
amount so paid, and if it results that there is not
enough property in the partnership to pay him, then
the capitalist partners must pay him.
In relation to this, the Supreme Court noted that
partnerships under the Civil Code provides for a
scenario where all partners are industrial partners
(like when it is a partnership for the exercise of a
profession). In such case, if it is permitted that
industrial partners are not liable to third persons then
such third persons would get practically nothing from
such partnerships if the latter is indebted.
ARTICLE 1784 to 1809
OBLIGATIONS OF THE PARTNERS AMONG
THEMSELVES
1. MAURO LOZANA VS. SERAFIN DEPAKAKIBO
Facts: Lozana and Depakakibo established a
partnership for the purpose of maintaining,
operating, and distributing electric light and power
in the Municipality of Dumangas. The partnership is
capitalized at the sum of P30, 000.00 where Lozana
agreed to furnish 60% while Depakakibo, 40%.
However, the franchise for venture in favor of
Buenaflor was cancelled and revoked by the Public
Service Commission. Lozana thereafter sold
Generator Buda [Lozana’s contribution to the
partnership; no liquidation made] to Decologon.
When the decision was appealed, a temporary
certificate of public convenience was issued in the
name of Decolongon. Depakakibo also sold one
Crossly Diesel Engine [Depakakibo’s contribution to
the partnership] to Spouses Jimenea and Harder.
Lozana brought action against Depakakibo alleging
the latter wrongfully detained the Generator Buda
and wooden posts to
which he is entitled to the possession of. Lozano
prayed the properties be delivered back to him. CFI
ordered sheriff to take possession of the properties
and the delivery thereof to Lozano. Depakakibo
alleged properties have been contributed to the
partnership and therefor he is not unlawfully
detaining them. In addition, Lozano sold his
contribution to partnership in violation of terms of
their agreement. CFI declared Lozano owner of and
entitled to the equipment. Depakakibo appealed
decision to the Supreme Court.
Issue: Whether the equipment belongs to the
partnership.
RULING: YES As it appears from the above stipulation
of facts that the parties entered into the contract of
partnership, Lozano contributing the amount of
P18,000, and as it is not stated therein that there has
been a liquidation of the partnership assets at the
time plaintiff sold the Buda Diesel Engine on October
15, 1955, and since the court below had found that
the plaintiff had actually contributed one engine
and 70 posts to the partnership, it necessarily follows
that the Buda diesel engine contributed by the
plaintiff had become the property of the
partnership. As properties of the partnership, the
same could not be disposed of by the party
contributing the same without the consent or
approval of the partnership or of the other partner.
(Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of
partnership was null and void, because by the
contract of partnership, the parties thereto have
become dummies of the owner of the franchise. The
reason for this holding was the admission by
defendant when being cross-examined by the court
that he and the plaintiff are dummies. This admission
is an error of law, not a statement of fact. The Anti-
Dummy law has not been violated as parties plaintiff
and defendant are not aliens but Filipinos. The Anti-
Dummy law refers to aliens only (Commonwealth
Act 108 as amended).
Upon examination of the contract of partnership,
especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric
light and power under the franchise belonging to
Mrs. Buenaflor, the agreement does not appear to
be illegal, or contrary to law and public policy such
as to make the contract of partnership, null and void
ab initio. The agreement could have been submitted
to the Public Service Commission if the rules of the
latter require them to be so presented. But the fact
of furnishing the current to the holder of the franchise
alone, without the previous approval of the Public
Service Commission, does not per se make the
contract of partnership null and void from the
beginning and render the partnership entered into
by the parties for the purpose also void and non-
existent. Under the circumstances, therefore, the
court erred in declaring that the contract was illegal
from the beginning and that parties to the
partnership are not bound therefor, such that the
contribution of the plaintiff to the partnership did not
pass to it as its property. It also follows that the claim
of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is
the proper remedy not for each contributing partner
to claim back what he had contributed.
2. SANCHO V LIZARRAGA
Facts:
Sancho and Lizarraga entered into a contract of
partnership. Sancho brought an action for the
rescission of the partnership and prayed for the
reimbursement of the P50, 000 investment he
contributed with interest at 12% per annum against
Lizarraga. Lizarraga denied allegations and asked
for the dissolution of their partnership and payment
to him as manager and administrator of the
partnership of P500 monthly from October 15, 1920
[the day the contract was entered into] until final
dissolution. CFI Manila proceedings proved Lizarraga
had not contributed all the capital he bound himself
to invest and that Sancho demanded Lizarraga to
liquidate partnership. CFI declared partnership
dissolved on account of the expiration period for
which it was constituted and ordered liquidation of
the partnership. Sancho appealed from said
decision praying for the rescission of the partnership
contract between him and the
defendant in accordance with Art. 1124.
Issue:
Whether plaintiff acquired the right to demand
rescission of the partnership contract according to
article 1124 of the Civil Code.
Held: NO. SC ruled that owing to the defendant’s
failure to pay to the partnership the whole amount
which he bound himself to pay, he became
indebted to the partnership for the remainder, with
interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to
demand rescission of the partnership contract
according to article 1124 of the Code. Article 1124
cannot be applied to the case in question, because
it refers to the resolution of obligations in general,
whereas articles 1681 and 1682 specifically refer to
the contract of partnership in particular. And it is a
well known principle that special provisions prevail
over general provisions. Hence, SC dismissed the
appeal left the decision appealed from in full force.
Just In Case: Until the accounts have been rendered
as ordered by the trial court, and until they have
been either approved or disapproved, the litigation
involved in this action cannot be considered as
completely decided; and, as it was held in said case
of Natividad vs .Villarica, also with reference to an
appeal taken from a decision ordering the rendition
of accounts following the dissolution of partnership,
the appeal in the instant case must be deemed
premature.
3. UY VS. PUZON
Facts:
Puzon (the contractor) and Uy formed a partnership
named “U.P. Construction Company,” which was
subsequently engaged as subcontractor for the
construction of the Ganyangan Bato Section of the
Pagadian Zamboanga City Road and of five (5)
bridges in the Malangas-Ganyangan Road with the
Bureau of Public Highways (BPH), the profits of which
will be divided equally between them. The partners
agreed that each would contribute P50,000.00 in
cash as capital. Uy has contributed 10,000 and
30,000 respectively as partial contribution. He also
managed the projects. As such, he financed
subsequent expenses, which was considered as part
of his contribution. In sum, Uy had contributed to the
partnership the amount of P115,453.39, including his
capital. Puzon, however, as he was short of cash,
merely promised to contribute his share in the
partnership capital as soon as his 150,000 loan
application with PNB is approved. Without the
knowledge and consent of Uy, Puzon assigned to
PNB all payments to be received on account of the
contracts with RP as security for the loan. Upon the
approval of Puzon’s loan, he gave to Uy P60,000.00.
Of this amount, P40,000.00 was for the
reimbursement of Uy's contribution to the
partnership, and the P20,000.00 as Puzon's
contribution to the partnership capital.
Uy demanded (first orally, then written) from Puzon
to comply with his obligations under the terms of their
partnership agreement and to place, at least, his
capital contribution at the disposal of the
partnership but to no avail. Instead, Puzon, as prime
contractor, wrote the subcontractor, U.P.
Construction Company, terminating their
subcontract agreement with the partnership, of
which he is also a partner, Thereafter, Uy was not
allowed to hold office in the company and his
authority to deal with BPH was revoked b Puzon who
continued with the construction projects alone. Uy,
claiming that Puzon had violated the terms of their
partnership agreement, instituted an action in court,
seeking the dissolution of the partnership and
payment of damages. The trial court found that
Puzon, contrary to the terms of their partnership
agreement, failed to contribute his share in the
capital of the partnership applied partnership funds
to his personal use. As a consequence, the trial court
ordered the dissolution of the partnership.
Issue: WON Puzon violated the terms of the
partnership agreement.
Held: YES It is apparent from the record that Puzon
failed to contribute his share in the capital in
violation of the partnership agreement. It should be
noted that after Puzon's loan was approved by PNB,
he merely gave P20,000.00 as his contribution to the
partnership notwithstanding the agreement that
each partner would contribute 50,000 to the
partnership as capital. Thereafter, no further
contributions to the partnership funds was ever
made by Puzon as shown in his letters to Uy,
confessing his inability to put in additional capital to
continue with the projects. In addition thereto, Puzon
also misapplied partnership funds when he, unknown
and without the consent of Uy as partner,
assigned to PNB all the payments to be received by
the partnership on account of the construction
contracts with BPH to guarantee the repayment of
the loan. In view of the assignment, Puzon withheld
and applied the amount of
P332,539,60 in payment of the his personal loan with
said bank. The balance was deposited in Puzon's
current account and only the amount of P27,820.80
was deposited in the current account of the
partnership to the prejudice of the said partnership.
Note: Art. 1788. A partner who has undertaken to
contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation.
4. US VS. CLARIN
FACTS:
Sometime before 1910, Pedro Larin formed a
partnership with Pedro Tarug, Eusebio Clarin and
Carlos de Guzman. Larin, being the capitalist,
agreed to contribute P172.00 to the partnership and
the three others shall use said fund to trade
mangoes. The three industrial partners bought
mangoes and sell them and they earned P203.00 but
they failed to give Larin’s share of the profits. Larin
charged them with the crime of estafa, but the
provincial fiscal filed an information only against
Eusebio Clarin in which he accused him of
appropriating to himself not only the P172 but also
the share of the profits that belonged to Larin,
amounting to P15.50. Clarin was eventually
convicted.
ISSUE:
Whether or not the conviction is correct.
HELD:
No. The P172.00 having been received by the
partnership, the business commenced and profits
accrued, the action that lies with the partner who
furnished the capital for the recovery of his money is
not a criminal action for estafa, but a civil one arising
from the partnership contract for a liquidation of the
partnership and a levy on its assets if there should be
any.
The then Penal Code provides that those who are
guilty of estafa are those “who, to the prejudice of
another, shall appropriate or misapply any money, actual administrators thereof. Being the actual
goods, or any kind of personal property which they administrators, they were considered agents of the
may have received as a deposit on commission for company and incurred the liabilities peculiar to
administration or in any other producing the every agent, among which is that of
obligation to deliver or return the same,” (as, for rendering account to the principal of their
example, in commodatum, precarium, and other transactions, and paying him everything they
unilateral contracts which require the return of the received by virtue of mandatum. Neither of them
same thing received) does not include money has rendered such account nor proven the losses
received for a partnership; otherwise the result would referred to by Ong Pong Co. Hence they are obliged
be that, if the partnership, instead of obtaining to refund the money that they received for the
profits, suffered losses, as it could not be held liable purpose of establishing the store. There was no
civilly for the share of the capitalist partner who evidence that the entire capital or any part thereof
reserved the ownership of the money brought in by was lost. The mere averment that the effects of the
him, it would have to answer to the charge of estafa, store were ejected, without proof of such, is
for which it would be sufficient to argue that the insufficient. And even if this were proven, it could not
partnership had received the money under be inferred that the reason for ejectment was for
obligation to return it. failure to pay rent, and that the failure to pay rent was
on account of the loss of capital. As to the possible
5. PEOPLE VS. CAMPOS
profits, the findings of the court are based on the
statements of Ong Pong Co that “there were some
IN THIS CASE, THERE WAS MERE FAILURE ON THE PART
profits, but not large ones”. There having been no
OF THE INDUSTRIAL
specific amount proven however, the court did not
PARTNER TO LIQUIDATE PARTNERSHIP AFFAIRS AND
admit the estimate made in the judgment of the
TO ACCOUNT TO PERSONS
lower court. This case being nothing other than the
INTERESTED THE AMOUNTS RESPECTIVELY DUE THEM. A
failure to fulfill an obligation on the part of a partner
PARTNER IS
who acted as agent in receiving money for a certain
GUILTY OF ESTAFA IF HE FRAUDULENTLY
purpose, for which he has rendered no accounting,
APPROPRIATES PARTNERSHIP
such agent is responsible only for the losses which,
PROPERTY DELIVERED TO HIM, WITH SPECIFIC
by a violation of the provisions of the law, he
DIRECTIONS TO APPLY IT TO
incurred. This being an obligation to pay in cash,
PARTNERSHIP PURPOSES. (PEOPLE VS. CAMPOS,)
there are no other losses than the legal interest. 1688
is inapplicable in this case, insofar as it provides that
6. Pedro Martinez vs. Ong Pong Co and Ong Lay
“the partnership is liable to every partner for the
amounts he may disbursed on account of the same
and for the proper interest” for the reason that no
Facts:
other money than what Martinez’ contributed is
Pedro Martinez delivered P1,500 to Ong Pong Co
involved. As in the partnership there were two
and Ong Lay, who in a private document
administrators or agents liable for the above-named
acknowledged that they had received the same
amount, article 1138 of the Civil Code has been
with the agreement, as stated by them, “to invest
invoked; this latter deals with debts of a partnership
the amount in a store, the profits or losses of which
where the obligation is not a joint one, as is likewise
we are to divide with the former, in equal shares.”
provided by article 1723 of said code with respect to
Subsequently, Pedro Martinez filed a complaint in
the liability of two or more agents with respect to the
order to compel the defendants to render him an
return of the money that they received from their
accounting of the partnership as agreed to, or to
principal. Ong Pong Co was made to pay P750, with
refund him the P1,500 he had given them. Ong Pong
6% legal interest from the time of the filing of the
Co admitted the fact of the agreement and the
complaint.
delivery to him and Ong Lay of the P1,500, but he
alleged that Ong Lay was the one who managed
the business and nothing had come out of the
7. RAMNANI VS. COURT OF APPEALS
investment, save the loss of the capital of P1,500. The
lower courts ruled in favor of Martinez. Hench, Ong
FACTS:
Pong Co appealed to the court, citing the following
errors: 1.) the reason for the closing of the store was
Ishwar, Choithram and Navalrai, all surnamed
the ejectment from the premises occupied by it; 2.)
Jethmal Ramnani, are brothers of the full blood.
the court should have considered the fact that there
Ishwar and his spouse Sonya had their main business
were losses; 3.) for ruling that there should have been
based in New York. Realizing the difficulty of
profits.
managing their investments in the Philippines they
executed a general power of attorney on January
Issue:
24, 1966 appointing Navalrai and Choithram as
Whether Ong Pong Co is liable to pay Martinez.
attorneys-in-fact, empowering them to manage
and conduct their business concern in the
Held:
Philippines. On February 1, 1966 and on May 16, 1966,
YES. The fact that the store was closed by virtue of
Choithram, in his capacity as aforesaid attorney-in-
ejectment is no consequence to the effects of the
fact of Ishwar, entered into two agreements for the
suit. The action is based on the fact that defendants
purchase of two parcels of land located in Barrio
received capital from Martinez for the purpose of
Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
organizing a company; and in the absence of a
Partnership (Ortigas for short) with a total area of
special agreement vesting in one sole person the
approximately 10,048 square meters. 2 Per
management of the business, defendants were the
agreement, Choithram paid the down payment
and installments on the lot with his personal checks.
A building was constructed thereon by Choithram in
1966 and this was occupied and rented by Jethmal
Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon by
Choithram through a loan of P100,000.00 obtained
from the Merchants Bank as well as the income
derived from the first building. The buildings were
leased out by Choithram as attorney-in-fact of
Ishwar. Two of these buildings were later burned.
Ishwar and Sonya (spouses Ishwar for short) filed a
complaint in the Court of First Instance of Rizal
against Choithram and/or spouses Nirmla and Moti
(Choithram et al. for brevity) and Ortigas for
reconveyance of said properties or payment of its
value and damages. An amended complaint for
damages was thereafter filed by said spouses.
The center of controversy is the testimony of Ishwar
that during the latter part of 1965, he sent the
amount of US $150,000.00 to Choithram in two bank
drafts of US$65,000.00 and US$85,000.00 for the
purpose of investing the same in real estate in the
Philippines. The trial court considered this lone
testimony unworthy of faith and credit. On the other
hand, the appellate court found that the trial court
misapprehended the facts in complete disregard of
the evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that
because he was then a British citizen, as a temporary
arrangement, he arranged the purchase of the
properties in the name of Ishwar who was an
American citizen and who was then qualified to
purchase property in the Philippines under the then
Parity Amendment. The trial court believed this
account but it was debunked by the appellate
court.
HELD:
The environmental circumstances of this case
buttress the claim of Ishwar that he did entrust the
amount of US $ 150,000.00 to his brother, Choithram,
which the latter invested in the real property business
subject of this litigation in his capacity as attorney-in-
fact of Ishwar.
True it is that there is no receipt whatever in the
possession of Ishwar to evidence the same, but it is
not unusual among brothers and close family
members to entrust money and valuables to each
other without any formalities or receipt due to the
special relationship of trust between them.
Spouses Ishwar filed an urgent motion for the
issuance of a writ of preliminary attachment and to
require Choithram, et al. to submit certain
documents, inviting the attention of this Court to the
following:
a) Donation by Choithram of his 2,500 shares of stock
in General Garments Corporation in favor of his
children on December 29, 1989; 18
b) Sale on August 2, 1990 by Choithram of his 100
shares in Biflex (Phils.), Inc., in favor of his
children; 19 and
c) Mortgage on June 20, 1989 by Nirmla through her
attorney-in-fact, Choithram, of the properties
subject of this litigation, for the amount of $3 Million
in favor of Overseas Holding, Co. Ltd., (Overseas for
brevity), a corporation which appears to be
organized and existing under and by virtue of the
laws of Cayman Islands, with a capital of only
$100.00 divided into 100 shares of $1.00 each, and
with address at P.O. Box 1790, Grand Cayman,
Cayman Islands.
All these contemporaneous and subsequent acts of
Choithram, et al., betray the weakness of their cause
so they had to take an steps, even as the case was
already pending in Court, to render ineffective any
judgment that may be rendered against them.
The problem is compounded in that respondent
Ortigas is caught in the web of this bitter fight. It had
all the time been dealing with Choithram as
attorney-in-fact of Ishwar. However, evidence had
been adduced that notice in writing had been
served not only on Choithram, but also on Ortigas, of
the revocation of Choithram's power of attorney by
Ishwar's lawyer, on May 24, 1971. 27 A publication of
said notice was made in the April 2, 1971 issue of The
Manila Times for the information of the general
public. 28 Such notice of revocation in a newspaper
of general circulation is sufficient warning to third
persons including Ortigas. 29 A notice of revocation
was also registered with the Securities and Exchange
Commission on March 29, 1 971.
We have a situation where two brothers engaged in
a business venture. One furnished the capital, the
other contributed his industry and talent. Justice and
equity dictate that the two share equally the fruit of
their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one
would end up the loser. After all, blood is thicker than
water.
However, the Court cannot just close its eyes to the
devious machinations and schemes that Choithram
employed in attempting to dispose of, if not
dissipate, the properties to deprive spouses Ishwar of
any possible means to recover any award the Court
may grant in their favor. Since Choithram, et al.
acted with evident bad faith and malice, they
should pay moral and exemplary damages as well
as attorney's fees to spouses Ishwar.
DECISION: Dividing equally between respondents
spouses Ishwar,on the one hand, and petitioner
Choithram Ramnani, on theother, (in G.R. No. 85494)
the two parcels of land subject of thislitigation,
including all the improvements thereon,
presentlycovered by transfer Certificates of Title Nos.
403150 and 403152of the Registry of Deeds, as well
as the rental income of theproperty from 1967 to the
present.
8. MORAN, JR. VS. COURT OF APEALS
Doctrine:
• The essence of partnership is the sharing of profits
and losses.

Facts: Pecson and Moran entered into an
agreement whereby both would contribute P15,000
each for the purpose of printing 95,000 posters
featuring the delegates of the 1971 Constitutional
Convention. Moran would act as a managing
partner. According to the agreement, Pecson would
receive a commission of P1000 a month from April to
December (8 months). Pecson gave Moran P10,000
as part of his share. Only 2,000 posters were printed.
The printing cost P4,000. Pecson gave another P7000
for the printing of “The Voice of the Veteran”
Magazine which they also agreed upon. Moran
gave Pecson a promissory note amounting to
P20,000 in consideration of Pecson’s contributions
and commission for three months. Pecson filed a
case for an action of recovery of sum of money
based on the alleged partnership agreement,
whereby he seeks the return of his 10K contribution,
and based on the promissory note.
The CFI held that, there is indeed a partnership
agreement, and that based on this Pecson gave
10K, and gave another 7K for the Voice of the
Veteran Magazine. The CFI ruled that because
Pecson also failed to give the full amount of 15
thousand for the posters, both Moran and Pecson is
entitled to rescind the contract. Moran was asked to
return to Pecson the 17K received by him. Both
parties appealed to the CA. The CA ruled against
Moran. He was ordered to pay:
 P 47,500 – the amount which, according to
the CA, would have accrued in favor of
Pecson if the agreement was honored; P
8000 , as commission from April to December;
P 7000, as return of Pecson’s investment for
the Voice of the Veterans because the
project never took off.
From this judgment, Moran appealed to the
Supreme Court.
Issue:
1. W/N the CA erred in ordering Moran to pay the
abovementioned amounts.
2. W/N Moran is liable to pay the promissory note
executed by him
Held:
1. YES. (As to the P47,500 and the P8000) - When
partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to
contribute and for interests and damages from the
time he should have complied with his obligation. In
the case at bar, there was no evidence that the
partnership would have been a profitable venture,
in fact it was a failure doomed from the start.
Therefore there is no basis for the award of
speculative damages. Moreover, both parties were
in breach of their duties as Pecson also failed to pay
in full his obligation to the partnership.
Art 1797 provides that the shares and losses shall be
governed by the agreement, in the absence of an
agreement regarding the losses, it shall be borne
proportionately. Being a contract of partnership,
each partner must bear the losses and profits of the
venture — that is the essence of partnership. Even
under the assurance of the other party that the
venture would become successful, in the absence of
fraud, the other party has no right to claim highly
speculative profits. Hidden risks such as the failure of
the COMELEC to proclaim the candidates in the
ConCon on time, etc. should be considered.
(As to the P 7000) – The fact that respondent
presented in Court as evidence the book “Voice of
the Veterans” is sufficient proof that the project took
off and therefore, the assertion of the CA in
awarding the P7000 in favor of Pecson is baseless.
2. NO. Because of the circumstances mentioned
above, Moran should only pay Pecson 6K
representing the unused balance of his 10K share (4k
was for the printing), and another 3K representing 1⁄2
of the profits earned from the sale of the printed
posters. (NOTE THAT THE 20K WAS FOR: P10,000
CONTRIBUTION OF PECSON FOR THE POSTERS, P7000
CONTRIBUTION FOR THE VETERANS MAGAZINE, P3000
FOR 3 MONTHS WORTH OF COMMISSION)
9. [CA] 50 O.G. 175
Ng Ya Vs, Sugbu Commercial
Facts:
Ng Ya, a Chinese merchant based in Surigao,
Surigao ordered from Sugbu Commercial (based in
Cebu) 1,000 galvanized iron and aluminium sheets.
It was agreed that the goods would be delivered in
a week’s time, or on or before January 5, 1950. The
amount of these goods is P5,400, which appears to
have been paid by Ng Ya in full. However, the said
goods were not delivered on the said date. And as
Ng Ya kept on inquiring from Sugbu Commercial Co.
about the status of the goods, the latter failed to
deliver the same but kept promising that the said
goods would be delivered at some future time.
Sugbu Commercial later found out that Ng Ya is also
in need of cigarettes that she will sell on resale in
Surigao. The former then offered the latter
cigarettes. Ng Ya was enticed by the offer and then
entered into another contract of sale with Sugbu.
She paid the amount of the cigarettes worth P4,000
with the help of Lana Bakery, with whom she had an
understanding of splitting the profits she hoped to
realize from the buy and sell of cigarettes. However,
after a couple of months, in July, neither the
cigarettes nor the galvanized iron and aluminium
sheets reached Ng Ya. Consequently, Tan Chun Pia
of Lana Bakery, from whom she obtained the P4,000
got angry with her and, for this reason, Ng Ya was
forced to reimburse him of the amount.
She then kept coming back to Sugbu to demand
either the delivery of the goods she ordered or the
payment of P 9,400. Unfortunately, every time she
dropped there, poor Ng Ya was challenged by Shih
Tiong Chu to file a complaint, and she had to seek
the help of the Chinese Chamber of Commerce for
the settlement of her claim.
Ng Ya finally filed a complaint with the CFI Cebu.
Sugbu Commercial then filed a 3rd-party complaint
against Pow Sun Gee, alleging that the latter
received the amounts of P5,400 and P4,000 in his
capacity as manager of Sugbu Commercial when
he was not authorized to issue official receipts and
that only his co-partner Shih Tiong Chu, who was
most of the time in Manila, could do so. In this regard,
Sugbu Commercial prayed that Pow Sun gee be
ordered to indemnify Sugbu Commercial for
whatever is adjudged against the latter in favor of
plaintiff Ng Ya.
TC decided in favor of Ng Ya and sentenced Sugbu
to pay plaintiff the sum of P9,400 and condemning
Pow Sun Gee to reimburse Sugbu Commercial
Company.
Sugbu Commercial appealed.
Issue:
W/N Sugbu Commercial should not be held liable
because Pow Sun Gee, as the one who received the
payments and issued receipts to Ng Ya, is not
authorized to do so.
Held:
No. A manager of a partnership is presumed to have
all the incidental powers to carry out the object of
the partnership in the transaction of the business.
There is of course an exception to the general rule:
when the powers of a manager are specifically
restricted, he could not exercise the powers
expressly limited of him. But when the articles of
association do not specify the powers of the
manager, it is admitted on principle that a manager
has the powers of a general agent, and even more.
When the object of the company is determined, the
manager has all the powers necessary for the
attainment of such object.
Sugbu Commercial was not able to present articles
of co-partnership that would show any limitation
upon the powers of the manager – an indication
that there was none. For this reason, we hold and
declare that the minor power of issuing official
receipt is included in the general powers of the
manager.
Indeed, it would be quite queer that the manager of
any juridical entity would not be authorized to issue
official receipts for amounts delivered to that entity
through said manager, and that only his co-partner
Shih Tiong Chu, who was most of the time in Manila,
could do so. This is not in keeping with the present
day business dealings, for it is slow and inconvenient
to those who transact with the company.
10. G.R. No. 30286 September 12, 1929
M. TEAGUE, plaintiff-appellant,
vs. H. MARTIN, J. T. MADDY and L.H.
GOLUCKE, defendants-appellees.
Facts:
It was alleged, among others, by the plaintiff that he
and the defendants formed a partnership for the
operation of a fish business and similar commercial
transactions, which by mutual consent was called
"Malangpaya Fish Co.," with a capital of P35,000, of
which plaintiff paid P25,000, the defendants Martin
P5,000, Maddy P2,500, and Golucke P2,500; that he
was named the general partner; that the share in the
profits and losses is in proportion to the amount of
contributed capital; that there was no agreement as
to the duration of the partnership; that he wants to
dissolve it, but the defendants refused to do so; that
the partnership purchased and owns a lighter (Lapu-
Lapu), a motorship (Barracuda), and other
properties, which are in the possession of the
defendants who are making use of them. It was
alleged that it is the best interest of the parties to
have a receiver appointed pending this litigation, to
take possession of the properties, and he prays that
the Philippine Trust Company be appointed receiver,
and for judgment dissolving the partnership, with
costs.
Each of the defendants filed a separate answer, but
of the same nature. It is then alleged, among others,
that Maddy will have charge of the Barracuda and
the navigating of the same, salary P300 per month;
Martin will have charge of the southern station, cold
stores, commissary and procuring fish, salary P300
per month; Teague will have charge of selling fish in
Manila and purchasing supplies. No salary until
business is on paying basis.
The CFI issued a decision: (1) dissolving the
partnership and liquidating its assets; (2) that the
barge Lapu-Lapu as well as the Ford truck and
adding machine belong exclusively to Teague, but
he must return to and reimburse the partnership the
amount which was taken from its funds for the
purchase of the Lapu-Lapu and the Ford truck.
Upon appeal, the plaintiff further contended that he
is the managing partner of the partnership and the
three properties (Lapu-Lapu, Barracuda & Ford
truck) are properties of the partnership since they
were paid from the profits of the partnership thus do
not belong to him.
ISSUES:
1. WON the plaintiff was the manager of the
unregistered partnership of Malangpaya Fish
Company.
2. WON the three properties are owned by the
partnership.
RULING:
1. Yes, the powers and duties of the three partners
are specifically defined, and that each of them was
more or less the general manager in his particular
part of the business. The plaintiff’s powers and duties
were confined and limited to "selling fish in Manila
and the purchase of supplies."
2. No, the Lapu-Lapu, Barracuda, and the adding
machine, although paid for by the partnership funds,
are owned by petitioner for it was registered in his
own name. He is estopped from claiming otherwise.
The purchase of the properties in question are not
within the scope of plaintiff’s authority. It is but right
that the plaintiff reimburse the partnership for the use
of its funds. However, it noted that the partnership
also made use of the Lapu-Lapu. In the interest of
justice, the plaintiff should be compensated for such
use.
11. [C.A] 50 O.G. 175Court of Appeals, September 7,
1953
Santos, plaintiff vs. Villanueva, defendant
Facts:
Gavino Santos, Luisito del Rosario, and Emiliano del
Rosario formed a partnership for the operation of a
tailoring shop under the business name, Esquire.
Emiliano is the manager of the partnership.
No dissolution nor liquidation of the partnership has
been done until the filing of an action.
Without the knowledge and consent of the other
partners, Emiliano then sold the tailoring shop to
defendant Cenon Villanueva and/or Corazon del
Rosario. This precipitated the filing of an action by
Gavino Santos in CFI Manila for the rescission of the
sale.
The TC decided in favor of plaintiff and declared
that the aforesaid sail null and void.
Defendant appealed in this court, alleging that he
was a purchaser in good faith.
Issue:
W/N the sale of the tailoring shop was valid.
Held:
No. (SC also found out that Villanueva was a
purchaser in bad faith).
Art. 143 of Code of Commerce: Partnership property
cannot be validly sold or conveyed by anyone of
the partners without the consent of all the other
partners forming the partnership. The vendor, not
having the right nor the authority to dispose of the
partnership business, or even his interest therein,
without the consent of the other partners, the deed
of sale is null and void and of no effect whatsoever.
***The tailoring business is evidently a partnership
property
12. G.R. No. L-11624 January 21, 1918
E. M. BACHRACH, plaintiff-appellee, vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Facts:
Nicolas Segundo, Antonio Adiarte, Ignacio Flores
and Modesto Serrano (defendants) formed a civil
partnership called “La Protectora” for the purpose of
engaging in the business of .transporting passengers
and freight at Laoag, Ilocos Norte. Marcelo Barba,
acting as manager, negotiated for the purchase of
2 automobile trucks from E. M. Bachrach for P16,500.
Barba paid P3,000 in cash and for the balance
executed promissory notes.
One of these promissory notes was signed in the
following manner:
“P.P La Protectora, By Marcelo Barba Marcelo
Barba”
The other 2 notes were signed in the same way but
the word “by” was omitted. It was obvious that in
signing the notes, Barba intended to bind both the
partnership and himself.
The defendants executed a document in which they
declared that they were members of La Protectora
and that they had granted to its president full
authority to contract for the purchase of the 2
automobiles. The document was delivered by
Barba to Bachrach at the time the vehicles were
purchased.
Barba incurred a debt amounting to P2,617.57 and
Bachrach foreclosed a chattel mortgage on the
trucks but there was still balance. To recover the
balance, action was instituted against the
defendants. Judgment was rendered against the
defendants.
Issue:
1. Whether or not the defendants are liable for the
firm debts.
2. Whether or not Barba had authority to incur
expenses for the partnership (relevant issue)
Held:
1. Yes. The business conducted under the name of
"La Protectora" was evidently that of a civil
partnership; and the liability of the partners to this
association must be determined under the provisions
of the Civil Code. The authority of Marcelo Barba to
bind the partnership, in the purchase of the trucks, is
fully established by the document executed by the
four appellants upon June 12, 1913. The transaction
by which Barba secured these trucks was in
conformity with the tenor of this document. The
promissory notes constitute the obligation exclusively
of "La Protectora" and of Marcelo Barba; and they
do not in any sense constitute an obligation directly
binding on the four appellants. Their liability is based
on the fact that they are members of the civil
partnership and as such are liable for its debts. It is
true that article 1698 of the Civil Code declares that
a member of a civil partnership is not liable in solidum
(solidariamente) with his fellows for its entire
indebtedness; but it results from this article, in
connection with article 1137 of the Civil Code, that
each is liable with the others
(mancomunadamente) for his aliquot part of such
indebtedness. And so it has been held by this court.
(Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
2. Yes. Under Art 1804, every partner may associate
another person with him in his share. All partners are
considered agents of the partnership.
There is no proof in the record showing what the
agreement, if any, was made with regard to the form
of management. Under these circumstances it is
declared in article 1695 of the Civil Code that all the
partners are considered agents of the partnership.
Barba therefore must be held to have had authority
to incur these expenses. But in addition to this he is
shown to have been in fact the president or
manager, and there can be no doubt that he had
actual authority to incur this obligation.
13. G.R. No. 1011 May 13, 1903
JOSE MACHUCA, plaintiff-appellee,
vs.
CHUIDIAN, BUENAVENTURA & CO., defendants-
appellants.
FACTS:
Chuidian Buenaventura & Co. is regular general
partnership, organized in Manila, December 29,
1882, as a continuation of a prior partnership of the
same name. The original partners constituting the
partnership of 1882 were D. Telesforo Chuidian, Doña
Raymunda Chuidian, Doña Candelaria Chuidian,
and D. Mariano Buenaventura.
Doña Raymunda Chuidian retired from the
partnership November 4, 1885. On January 1, 1888,
the partnership went into liquidation, and it does not
appear that the liquidation had been terminated
when this action was brought.
On January 1, 1894, D. Mariano Buenaventura died,
his estate passing by will to his children, among
whom was D. Vicente Buenaventura. Upon the
partition of the estate the amount of the interest of
D. Vicente Buenaventura in his father's account-
current and in the capital was ascertained and
recorded in the books of the firm.
On December 15, 1898, D. Vicente Buenaventura
executed a public instrument in which for a valuable
consideration he "assigns to D. Jose Gervasio Garcia
. . . a 25 per cent share in all that may be obtained
by whatever right in whatever form from the
liquidation of the partnership of Chuidian,
Buenaventura & Co., in the part pertaining to him in
said partnership
A subsequent assignment was made by D. Jose
Gervasio Garcia in favour of Jose Machuca (Plaintiff-
Appellee), which has been notified to the liquidator
of the partnership.
Trial Court – Brought by Jose Machuca against
Chuidian Buenaventura & Co.. Action was for
specific performance to compel the liquidator of the
partnership to record in the books Machuca’s claim
under the assignment as a credit due, and the he
further asks that he be adjudicated to be a creditor
of the partnership in an amount equal to 25 per cent
of D. Vicente Buenaventura's share in his father's
account-current. That the necessary liquidation
being first had, the partnership pay to the plaintiff the
balance which may be found to be due him; and
that if the partnership has no funds with which to
discharge this obligation an adjudication of
bankruptcy be made. He also asks to recover the
damages caused by reason of the failure of the
liquidator to record his credit in the books of
partnership. Court ruled in favor of the plaintiff.
ISSUE(s):
WON Machuca is entitled to the relief prayed
pending the liquidation of the partnership?
HELD: NO
 Clause 19 of the partnership agreement
stipulates that:
"upon the dissolution of the company, the pending
obligations in favor of outside parties should be
satisfied, the funds of the minors Jose and Francisco
Chuidian should be taken out, and afterwards the
resulting balance of the account-current of each
one of those who had put in money (imponentes)
should be paid."
 A construction of this clause establishes that the
liabilities to noncompartners are to be first
discharged; that the claims of the Chuidian
minors are to be next satisfied; and that what is
due to the respective partners on account of
their advances to the firm is to be paid last of all,
leaving the ultimate residue, of course, if there
be any, to be distributed, among the partners in
the proportions in which they may be entitled
thereto. A distinction is made in this clause
between creditors who were partners and
creditors who were not partners, and that the
expression "outside parties" refers to the latter
class.
 Thus, it follows that D. Vicente Buenaventura,
whose rights are those of his father, is in no case
entitled to receive any part of the assets until the
creditors who are nonpartners and the Chuidian
minors are paid. Whatever rights he had either as
creditor or partner, he could only transfer subject
to this condition.
 It is clear, from the language of the instrument,
that this conditional interest was all that D.
Vicente Buenaventura ever intended to transfer.
By that instrument he undertakes to assign to
Garcia not a present interest in the assets of the
partnership but an interest in whatever "may be
obtained from the liquidation of the partnership,"
which Garcia is to receive "in the same form in
which it may be obtained from said partnership,"
and "on the date when Messrs. Chuidian,
Buenaventura & Co., in liquidation, shall have
effected the operations necessary in order to
satisfy" the claims of D. Vicente Buenaventura.
 The assignment by its terms is not to take effect
until all the liabilities of the partnership have been
discharged and nothing remains to be done
except to distribute the assets, if there should be
any, among the partners. Meanwhile the
assignor, Buenaventura, is to continue in the
enjoyment of the rights and is to remain subject
to the liabilities of a partner as though no
assignment had been made. The assignment
does not purport to transfer an interest in the
partnership, but only a future contingent right to
25 per cent of such portion of the ultimate residue
of the partnership property as the assignor may
become entitled to receive by virtue of his
proportionate interest in the capital.
 There is nothing in the case to show either that
the nonpartner creditors of the partnership have
been paid or that the claims of the Chuidian
minors have been satisfied. Thus, Machuca is not
yet entitled to the relief.
14. G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
FACTS:
The petitioner asks for the reversal of the decision of
the then Intermediate Appellate Court in AC-G.R.
No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in
the business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share
in the annual profits of the said restaurant.
This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan
Fue Leung.
The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was
registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the
case to show that Sun Wah Panciteria was actually
a partnership and that he was one of the partners
having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as
follows:
About the time the Sun Wah Panciteria started to
become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This is
evidenced by a receipt wherein the petitioner
acknowledged his acceptance of the P4,000.00 by
affixing his signature thereto. Furthermore, the
private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's
Equitable Banking Corporation Check from the
profits of the operation of the restaurant for the year
1974
The petitioner denied having received from the
private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the
receipt. His evidence is summarized as follows:
The petitioner did not receive any contribution at the
time he started the Sun Wah Panciteria. He used his
savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah
Panciteria. Petitioner presented various government
licenses and permits showing the Sun Wah Panciteria
was and still is a single proprietorship solely owned
and operated by himself alone. Fue Leung also flatly
denied having issued to the private respondent the
receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount
of P12,000.00 (Exhibit B).
ISSUE:
WON Private respondent is a partner of the petitioner
in Sun Wah Panciteria?
HELD:
The private respondent is a partner of the petitioner
in Sun Wah Panciteria. The requisites of a partnership
which are — 1) two or more persons bind themselves
to contribute money, property, or industry to a
common fund; and 2) intention on the part of the
partners to divide the profits among themselves
(Article 1767, Civil Code; Yulo v. Yang Chiao Cheng,
106 Phil. 110)-have been established. As stated by
the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations
exist among the partners at the start of business and
all the partners are more interested in seeing the firm
grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a
partner does not assert his rights anytime within ten
years from the start of operations, such rights are
irretrievably lost. The private respondent's cause of
action is premised upon the failure of the petitioner
to give him the agreed profits in the operation of Sun
Wah Panciteria. In effect the private respondent was
asking for an accounting of his interests in the
partnership.
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his interest shall accrue to
any partner, or his legal representative as against the
winding up partners or the surviving partners or the
person or partnership continuing the business, at the
date of dissolution, in the absence or any agreement
to the contrary.
Regarding the prescriptive period within which the
private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the
partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the final
accounting is done.
Considering the facts of this case, the Court may
decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court
shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of the
business;
(4) A partner willfully or persistently commits a breach
of the partnership agreement, or otherwise so
conducts himself in matters relating to the
partnership business that it is not reasonably
practicable to carry on the business in partnership
with him;
xxx xxx xxx
(6) Other circumstances render a dissolution
equitable.
There shall be a liquidation and winding up of
partnership affairs, return of capital, and other
incidents of dissolution because the continuation of
the partnership has become inequitable.
15. [ GR No. L-6304, Dec 29, 1953 ]
SERGIO V. SISON, petitioner vs. HELEN J. MCQUAID,
respondents
Facts:
Plaintiff brought an action in the CFI against
defendant. Defendant borrowed from him money (P
2,210) to enable her to pay her obligations and to
add to her capital in her lumber business. She could
not pay so she proposed to take plaintiff as a partner
in her business, plaintiff to contribute the P 2,210 due
him from defendant.
Before the last World War, the partnership sold
230,000‐board ft. of lumbe rto the US Army for P
13,800.00. Defendant refused to deliver ½ of it (P
6,900.00) to plaintiff despite his repeated demands.
Plaintiff filed an action to compel defendant to pay
him his half of the profit from the partnership.
The case was dismissed upon the ground of
prescription.
Issue:
Whether or not plaintiff is entitled to the sum he
claims
Held:
NO. Order of dismissal was affirmed, but on the
ground that the complaint states no cause of action.
It is not clear from the complaint just when the cause
of action accrued. Thus the dismissal of the case is
erroneous. However order should be retained on the
ground that the complaint has no cause of
action. Plaintiff seeks to recover from defendant
one-half of the purchase price of lumber sold by the
partnership to the United States Army. But his
complaint does not show why he should be entitled
to the sum he claims. It does not allege that there
has been a liquidation of the partnership business
and the said sum has been found to be due him as
his share of the profits. The proceeds from the sale of
a certain amount of lumber cannot be considered
profits until costs and expenses have been
deducted. Moreover, the profits of the business
cannot be determined by taking into account the
result of one particular transaction instead of all the
transactions had. Hence, the need for a general
liquidation before a member of a partnership may
claim a specific sum as his share of the profits.
Principle: Liquidation shall happen before a partner
may claim his share of profit from the partnership.
16. G.R. No. L-47823 July 26, 1943
JOSE ORNUM and EMERENCIANA
ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
FACTS:
In 1908, Pedro Lasala, father of the respondents,
andEmerenciano Ornum formed a partnership.
Lasala as capitalist while Ornum will be the industrial
partner. Lasala delivered the sum of P1,000 to Ornum
who will conducta business at his place of residence
in Romblon.
In 1912, when the assets of the partnership consisted
of outstanding accounts and old stock of
merchandise, Emerenciano Ornum, following the
wishes of his wife, asked for the dissolution of the
Lasala, Emerenciano. Ornum looked for someone
who could take his place and he suggested the
names of the petitioners who accordingly became
the new partners.
Upon joining the business, the petitioners,
contributed P505.54as their capital. The new
partnership Pedro Lasala had a capital of P1,000
appraised value of the assets of the former
partnership, plus the said P505.54 invested by the
petitioners who, as industrial partners, were to run the
business in Romblon.
After the death of Pedro Lasala, his children (the
respondents) succeeded to all his rights and interest
in the partnership. The partners never knew each
other personally. No formal partnership agreement
was ever executed.
The petitioners, as managing partners, were
received one-half of the net gains, and the other half
was to be divided between them and the Lasala
group in proportion to the capital put in by each
group. During the course divided, but the partners
were given the election, as evidenced by the
statements of accounts referred to in the decision of
the Court of Appeals, to invest their respective shares
in such profits as additional capital. The petitioners
accordingly let a greater part of their profits as
additional investment in the partnership.
After twenty years the business had grown to such
an extent that is total value, including profits,
amounted toP44,618.67. Statements of accounts
were periodically prepared by the petitioners and
sent to the respondents who invariably did not make
any objection thereto. Before the last statement of
accounts was made, the respondents had received
P5,387.29 by way of profits. The last and final
statement of accounts, dated May 27,1932, and
prepared by the petitioners after the respondents
had announced their desire to dissolve the
partnership,
Pursuant to the request contained in this letter, the
petitioners remitted and paid to the respondents the
total amount corresponding to them under the
above-quoted statement of accounts which,
however, was not signed by the latter. Thereafter the
complaint in this case was filed by the respondents,
praying for an accounting and final liquidation of the
assets of the partnership.
The Court of First Instance of Manila held that the last
and final statement of accounts prepared by the
petitioners was tacitly approved and accepted by
the respondents who, by virtue of the above-quoted
letter of Father Mariano Lasala, lost their right to a
further accounting from the moment they received
and accepted their shares as itemized in said
statement
This judgment was reversed by the Court of Appeals
principally on the ground that as the final statement
of accounts remains unsigned by the respondents,
the same stands disapproved.
The decision appealed by the petitioners
ISSUES:
1. WoN the accounting stated in the letter including
the last and final statement of account was tacitly
accepted by the petitioners as the final liquidation
and accounting of the assets of the partnership.
2. Are there really mistakes and misrepresentations
made in the statement of accounts made?
HELD:
1: YES. SC stated that the last and final statement of
accounts hereinabove quoted, had been
approved bythe respondents.
This approval resulted, by virtue of the letter of Father
Mariano Lasala of July 19, 1932, quoted in part in the
appealed decision from the failure of the
respondents to object to the statement and from
their promise to sign the same as soon as they
received their shares as shown in said statement.
After such shares had been paid by the petitioners
and accepted by the respondents without any
reservation, the approval of the statement of
accounts was virtually confirmed and its signing
thereby became a mere formality to be complied
with by the respondents exclusively. Their refusal to
sign, after receiving their shares, amounted to a
waiver to that formality in favor of the petitioners
who has already performed their obligation.
This approval precludes any right on the part of the
respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or
mistake in said approval.(Pastor ,vs .Nicasio, 6 Phil.,
152; Aldecoa & Co.,vs. Warner, Barnes & Co., 16 Phil.,
423; Gonsalez vs. Harty, 32 Phil. 328.)The Court of
Appeals did not make any findings that there was
fraud, and on the matter of error or mistake it merely
said
2: the pronouncement that the evidence tends to
prove that there were mistakes in the petitioners'
statements of accounts, without specifying the
mistakes, merely intimates as suspicion and is not
such a positive and unmistakable finding of fact as
to justify a revision, especially because the Court of
Appeals has relied on the bare allegations of the
parties, Moreover, as the petitioners did not appeal
from the decision of the Court abandoned such
allegation in the Court of Appeals. No justifiable
reason (fraud, deceit, error or mistake) has been
positively and unmistakably found by the Court of
Appeals so as to warrant the liquidations sought by
the respondents. In justice to the petitioners. It should
be borne in mind that this case has been pending
for nearly nine years and that, if another accounting
is ordered, a costly action or proceeding may arise
which may not be disposed of within a similar period,
it is not improbable that the intended relief may in
fact be the respondents' funeral.
17. G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN, plaintiff-appellant,
vs.
FELICIANO VELEZ, defendant-appellee.
FACTS:
The Plaintiff, Antonio Pabalan owned two lots a rural
estate consisting of an hacienda known by the
name of “Pantayani” and an urban land consisting
of a building lot situated on Calle Real, of Cainta. In
his desire to put he two lots to productive use, he
agreed to enter into a regular mercantile
partnership with Walter Fitton.
The agreement stipulates that they form a
partnership named “AM Pabalan and Company”
with a capital stock at 9, 000 Mexican pesos; that
Pabalan would contribute 3000 in cash while Fitoon
would contribute 6000 in real property; that pabalan
would sell his two lots to fitton for 6000; that pabalan
would receive 3000 of the purchase price while the
remaining will be his contribution to the capital; and
that Fitton would contribute the said two lots as his
agreed capital contribution.
Pabalan received 3000 of the purchase price. When
fitton died he failed to pay into the partnership funds
the remaining 3000. Owing to the failure of fitton to
comply with his obligation, the porperties in
questions had been entirely unproductive, resulting
in losses and damages to pabalan.
Plaintiff prayed for the rescission of the contract of
sale and of partnership, and to pay to the plaintiff,
as losses and damages.
Defendant Velez is the administrator of FItton’s
estate. And alleged that fitton should not be liable
for the damages because Pabalan was negligent
because he had sufficient time to have demanded
from his copartner before it died.
The court ordered the dissolution of the partnership
and the rescission of the sale and contract of
partnership and the payment of the losses and
damages.
Issue:
1. WON the rescission of sale and of the partnership
is correct.
2. WON Fitton is liable for the damages caused to
Pabalan by the failed partnership.
Held:
1. In case one of the parties to a contract does not
fulfill his obligation as stipulated therein, the other
contracting party, by the provisions of the above-
quoted article 1124 of the Civil Code, is entitled to
demand the rescission of the contract, as such
obligations are mutual, and the court must order the
rescission demanded. The partner, Walter A. Fitton,
came within such a case, since he failed to pay any
part of the price of the two properties which he had
acquired and did not turn into the company fund, as
capital of the vendor partner, the sum representing
such sale, and therefore justice requires the
dissolution of the aforementioned company and the
rescission of the said sale, in conformity with the
finding contained in the judgment appealed from
and the prayer rightfully and lawfully made by the
partner who did not violate his obligations as set forth
in the said contract.
2. With respect to the interest on the capital which
belonged to Pabalan, and which Fitton failed to turn
into the company fund in conformity with the
agreement made, and in regard to the amount of
the losses and damages occasioned by the
noncompliance, on the part of the partner Fitton,
with the stipulated provisions, both such amounts
should be considered as the company losses and
computed pro rata, in proportion to the extent that
each partner is interested in the company and on
the same basis as the profits. (Arts. 140 and 141 of the
Code of Commerce.)
As regards the amount of the land tax, which the
partner Pabalan had to pay, amounting to P522.30,
under the assessment levied upon the two real
properties owned by the company, inasmuch as the
latter is the owner of the said two parcels of land,
which form the assets of the company known as "A.
M. Pabalan and Company," it is unquestionable that
this company should have paid the said tax to the
Government, and the same being paid by the
partner Pabalan out of his private funds and not of
those of the company, he was solely entitled to be
reimbursed for two-thirds of the said sum paid, in
proportion,to the amount of the respective capital.
brought in, which two-thirds of the sum of P522.30,
that is, P348.20, may be deducted from the sum of
P2,700 Philippine currency, equivalent to P3,000
Mexican currency, which the estate of Antonio M.
Pabalan must restore to the testate or intestate
estate of Walter A. Fitton, upon the defendant's
returning to the plaintiff the two aforesaid parcels of
land
18. G.R. No. L-24243, January 15, 1926
ILDEFONSO DE LA ROSA, administrator of the intestate
estate of the deceased Go-Lio, plaintiff-
appellant, vs. ENRIQUE ORTEGA GO COTAY,
defendant-appellant.
Facts: During the Spanish regime, the Chinamen Go-
Lio and Vicente Go-Sengco formed a society for the
purchase and sale of articles of commerce, and for
this purpose they opened a store in the town of San
Isidro, Nueva Ecija. Later, Go-Lio went to China.
Vicente Go-Sengco died and his son Enrique Go-
Cotay took charge of the businesses. Go-Lio died
leaving a widow and three children, one of whom
came to the Philippines and filed a petition for the
appointment of Ildefonso de la Rosa as administrator
of the intestate estate of his deceased father, which
petition was granted by the Court of First Instance of
Nueva Ecija.
Ildefonso de la Rosa, in his capacity as administrator
of the intestate estate of the deceased Go-Lio,
requested Enrique Go-Cotay to wind up the business
and to deliver to him the portion corresponding to
the deceased Go-Lio. Enrique Ortega Go-Cotay
denied the petition, alleging that the business was his
exclusively.
In view of this denial, Ildefonso de la Rosa, as
administrator, filed with the Court of First Instance of
Nueva Ecija a complaint against Enrique Ortega Co-
Cotay in which he prayed that the defendant be
sentenced to deliver to the plaintiff one-half of all the
property of the partnership formed by Go-lIo and
Vicente Go-Sengco and that the said plaintiff be
appointed receiver for the property of the said
partnership.
Defendant denied each and every allegation
thereof, and alleged that more than ten years had
elapsed before the filing of the complaint, and
prayed that he be absolved therefrom.
The CFI appointed Justo Cabo-Chan, Francisco T.
Tantengco and Go-Tiao, as commissioners to make
an inventory, liquidate and determine the one-half
belonging to the plaintiff of all the property of the
store in question.
In order to prevent Justo Cabo-Chan from assuming
the office of receiver, the defendant filed a bond in
the sum of P10,000.
The said commissioners submitted to the court their
report, showing the net profits of the business
between the period from 1913 to 1917, which
amounted to the total sum of P25,038.70.
The parties then agreed to suspend the liquidation
ordered by the court, and the defendant was
authorized to continue in the possession of the
property in litigation after giving a bond in the
amount of P25,000, and cancelling the former bond
of P10,000.
The record having been remanded, the court
appointed again Justo Cabo-Chan and Cua Poco
as commissioners who submitted two reports: one
prepared by commissioners Tantengco and Cua
Poco, and the other by commissioner Justo Cabo-
Chan. The former stated in their report that they had
examined the books for the years 1919 to 1922, for
the reason, they said, that they appeared "to have
been prepared by some person in a careful way at
a certain time." The later commissioner examined all
books and stated in his report that the business had
suffered a net loss amounting to the sum of
P89,099.22.
After trial, the lower court adopted the report of
commissioner Cabo-Chan, holding that the result of
the liquidation showed liabilities to the amount of
P89,690.45. Because of the loss, plaintiff had nothing
to recover from defendant, as there was no profit to
divide.
From this decision the plaintiff appealed.
ISSUE: Whether or not the partnership should bear
the losses incurred under the management of the
defendant.
RULING: No. On August 3, 1918, defendant Go-Cotay
assumed complete responsibility for the business by
objecting to the appointment of a receiver as
prayed for by plaintiff, and giving a bond therefor.
Until that date his acts were those of a managing
partner, binding against the partnership; but
thereafter his acts were those of a receiver whose
authority is contained in section 175 of the Code of
Civil Procedure.
A receiver has no right to carry on and conduct a
business unless he is authorized or directed by the
court to do some, and such authority is not derived
from an order of appointment to take and preserve
the property. It does not appear that the defendant
as a receiver was authorized by the court to
continue the business of the partnership in
liquidation. This being so, he is personally liable for
the losses that the business may have sustained. The
partnership must not, therefore, be liable for the acts
of the defendant in connection with the
management of the business until August 3, 1918, the
date when he ceased to be a member and
manager in order to become receiver.
As to the first semester of 1918, during which time the
defendant had seen managing the business of the
partnership as a member and manager, taking into
account that the profits had been on the increase,
said profits having reached the amount of
P10,174.69 in the year 1917, it would not be an
exaggeration to estimate that the profits for 1918
would have been at least the same as the profits of
1917; so that for the first half of 1918, the profit would
be P5,087.34.
In view of the foregoing, we are of the opinion that
the case must be, as is hereby, decided by the
reversing the judgment appealed from, and
sentencing the defendant to pay the plaintiff the
sum of P30,299.14 with legal interest at the rate of 6
per cent per annum from July 1, 1918, until fully paid,
with costs. So ordered.
19. G.R. No. L-45464, April 28, 1939
JOSUE SONCUYA, plaintiff-appellant, vs. CARMEN DE
LUNA, defendant-appellee.
FACTS: Plaintiff Josue Soncuya filed with the CFI an
amended complaint against Carmen de Luna in her
own name and as co-administratrix of the intestate
estate, of Librada Avelino, in which he prayed that
defendant be sentenced to pay him the sum of
P700,432 as damages and costs.
To the aforesaid amended complaint defendant
Carmen de Luna interposed a demurrer based on
the following grounds: (1) That the complaint does
not contain facts sufficient to constitute a cause of
action; and (2) that the complaint is ambiguous,
unintelligible and vague.
Trial on the demurrer having been held and the
parties heard, the court found the same well-
founded and sustained it, ordering the plaintiff to
amend his complaint within a period of ten days
from receipt of notice of the order.
Plaintiff having manifested that he would prefer not
to amend his amended complaint, the attorney for
the defendant, Carmen de Luna, filed a motion
praying that the amended complaint be dismissed
with costs against the plaintiff. Said motion was
granted by the CFI which ordered the dismissal of
the aforesaid amended complaint, with costs
against the plaintiff.
From this order of dismissal, the appellant took an
appeal. The demurrer interposed by defendant to
the amended complaint filed by plaintiff having
been sustained on the grounds that the facts
alleged in said complaint are not sufficient to
constitute a cause of action.
In the amended complaint it is prayed that
defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result
of the administration, said to be fraudulent, of the
partnership, "Centro Escolar de Señoritas", of which
plaintiff, defendant and the deceased Librada
Avelino were members.
ISSUE: Whether or not the plaintiff is entitled to
damages.
RULING: No. For the purpose of adjudicating to
plaintiff damages which he alleges to have suffered
as a partner by reason of the supposed fraudulent
management of the partnership referred to, it is first
necessary that a liquidation of the business thereof
be made to the end that the profits and losses may
be known and the causes of the latter and the
responsibility of the defendant as well as the
damages which each partner may have suffered,
may be determined.
It is not alleged in the complaint that such liquidation
has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff
to institute the action for damages which he claims
from the managing partner Carmen de Luna.
For a partner to be able to claim from another
partner who manages the general co-partnership,
damages allegedly suffered by him by reason of the
fraudulent administration of the latter, a previous
liquidation of said partnership is necessary.
20. GR No. L-11840, July 26, 1960
ANTONIO C. GOQUIOLAY v. WASHINGTON Z. SYCIP,
108 Phil 947
FACTS: Tan Sin An and Antonio C. Goquiolay entered
into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C.
Goquiolay", for the purpose of dealing in real estate.
The partnership had a capital of P30,000.00,
P18,000.00 of which was contributed by Goquiolay
and P12,000.00 by Tan Sin An. The agreement
lodged upon Tan Sin An the sole management of the
partnership affairs. The lifetime of the partnership was
fixed at ten (10) years.
On May 31, 1940, Antonio Goquiolay executed a
general power of attorney to this effect:
"That besides the powers and duties granted the said
Tan Sin An by the articles of co-partnership of said
co-partnership "Tan Sin An and Antonio Goquiolay",
the said Tan Sin An should act as my Manager for
said co-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 co-partnership should last..”
The plaintiff partnership "Tan Sin An and Goquiolay"
purchased the 3 parcels of land, known as Lots Nos.
526, 441 and 521 of the Cadastral Survey of Davao,
subject-matter of the instant litigation, assuming the
payment of a mortgage obligation of. P25.000.00,
payable to "La Urbana Sociedad Mutua de
Construction y Prestamos". Another 46 parcels were
purchased by Tan Sin An in his individual capacity,
and he assumed payment of a mortgage debt
thereon for P35,000.00, with interest.
The two separate obligations were consolidated in
an instrument executed by the partnership and Tan
Sin An, whereby the entire 49 lots were mortgaged in
favor of the "Banco Hipotecario de Filipinas" (as
successor to "La Urbana").
Tan Sin An died, leaving as surviving heirs his widow,
Kong Chai Pin, and four minor children. Defendant
Kong Chai Pin was appointed administratrix of the
intestate estate of her deceased husband.
In the meantime, repeated demands for payment
were made by the Banco Hipotecario on the
partnership and on Tan Sin An. In March, 1944, the
defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sons Hardware Co.,
paid the remaining balance of the mortgage debt,
and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee
and Cuan Co., Inc. filed their claims in the intestate
proceedings of Tan Sin An for P62,415.91 and
P54,310.13, respectively, as alleged obligations of
the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interests
and taxes paid in amortizing and discharging their
obligations to "La Urbana" and the "Banco
Hipotecario".
On March 29, 1949, Kong Chai Pin filed a petition
with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y.
Lee, for the purpose primarily of settling the aforesaid
debts of Tan Sin An and the partnership.
Learning about the sale to Sycip and Lee, the
surviving partner Antonio Goquiolay filed a petition
in the intestate proceedings seeking to set aside the
order of the probate court approving the sale in so
far as his interest over the parcels of land sold was
concerned.
The second amended complaint in the case at bar
prays, among other things, for the annulment of the
sale in favor of Washington Sycip and Betty Lee, and
their subsequent conveyance in favor of the Insular
Development Co., Inc., in so far as the three (3) lots
owned by the plaintiff partnership are concerned.
The answer averred the validity of the sale by Kong
Chai Pin as successor partner, in lieu of the late Tan
Sin An. After hearing, the complaint was dismissed by
the lower court in its decision dated October 30,
1956; hence, this appeal.
ISSUES:
1. Whether or not Kong Chai Pin succeeded her
husband, Tan Sin An, in the sole
management of the partnership, upon the
latter's death.
2. Whether or not the consent of the other
partners was necessary to perfect the sale of
the partnership properties to Washington
Sycip and Betty Lee.
RULING:
1. No. The Articles of Co-Partnership and the power
of attorney executed by Antonio Goquiolay
conferred upon Tan Sin An the exclusive
management of the business, such power, premised
as it is upon trust and confidence, was a mere
personal right that terminated upon Tan's demise.
The provision in the articles stating that "in the event
of death of any one of the partners within the 10-
year term of the partnership, the deceased partner
shall be represented by his heirs", could not have
referred to the managerial right given to Tan Sin An;
more appropriately, it related to the succession in
the proprietary interest of each partner. The
covenant that Antonio Goquiolay shall have no
voice or participation in the management of the
partnership, being a limitation upon his right as a
general partner, must be held coextensive only with
Tan's right to manage the affairs, the contrary not
being clearly apparent.
Upon the other hand, consonant with the articles of
co-partnership providing for the continuation of the
firm notwithstanding the death of one of the
partners, the heirs of the deceased, by never
repudiating or refusing to be bound under the said
provision in the articles, became individual partners
with Antonio Goquiolay upon Tan's demise. The
validity of like clauses in partnership agreements is
expressly sanctioned under Article 222 of the Code
of Commerce.
Appellants argue, however, that since the "new"
members' liability in the partnership was limited
merely to the value of the share or estate left by the
deceased Tan Sin An, they became no more than
limited partners and, as such, were disqualified from
the management of the business under Article 148 of
the Code of Commerce.
Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the
partnership agreement not only as a limited but as a
general partner. Thus, she managed and retained
possession of the partnership properties and was
admittedly deriving income therefrom up to and
until the same were sold to Washington Sycip and
Betty Lee. In fact, by executing the deed of sale of
the parcels of land in dispute in the name of the
partnership, she was acting no less than as a
managing partner. Having thus preferred to act as
such, she could be held liable for the partnership
debts and liabilities as a general partner, beyond
what she might have derived only from the estate of
her deceased husband. By allowing her to retain
control of the firm's property from 1942 to 1949,
plaintiff estopped himself to deny her legal
representation of the partnership, with the power to
bind it by proper contracts.
2. No. Strangers dealing with a partnership have the
right to assume, in the absence of restrictive clauses
in the co-partnership agreement, that every general
partner has power to bind the partnership, especially
those partners acting with ostensible authority.
And so, we held in one case:
"Third persons, like the plaintiff, are not bound in
entering into a contract with any of the two partners,
to ascertain whether or not this partner with whom
the transaction is made has the consent of the other
partner. The public need not make inquiries as to the
agreements bad between the partners. Its
knowledge is enough that it is contracting with the
partnership which is represented by one of the
managing partners.
"There is a general presumption that each individual
partner is an agent for the firm and that he has
authority to bind the firm in carrying on the
partnership transactions.
"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 in
its behalf and within the scope of his authority.'
We are not unaware of the provision of Article 129 of
the Code of Commerce to the effect that "If the
management of the general partnership has not
been limited by special agreement to any of the
members, all shall have the power to take part in the
direction and management of the common
business, and the members present shall come to an
agreement for all contracts or obligations which
may concern the association."
But this obligation is one imposed by law on the
partners among themselves, that does not
necessarily affect the validity of the acts of a partner,
while acting within the scope of the ordinary course
of business of the partnership, as regards third
persons without notice. The latter may rightfully
assume that the contracting partner was duly
authorized to contract for and in behalf of the firm
and that, furthermore, he would not ordinarily act to
the prejudice of his co-partners. The regular course
of business procedure does not require that each
time a third person contracts with one of the
managing partners, he should inquire as to the
latter's authority to do so, or that he should first
ascertain whether or not the other partners had
given their consent thereto. In fact, Article 180 of the
same Code of Commerce provides that even if a
new obligation was contracted against the express
will of one of the managing partners, "it shall not be
annulled for such reason, and it shall produce its
effects without prejudice to the responsibility of the
member or members who contracted it, for the
damages they may have caused to the common
fund."
Although the partnership under consideration is a
commercial partnership and, therefore, to be
governed by the Code of Commerce, the provisions
of the old Civil Code may give us some light on the
right of one partner to bind the partnership. States
Art. 1695 thereof:
"Should no agreement have been made with
respect to the form of management, the following
rules shall be observed:
All the partners shall be considered agents, and
whatever any one of them may do individually shall
bind, the partnership; but each one may oppose
any act of the others before it has become legally
binding."
The records fail to disclose that appellant Goquiolay
made any opposition to the sale of the partnership
realty to Washington Z. Sycip and Betty Lee; on the
contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of
conveyance was executed and approved by the
probate court, and, consequently, his opposition
came too late to be effective.
21. G.R. No. L-12151, January 19, 1918
ADRIANO BUENAVENTURA Y DEZOLLIER, palintiff-
appellant, vs. ANTONIO DAVID y ABELIDO,
defendant-appellee.
FACTS: By an agreement effective from April 20,
1906, a partnership was formed by Antonio David y
Abelido and Adriano Buenaventura y Dezollier for
the conduct of the business of real estate brokers in
the city of Manila, under the firm name "Abelido and
Co." The first named party was the capitalist member
of the firm and its manager, while the last named
was the industrial member and bookkeeper. The firm
maintained a feeble external existence for a few
months, during which period the capitalist associate
placed P209.86 in the enterprise. This was consumed
in office rent and other incidental expenses. Only
two profitable transactions were ever accomplished
by the firm of Abelido and Co. during its existence.
These produced a total income of P42, which sum
was noted on the credit side of the company's
ledger.
It was agreed in the articles that the partnership
should be liquidated upon April 20, 1907, in the
absence of any agreement for the extension of its
life; but upon February 1, 1908, it was agreed in
writing that the partnership should not be liquidated
until the sale of a piece of real estate in which the
firm had become interested should be effected with
profit. The property to which reference was thus
made consisted of a farm in the municipality of
Murcia, in the Province of Tarlac, known as the
"Hacienda de Guitan."
This farm had been formerly owned by the spouses
Loni Diangco and Epifania Torres. After the death of
Lino Diangco in 1890 still other sums of money were
advanced by David to the widow, Epifania Torres, in
behalf of herself and her minor son Pablo Diangco.
On July 10, 1906, Epifania agreed to convey the
Hacienda de Guitan to Abelido and Buenaventura
for a consideration stated at P2,050. The purpose of
the transaction was to settle the debt of several
thousand pesos owing by her and her son to Antonio
David y Abelido. The grantee named in the deed
was Antonio David y Abelido; and no reference was
made in this instrument to the firm of Abelido and
Co., or to Buenaventura as a partner therein.
Buenaventura was present at the time of the
execution of this deed and signed as a subscribing
witness. It further appears that Antonio David y
Abelido proceeded to procure the registration of
the hacienda in his own name and a Torrens title was
in due course issued to him.
Upon the same day that the above-mentioned
deed was executed by Epifania Torres to Antonio
David, a declaration was drawn up and ratified by
Antonio David and Adiano Buenaventura in which it
was stated that Epifania Torres had sold the estate
above mentioned to Antonio David for the sum of
P7,170 and that of this amount the sum of P3,370 had
been advanced by Abelido & Co., while P3,800 had
been paid by David individually. A further statement
was added to the effect that Buenaventura should
have the option to advance half of the sum paid out
by Antonio David y Abelido, to wit, the sum of P1,900,
in the event Buenaventura should desire to have a
half interest in the property in his own name.
From the date of the conveyance above mentioned
David exercised all the rights of an owner over the
property. Upon one occasion he mortgaged it for
the sum of P5,000 and Buenaventura was paid P300
for assisting in the securing of this loan. At another
time David mortgaged the property for the sum of
P15,000 and applied the money thus secured to his
own use.
Upon February 18, 1915, or more than seven years
after the day upon which the deed to the property
had been executed to David, Buenaventura filed
the complaint in this action for the dissolution of the
partnership of Abelido and Co., and a transfer of the
title of the Hacienda de Guitan to Abelido & Co,
among others.

At the hearing the court entered a judgment
declaring that the partnership of Abelido and Co.
was dissolved and denying all other relief sought in
the complaint. From this judgment the plaintiff
Buenaventura has appealed.
ISSUE: Whether or not the title of the Hacienda de
Guitan should be transferred to the partnership.
RULING: No.
As regards the Hacienda de Guitan, it is in our
opinion clear upon the oral testimony and other
proof adduced in the cause that every cent of the
consideration for the purchase of this property was
supplied by David; and it consisted, as we have
seen, mostly of money previously loaned.
Buenaventura had no resources, and it was
evidently quite beyond his power to raise the funds
necessary to participate in a business transaction of
the size of that in question. His pretension that he
supplied P1,025 or half of the consideration named
in the original contract was rightly rejected by the
court.
Furthermore it appears that the firm of Abelido and
Co., as distinguished from the individual David
Abelido, never in fact advanced a single peso in the
transaction, although the "declaration" of January
30, 1908, states that the firm advanced P3,370. That
declaration constitutes an admission which entitles it
to weight but its recital as to the money paid or
received may be explained and even contradicted,
as in case of a simple receipt. David's explanation is
that the plaintiff, as bookkeeper, had made it
appear in the firm books that the firm was debtor to
David in the amount of P3,370 in respect to this
transaction and that the plaintiff had requested
David to sign the declaration showing the firm to be
a participant. Throughout this affair David exhibited
considerable complaisance in signing papers at
Buenaventura's request. He apparently considered
Buenaventura an amiable old friend and was willing
to indulge the latter's fancy with the idea that he was
party to an important transaction, well knowing that
he could never put up the necessary money to
enable him to share in the deal. Whatever may be
the explanation of David's imprudence in allowing
himself to be thus drawn into an admission showing
that the firm participated in the deal, it is quite clear
that he supplied all the money for the purchase in
question.
The situation then, as regards the title to the
hacienda is this: David, who supplied all the funds,
has obtained the legal title in his own individual
name. This was accomplished with knowledge on
the part of Buenaventura. Furthermore he has
registered his title by means of legal proceedings
which were probably known to Buenaventura. Still
later, the latter is seen acting as broker for David in
securing a loan on the hacienda and receives a fee
for his services. Meanwhile the original partnership
enterprise is abandoned. Finally more than seven
years after the day when Buenaventura stood by
and signed as a witness the deed conveying the
property to David, he comes into court and seeks to
reach this property through the ghost of the firm of
Abelido and Co. and bring the defendant to
account for the profits which he has obtained from
the investments of its proceeds in various enterprises.
The purpose of the action is to impress a trust on the
property in favor of Abelido and Co., to divest the
title out of the present owner, and to have it, or its
proceeds, liquidated and administered as firm
assets. We are of the opinion that there is no merit in
the plaintiff's contention. It is true that a court will not
hesitate, under certain circumstances, to divest a
title out of the holder and impress a trust upon it in
favor of another, or to require the holder of the title
to administer the property for the true owner; yet this
will not be done in the absence of a sufficient
contract, an express trust, or other strong equitable
circumstances requiring the intervention of equity.
No such relief can be granted, upon purely
equitable grounds, against a party who has himself
paid the entire purchase price in favor of one who
advanced nothing. But the declaration of January
30, 1908, is relied upon as evidence of a contract
establishing the right of Abelido and Co. The reply is
that by the terms of that instrument Buenaventura's
personal right was dependent upon the
advancement of money by him which was in fact
never supplied, and as to the statement contained
in that declaration that Abelido and Co. had
advanced a certain sum, it clearly appears that this
is not true; and we hold that the defendant is not
precluded, or estopped, by that admission from
showing the actual facts.
22. G.R. No. 126334, November 23, 2001
EMILIO EMNACE, petitioner, vs. COURT OF APPEALS,
ESTATE OF VICENTE TABANAO, SHERWIN TABANAO,
VICENTE WILLIAM TABANAO, JANETTE TABANAO
DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA
TABANAO and VINCENT TABANAO, respondents.
Petitioner Emilio Emnace, Vicente Tabanao and
Jacinto Divinagracia were partners in a business
concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to
dissolve their partnership and executed an
agreement of partition and distribution of the
partnership properties among them, consequent to
Jacinto Divinagracia's withdrawal from the
partnership.1 Among the assets to be distributed
were five (5) fishing boats, six (6) vehicles, two (2)
parcels of land located at Sto. Niño and Talisay,
Negros Occidental, and cash deposits in the local
branches of the Bank of the Philippine Islands and
Prudential Bank.
Throughout the existence of the partnership, and
even after Vicente Tabanao's untimely demise in
1994, petitioner failed to submit to Tabanao's heirs
any statement of assets and liabilities of the
partnership, and to render an accounting of the
partnership's finances. Petitioner also reneged on his
promise to turn over to Tabanao's heirs the
deceased's 1/3 share in the total assets of the
partnership, amounting to P30,000,000.00, or the sum
of P10,000,000.00, despite formal demand for
payment thereof.2
Consequently, Tabanao's heirs, respondents herein,
filed against petitioner an action for accounting,
payment of shares, division of assets and damages.
Petitioner filed a motion to dismiss the complaint on
the grounds of improper venue, lack of jurisdiction
over the nature of the action or suit, and lack of
capacity of the estate of Tabanao to sue, and
prescription.
The trial court denied the motion to dismiss. On
appeal, the Court of Appeals rendered the assailed
decision dismissing the petition for certiorari, upon a
finding that no grave abuse of discretion amounting
to lack or excess of jurisdiction was committed by the
trial court in issuing the questioned orders denying
petitioner's motions to dismiss.
ISSUE: Whether or not the trial court should have
dismissed the complaint on the ground of
prescription.
HELD: No. The three (3) final stages of a partnership
are: (1) dissolution; (2) winding-up; and (3)
termination. The partnership, although dissolved,
continues to exist and its legal personality is retained,
at which time it completes the winding up of its
affairs, including the partitioning and distribution of
the net partnership assets to the partners. For as long
as the partnership exists, any of the partners may
demand an accounting of the partnership's
business. Prescription of the said right starts to run
only upon the dissolution of the partnership when the
final accounting is done.
Contrary to petitioner's protestations that
respondents' right to inquire into the business affairs
of the partnership accrued in 1986, prescribing four
(4) years thereafter, prescription had not even
begun to run in the absence of a final accounting.
Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to
any partner, or his legal representative as against the
winding up partners or the surviving partners or the
person or partnership continuing the business, at the
date of dissolution, in the absence of any
agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which
also deal with the duty to account, the above-cited
provision states that the right to demand an
accounting accrues at the date of dissolution in the
absence of any agreement to the contrary. When a
final accounting is made, it is only then that
prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely
what respondents are seeking in their action before
the trial court, since petitioner has failed or refused
to render an accounting of the partnership's business
and assets. Hence, the said action is not barred by
prescription.
Arts. 1810 – 1814
Property Rights of a Partner
1. G.R. No. L-45662, April 26, 1939
ENRIQUE CLEMENTE, plaintiff-appellee, vs. DIONISIO
GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.
67 Phil. 565
FACTS: On June 6, 1931, plaintiff and defendant
organized a civil partnership which they named
"Galvan y Compañia" to engage in the manufacture
and sale of paper and other stationery. They agreed
to invest therein a capital of P100,000, but as a
matter of fact they did not cover more than one-fifth
thereof, each contributing P10,000.
Hardly a year after such organization, the plaintiff
commenced the present case to ask for the
dissolution of the partnership and to compel
defendant to submit an accounting of his
administration and to deliver to him his share as such
partner.
In his answer defendant expressed his conformity to
the dissolution of the partnership and the liquidation
of its affairs; but by way of counterclaim he asked
that, having covered a deficit incurred by the
partnership amounting to P4,000 with his own
money, plaintiff reimburse him of one-half of said
sum.
Juan D. Mencarini was assigned as receiver and
liquidator. Upon acting on his duty, the court
ordered him to deliver certain machines which were
at Nos. 705-707 Ylaya Street. But before he could
take actual possession of the said machines, the
court suspended the effects of its order.
In the meantime the judgments rendered in cases
Nos. 42794 and 43070 ordering Clemente to pay a
sum of money. He mortgaged the machines to his
nephew, the intervenor. The intervenor then
commenced a case to collect his mortgaged credit.
ISSUE: Whether or not the intervenor (now plaintiff)
can obtain the possession of the machines.
HELD: No. From the foregoing facts, it is clear that
plaintiff could not obtain possession of the machines
in question. The constructive possession deducible
from the fact that he had the keys to the place
where the machines were found (Ylaya Street Nos.
705-707), as they had been delivered to him by the
receiver, does not help him any because the lower
court suspended the effects of the order whereby
the keys were delivered to him a few days after its
issuance; and thereafter revoked it entirely in the
appealed decision. Furthermore, when he
attempted to take actual possession of the
machines, the defendant did not allow him to do so.
Consequently, if he did not have actual possession
of the machines, he could not in any manner
mortgage them, for while it is true that the oft-
mentioned deed of mortgage was annotated in the
registry of property, it is no less true that the machines
to which it refers are not the same as those in
question because the latter are on Ylaya Street Nos.
705-707 and the former are on Singalong Street No.
1163.
The evidence of record shows that the machines in
contention originally belonged to the defendant
and from him were transferred to the partnership
Galvan y Compania. This being the case, said
machines belong to the partnership and not to him,
and shall belong to it until partition is effected
according to the result thereof after the liquidation.
2. G.R. No. L-5963, May 20, 1953
LEYTE-SAMAR SALES CO. v. SULPICIO V. CEA +
93 Phil. 100
FACTS: In civil case No. 193 of the Court of First
Instance of Leyte, which is a suit for damages by the
Leyte-Samar Sales Co. (hereinafter called LESSCO)
and Raymond Tomassi against the Far Eastern
Lumber & Commercial Co. (unregistered
commercial partnership hereinafter called FELCO),
Arnold Hall, Fred Brown and Jean Roxas, judgment
against defendants jointly and severally for the
amount of P31,589.14 plus costs was rendered on
October 29, 1948. The Court of Appeals confirmed
the award in November 1950, minus P2,000
representing attorney's fees mistakenly included.
The decision having become final, the sheriff sold at
auction on June 9, 1951 to Robert Dorfe and Pepito
Asturias "all the rights, interests, titles and
participation" of the defendants in certain buildings
and properties described in the certificate, for a total
price of eight thousand and one hundred pesos.
But on June 4, 1951 Olegario Lastrilla filed in the case
a motion, wherein he claimed to be the owner by
purchase on September 29, 1949, of all the "shares
and interests" of defendant Fred Brown in the FELCO,
and requested "under the law of preference of
credits" that the sheriff be required to retain in his
possession so much of the proceeds of the auction
sale as may be necessary "to pay his right". Over the
plaintiffs' objection the judge in his order of June 13,
1951, granted Lastrilla's motion by requiring the sheriff
to retain 17 per cent of the money "for delivery to the
assignee, administrator or receiver" of the FELCO.
And on motion of Lastrilla, the court modified its
order of delivery and merely declared that Lastrilla
was entitled to 17 per cent of the properties sold.
ISSUE: Whether or not Lastrilla has any proper claim
to the proceeds of the sale?
HELD: No. If he was a creditor of the FELCO, perhaps
or maybe. But he was not. The partner of a
partnership is not a creditor of such partnership for
the amount of his shares.
Granting, arguendo that the auction sale did not
include the interest or portion of the FELCO
properties corresponding to the shares of Lastrilla in
the same partnership (17%), the resulting situation
would be at most that the purchasers Dorfe and
Asturias will have to recognize dominion of Lastrilla
over 17 per cent of the properties awarded to them.
So Lastrilla acquired no right to demand any part of
the money paid by Dorfe and Asturias to the sheriff
for the benefit of FELCO and Tomassi, the plaintiffs in
that case, for the reason that, as he says, his shares
(acquired from Brown) could not have been and
were not auctioned off to Dorfe and Asturias.
Supposing however that Lastrilla's shares have been
actually (but unlawfully) sold by the sheriff (at the
instance of plaintiffs) to Dorfe and Asturias, what is his
remedy? Section 15, Rule 39 furnishes the answer.
Why was it necessary to hear them on the merits of
Lastrilla's motion?
Because Dorfe and Asturias might be unwilling to
recognize the validity of Lastrilla's purchase, or, if
valid, they may want him not to forsake the
partnership that might have some obligations in
connection with the partnership properties. And
what is more important, if the motion is granted,
when the time for redemption comes, Dorfe and
Asturias will receive from redemptioners seventeen
per cent (17%) less than the amount they had paid
for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing
Lastrilla's financial assets, might also oppose the
substitution by Lastrilla of Fred Brown, the judgment
against them being joint and several. They might
entertain misgivings about Brown's slipping out of
their common predicament through the disposal of
his shares.
Lastly, all the defendants would have reasonable
motives to object to the delivery of 17 per cent of the
proceeds to Lastrilla, because it is so much money
deducted, and for which the plaintiffs might ask
another levy on their other holdings or resources.
Supposing of course, there was no fraudulent
collusion among them.
Now, these varied interests of necessity make Dorfe,
Asturias and the defendants indispensable parties to
the motion of Lastrilla granting it was a step
allowable under our regulations on execution. Yet
these parties were not notified, and obviously took
no part in the proceedings on the motion.
"A valid judgment cannot be rendered where there
is a want of necessary parties, and a court cannot
properly adjudicate matters involved in a suit when
necessary and indispensable parties to the
proceedings are not before it." (49 C.J.S., 67.)
"Indispensable parties are those without whom the
action cannot be finally determined. In a case for
recovery of real property, the defendant alleged in
his answer that he was occupying the property as a
tenant of a third person. This third person is an
indispensable party, for, without him, any judgment
which the plaintiff might obtain against the tenant
would have no effectiveness, for it would not be
binding upon, and cannot be executed against, the
defendant's landlord, against whom the plaintiff has
to file another action if he desires to recover the
property effectively. In an action for partition of
property, each co-owner is an indispensable party,
for without him no valid judgment for partition may
be rendered."
Wherefore, the orders of the court recognizing
Lastrilla's right and ordering payment to him of a part
of the proceeds were patently erroneous, because
promulgated in excess or outside of its jurisdiction.
For this reason the respondents' argument resting on
plaintiffs' failure to appeal from the orders on time,
although ordinarily decisive, carries no persuasive
force in this instance.
3. G.R. No. L-59956, October 31, 1984
ISABELO MORAN, JR., petitioner, vs. THE HON. COURT
OF APPEALS and MARIANO E. PECSON, respondents.
FACTS: On February 22, 1971 Pecson and Moran
entered into an agreement whereby both would
contribute P15,000 each for the purpose of printing
95,000 posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a
commission of P 1,000 a month starting on April 15,
1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the
distribution and printing of the 95,000 posters would
be made, that Pecson gave Moran P10,000 for
which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971,
Moran executed in favor of Pecson a promissory
note in the amount of P20,000 payable in two equal
installments, the whole sum becoming due upon
default in the payment of the first installment on the
date due, complete with the costs of collection.
Private respondent Pecson filed with the CFI an
action for the recovery of a sum of money and
alleged in his complaint: (1) on the alleged
partnership agreement, the return of his contribution
of P10,000.00, payment of his share in the profits that
the partnership would have earned, and, payment
of unpaid commission; (2) on the alleged promissory
note, payment of the sum of P20,000.00.
Court of First Instance ruled that by virtue of the
partnership agreement entered into by the parties-
plaintiff and defendant the plaintiff did contribute
10k, and another sum of 7kfor the Voice of the
Veteran or Delegate Magazine. Of the expected
95,000 copies of the posters, the defendant was able
to print 2,000 copies only authorized of which,
however, were sold at P5.00 each.
Nothing more was done after this and it can be said
that the venture did not really get off the ground. On
the other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is
entitled to rescind the contract. CFI ordered
defendant Moran to return to plaintiff Mariano E.
Pecson the sum of 17k.
Both parties appealed to CA. CA ordered Moran to
pay Pecson: a) P47,500 (the amount that could have
accrued to Pecson under their agreement);(b)
P8,000, (the commission for eight months);(c) P7,000
(as a return of Pecson's investment for the Veteran's
Project).
ISSUE: Whether or not Moran is liable to Pecson in the
sum of P47,500.00 as the supposed expected profits
due to him.
HELD: No. There is no dispute over the nature of the
agreement between the petitioner and the private
respondent which is a contract of partnership.
The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever
he may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time
he should have complied with his obligation (Art.
1788, Civil Code).
Article 1797 of the Civil Code provides:
The losses and profits shall be distributed in
conformity with the agreement. If only the share of
each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must
share in the profits and losses of the venture. That is
the essence of a partnership. And even with an
assurance made by one of the partners that they
would earn a huge amount of profits, in the absence
of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare
business venture guaranteed to give 100% profits.
4. G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR.,
CONCHITA B. NAVARRO and LEONARDA ATIENZA
ABAD SABTOS, petitioners, vs. ESTRELLA ABAD
SANTOS, respondent.
Doctrine: The prohibition against an industrial partner
engaging in business for himself seeks to prevent any
conflict in interest between the industrial partner and
the partnership, and to insure faithful compliance by
said partner with his prestation.
FACTS: On October 9, 1954 a co-partnership was
formed under the name of "Evangelista & Co."
On June 7, 1955 the Articles of Co-partnership was
amended as to include herein respondent, Estrell
aAbad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo
Atienza Abad Santos and Conchita P. Navarro, the
original capitalist partners, remaining in that
capacity, with a contribution of P17,500 each. The
amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her
industry being an industrial partner", and that the
profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for
the first three partners, Domingo C. Evangelista, Jr.,
Conchita P. Navarro and Leonardo Atienza Abad
Santos to be divided among them equally; and 30%
for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit
against the three other partners in the Court of First
Instance of Manila, alleging that the partnership,
which was also made a party-defendant, had been
paying dividends to the partners except to her; and
that notwithstanding her demands the defendants
had refused and continued to refuse and let her
examine the partnership books or to give her
information regarding the partnership affairs to pay
her any share in the dividends declared by the
partnership. She therefore prayed that the
defendants be ordered to render accounting to her
of the partnership business and to pay her
corresponding share in the partnership profits after
such accounting, plus attorney's fees and costs.
ISSUE: Whether or not Abad Santos is an industrial
partner and is entitled to the shares of the
partnership
HELD: YES. It is clear that even as she was and still is a
Judge of the City Court of Manila, she has rendered
services for appellants without which they would not
have had the wherewithal to operate the business
for which appellant company was organized.
Article 1767 of the New Civil Code which provides
that "By contract of partnership two or more persons
bind themselves, to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus
contribute, hence the said services may legitimately
be considered as appellee's contribution to the
common fund.
Another article of the same Code relied upon
appellants reads:' ART. 1789. An industrial partner
cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he
should do so, the capitalist partners may either
exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of
this provision, with a right to damages in either case.'
It is not disputed that the provision against the
industrial partner engaging in business for himself
seeks to prevent any conflict of interest between the
industrial partner and the partnership and to insure
faithful compliance by said partner with this
prestation. There is no pretense, however, even on
the part of the appellee is engaged in any business
antagonistic to that of appellant company, since
being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a
business and that the appellee has faithfully
complied with her prestation.
DISPOSITIVE:
What has gone before persuades us to hold with the
lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a
formal accounting and to receive her share in the
net profit that may result from such an accounting.
Our said holding is based on the following article of
the New Civil Code:
ART. 1899. Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
ARTICLES 1815 to 1827
OBLIGATIONS OF THE PARTNERS TO THIRD PARTIES
1. PHILIPPINE NATIONAL BANK vs. SEVERO
EUGENIO LO, ET AL., SEVERIO EUGENIO LO,
NG KHEY LING and YEP SENG
FACTS:
The appellants Severo Eugenio Lo and Ng Khey Ling,
together with J. A. Say Lian Ping, Ko Tiao Hun, On
Yem Ke Lam and Co Sieng Peng formed a
commercial partnership under the name of "Tai Sing
and Co.," with a capital of P40,000 contributed by
said partners.
In the articles of copartnership, J. A. Say Lian Ping
was appointed general manager of the partnership.
However, general manager A. Say Lian Ping
executed a power of attorney in favor of A. Y. Kelam,
authorizing him to act in his stead as manager and
administrator of "Tai Sing & Co.," and obtained a
loans in current account from PNB. As security for
said loan, he mortgaged certain personal property
of "Tai Sing & Co. Defendants had been using this
commercial credit in a current account with the
plaintiff bank, from the year 1918, to May 22, 1921.
Later, PNB sued for non payment of the loans.
Defendant Eugenio Lo defends that "Tai Sing & Co.
was not a general partnership, and that the
commercial credit in current account which "Tai Sing
& Co. obtained from the plaintiff bank had not been
authorized by the board of directors of the
company, nor was the person who subscribed said
contract authorized to make the same, under the
article of copartnership.
The Lower Court ruled that defendants are jointly
and severally liable to pay the loan with interests. Lo
appealed the decision stating that he cannot be
liable as a partner because the partnership is void
because the firm’s name did not comply with the
requirement of the Code of Commerce wherein a
firm name should contain the names of all of the
partners, or several of them, or only one of them.
Also, Lo argued that lower court erred in not
admitting Ping’s death and that the the acts of Lam
after the death of Ping is not binding upon the other
partners because the special power of attorney shall
already have ceased.
ISSUE: WON Lo is correct in both arguments
RULING: No.
The anomalous adoption of the firm name above
noted does not affect the liability of the general
partners to third parties under Article 127 of the Code
of Commerce. In the case of Jo Chung Cang vs.
Pacific Commercial Co., the SC ruled that the object
of the Code of Commerce in requiring a general
partnership to transact business under the name of
all its members, of several of them, or of one only, is
to protect the public from imposition and fraud; it is
for the protection of the creditors rather than of the
partners themselves. It is unenforceable as between
the partners and at the instance of the violating
party, but not in the sense of depriving innocent
parties of their rights who may have dealt with the
offenders in ignorance of the latter having violated
the law; and that contracts entered into by a
partnership firm defectively organized are valid
when voluntarily executed by the parties, and the
only question is whether or not they complied with
the agreement.
Therefore, Lo cannot invoke in his defense the
anomaly in the firm name which they themselves
adopted. Lo was not able to prove his second
argument. But even assuming arguendo, his second
contention does not deserve merit because (a) Lam,
in acting as a GM, is also a partner and his actions
were never objected to by the partners, and (b) it
also appeared from the evidence that Lo, Lam and
the other partners authorized some of the loans.
2. NICOLAS CO-PITCO vs. PEDRO YULO
FACTS:
Before Feb. 1903, FLORENCIO Yulo and Jaime
PALACIOS were partners in the operation of a sugar
estate in Victorias, Island of Negros, and had
commercial dealings with a Chinaman named Dy-
Sianco, who furnished them with money and goods,
and used to buy their crop of sugar. Pedro YULO,
father of the said Florencio, took charge of the
latter's interest in the above-mentioned partnership,
and he became a general partner with PALACIOS in
the same business, and he continued as such
partner until about the end of 1904,dealing with Dy-
Sianco in the same manner as the old partnership
had dealt with the latter.
CO-PITCO then finds that the balance due from the
firm was 1,638.40 pesos and orders judgment
against YULO for the entire amount, with interest.
ISSUE: WON YULO is liable for the entire amount.
RULING: NO
The partnership of YULO and PALACIOS was
engaged in the operation of a sugar estate in
Negros. It was, therefore a civil partnership, as
distinguished from a mercantile partnership. Being a
civil partnership, by the express provisions of articles
1698 and 1137 of the Civil Code, the partners are
not liable each for the whole debt of the
partnership. The liability is pro rata and in this case
YULO is responsible to CO-PITCO for only one-half of
the debt. The fact that the other partner, PALACIOS,
had left the country cannot increase the liability of
YULO.
The judgment of the court below is reversed and
judgment is ordered in favor of CO-PITCO and
against YULO for the sum of P819.20 pesos with
interest thereon at the rate of 6 percent per annum
from the 12th day of January, 1905, and the costs of
the Court of First Instance
3. Island Sales v. United 65 SCRA 554
DOCTRINE: Condonation by creditor of share in
partnership debt of one partner does not increase
pro rata liability of other partners.
FACTS:
The defendant company ( UNITED PIONEERS
GENERAL CONSTRUCTION COMPANY ET .AL ), a
general partnership duly registered under the laws of
the Philippines, purchased from the plaintiff ( ISLAND
SALES, INC) a motor vehicle on installment basis and
for this purpose executed a promissory note for
P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable
on or before May 22, 1961 and the subsequent
installments on the 22nd day of every month
thereafter, until fully paid, with the condition that
failure to pay any of said installments as they fall due
would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July
22, 1961, the plaintiff sued the defendant company
for the unpaid balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim,
Romulo B. Lumauig, and Augusto Palisoc were
included as co-defendants in their capacity as
general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default. Subsequently, on
motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is
concerned.
When the case was called for hearing, the
defendants and their counsels failed to appear
notwithstanding the notices sent to them.
Consequently, the trial court authorized the plaintiff
to present its evidence ex-parte, after which the trial
court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim
moved to reconsider the decision claiming that
since there are five (5) general partners, the joint and
subsidiary liability of each partner should not exceed
one-fifth (1/5) of the obligations of the defendant
company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit
the liability of the defendants Daco and Sim to only
one-fifth (1/5 ) of the obligations of the defendant
company. Hence, this appeal.
ISSUE: Whether the condonation of a partner’s
share in the debts of the company increases the
remaining partners’ liability?
RULING:
No. In the instant case, there were five (5) general
partners when the promissory note in question was
executed for and in behalf of the partnership. Since
the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to
only one-fifth ( 1/ 5 ) of the obligations of the
defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not
unmake the said Lumauig as a general partner in the
defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauig's
individual liability to the plaintiff.
RATIO: Article 1816 of the Civil Code provides:
“All partners including industrial ones, shall be liable
pro rata with all their property and after all the
partnership assets have been exhausted, for the
contracts which may be entered into in the name
and for the account of the partnership, under its
signature and by a person authorized to act for the
partnership. However, any partner may enter into a
separate obligation to perform”
4. LA COMPAÑIA MARITIMA v. MUÑOZ G.R. No.
L-3704; December 12, 1907
FACTS:
On the 31st day of March, 1905, the defendants
Francisco Muñoz, Emilio Muñoz, and Rafael Naval
formed on ordinary general mercantile partnership
under the name of Francisco Muñoz & Sons for the
purpose of carrying on the mercantile business in the
Province of Albay which had formerly been carried
on by Francisco Muñoz.
In the articles of partnership, it is expressly stated that
they have agreed to form, and do form, an ordinary,
general mercantile partnership. The object of the
partnership, as stated in the fourth paragraph of the
articles, is a purely mercantile one and all the
requirements of the Code of Commerce in
reference to such partnership were complied with.
The articles of partnership were recorded in the
mercantile registry in the Province of Albay.
Rafael Naval was entitled by the articles of
agreement to a fixed salary of P2,500 as long as he
was in charge of the branch office established at
Ligao.
The argument of the appellees seems to be that,
because no yearly or monthly salary was assigned
to Emilio Muñoz, he contributed nothing to the
partnership and received nothing from it.
ISSUE: Whether Muñoz is liable to third person even if
he is an industrial partner
HELD:
Yes, Muñoz is liable to third persons even if he is an
industrial partner.
The Supreme Court held that in limited partnership,
the Code of Commerce recognizes a difference
between general and special partners, but in a
general partnership there is no such distinction — all
the members are general partners. The fact that
some may be industrial and some capitalist partners
does not make the members of either of these
classes alone such general partners.
Our construction of the article is that it relates
exclusively to the settlement of the partnership affairs
among the partners themselves and has nothing to
do with the liability of the partners to third persons;
that each one of the industrial partners is liable to
third persons for the debts of the firm; that if he has
paid such debts out of his private property during the
life of the partnership, when its affairs are settled he
is entitled to credit for the amount so paid, and if it
results that there is not enough property in the
partnership to pay him, then the capitalist partners
must pay him.
Our conclusion is upon this branch of the case that
neither on principle nor on authority can the
industrial partner be relieved from liability to third
persons for the debts of the partnership.
5. DIETRICH V. FREEMAN AND WHITCOMB
Quick Facts: Plaintiff sued to collect from the
partners of Manila Steam Laundry. The trial court
held the defendants jointly and severally liable. The
Court reversed holding that the business was a
partnership of cuentas en participacion and the
liability of the partners is pro-rata based on their
interest in the business.
FACTS:
Plaintiff Dietrich was employed by defendants
Freeman, and Whitcomb as owners and operators of
Manila Steam Laundry (Whitcomb obtained his
interest in the business from Pierce who sold his
interests to him). He filed the action to collect from
defendants the balance due to him for the services
he performed.
The trial court held Freeman and Whitcomb jointly
and severally liable to Dietrich.
Whitcomb appealed the decision insisting that he
should not be held jointly and severally liable with
Freeman. (Note: Freeman was the managing
partner of the laundry and Whitcomb barely had a
hand on the operations of the business).
To avoid liability it appears that the theory of
Whitcomb here is two layered. First, that the
partnership was a commercial partnership. Second
that it is a partnership of cuentas en participacion.
ISSUE:
WON Whitcomb is liable to Freeman.YES
What is the nature of liability? Pro rata based on his
interest in the business.
RATIO:
In determining the liability of Freeman, the Court first
identified the nature of the business.
Art 17 and 119 of the Code of Commerce then
applicable, provide the requirements for the
constitution of a commercial partnership (i.e.
recording of the business agreements in the
commercial registry.) The requirements were not
complied with. The Court therefore held that no
formal partnership was entered into between
Freeman and Whitcomb. As such, the Civil Code
and not the Code of Commerce must govern in
determining the liability of the partners.
Insisting that he is not liable, Whitcomb posits that the
association was one of cuentas en participation. A
partnership of cuentas en participacion is
constituted in such a manner that its existence was
only known to those who had an interest in the same,
there being no mutual agreement between the
partners, and without a corporate name indicating
to the public in some way that there were other
people besides the one who ostensibly managed
and conducted the business. under the provisions of
article 242 of the Code of Commerce, those who
contract with the person in whose name the business
of such a partnership was conducted shall have only
the right of action against such person and not
against other persons interested
However, a partnership of cuentas en participacion
does not have a corporate name. Here, the business
is known as Manila Steam Laundry and Dietrich was
employed by Manila steam Laundry and not
Freeman alone.
Since the partners were doing business under this
name, and since it is not a commercial partnership,
Articles 1698 and 1137 of the Civil Code should
govern and the partners are not liable individually for
the entire amount due the plaintiff. The liability is pro
rata and in this case the appellant is responsible to
the plaintiff for only one-half of the debt.
DISPOSITIVE:
Judgment modified. Whitcomb liable only to half
the balance due plaintiff.
6. SANTIAGO SYJUCO, INC v. CASTRO
G.R. No. 70403; July 7, 1989
FACTS:
Back in November 1964, the Lims, borrowed from
petitioner Santiago Syjuco, Inc., the sum of
P800,000.00. The loan was given on the security of a
first mortgage on property registered in the names of
said borrowers as owners in common under Transfer
Certificates of Title Numbered 75413 and 75415 of
the Registry of Deeds of Manila. Thereafter
additional loans on the same security were obtained
by the Lims from Syjuco, so that as of May 8, 1967,
the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been
augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by
the Lims under two titles: TCT Nos. 75416 and 75418 of
the Manila Registry.
On November 8, 1967, the Lims failed to pay it
despite demands therefore; that Syjuco
consequently caused extra-judicial proceedings for
the foreclosure of the mortgage to be commenced
by the Sheriff of Manila; and that the latter
scheduled the auction sale of the mortgaged
property on December 27, 1968.
The attempt to foreclose triggered off a legal battle
that has dragged on for more than twenty years
now, fought through five (5) cases in the trial
courts, two (2) in the Court of Appeals, and three
(3) more in the Supreme Court.
One of the complaints filed by the Lims was filed not
in their individual names, but in the name of a
partnership of which they themselves were the only
partners: "Heirs of Hugo Lim." The complaint
advocated the theory that the mortgage which
they, together with their mother, had individually
constituted (and thereafter amended during the
period from 1964 to 1967) over lands standing in their
names in the Property Registry as owners pro indiviso,
in fact no longer belonged to them at that time,
having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim," more precisely, on
March 30, 1959, hence, said mortgage was void
because executed by them without authority from
the partnership.
ISSUE: Whether the mortgage executed by the Lims
be attributable to their partnership
HELD:
Yes, the mortgage executed by the Lims is
attributable to their partnership.
The Supreme Court held that the legal fiction of a
separate juridical personality and existence will not
shield it from the conclusion of having such
knowledge which naturally and irresistibly flows from
the undenied facts. It would violate all precepts of
reason, ordinary experience and common sense to
propose that a partnership, as such, cannot be held
accountable with knowledge of matters commonly
known to all the partners or of acts in which all of the
latter, without exception, have taken part, where
such matters or acts affect property claimed as its
own by said partnership.
The silence and failure of the partnership to impugn
said mortgage within a reasonable time, let alone a
space of more than seventeen years, brought into
play the doctrine of estoppel to preclude.
There is no reason to distinguish between the Lims, as
individuals, and the partnership itself, since the
former constituted the entire membership of the
latter. In other words, despite the concealment of
the existence of the partnership, for all intents and
purposes and consistently with the Lims' own theory,
it was that partnership which was the real party in
interest in all the actions; it was actually represented
in said actions by all the individual members thereof,
and consequently, those members' acts,
declarations and omissions cannot be deemed to
be simply the individual acts of said members, but in
fact and in law, those of the partnership.
7. BENITO LIWANAG and MARIA LIWANAG
REYES vs. WORKMEN'S COMPENSATION
COMMISSION, ET AL.
FACTS:
Appellants Benito Liwanag and Maria Liwanag
Reyes are co-owners of Liwanag Auto Supply, a
commercial guard who while in line of duty, was
skilled (killed siguro?) by criminal hands. His widow
Ciriaca Vda. de Balderama and minor children
Genara, Carlos and Leogardo, all surnamed
Balderama, in due time filed a claim for
compensation with the Workmen's Compensation
Commission, which was granted.
In appeal, the appellants claim that, under the
Workmen's Compensation Act, the compensation is
divisible, hence the commission erred in ordering
appellants to pay jointly and severally the amount
awarded. They argue that there is nothing in the
compensation Act which provides that the
obligation of an employer arising from compensable
injury or death of an employee should be solidary
obligation, the same should have been specifically
provided, and that, in absence of such clear
provision, the responsibility of appellants should not
be solidary but merely joint.
ISSUE: WON the liability of the partners in a
partnership is solidary.
RULING: Yes.
The law governing the liability of partners is not
applicable to the case at bar wherein a claim for
compensation by dependents of an employee who
died in line of duty is involved. And although the
Workmen's Compensation Act does not contain any
provision expressly declaring solidary obligation of
business partners like the herein appellants, there are
other provisions of law from which it could be
gathered that their liability must be solidary. Arts.
1711 and 1712 of the new Civil Code provide:
ART. 1711. Owners of enterprises and other
employers are obliged to pay compensation
for the death of or injuries to their laborers,
workmen, mechanics or other employees,
even though the event may have been
purely accidental or entirely due to a
fortuitous cause, if the death or personal
injury arose out of and in the course of the
employment. . . . .
ART. 1712. If the death or injury is due to the
negligence of a fellow-worker, the latter and
the employer shall be solidarily liable for
compensation. . . . .
And section 2 of the Workmen's Compensation Act,
as amended reads in part as follows:
. . . The right to compensation as provided in
this Act shall not be defeated or impaired on
the ground that the death, injury or disease
was due to the negligence of a fellow
servant or employee, without prejudice to
the right of the employer to proceed against
the negligence party.
The provisions of the new Civil Code above quoted
taken together with those of Section 2 of the
Workmen's Compensation Act, reasonably indicate
that in compensation cases, the liability of business
partners, like appellants, should be solidary;
otherwise, the right of the employee may be
defeated, or at least crippled.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the
obligation expressly so states, or when the
law or the nature of the obligation
requires solidarity.
Since the Workmen's Compensation Act was
enacted to give full protection to the employee,
reason demands that the nature of the obligation of
the employers to pay compensation to the heirs of
their employee who died in line of duty, should be
solidary; otherwise, the purpose of the law could not
be attained.
8. PAUL MACDONALD, ET AL., Petitioners,
vs.THE NATIONAL CITY BANK OF NEW
YORK, Respondent.
FACTS:
Stasikinocey is a partnership doing business in San
Juan, Rizal, and formed by Alan W. Gorcey, Louis F.
da Costa, Jr., William Kusik and Emma Badong
Gavino. The partnership was denied registration in
the Securities and Exchange Commission, and while
it is confusing to see in this case that the Cardinal
Rattan, sometimes called the Cardinal Rattan
Factory, is treated as a co-partnership, of
which Defendants Gorcey and da Costa are
considered general partners.
Defendant Stasikinocey had an overdraft account
with The National City Bank of New York, a foreign
banking association duly licensed to do business in
the Philippines. On June 3, 1949, the overdraft
showed a balance of P6,134.92 against
the Defendant Stasikinocey or the Cardinal Rattan,
which account, due to the failure of the partnership
to make the required payment, was converted into
an ordinary loan for which the corresponding
promissory ‘joint note non-negotiable’ was
executed on June 3, 1949, by Louis F. da Costa for
and in the name of the Cardinal Rattan, Louis F. da
Costa and Alan Gorcey. This promissory note was
secured on June 7, 1949, by a chattel mortgage
executed by Louis F. da Costa, Jr., General Partner
for and in the name of Stasikinocey, alleged to be a
duly registered Philippine partnership, doing business
under the name and style of Cardinal Rattan, with
principal office at 69 Riverside, San Juan, Rizal.
During the subsistence of the loan, the vehicles were
sold to MacDonald and later on, MacDonald sold 2
of the 3 vehicles to Gonzales. The bank brought an
action for recovery of its credit and foreclosure of the
chattel mortgage upon learning of these
transactions.
ISSUE:
Whether or not the partnership, Stasikinocey is
estopped from asserting that it does not have
juridical personality since it is an unregistered
commercial partnership.
HELD:
YES. In ruling that an unregistered commercial
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.
Da Costa and Gorcey cannot deny that they are
partners of the partnership Stasikinocey, because in
all their transactions with the National City Bank they
represented themselves as such. McDonald cannot
disclaim knowledge of the partnership Stasikinocey
because he dealt with said entity in purchasing two
of the vehicles in question through Gorcey and Da
Costa. The sale of the vehicles to MacDonald being
void, the sale to Gonzales is also void since a buyer
cannot have a better right than the seller.
9. Pioneer Insurance & Surety Corporation vs
Court of Appeals
FACTS:
Jacob Lim was the owner of Southern Air Lines, a
single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes,
Francisco Cervantes, and Border Machinery and
Heavy Equipment Company (BORMAHECO) to
contribute funds and to buy two aircrafts which
would form part a corporation which will be the
expansion of Southern Air Lines. Maglana et al then
contributed and delivered money to Lim.
But instead of using the money given to him to pay
in full the aircrafts, Lim, without the knowledge of
Maglana et al, made an agreement with Pioneer
Insurance for the latter to insure the two aircrafts
which were brought in installment from Japan
Domestic Airlines (JDA) using said aircrafts as
security. So when Lim defaulted from paying JDA,
the two aircrafts were foreclosed by Pioneer
Insurance.
It was established that no corporation was formally
formed between Lim and Maglana et al.
ISSUE: Whether or not Maglana et al must share in
the loss as general partners.
HELD:
No. There was no de facto partnership. Ordinarily,
when co-investors agreed to do business through a
corporation but failed to incorporate, a de facto
partnership would have been formed, and as such,
all must share in the losses and/or gains of the
venture in proportion to their contribution. But in this
case, it was shown that Lim did not have the intent
to form a corporation with Maglana et al. This can
be inferred from acts of unilaterally taking out a
surety from Pioneer Insurance and not using the
funds he got from Maglana et al. The record shows
that Lim was acting on his own and not in behalf of
his other would-be incorporators in transacting the
sale of the airplanes and spare parts.
10. Vuida de Chan vs Pen, 53 Phil 906
G.R. No. L-29182 October 24, 1928
LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG
NAW) appellee, vs. JOSE S. Y. PENG, assignee,
appellant.
FACTS:
On June 13, 1925, the San Miguel Brewery, Porta
Pueco & Co., and Ruiz & Rementaria S. en C.
instituted insolvency proceedings against Leoncia
Vda. de Chan Diaco (alias Lao Liong Naw), alleged
to be the owner of a grocery store on Calle Nueva,
Binondo, known as the store of "La Viuda de G. G.
Chan Diaco."
In their petition for the declaration of the insolvency,
the above-mentioned firms alleged, among other
things, that Leoncia was indebted to them in the sum
of P26,234.47, which debt was incurred within thirty
days prior to the filing of said petition. It further
appears that other creditors have filed claims
against the estate to the amount of P50,000.
The petition for the declaration of insolvency
Leoncia did not appear at the hearing,
notwithstanding the fact that she was duly notified,
and the court declared her insolvent and ordered
the sheriff to take possession of her property,
afterwards sold at public auction for P3,300. Judge
Simplicio del Rosario, appointed Ricardo Summers,
as the referee.
On July 23, 1926, the court rendered a decision,
reaffirming its order of April 14, and ordered the
insolvent to deliver to the assignee the sum of
P56,000, more or less alleged to have been in her
possession on April 19, 1925.
On August 4, 1926, attorney for the insolvent filed a
motion asking the court to dismiss the proceedings
against her on the ground that they should have
been brought against the partnership "Lao Liong
Naw & Co.," of which she was only a member. The
alleged partnership was evidenced by an
agreement dated July 22, 1922, and from which it
appeared that on that date Lao Liong Naw
(Leoncia), Chan Chiaco Wa, Cua Yuk, Chan Bun
Suy, Cahn Bun Le, and Juan Maquitan Chan had
formed a partnership with a capital of P21,000, of
which only P4,000 was contributed by Leoncia.
In view of the aforesaid motion Judge Del Rosario on
August 7, 1926, suspended for the time being the
effects of the decision of July 23, 1926, and set the
motion down for hearing on the 14th of August, 1926.
His Honor again appointed Summers as referee.
After several hearings in which various witnesses
were examined and documents presented on
behalf of both sides, the referee, on February 28,
1927, rendered a second report, in which he found
as facts that the alleged partnership between the
insolvent and some of her relatives and employees
was only a fictitious organization created for the
purpose of deceiving the Bureau of Customs and
enable some of the aforesaid relatives, who were
mere coolies, to come to the Philippines under the
status of merchants. He, therefore, recommended
that the motion of the insolvent to dismiss the
proceedings against her be denied
on June 6, 1927, Judge Francisco Zandueta, who
had been temporarily assigned to take the place of
Judge Del Rosario, rendered a decision
disapproving the report of the referee and affirmed
the suspension of the decision of Judge Del Rosario,
and and on June 6, 1927, dismissed the insolvency
proceedings, and ordered the assignee to return to
the sheriff all the property of the insolvent which he,
the sheriff, might have in his possession.
ISSUE: Is creditor entitled to collect individually from
the partners the amount of the debt of the insolvent
partnership?
RULING: YES
For the sake of the argument that the debts in
question were incurred by the alleged partnership, it
clearly appears from the record that said
partnership, as such, has no visible assets that,
therefore, the partners individually must, jointly and
severally, respond for its debts (Code of Commerce,
art. 127).
As the appellee is one of the partners and admits
that she is insolvent, we can see no reason for the
dismissal of the proceedings against her.
It is further to be noted that both the partnership and
the separate partners thereof may be joined in the
same action, though the private property of the latter
cannot be taken in payment of the partnership debts
until the common property of the concern is
exhausted (Comapnia Maritima vs. Munoz, 9 Phil.,
326) and, under this rule, it seems clear that the
alleged partnership here in question may, if
necessary, be included in the case by amendments
to the insolvency petition.
We also call attention to the fact that the evidence
clearly shows that the business, alleged to have
been that of the partnership, was carried on under
the name "Leoncia Vda. de Chan Diaco" or "La Vda.
de G. G. Chan Diaco," both of which are names of
the appellee, and we think it can be safely held that
a partnership may be adjudged bankrupt in the
name of an ostensible partner, when such name is
the name under which the partnership did business.
11. IN RE: Ozaeta and Sycip 92 SCRA 1
PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ.
GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN
C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H.
CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E.
FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R.
CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and
ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO
CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO,
DE LEON, MABANTA & REYES." RICARDO J. ROMULO,
BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE
MA, REYES, JESUS S. J. SAYOC, EDUARDO DE LOS
ANGELES, and JOSE F. BUENAVENTURA, petitioners.
FACTS:
Two separate Petitions were filed before this Court 1)
by the surviving partners of Atty. Alexander Sycip,
who died on May 5, 1975, and 2) by the surviving
partners of Atty. Herminio Ozaeta, who died on
February 14, 1976, praying that they be allowed to
continue using, in the names of their firms, the names
of partners who had passed away. In the Court's
Resolution of September 2, 1976, both Petitions were
ordered consolidated.
Petitioners base their petitions on the following
arguments:
Under the law, a partnership is not prohibited from
continuing its business under a firm name which
includes the name of a deceased partner; in fact,
Article 1840 of the Civil Code explicitly sanctions the
practice when it provides in the last paragraph that:
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself
make the individual property of the deceased
partner liable for any debts contracted by such
person or partnership.
1953: DEEN CASE: a law firm in Cebu continued its
practice of including in its firm name that of a
deceased partner, C.D. Johnston. The matter was
resolved with this Court advising the firm to desist
from including in their firm designation the name of
C. D. Johnston, who has long been dead."
1958: Register of Deeds of Manila vs. China Banking
Corporation, "Perkins & Ponce Enrile" CASE; the Court
found no reason to depart from the policy it
adopted in June 1953 when it required Attorneys
Alfred P. Deen and Eddy A. Deen of Cebu City to
desist from including in their firm designation, the
name of C. D. Johnston, deceased. The Court
believes that, in view of the personal and
confidential nature of the relations between attorney
and client, and the high standards demanded in the
canons of professional ethics, no practice should be
allowed which even in a remote degree could give
rise to the possibility of deception. Said attorneys are
accordingly advised to drop the name "PERKINS"
from their firm name.
ISSUE:
Whether or not the two law firms may retain the
names of their deceased partners.
RULING:
The Court ruled that they should remove the
names of the deceased partners for the following
reasons:
Inasmuch as "Sycip, Salazar, Feliciano, Hernandez
and Castillo" and "Ozaeta, Romulo, De Leon,
Mabanta and Reyes" are partnerships, the use in
their partnership names of the names of deceased
partners will run counter to Article 1815 of the Civil
Code which provides:
Art. 1815. Every partnership shall operate under
a firm name, which may or may not include the
name of one or more of the partners.
Those who, not being members of the partnership,
include their names in the firm name, shall be subject
to the liability, of a partner.
It is clearly tacit in the above provision that names in
a firm name of a partnership must either be those of
living partners and in the case of non-partners,
should be living persons who can be subjected to
liability.
In fact, Article 1825 of the Civil Code prohibits a third
person from including his name in the firm name
under pain of assuming the liability of a partner. The
heirs of a deceased partner in a law firm cannot be
held liable as the old members to the creditors of a
firm particularly where they are non-lawyers. Thus,
Canon 34 of the Canons of Professional Ethics
"prohibits an agreement for the payment to the
widow and heirs of a deceased lawyer of a
percentage, either gross or net, of the fees received
from the future business of the deceased lawyer's
clients, both because the recipients of such division
are not lawyers and because such payments will not
represent service or responsibility on the part of the
recipient.” Accordingly, neither the widow nor the
heirs can be held liable for transactions entered into
after the death of their lawyer-predecessor. There
being no benefits accruing, there can be no
corresponding liability.
Prescinding the law, there could be practical
objections to allowing the use by law firms of the
names of deceased partners. The public relations
value of the use of an old firm name can tend to
create undue advantages and disadvantages in the
practice of the profession. An able lawyer without
connections will have to make a name for himself
starting from scratch. Another able lawyer, who can
join an old firm, can initially ride on that old firm's
reputation established by deceased partners.
12. Liwanag vs CA, 281 SCRA 225
G.R. No. 114398. October 24, 1997
CARMEN LIWANAG, petitioner, vs. THE HON. COURT
OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
represented by the Solicitor General, respondents.
FACTS:
Liwanag and Tabligan went to the house of Rosales
and asked her to join them in the business of buying
and selling cigarettes. Convinced of the feasibility of
the venture, Rosales readily agreed. Under their
agreement, Rosales would give the money needed
to buy the cigarettes while Liwanag and Tabligan
would act as her agents, with a corresponding 40%
commission to her if the goods are sold; otherwise
the money would be returned to Rosales.
Consequently, Rosales gave several cash advances
to Liwanag and Tabligan amounting to P633,650.00.
During the first two months, Liwanag and Tabligan
made periodic visits to Rosales to report on the
progress of the transactions. The visits, however,
suddenly stopped, and all efforts by Rosales to
obtain information regarding their business proved
futile. Alarmed by this development and believing
that the amounts she advanced were being
misappropriated, Rosales filed a case of estafa
against Liwanag.
Liwanag advances the theory that the intention of
the parties was to enter into a contract of
partnership, wherein Rosales would contribute the
funds while she would buy and sell the cigarettes,
and later divide the profits between them. She also
argues that the transaction can also be interpreted
as a simple loan, with Rosales lending to her the
amount stated on an installment basis.
Issue: 1. WON the parties entered into a partnership
agreement; NO
2. if in the negative, WON the transaction is a simple
loan - NO
RULING:
May 19, 1988 Quezon City
Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED
TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS
(P526,650.00) Philippine Currency, to purchase cigarrets (sic)
(Philip & Marlboro) to be sold to customers. In the event the
said cigarrets (sic) are not sold, the proceeds of the sale or the
said products (shall) be returned to said Mrs. Isidora P. Rosales
the said amount of P526,650.00 or the said items on or before
August 30, 1988.
(SGD & Thumbedmarked) (sic)
CARMEN LIWANAG
26 H. Kaliraya St. Quezon City
Signed in the presence of: (Sgd) Illegible (Sgd) Doming Z.
Baligad
The language of the receipt could not be any
clearer. It indicates that the money delivered to
Liwanag was for a specific purpose, that is, for the
purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be
returned to Rosales.
1. No. Even assuming that a contract of partnership
was indeed entered into by and between the
parties, when money or property have been
received by a partner for a specific purpose and he
later misappropriated it, such partner is guilty of
estafa.
2. No. In a contract of loan once the money is
received by the debtor, ownership over the same is
transferred. Being the owner, the borrower can
dispose of it for whatever purpose he may deem
proper.
13. Guy vs Gacott, 780 SCRA 579
January 13, 2016 G.R. No. 206147
MICHAEL C. GUY, Petitioner, vs. ATTY. GLENN C.
GACOTT, Respondent.
DOCTRINE:
1. Notice to any partner operates as notice to or
knowledge to the partnership only. Evidently, it does
not provide for the reverse situation, or that notice to
the partnership is notice to the partners.
2. With regard to partnerships, ordinarily, the liability
of the partners is not solidary.
XPNs: Only in exceptional circumstances shall the
partners’ liability be solidary in nature. Articles 1822,
1823 and 1824 of the Civil Code provide for these
exceptional conditions. It is the act of a partner
which caused loss or injury to a third person that
makes all other partners solidarily liable with the
partnership
FACTS:
Atty. Gacott purchased two (2) brand new
transreceivers from Quantech Systems Corp (QSC)
through its employee Rey Medestomas. Due to
major defects, Gacott returned the items to QSC
and requested for replacement. However, despite
several demands, Gacott was never given a
replacement or a refund. Thus, Gacott filed a
complaint for damages. Summons was served upon
QSC and Medestomas, afterwhich they filed their
Answer.
RTC’s decision ordered the defendants to jointly and
severally pay plaintiff. The decision became final as
QSC and Medestomas did not interpose an appeal.
Gacott then secured a Writ of Execution.
During the execution stage, Gacott learned that
QSC was not a corporation, but was in fact a
general partnership. In the articles of partnership,
Guy was appointed as General Manager of QSC.
The sheriff attached Guy’s vehicle.
Guy filed his Motion to Lift Attachment Upon
Personalty, arguing that he was not a judgment
debtor and, therefore, his vehicle could not be
attached.
On June 28, 2009, the RTC issued an order denying
Guy’s motion and his subsequent motion for
reconsideration.
RTC’s ratio: All partners are liable solidarily with the
partnership for everything chargeable to the
partnership under Article 1822 and 1823.
Guy to seek relief before the CA. The CA dismissed
Guy’s appeal for the same reasons given by the trial
court. Guy filed a motion for reconsideration but it
was denied by the CA.
Guy arguments:
1. That jurisdiction over the person of the
partnership (QSC) was not acquired because the
summons was never served upon it or through any of
its authorized officer;
2. Article 1816 of the Civil Code which states
that the liability of the partners to the partnership is
merely joint and subsidiary in nature. And he is not
solidarily liable with the partnership because the
solidary liability of the partners under Articles 1822,
1823 and 1824 of the Civil Code only applies when it
stemmed from the act of a partner. In this case, the
alleged lapses were not attributable to any of the
partners.
ISSUE 1: WON a partners’ liability is subsidiary and
generally joint and WON immediate levy upon the
property of a partner can be made.
HELD.
NO partner’s liability is not subsidiary and generally
joint and the partner’s property cannot be
immediately levied.
SC RATIO:
Article 1816. All partners, including industrial ones,
shall be liable pro rata with all their property and
after all the partnership assets have been exhausted,
for the contracts which may be entered into in the
name and for the account of the partnership, under
its signature and by a person authorized to act for
the partnership. However, any partner may enter
into a separate obligation to perform a partnership
contract.
This provision clearly states that, first, the partners’
obligation with respect to the partnership liabilities is
subsidiary in nature. To say that one’s liability is
subsidiary means that it merely becomes secondary
and only arises if the one primarily liable fails to
sufficiently satisfy the obligation.
In this case, Guy’s liability would only arise after the
properties of QSC would have been exhausted. The
records, however, miserably failed to show that the
partnership’s properties were exhausted. Clearly, no
genuine efforts were made to locate the properties
of QSC that could have been attached to satisfy the
judgment − contrary to the clear mandate of Article
1816.
Second, Article 1816 provides that the partners’
obligation to third persons with respect to the
partnership liability is pro rata or joint. Liability
is joint when a debtor is liable only for the payment
of only a proportionate part of the debt. In contrast,
a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article
1207 does not presume solidary liability unless: 1)
the obligation expressly so states; or 2) the law or
nature requires solidarity. With regard to
partnerships, ordinarily, the liability of the partners is
not solidary. The joint liability of the partners is a
defense that can be raised by a partner impleaded
in a complaint against the partnership.
In other words, only in exceptional circumstances
shall the partners’ liability be solidary in nature.
Articles 1822, 1823 and 1824 of the Civil Code
provide for these exceptional conditions, to wit:
Article 1822. Where, by any wrongful act or omission
of any partner acting in the ordinary course of the
business of the partnership or with the authority of his
co-partners, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to
act.
Article 1823. The partnership is bound to make good
the loss:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a
third person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the
money or property so received is misapplied by any
partner while it is in the custody of the partnership.
Article 1824. All partners are liable solidarily with the
partnership for everything chargeable to the
partnership under Articles 1822 and 1823.
In essence, these provisions articulate that it is
the act of a partner which caused loss or injury to a
third person that makes all other partners solidarily
liable with the partnership because of the
words "any wrongful act or omission of any
partner acting in the ordinary course of the business,"
"one partner acting within the scope of his apparent
authority" and "misapplied by any partner while it is
in the custody of the partnership." The obligation is
solidary because the law protects the third person,
who in good faith relied upon the authority of a
partner, whether such authority is real or apparent.40
In the case at bench, it was not shown that Guy or
the other partners did a wrongful act or misapplied
the money or property he or the partnership
received from Gacott. A third person who
transacted with said partnership can hold the
partner’s solidarily liable for the whole obligation if
the case of the third person falls under Articles 1822
or 1823. Gacott’s claim stemmed from the alleged
defective transreceivers he bought from QSC,
through the latter's employee, Medestomas. It was
for a breach of warranty in a contractual obligation
entered into in the name and for the account of
QSC, not due to the acts of any of the partners. For
said reason, it is the general rule under Article 1816
that governs the joint liability of such breach, and not
the exceptions under Articles 1822 to 1824. Thus, it
was improper to hold Guy solidarily liable for the
obligation of the partnership.
ISSUE 2: WON it is necessary to implead a partner in
order to be bound by the partnership liability.
HELD: YES. It is necessary to implead a partner.
SC RATIO:
Under Article 1821, notice to any partner of any
matter relating to partnership affairs, and the
knowledge of the partner acting in the particular
matter, acquired while a partner or then present to
his mind, and the knowledge of any other partner
who reasonably could and should have
communicated it to the acting partner, operate as
notice to or knowledge of the partnership, except in
the case of fraud on the partnership, committed by
or with the consent of that partner.
A careful reading of the provision shows that notice
to any partner operates as notice to or knowledge to
the partnership only. Evidently, it does not provide for
the reverse situation, or that notice to the partnership
is notice to the partners.
OTHER ISSUES:
ISSUE 3: WON the service of summons to QSC was
flawed.
HELD: YES, however, voluntary appearance cured
the defect.
SC RATIO:
Under Section 11, Rule 14 of the 1997 Revised Rules
of Civil Procedure, when the defendant is a
corporation, partnership or association organized
under the laws of the Philippines with a juridical
personality, the service of summons may be made
on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house
counsel.
Jurisprudence is replete with pronouncements that
such provision provides an exclusive enumeration of
the persons authorized to receive summons for
juridical entities.
In this case, QSC was not served with the summons
through any of the enumerated authorized persons
to receive such, namely: president, managing
partner, general manager, corporate secretary,
treasurer or in-house counsel. Service of summons
upon persons other than those officers enumerated
in Section 11 is invalid. Even substantial compliance
is not sufficient service of summons. Nevertheless,
while proper service of summons is necessary to vest
the court jurisdiction over the defendant, the same is
merely procedural in nature and the lack of or
defect in the service of summons may be cured by
the defendant’s subsequent voluntary submission to
the court’s jurisdiction through his filing a responsive
pleading such as an answer. In this case, it is not
disputed that QSC filed its Answer despite the
defective summons. Thus, jurisdiction over its person
was acquired through voluntary appearance.
ISSUE 4: WON whether the trial court’s jurisdiction
over QSC extended to the person of Guy insofar as
holding him solidarily liable with the partnership.
HELD: NO.
SC RATIO:
Although a partnership is based on delectus
personae or mutual agency, whereby any partner
can generally represent the partnership in its business
affairs, it is non sequitur that a suit against the
partnership is necessarily a suit impleading each and
every partner. It must be remembered that a
partnership is a juridical entity that has a distinct and
separate personality from the persons composing it.
A decision rendered on a complaint in a civil action
or proceeding does not bind or prejudice a person
not impleaded therein, for no person shall be
adversely affected by the outcome of a civil action
or proceeding in which he is not a party.
Here, Guy was never made a party to the case. He
did not have any participation in the entire
proceeding until his vehicle was levied upon and he
suddenly became QSC’s “co-defendant debtor”
during the judgment execution stage. It is a basic
principle of law that money judgments are
enforceable only against the property
incontrovertibly belonging to the judgment debtor
14. Buenviaje vs. Salonga, 805 SCRA 369
GR No. 216023, Oct 05, 2016
DR. RESTITUTO C. BUENVIAJE v. SPOUSES JOVITO R. &
LYDIA B. SALONGA
FACTS:
On May 29, 1997, Jebson, an entity engaged in the
real estate business, through its Executive Vice
President, Bañez, entered into a Joint Venture
Agreement (JVA) with Sps. Salonga. Under the JVA,
Sps. Salonga, who owned three parcels of land
(2,935 square meters) situated in Tagaytay City,
agreed to construct thereon ten high-end single
detached residential units, to be known as
Brentwoods Tagaytay Villas (Brentwoods). They
likewise assumed to subdivide the property into
individual titles upon which Jebson shall assume the
liability to pay their mortgage loan with the
Metropolitan Bank.
On the other hand, Jebson undertook to construct
the units at its own expense, secure the building and
development permits, and the license to sell from
the HLURB, as well as the other permits required. Out
of the ten (10) units, seven (7) units, i.e., Units 3, 4, 5,
6, 8, 9, and 10, will belong to Jebson while the
remaining three (3) units, i.e., Units 1, 2, and 7, will
correspond to Sps. Salonga's share. Jebson was also
allowed to sell its allocated units under such terms as
it may deem fit, subject to the condition that the
price agreed upon was with the conformity of Sps.
Salonga.
On June 9, 1997, Jebson entered into a Contract to
Sell with Buenviaje over Unit 5 for a total
consideration of P10,500,000.00, without the
conformity of Sps. Salonga.
However, despite full payment of the contract price,
Jebson was unable to complete Unit 5 in violation of
its contractual stipulation to finish the same within
twelve (12) months from the date of issuance of the
building permit. Thus, in April 1999, Buenviaje formally
demanded the immediate completion and delivery
of Unit 5, to which Jebson cited the 1997 financial
crisis as the reason for the delay. Accordingly,
Jebson asked to be given until the early part of the
year 2000 to complete the same but still failed to do
so.
On May 27, 2002, Buenviaje filed before the HLURB
Regional Field Office IV (HLURB-RIV) a Complaint for
Specific Performance with Damages and Attorney's
Fees, against Jebson, Bañez, and Sps. Salonga
(respondents), praying for the (a) completion of Unit
5, (b) partition and subdivision of the property, (c)
delivery of the title to Unit 5, and (d) payment of
damages and attorney's fees. In the alternative, he
prayed for the rescission of the subject CTS, and the
return of all payments made thereunder, with
interest at 24% per annum (p.a.), as well as the house
and lot, and golf share pursuant to the "swapping
arrangement."
In their defense, Jebson and Bañez claimed that
they were ready to comply with all their contractual
obligations but were not able to secure the
necessary government permits because Sps.
Salonga stubbornly refused to cause the
consolidation of the parcels of land covered by TCT
No. T-9000, and their partition into ten (10)
individuallots.
For their part, Sps. Salonga averred that they were
not liable to the complainants since there was no
privity of contract between them, adding that the
contracts to sell were unenforceable against them
as they were entered into by Jebson without their
conformity, in violation of the JVA. They maintained
that they were ready to cause the subdivision and
individual titling of the subject property. They also
filed a cross-claim against Jebson for the latter's
failure to complete and deliver to them the three (3)
units corresponding to their share in Brentwoods, and
for representing to the buyers that it owned the land
where Brentwoods was located.
The HLURB-RIV Ruling- rescinded the respective
contracts to sell entered into by Jebson with the
complainants and found respondents, Sps. Salonga
solidarily liable for he return of the payments made
by the complainants, with interest of 12% per annum
and the payment of moral and exemplary
damages, attorney's fees, and litigation expenses.
The HLURB-BOC Ruling - reversed and set aside the
HLURB-RIV's ruling, it upheld the validity of the
respective contracts to sell of Jebson with Buenviaje
and Beliz Realty and ordered the complainants to
pay respondents Sps. Salonga moral damages and
attorney's fees.
The OP's Ruling - OP affirmed the ruling of the HLURB-
BOC, finding:
(a) no factual basis to hold Sps. Salonga solidarily
liable with Jebson, pointing out that under the JVA,
Jebson, as the developer, holds Sps. Salonga free
from liability to third parties for non- compliance with
HLURB rules and regulations;
(b) the contracts to sell between Jebson and the
complainants to be unenforceable against Sps.
Salonga whose conformity thereto was not secured
in violation of the JVA;
The CA Ruling
The CA affirmed the OP ruling. It found that Jebson
violated the terms of the JVA when it failed to secure
the pertinent government permits for the
development of Brentwoods, and sold its allocated
units without the conformity of Sps. Salonga.
ISSUE:
WON Sps. Salonga ARE NOT SOLIDARILY LIABLE with
Jebson and Banez to Buenviaje for the completion
of the construction and delivery of the unit
RULING: YES
With the propriety of specific performance having
been decreed, Buenviaje's claim to be restituted the
alleged purchase price of P10,625,000.00 - for which
Sps. Salonga were claimed to be solidarily liable -
thus, holds no basis.
As above-intimated, mutual restitution is the proper
consequence of the remedy of resolution. It cannot
arise - as it is, in fact, theoretically incompatible - with
the remedy of specific performance, which is the
relief prayed for and consequently, granted to the
injured party herein.
In this relation, it is fitting to clarify that the obligations
to be fulfilled, i.e., the completion of Unit 5, the
subdivision of Sps. Salonga's property into individual
lots per unit, and the tum-over of Unit 5, as well as the
subdivided lot portion allocated to such unit, are
obligations of Jebson to Buenviaje under the subject
CTS dated June 1997.
In this case, it is undisputed that Sps. Salonga were
not parties to the above-mentioned contract. Under
Article 1311 of the Civil Code, it is a basic principle in
civil law on relativity of contracts, that contracts can
only bind the parties who had entered into it and it
cannot favor or prejudice third persons. Contracts
take effect only between the parties, their
successors in interest, heirs and assigns. Thus, absent
any privity of contract as to them, there is no basis to
hold Sps. Salonga liable for any of the obligations
stated under the said contract to sell.
At this juncture, it should be further made clear that
the imputation of joint or solidary liability against a
particular person- such as that insistently claimed
against Sps. Salonga by Buenviaje first presupposes
the existence of that person's obligation. On the
active side, the joint or solidary nature of an
obligation is an aspect of demandability; it pertains
to the extent of a creditor's entitlement to demand
fulfillment against any or all of his debtors under one
particular obligation. Based on case law, a solidary
obligation is one in which each of the debtors is
liable for the entire obligation, and each of the
creditors is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors. On
the other hand, a joint obligation is one in which
each debtors is liable only for a proportionate part
of the debt, and the creditor is entitled to demand
only a proportionate part of the credit from each
debtor.
As already mentioned, no source of obligation under
the subject CTS can be traced to Sps. Salonga as
they were clearly non-parties thereto. Therefore,
without such extant obligation, the possibility of
holding them liable in solidum with Jebson under the
said contract is out of the question.
Neither has Buenviaje persuasively argued that Sps.
Salonga may be held solidarily liable pursuant to law,
which is a distinct source of obligation. More
particularly, Buenviaje attempts to establish that
Section 40 of PD 957 as well as Articles 1822 and 1824
of the Civil Code, are legal provisions which render
Sps. Salonga solidarity liable together with Jebson:
Section 40 of PD 957 reads:
Section 40. Liability of controlling persons. Every
person who directly or indirectly controls any person
liable under any provision of this Decree or of any
rule or regulation issued thereunder shall be liable
jointly and severally with and to the same extent as
such controlled person unless the controlling person
acted in good faith and did not directly or indirectly
induce the act or acts constituting the violation or
cause of action.
In this case, records are bereft of any showing that
Sps. Salonga had direct or indirect control over
Jebson throughout the course of the entire
Brentwoods Project. In fact, even if it is assumed that
they had some sort of control over Jebson, it was not
shown that they acted in bad faith and had a hand
in inducing Jebson's acts from which Buenviaje's
cause of action arose. As such, the foregoing
provision cannot be invoked to hold Sps. Salonga
solidarily liable with Jebson.
Similarly, there is no perceptible legal basis to hold
them solidarily liable under Articles 1822 and 1824 of
the Civil Code. These provisions, which are found
under Section 3, Chapter 2, Title IX, Book IV of the
Civil Code on Partnership, respectively state:
Article 1822. Where, by any wrongful act or omission
of any partner acting in the ordinary course of the
business of the partnership or with the authority of his
co-partners, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to
act.
xxxx
Article 1824. All partners are liable solidarily with the
partnership for everything chargeable to the
partnership under Articles 1822 and 1823.
Evidently, the foregoing legal provisions pertain to
the obligations of a co-partner in the event that the
partnership to which he belongs is held liable. In this
case, Buenviaje never dealt with any partnership
constituted by and between Jebson and Sps.
Salonga. As previously mentioned, the subject CTS,
which was the source of the obligations relative to
the completion and delivery of Unit 5, solely
devolved upon the person of Jebson. As there was
no partnership privy to any obligation to which
Buenviaje is a creditor, Articles 1822 and 1824 of the
Civil Code do not apply.
While Jebson, as developer, and Sps. Salonga, as
land owner, entered into a joint venture, which -
based on case law may be considered as a form of
partnership, the fact remains that their joint venture
was never privy to any obligation with Buenviaje;
hence, liability cannot be imputed against the joint
venture based on the same principle of relativity as
above¬ mentioned. Besides, it should be pointed out
that the JVA between Jebson and Sps. Salonga was
limited to the construction of the residential units
under the Brentwoods Project and that Jebson had
the sole hand in marketing the units allocated to it to
third persons, such as Buenviaje. In fact, under the
express terms of the JVA, Jebson, as the developer,
had even stipulated to hold Sps. Salonga free from
any liability to third parties for non-compliance with
HLURB rules and regulations. As things stand, only
Jebson should be held liable for its obligations to
Buenviaje under the subject CTS.
DISSOLUTION AND WINDING UP
ARTICLES 1828 to 1842
1. Yu vs. NLRC, 224 SCRA 75
YU VS. NATIONAL LABOR RELATIONS COMMISSION
224 SCRA 75. June 30, 1993.
FACTS:
Benjamin Yu was formerly the Assistant
General Manager of the marble quarrying and
export business operated by a registered partnership
with the firm name of "Jade Mountain Products
Company Limited". The partnership was originally
organized by Lea Bendal and Rhodora Bendal as
general partners and Chin Shian Jeng, Chen Ho-Fu
and Yu Chang, all citizens of the Republic of China,
as limited partners. The partnership business
consisted of exploiting a marble deposit found on
land owned by the Sps. Ricardo and Guillerma Cruz,
situated in Bulacan Province. The partnership had its
main office in Makati, Metropolitan Manila.
Yu was hired with a monthly salary of P4,000.00,
however, according to him, he actually received
only half of his stipulated monthly salary, since he
had accepted the promise of the partners that the
balance would be paid when the firm shall have
secured additional operating funds from abroad. Yu
actually managed the operations and finances of
the business; he had overall supervision of the
workers at the marble quarry in Bulacan and took
charge of the preparation of papers relating to the
exportation of the firm's products.
In 1988, without the knowledge of Yu, the general
partners sold and transferred their interests in the
partnership to private respondent Willy Co and to
one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the
partnership to Willy Co. The partnership now
constituted solely by Willy Co and Emmanuel
Zapanta continued to use the old firm name of Jade
Mountain, though they moved the firm's main office
from Makati to Mandaluyong. Yu reported to the
Mandaluyong office for work and was informed by
Willy Co that the latter had bought the business from
the original partners and that it was for him to decide
whether or not he was responsible for the obligations
of the old partnership, including petitioner's unpaid
salaries. Petitioner was in fact not allowed to work
anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid. Yu filed a
complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to
October 1988, moral and exemplary damages and
attorney's fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership
and Willy Co denied petitioner's charges,
contending that Yu was never hired as an employee
by the present or new partnership.
LA Ruling: Labor Arbiter Nieves Vivar-De Castro
rendered a decision holding that petitioner had
been illegally dismissed. The Labor Arbiter decreed
his reinstatement and awarded him his claim for
unpaid salaries, backwages and attorney’s fees.
NLRC Ruling: reversed the decision of the LA and
dismissed petitioner’s complaint
The NLRC held that a new partnership consisting of
Mr. Willy Co and Mr. Emmanuel Zapanta had bought
the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his
original position as Assistant General Manager, and
that there was no law requiring the new partnership
to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply
declined to retain him in his former managerial
position or any other position.
Finally, the NLRC held that Benjamin Yu’s claim for
unpaid wages should be asserted against the
original members of the preceding partnership, but
these though impleaded had, apparently, not been
served with summons in the proceedings before the
Labor Arbiter.
Benjamin Yu’s Contention: the NLRC has overlooked
the principle that a partnership has a juridical
personality separate and distinct from that of each
of its members. Such independent legal personality
subsists, petitioner claims, notwithstanding changes
in the identities of the partners.
Consequently, the employment contract between
Benjamin Yu and the partnership and the partnership
Jade Mountain could not have been affected by
changes in the latter’s membership.
ISSUE:
1. whether the partnership which had hired Yu
had been extinguished and replaced by a
new partnership composed of Willy Co and
Emmanuel Zapanta; YES
2. If a new partnership came into existence,
can Yu assert his rights under his employment
contract with the old partnership - YES
RULING:
ISSUE 1:
The applicable law in this connection is found in the
Civil Code provisions relating to partnerships. Article
1828 of the Civil Code provides as follows:
“Art. 1828. The dissolution of a partnership is the
change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business.”
Article 1830 of the same Code must also be noted:
“Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the
partners;
xxx
(b) by the express will of any partner, who must act
in good faith, when no definite term of particular
undertaking is specified;
(2) in contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time; x x x
In the case at bar, just about all of the partners had
sold their partnership interests (amounting to 82% of
the total partnership interest) to Mr. Willy Co and
Emmanuel Zapanta. The acquisition of 82% of the
partnership interest by new partners, coupled with
the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to
constitute a new partnership.
The occurrence of events which precipitate the legal
consequence of dissolution of a partnership do not,
however, automatically result in the termination of
the legal personality of the old partnership. Article
1829 of the Civil Code states that:
“On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed.”
In the ordinary course of events, the legal personality
of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of
the partnership.
In the case at bar, it is important to underscore the
fact that the business of the old partnership was
simply continued by the new partners, without the
old partnership undergoing the procedures relating
to dissolution and winding up of its business affairs. In
other words, the new partnership simply took over
the business enterprise owned by the preceding
partnership, and continued using the old name of
Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net
assets, and then re-assembling the said assets or
most of them and opening a new business
enterprise.
ISSUE 2:
In Singson, et al. vs. Isabela Saw Mill, et al, the Court
held that under facts very similar to those in the case
at bar, a withdrawing partner remains liable to a third
party creditor of the old partnership.
The liability of the new partnership, upon the other
hand, in the set of circumstances obtaining in the
case at bar, is established in Article 1840 of the Civil
Code which reads as follows:
“Art. 1840. In the following cases credit
(3) When any partner retires or dies and the business
of the dissolved partnership is continued as set forth
in Nos. 1 and 2 of this article, with the consent of the
retired partners or the representative of the
deceased partner, but without any assignment of his
right in partnership property;
(4) When all the partners or their representative
assign their rights in partnership property to one or
more third persons who promise to pay the debts
and who continue the business of the dissolved
partnership;
(5) When any partner wrongfully causes a dissolution
and remaining partners continue the business under
the provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation
of the partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs;
The liability of a third person becoming a partner in
the partnership continuing the business, under this
article, to the creditors of the dissolved partnership
shall be satisfied out of the partnership property only,
unless there is a stipulation to the contrary. When the
business of a partnership after dissolution is
continued under any conditions set forth in this
article the creditors of the retiring or deceased
partner or the representative of the deceased
partner, have a prior right to any claim of the retired
partner or the representative of the deceased
partner against the person or partnership continuing
the business on account of the retired or deceased
partner’s interest in the dissolved partnership or on
account of any consideration promised for such
interest or for his right in partnership property.
Nothing in this article shall be held to modify any right
of creditors to set aside any assignment on the
ground of fraud. x x x (Emphasis supplied)
Under Article 1840 above, creditors of the old Jade
Mountain are also creditors of the new Jade
Mountain which continued the business of the old
one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like
Benjamin Yu in respect of his claim for unpaid wages,
is entitled to priority vis-a-vis any claim of any retired
or previous partner insofar as such retired partner’s
interest in the dissolved partnership is concerned.
Under Article 1840 above, Benjamin Yu is entitled to
enforce his claim for unpaid salaries, as well as other
claims relating to his employment with the previous
partnership, against the new Jade Mountain.
2. Testate Estate of Mota vs. Serra. 47 Phil 464
G.R. No. L-22825 February 14, 1925
TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL.,
plaintiffs-appellants, vs. SALVADOR SERRA,
defendant-appellee
DOCTRINE:
The dissolution of the firm does not relieve any of its
members from liability for existing obligations,
although it does save them from new obligation to
which they have not expressly or impliedly assented
and any of them may be discharge from old
obligations by novation or other form of release. A
partnership continues, even after dissolution, for the
purpose of winding up its affairs. at the termination
of the object for which it was created the
partnership is extinguished pending the winding up
of some incidents and obligations of the partnership,
but in such case, the partnership will be reputed as
existing until the juridical relations arising out of the
contract are dissolved. A partnership cannot be
considered as extinguished until all the obligations
pertaining to it are fulfilled.
FACTS:
Salvador Serra, Lazaro Mota and Juan J.
Vidaurrazaga for himself and in behalf of his brother,
Felix and Dionisio Vidaurrazaga, entered into a
contract of partnership for the construction and
exploitation of a railroad line of about 10 kms. from
the "San Isidro" and "Palma" centrals to the place
known as "Nandong."
Original capital stipulated: P150,000 to be paid by
parties in equal parts with Mota et. al. were entrusted
with the administration of the partnership.
Mota et al owns "San Isidro" Central while Serra owns
“Palma” Central.
The agreed capital (P150k) however, did not prove
sufficient, as the expenses up to May 15, 1920, had
reached P226,092.92
Serra entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de
Luzuriaga, and sold the estate and central known as
"Palma" with its running business, as well as all the
improvements, machineries and buildings, real and
personal properties, rights, choses in action and
interests, including the sugar plantation of the
harvest year of 1920 to 1921, covering all his
property. They were willing to assume the Serra's
obligation to Mota et al.
Before the delivery to the purchasers of
the hacienda thus sold, Luzuriaga renounced all his
rights under the contract of sale in favor of
Concepcion & Whitaker.
Thus, Concepcion, Whitaker & Serra executed
another deed of absolute sale of the said "Palma"
Estate for P1,695,961.90. Serra received at the time of
executing the deed and the balance was payable
by installments in the form and manner stipulated in
the contract. Clause 6 of the deed: Whitaker &
Concepcion state that they are aware of the
contract that Serra has with the proprietors of the
"San Isidro" Central and hereby obligate themselves
to respect the said contract and subrogate
themselves into the rights and obligations
thereunder. They also bind themselves to comply
with all the contracts heretofore entered by the
vendor with the customers, coparceners on shares
and employees.
Moreover, Concepcion & Whitaker bought from
Mota et al. the ½ of the railroad line pertaining to the
latter, executing a Contract of Sale. They agreed
that the partnership "Palma" and "San Isidro," formed
by the agreement of Feb. 1, 1919 should be dissolved
upon the execution of the contract, and that the said
partnership agreement should be totally cancelled
and of no force and effect whatever.
Thus, "Hacienda Palma," with the entire railroad, the
subject-matter of the contract of partnership
between Mota et al. and Serra, became the
property of Whitaker & Concepcion.
Whitaker & Concepcion having failed to pay to
Serra a part of the purchase price (P750,000), Serra,
foreclosed the mortgage upon the said hacienda. It
was adjudicated to him at the public sale for
P500,000. He was put in possession including what
was planted at the time, together with all the
improvements made by Whitaker & Concepcion.
Since Serra failed to pay ½ of the amount expended
by Mota et al. upon the construction of the railroad
line (P113,046.46), as well as Whitaker & Concepcion,
Mota et al. instituted the present action. PRAYER:
(1) That the deed of Feb. 1, 1919 (Contract of
Partnership) be declared valid and binding;
(2) That after the execution of the said document,
Serra improved economically so as to be able to pay
Mota et al. the amount owed, but that he refused to
pay either in part or in whole the said amount
notwithstanding the several demands made on him
for the purpose; and
(3) Serra be sentenced to pay Mota et al.
P113,046.46, with the stipulated interest at 10% p.a.
Serra set up three special defenses:
(1) The novation of the contract by the substitution
of the debtor with the conformity of the creditors;
(2) the confusion of the rights of the creditor and
debtor; and
(3) the extinguishment of the contract (Contract of
partnership)
TRIAL COURT:
Absolved Serra from the complaint.
There was a novation of the contract by the
substitution of the debtor. Whitaker & Concepcion,
upon purchasing the "Palma" Central, were
subrogated in the place of the Serra in all his rights
and obligations under the contract relating to the
railroad line existing between "Palma" and "San
Isidro" centrals and Mota et al. agreed to this
subrogation
As to the prayer that contract of partnership be
declared valid and binding, there was no way of
reviving the contract which the parties themselves in
interest had spontaneously and voluntarily
extinguished thru the Contract of Sale bet.
Concepcion, Whitaker & Mota et al. on ½ of the
railroad
ISSUE: Whether Serra cannot be held liable to pay
Mota et. al. a part of the cost of the construction of
the railroad line stipulated in the contract of
partnership by reason of the dissolution of the
partnership? (NO, Serra is liable)
TERMINATION OF PARTNERSHIP
Serra’s Contention: By virtue of the Contract of Sale
on ½ of the railroad, the Testate Estate of Lazaro
Mota et al. and Phil. C. Whitaker and Venancio
Concepcion, by common consent, decided to
dissolve the partnership between "Hacienda Palma" could not prevent the Serra from selling to them his
and "Hacienda San Isidro," thus cancelling the "Hacienda Palma" with the rights that he had over
contract of partnership of February 1, 1919. the railroad in question.

Mota et al. cannot enforce any right arising out of
that contract of partnership, which has been
annulled, such as the right to claim now a part of the
cost of the construction of the railroad line stipulated
in that contract.
RULING:
Serra's contention signifies that any person, who has
contracted a valid obligation with a partnership, is
exempt from complying with his obligation by the
mere fact of the dissolution of the partnership. Serra's
contention is untenable.
Serra ceased to be a partner in said line and,
therefore, Mota et al. had to take the vendees as
their new partners.
Mota et al. had to come to an understanding with
the new owners of the "Hacienda Palma" in
connection with the railroad line "Palma-San Isidro-
Nandong."
Mota et al. were not a party to the Contract of Sale
between Serra, Whittaker, Concepcion & Luzuriaga.
No stipulation whereby the obligation of the Serra
was novated with the consent of the creditor

The dissolution of a partnership must not be MERGING OF DEBTOR & CREDITOR

understood in the absolute and strict sense so that at
the termination of the object for which it was created
the partnership is extinguished, pending the winding
up of some incidents and obligations of the
partnership, but in such case, the partnership will be
reputed as existing until the juridical relations arising
out of the contract are dissolved.
Serra’s Contention: There was a merger of the rights
of debtor and creditor, whereby the fulfillment of the
obligation became extinguished.
Debt of Serra was transferred to Whitaker &
Concepcion by the Contract of Sale bet. Serra,
Whittaker, Concepcion & Luzuriaga.

OTHER ISSUES: These in turn acquired the credit of the Testate Estate
of Lazaro Mota et al. by virtue of the debt (Contract
NOVATION
of Sale on ½ of the railroad); thus the rights of the
Serra’s Contention: By the substitution of the debtor
debtor and creditor were merged in one person.
with the consent of the creditor, the obligation of
SUPREME COURT: No. The rights and titles which Mota
Serra to pay his obligation under the contract of
et al. sold to Whitaker & Concepcion refer only to
partnership was extinguished since there was a
one-half of the railroad line. The credit which they
novation of the contract
had against Serra for ½ of the cost of construction of
the said line was not included in the sale contained
SUPREME COURT: There was no novation. There was
in the Contract of Sale on ½ of the railroad.
none intended; Mota et. al have not expressly
consented to the substitution of Serra.
That Mota et al. sold their rights and titles over ½ of
the line, is evident from the very Contract of Sale. The
It should be noted that in order to give novation its
purchasers, Whitaker and Concepcion, to secure
legal effect, the law requires that the creditor should
the payment of the price, executed a mortgage in
consent to the substitution of a new debtor. This
favor of Mota et al. on the same rights and titles that
consent must be given expressly for the reason that,
they had bought and also upon what they had
since novation extinguishes the personality of the first
purchased from Serra.
debtor who is to be substituted by new one, it implies
on the part of the creditor a waiver of the right that
In other words, Whitaker & Concepcion mortgaged
he had before the novation which waiver must be
unto Mota et al. what they had bought from Mota
express
et al. and also what they had bought from Serra.
The fact that Phil. C. Whitaker and Venancio
The rights and titles transferred by Mota et al. to
Concepcion were willing to assume the Serra's
Whitaker & Concepcion were only those they had
obligation to Mota et al. is of no avail, if the latter
over the other half of the railroad line.
have not expressly consented to the substitution of
the first debtor.
No novation of the contract between Mota et al.
and Serra, as regards the obligation of the latter to
Letter presented as proof of alleged consent of
pay the former ½ of the cost of the construction of
Mota et. al to the substitution of Whitaker &
the said railroad line, and since Mota et al. did not
Concepcion only shows that they asked the two to
include in the sale, evidenced by Contract of Sale,
be their new partners (not substituted). It is natural
the credit that they had against the Serra.
that Mota et al. should have done this. Still, there was
nothing to show the express consent, the manifest
That the obligation of the Serra became
and deliberate intention of Estate of Mota et al. to
extinguished by the merger of the rights of creditor
exempt Serra from his obligation and to transfer it to
and debtor by the purchase of Whitaker and
his successors in interest, Whitaker & Concepcion.
Concepcion is wholly untenable.
Serra transferred his hacienda to C. Whitaker &
3. G.R. No. 17024 March 24, 1922
Concepcion and made it known to Mota et al. that
the new owners would hold themselves liable for the
cost of constructing the said railroad line. Mota et al.
DOMINGO BEARNEZA, plaintiff-appelle, vs. BALBINO
DEQUILLA, defendant-appellant.
FACTS:
Balbino Dequilla, the herein defendant, and
Perpetua Bearneza formed a partnership for the
purpose of exploiting a fish pond situated in the
barrio of Talisay, municipality of Barotac Nuevo,
Province of Iloilo, Perpetua obligating herself to
contribute to the payment of the expenses of the
business, which obligation she made good, and
both agreeing to divide the profits between
themselves, which they had been doing until the
death of the said Perpetua in the year 1912.
Perpetua Bearneza left a will in one of the clauses of
which she appointed Domingo Bearnez, the herein
plaintiff, as her heir to succeed to all her rights and
interests in the fish pond in question.
Demand having been made upon Balbino Dequilla
by Domingo Bearneza for the delivery of the part of
the fish pond belonging to his decedent, Perpetua,
and delivery having been refused, Domingo
Bearneza brought this action to recover said part of
the fish pond belonging to his decedent, Perpetua,
and delivery having been refused, Domingo
Bearneza brought this action recover said part of the
fish pond and one-half of the profits received by the
defendant from the fish pond from the year 1913 to
1919, as damages (the amended complaint was
filed on April 12, 1920), amounting, according to
plaintiff, to the sum of thirteen thousand one
hundred pesos (13,100)
ISSUE: WON plaintiff as heir is entitled to recover one-
half of the fishpond - NO
RULING:
The partnership formed by Perpetua Bearneza and
Balbino Dequilla, as to the existence of which the
proof contained in the record is conclusive and
there is no dispute, was of a civil nature. It was a
particular partnership, as defined in article 1678 of
the Civil Code, it having had for its subject-matter a
specified thing, to with, the exploitation of the
aforementioned fish pond.
Now, this partnership not having been organized in
the form of a mercantile partnership, and, therefore,
the provisions of the Code of Commerce not being
applicable thereto (article 1670 of the Civil Code), it
was dissolved by the death of Perpetua Bearneza,
and falls under the provisions of article 1700,
subsection 3, of the same Code, and not under the
exception established in the last paragraph of said
article 1700 of the Civil Code.
Neither can it be maintained that the partnership
continued to exist after the death of Perpetua,
inasmuch as it does not appear that any stipulation
to that effect has ever been made by her and the
defendant, pursuant to the provisions of article 1704
of the Code last cited.
The partnership having been dissolved by the death
of Perpetua Bearneza, its subsequent legal status
was that of a partnership in liquidation, and the only
rights inherited by her testamentary heir, the herein
plaintiff, were those resulting from the said liquidation
in favor of the deceased partner, and nothing more.
Before this liquidation is made, which up to the
present has not been effected, it is impossible to
determine what rights or interests, if any, the
deceased had, the partnership bond having been
dissolved.
(According to Art. 1830 (5) of the NCC, dissolution of
a partnership is caused by the death of any partner.)
4. G.R. No. L-3518 February 29, 1952
URBANO LOTA (Substituted by SOLOMON LOTA in his
capacity as Administrator of the Estate of URBANO
LOTA), plaintiff-appellant, vs. BENIGNO TOLENTINO,
defendant-appellee
DOCTRINE:
PARTNERSHIPS:
ACCOUNTING AND LIQUIDATION; ACTION FOR,
CANNOT BE CONTINUED AGAINSTHEIRS OF
DECEASED PARTNER.·
Plaintiff's action for accounting and liquidation of the
partnership formed between plaintiff and the
deceased defendant who was the industrial and
managing partner cannot be continued against the
heirs of the deceased defendant. It is well settled
that when a member of mercantile partnership dies,
the duty of liquidating its affairs devolves upon the
surviving member, or members, of the firm, not upon
the legal representatives of the deceased partner.
FACTS:
On April 6, 1949, counsel for plaintiff filed a motion
praying that deceased defendant be substituted by
his heirs, Marta Sadiasa and Efigenia, Resurreccion
and Mercedes, all surnamed Tolentino, as parties
defendant in this case. To said motion counsel for
defendant interposed an opposition upon the
following ground that the nature of the action for
accounting and liquidation of the partnership filed
by plaintiff since March 3, 1937, is purely personal in
character and, upon the death of the defendant on
November 22, 1939, the claim was already
extinguished.
ANTECEDENT FACTS:
On March 3, 1937, plaintiff filed an action against
defendant to order the latter (a) to render an
accounting of his management of their partnership,
and (b) to deliver the plaintiff whatever share he
may have in the assets of the partnership after the
liquidation has been approved by the Court.
The partnership above-mentioned was entered into
by and between plaintiff and defendant in the year
1918, whereby they agreed to engage in general
business in the municipality of Alabat, province of
Batangas, both to divide the profits and losses share
alike, and defendant to be manager of the
partnership. Plaintiff alleges that from 1918 until 1928
defendant had rendered an annual accounting,
but has refused to do so from 1929 to 1937, hence,
plaintiff's complaint.
Defendant filed an answer, alleging that hewas the
industrial partner in said partnership; that he
rendered a yearly accounting and liquidation
thereof from 1918 to 1932, and that in the latter year,
1932, the partnership was dissolved and defendant
delivered all its properties and assets to the plaintiff.
Hence, defendant prays for the dismissal of plaintiff's
complaint.
The plaintiff died in 1938, and on September 28, 1939,
he was substituted by the administrator of his estate,
Solomon Lota.
On December 8, 1939, defendant's counsel made a
suggestion upon the record that defendant died on
November 26, 1939. On January 9, 1940, the Court
gave plaintiff 30 days to amend the complaint by
substituting for the deceased defendant the
administrator of his estate or his legal representative.
On January 28, 1941, the Court ordered the dismissal
of the case for lack of prosecution. This order was
reconsidered and set aside upon a showing by
plaintiff that on March 28, 1941, he had filed a
petition for the issuance of letters of administration to
deceased defendant's surviving spouse, Marta
Sadiasa, for the purpose of substituting her for the
deceased defendant, said petition being Special
Proceedings No. 3859 of this Court entitled "Intestate
Estate of the late Benigno Tolentino, Solomon Lota,
petitioner." This special proceedings was, however,
dismissed for failure of the administratrix to file a
bond and to take her oath.
It will thus be seen that from defendant's death on
November 26, 1939, to the present, or almost ten
years, no administrator or legal representative had
been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff
made another try to substitute said deceased by
filing his motion, referred to in the first paragraph of
this resolution, praying that defendant's heirs be
substituted for him as parties defendant.
The present appellant is Solomon Lota, in his
capacity as administrator of the estate of Urbano
Lota, original plaintiff, who died in l938.
ISSUE: WON after the death of the defendant Benigno
Tolentino on November 22, 1939, plaintiff's action for
accounting and liquidation of the partnership
formed in l918 between Urbano Lota and Benigno
Tolentino, of which the latter was the industrial and
managing partner, may be continued against the
heirs of Benigno Tolentino.
RULING:
Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172:
It is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs
devolves upon the surviving member, or members,
of the firm, not upon the legal representatives of the
deceased partner. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744.)
And the same rule must be equally applicable to a
civil partnership clothed with the form of a
commercial association (art. 1670, Civil Code:
Lichauco vs. Licahuco, 33 Phil., 350).
Moreover, If the plaintiff was genuinely interested in
substituting the proper party, assuming that plaintiff's
action may still be pursued after Tolentino's death,
he should have taken timely measures to have the
administratrix appointed on August 8, 1941, qualify
or, in case of her failure or refusal, to procure the
appointment of another administrator; because the
plaintiff could have availed himself of section 6, Rule
80, of the Rules of Court, providing that "letters of
administration may be granted to any qualified
applicant, though it appears that there are other
competent persons having better right to the
administration, if such persons fail to appear when
notified and claim the issuance of letters to
themselves." Certainly, inaction for almost eight
years (after the issuance of letters of administration)
on the part of the appellant, sufficiently implies
indifference to or desistance from its suit.
The theory of the appellant is that the heirs may
properly be substituted for the deceased Benigno
Tolentino, because they are in possession of property
allegedly belonging to the partnership in question,
and the appellant seeks the recovery thereof. Apart
from the fact that said allegation seems to refer to
cause of action foreign to the claim for accounting
and liquidation against Tolentino, and should have
been made in proper pleading to duly admitted by
the lower court, the filing of appellant's motion for
substitution more than twelve years after the
institution of the complaint came too late and
already called for the prosecution. It is immaterial
that, before the appealed resolution was issued by
the lower court, the appellant attempted to have
the deceased defendant had not yet been properly
substituted.
5. Goquiolay vs. Sycip
FACTS:
Tan Sin An and Goquiolay entered into a general
commercial partnership under the partnership name
“Tan Sin An and Antonio Goquiolay” for the purpose
of dealing in real estate. The agreement lodged
upon Tan Sin An the sole management of the
partnership affairs. The lifetime of the partnership was
fixed at ten years and the Articles of Co-partnership
stipulated that in the event of death of any of the
partners before the expiration of the term, the
partnership will not be dissolved but will be
continued by the heirs or assigns of the deceased
partner. But the partnership could be dissolved upon
mutual agreement in writing of the partners.
Goquiolay executed a GPA in favor of Tan Sin An.
The plaintiff partnership purchased 3 parcels of land
which was mortgaged to “La Urbana” as payment
of P25,000. Another 46 parcels of land were
purchased by Tan Sin An in his individual capacity
which he assumed payment of a mortgage debt for
P35K. A downpayment and the amortization were
advanced by Yutivo and Co. The two obligations
were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49
lots were mortgaged in favor of “Banco Hipotecario”

Tan Sin An died 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 An for advances, interest and taxes paid in
amortizing and discharging their obligations to “La
Urbana” and “Banco Hipotecario.” Kong Chai Pin
filed a petition with the probate court for authority to
sell all the 49 parcels of land. She then sold it to Sycip
and Lee in consideration of P37K and of the vendees
assuming payment of the claims filed by Yutivo Sons
and Sing Yee. Later, Sycip and Lee executed in favor
of Insular Development a deed of transfer covering
the 49 parcels of land.
When Goquiolay learned
about the sale to Sycip and Lee, he filed a petition in
the intestate proceedings to set aside the order of
the probate court approving the sale in so far as his
interest over the parcels of land sold was concerned.
Probate court annulled the sale executed by the
administratrix w/ respect to the 60% interest of
Goquiolay over the properties Administratrix
appealed.
The decision of probate court was set
aside for failure to include the indispensable parties.
New pleadings were filed. The second amended
complaint prays for the annulment of the sale in
favor of Sycip and Lee and their subsequent
conveyance to Insular Development. The complaint
was dismissed by the lower court hence this appeal.
ISSUE 1: 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
that the widow succeeded her husband Tan Sin An
in the sole management of the partnership upon
Tan’s death
HELD 1: Kong Chai Pin became a mere general
partner. By seeking authority to manage partnership
property, Tan Sin An’s widow showed that she
desired to be considered a general partner. By
authorizing the widow to manage partnership
property (which a limited partner could not be
authorized to do), Goqulay recognized her as such
partner, and is now in estoppel to deny her position
as a general partner, with authority to administer
and alienate partnership property. The articles did
not provide that the heirs of the deceased would be
merely limited partners; on the contrary, they
expressly stipulated that in case of death of either
partner, “the co partnership will have to be
continued” with the heirs or assignees. It certainly
could not be continued if it were to be converted
from a general partnership into a limited partnership
since the difference between the two kinds of
associations is fundamental, and specially because
the conversion into a limited association would leave
the heirs of the deceased partner without a share in
the management. Hence, the contractual
stipulation actually contemplated that the heirs
would become general partners rather than limited
ones.
ISSUE 2: Whether or not the consent of the other
partners was necessary to perfect the sale of the
partnership properties to Sycip and Lee?-NO
HELD 2: Strangers dealing with a partnership have the
right to assume, in the absence of restrictive clauses
in the co-partnership agreement, that every general
partner has power to bind the partnership, specially
those partners acting with ostensible authority. And
so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in
entering into a contract with any of the two partners,
to ascertain whether or not this partner with 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 partners. Its
knowledge is enough that it is contracting with the
partnership which is represented by one of the
managing partners.
"There is a general presumption that each individual
partner is an agent for the firm and that he has
authority to bind the firm in carrying on the
partnership transactions."
"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 in
its behalf and within the scope of his authority."
6. Goquiolay vs. Sycip, Resolution of Motion for
Reconsideration
Facts: The matter now pending is the appellant's
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 widow of the managing
partner, Tan Sin An (executed in her dual capacity
of Administratrix of her husband's estate and as
partner, in lieu of the husband), in favor of buyers
Washington Sycip and Betty Lee
Issue: Whether Kong Chai Pin, widow of the
deceased partner Tan Sin An was incapacitated by
law to manage the affairs of the partnership?
Held: It is argued that the authority given by
Goquiolay to the widow Kong Chai Pin was only to
manage the property, and that it did not include the
power to alienate, citing Article 1713 of the Civil
Code of 1889. What this argument overlooks is that
the widow was not a mere agent, because she had
become a partner upon her husband's death, as
expressly provided by the articles of co-partnership.
Even more, granting that by succession to her
husband, Tan Sin An, the widow only a became the
limited partner, Goquiolay's authorization to
manage the partnership property was proof that he
considered and recognized her has general partner,
at least since 1945. The reason is plain: Under the law
(Article 148, last paragraph, Code of Commerce),
appellant could not empower the widow, if she were
only a limited partner, to administer the properties of
the firm, even as a mere agent:
Limited partners may not perform any act of
administration with respect to the interests of the co-
partnership, not even in the capacity agents of the
managing partners.(Emphasis supplied)
By seeking authority to manage partnership
property, Tan Sin An's widow showed that she
desired to be considered a general partner. By
authorizing the widow to manage partnership
property (which a limited partner could not be
authorized to do), Goquiolay recognized her as such
partner, and is now in estoppel to deny her position
as a general partner, with authority to administer
and alienate partnership property.
Besides, as we pointed out in our main decision, the
heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection,
because he would normally prefer to avoid any
liability in excess of the value of the estate inherited
so as not to jeopardize his personal assets. But this
statutory limitation of responsibility being designed to
protect the heir, the latter may disregard it and
instead elect to become a collective or general
partner, with all the rights and privileges of one, and
answering for the debts of the firm not only with the
inheritance bud also with the heir's personal fortune.
This choice pertains exclusively to the heir, and does
not require the assent of the surviving partner.
It must be remembered that the articles of co-
partnership here involved expressly stipulated that:
In that event of the death of any of the partners at
any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be
continued and the deceased partner shall be
represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
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
death of either partner "the co-partnership ... will
have to be continued" with 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 difference between the two
kinds of associations is fundamental; and specially
because the conversion into a limited association
would leave the heirs of the deceased partner
without a share in the management. Hence, the
contractual stipulation does actually contemplate
that the heirs would become general partners rather
than limited ones.
7. Ng Cho Cio vs Ng Diong
Facts: The partnership NG CHIN BENG HERMANOS
obtained several loans subsequently, the partnership
was declared insolvent upon petition of its creditors,
among them is C.N. Hodges. The indebtedness of
the partnership to C. N. Hodges which was the
subject of the foreclosure proceedings in a separate
case was P103,883.34. In order to pay off the same
and raise necessary funds to pay the other
obligations of the partnership, it was deemed proper
and wise by Ng Diong, who continued to be the
manager of the partnership, to sell all its properties
mortgaged to Hodges in order that the excess may
be applied to the Payment of said other obligations.
Issue: Whether the manager can still execute the
sale of its properties to C. N. Hodges as was done by
Ng Diong? -YES
Held: Yes, because Ng Diong was still the managing
partner of the partnership and he had the necessary
authority to liquidate its affairs under its articles of co-
partnership. He may sell the partnership properties
even after the life of the partnership has already
expired since he, as manager, is empowered to wind
up the business affairs of the partnership.
8. Lichauco vs. Lichauco
Facts: In 1901, F. Lichauco Hermanos partnership was
formed. It was provided, among others, in the
partnership agreement that Faustino Lichauco will
be the managing partner; and that the firm cannot
be dissolved except upon the 2/3 vote of all the
partners. In 1904, the firm wasn’t performing well and
was unprofitable and so its machineries were
dismantled. In 1905, Eugenia and one other partner
demanded Faustino to make an accounting of the
firm’s assets but Faustino refused to do so. Belatedly
in 1912, Eugenia et al filed a civil suit against Faustino
to compel the latter to perform ac accounting.
Faustino, in his defense, argued that the firm was not
dissolved pursuant to the partnership agreement
there being no 2/3 vote from all the members
(Faustino et al are only 1/5 of the firm).
Issue: Whether or not Eugenia et al can demand an
accounting?
Held: Yes. The firm was already dissolved in 1904
when its machineries were dismantled – this was a
sign that the firm abandoned and concluded the
purpose for it was formed (rice cleaning business).
Upon said dissolution, it was the duty of Faustino to
liquidate the assets and inform his partners. The
provision which requires a 2/3 votes of all the
partners to dissolve the firm cannot be given effect
because the same denied the right of a less number
of partners to effect the dissolution especially where
the firm has already sustained huge losses. It would
be absurd and unreasonable to hold that such an
association could never be dissolved and liquidated
without the consent and agreement of two-thirds of
its partners, notwithstanding that it had lost all its
capital, or had become bankrupt, or that the
enterprise for which it had been organized had been
concluded or utterly abandoned.
9. Soncuya vs. De Luna
Facts: Petitioner filed a complaint against
respondent for damages as a result of the fraudulent
administration of the partnership, “Centro Escolar de
Senoritas” of which petitioner and the deceased
Avelino Librada were members. For the purpose of
adjudicating to plaintiff damages which he alleges
to have suffered as a partner, it is necessary that a
liquidation of the business be made that the end
profits and losses maybe known and the causes of
the latter and the responsibility of the defendant as
well as the damages in which each partner may
have suffered, maybe determined.
Issue: Whether the petitioner can claim damages.
Held: According to the Supreme Court the
complaint is not sufficient to constitute a cause of
action on the part of the plaintiff as member of the
partnership to collect damages from defendant as
managing partner thereof, without previous
liquidation. Thus, for a partner to be able to claim
from another partner who manages the general co-
partnership, allegedly suffered by him by reason of
the fraudulent administration of the latter, a previous
liquidation of said partnership is necessary.
10. Singsong vs. Isabela Sawmill
Facts: In 1951, defendants entered into a contract of
partnership under the firm name “Isabela Sawmill”.
In 1956 the plaintiff sold to the partnership a motor
truck and two tractors. The partnership was not able
to pay their whole balance even after demand was
made. One of the partners withdrew from the
partnership but instead of terminating the said
partnership it was continued by the two remaining
partners under the same firm name. Plaintiffs also
seek the annulment of the assignment of right with
chattel mortgage entered into by the withdrawing
partner and the remaining partners. The appellants
contend that the chattel mortgage may no longer
be nullified because it had been judicially approved
and said chattel mortgage had been judicially
foreclosed.
Issue: Whether the withdrawal of one of the partners
dissolved the partnership.
Held: It does not appear that the withdrawal of the
partner was not published in the newspapers. The
appellees and the public in general had a right to
expect that whatever, credit they extended to the
remaining partners could be enforced against the
properties of the partnership. The withdrawing
partner cannot be relieved from her liability to the
creditor of the partnership due to her own fault by
not insisting on the liquidation of the partnership.
Though she had acted in good 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 gave occasion for the
damages to be caused must bear the
consequences. Technically, the partnership was
dissolved by the withdrawal of one of the partners.
Through her acts of entering into a memorandum
with the remaining partners misled the creditors that
they were doing business with the partnership.
Hence, from the order of the lower court ordering
the withdrawing partner to pay the plaintiffs, she is
thus entitled for reimbursement from the remaining
partners.
11. Po Yeng Cheo vs. Lim Ka Yan
Facts: Plaintiff, Po Yeng Cheo, alleged sole owner of
a business formerly conducted in the City of Manila
under the style of Kwong Cheong, as managing
partner in said business and to recover from him its
properties and assets. The defendant having died
during the pendency of the cause in the court below
and the death suggested of record, his
administrator, one Lim Yock Tock, was required to
appear and make defense.
In a decision dated July 1, 1921, the Honorable C. A.
Imperial, presiding in the court below, found that the
plaintiff was entitled to an accounting from Lim Ka
Yam, the original defendant, as manager of the
business already reffered to, and he accordingly
required Lim Yock Tock, as administrator, to present
a liquidation of said business within a stated time. This
order bore no substantial fruit, for the reason that Lim
Yock Tock personally knew nothing about the
aforesaid business (which had ceased operation
more than ten years previously) and was apparently
unable to find any books or documents that could
shed any real light on its transaction. However, he
did submit to the court a paper written by Lim Ka
Yam in life purporting to give, with vague and
uncertain details, a history of the formation of the
Kwong Cheong Tay and some account of its
disruption and cessation from business in 1910. To this
narrative was appended a statement of assets and
liabilities, purporting to show that after the business
was liquidate, it was actually debtor to Lim Ka Yam
to the extent of several thousand pesos.
Appreciating the worthlessness of this so-called
statement, and all parties apparently realizing that
nothing more was likely to be discovered by further
insisting on an accounting, the court proceeded, on
December 27, 1921, to render final judgment in favor
of the plaintiff.
The decision made on this occasion takes as its basis
the fact stated by the court in its earlier decision of
July 1, 1921, which may be briefly set fourth as
follows:lawphil.net
The plaintiff, Po Yeng Cheo, is the sole heir of one Po
Gui Yao, deceased, and as such Po Yeng Cheo
inherited the interest left by Po Gui Yao in a business
conducted in Manila under the style of Kwong
Cheong Tay. This business had been in existence in
Manila for many years prior to 1903, as a mercantile
partnership, with a capitalization of P160,000,
engaged in the import and export trade; and after
the death of Po Gui Yao the following seven persons
were interested therein as partners in the amounts
set opposite their respective names, to wit: Po Yeng
Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam,
P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong,
P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen,
P10,000. The manager of Kwong Cheong Tay, for
many years prior of its complete cessation from
business in 1910, was Lim Ka Yam, the original
defendant herein.
Among the properties pertaining to Kwong Cheong
Tay and consisting part of its assets were ten shares
of a total par value of P10,000 in an enterprise
conducted under the name of Yut Siong Chyip
Konski and certain shares to the among of P1,000 in
the Manila Electric Railroad and Light Company, of
Manila.
In the year 1910 (exact date unstated) Kwong
Cheong Tay ceased to do business, owing
principally to the fact that the plaintiff ceased at that
time to transmit merchandise from Hongkong, where
he then resided. Lim Ka Yam appears at no time to
have submitted to the partners any formal
liquidation of the business, though repeated
demands to that effect have been made upon him
by the plaintiff.
In view of the facts above stated, the trial judge
rendered judgment in favor of the plaintiff, Po Yeng
Cheo, to recover of the defendant Lim Yock Tock, as
administrator of Lim Ka Yam, the sum of sixty
thousand pesos (P60,000), constituting the interest of
the plaintiff in the capital of Kwong Cheong Tay, plus
the plaintiff's proportional interest in shares of the Yut
Siong Chyip Konski and Manila Electric Railroad and
Light Company, estimated at P11,000, together with
the costs. From this judgment the defendant
appealed.
Issue: Whether plaintiff, Po Yeng Cheo, is entitled to
recover from the defendant Lim Yock Tock, as
administrator of Lim Ka Yam, the sum of sixty
thousand pesos (P60,000), constituting the interest of
the plaintiff in the capital of Kwong Cheong Tay? -
NO
Held: It was erroneous in any event to give judgment
in favor of the plaintiff to the extent of his share of the
capital of Kwong Cheong Tay. The managing
partner of a mercantile enterprise is not a debtor to
the shareholders for the capital embarked by them
in the business; and he can only be made liable for
the capital when, upon liquidation of the business,
there are found to be assets in his hands applicable
to capital account. That the sum of one hundred
and sixty thousand pesos (P160,000) was embarked
in this business many years ago reveals nothing as to
the condition of the capital account at the time the
concern ceased to do business; and even
supposing--as the court possibly did--that the capital
was intact in 1908, this would not prove it was intact
in 1910 when the business ceased to be a going
concern; for in that precise interval of time the
capital may have been diminished or dissipated
from causes in no wise chargeable to the
negligence or misfeasance of the manager.
Again, so far as appears from the appealed
decision, the only property pertaining to Kwong
Cheong Tay at the time this action was brought
consisted of shares in the two concerns already
mentioned of the total par value of P11,000. Of
course, if these shares had been sold and converted
into money, the proceeds, if not needed to pay
debts, would have been distributable among the
various persons in interest, that is, among the various
shareholders, in their respective proportions. But
under the circumstances revealed in this case, it was
erroneous to give judgment in favor of the plaintiff
for his aliquot part of the par value of said shares. It is
elementary that one partner, suing alone, cannot
recover of the managing partner the value of such
partner's individual interest; and a liquidation of the
business is an essential prerequisite. It is true that in
Lichauco vs. Lichauco (33 Phil., 350), this court
permitted one partner to recover of the manager
the plaintiff's aliquot part of the proceeds of the
business, then long since closed; but in that case the
affairs of the defunct concern had been actually
liquidate by the manager to the extent that he had
apparently converted all its properties into money
and had pocketed the same--which was admitted;-
-and nothing remained to be done except to
compel him to pay over the money to the persons in
interest. In the present case, the shares referred to--
constituting the only assets of Kwong Cheong Tay--
have not been converted into ready money and
doubtless still remain in the name of Kwong Cheong
Tay as owner. Under these circumstances it is
impossible to sustain a judgment in favor of the
plaintiff for his aliquot part of the par value of said
shares, which would be equivalent to allowing one
of several coowners to recover from another,
without process of division, a part of an undivided
property.
It is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affair
devolves upon the surviving member, or members,
of the firm, not upon the legal representative of the
deceased partner. (Wahl vs. Donaldson Sim & Co., 5
Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And
the same rule must be equally applicable to a civil
partnership clothed with the form of a commercial
association (art. 1670, Civil Code; Lichauco vs.
Lichauco, 33 Phil., 350) Upon the death of Lim Ka
Yam it therefore became the duty of his surviving
associates to take the proper steps to settle the
affairs of the firm, and any claim against him, or his
estate, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or
for damages resulting from his wrongful acts as
manager, should be prosecuted against his estate in
administration.
12. Laguna Transportation Co vs. Social Security
System
DOCTRINE: where a corporation was formed by, and
consisted of members of a partnership whose
business and property was conveyed and
transferred to the corporation for the purpose of
continuing its business, in payment for which
corporate capital stock was issued, such
corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor.
FACTS: Sometime in 1949 the Binan Transportation Co
sold part of the lines and equipment it operates to
Gonzalo Mercado, Artemio Mercado, Florentino
Mata and Dominador Vera Cruz. After this sale, the
vendees formed an unregistered partnership under
the name of Laguna Transportation Company which
continued to operate the lines and equipment
bought from Binan Transpo Company. The original
partners with an additional two members, organized
a corporation known as the Laguna Transportation
Company, Inc which was registered with the SEC.
the petitioner corporation filed this case praying that
an order be issued by the court declaring that it is
not bound to register as a member of respondent SSS
and that they are not obliged to pay the latter the
contributions required under the Social Security Act.
It is worthy to note that the corporation continued
the same transportation business of the unregistered
partnership. The corporation was claiming
exemption from coverage for it only started its
business on June 20, 1956 but Nov. 11 1957 the SSS
notified it that it was within the coverage of the
Social Security Act.
ISSUE: WON the plaintiff is within the coverage of the
Social Security Act already? YES.
HELD: Section 9 of the Social Security Act, in part,
provides: SEC. 9 Compulsory Coverage.
— Issue: Whether Sison can recover from defendant
Coverage in the System shall be compulsory upon
all employees between the ages of sixteen and sixty
years, inclusive, if they have been for at least six
months in the service of an employer who is a
member of the System. Provided, That the
Commission may not compel any employer to
become a member of the System unless he shall
have been in operation for at least two years . . . .
(Italics supplied.). The partnership Laguna
Transportation Company commenced its business as
a common carrier in 1949.
When it filed to be formed as a corporation, it only
added the word “Inc” to indicate that it was now
duly incorporated under existing laws. Since it
continued the same business like the unregistered
partnership, there was only a change in form. where
a corporation was formed by, and consisted of
members of a partnership whose business and
property was conveyed and transferred to the
corporation for the purpose of continuing its
business, in payment for which corporate capital
stock was issued, such corporation is presumed to
have assumed partnership debts, and is prima facie
liable therefor. The reason for the rule is that the
members of the partnership may be said to have
simply put on a new coat, or taken on a corporate
cloak, and the corporation is a mere continuation of
the partnership. Hence, there was really no need to
exempt them for it has been operating already for
more than six years by continuing with the business
of the partnership.
13. Sison vs. McQuaid, 94 Phil 201
Facts: Defendant McQuaid borrowed money from
plaintiff Sison to finance her lumber business. As
defendant was not able to pay the loan in 1938, as
she had promised, she proposed to take in plaintiff
as a partner in her lumber business, plaintiff to
contribute to the partnership the said sum of P2,210
due him from defendant in addition to his personal
services; that plaintiff agreed to defendant's
proposal and, as a result, there was formed between
them, under the provisions of the Civil Code, a
partnership in which they were to share alike in the
income or profits of the business, each to get one-
half thereof; that in accordance with said contract,
plaintiff, together with defendant, rendered services
to the partnership without compensation from June
15, 1938 to December, 1941; that before the last
World War, the partnership sold to the United States
Army 230,000 board feet of lumber for P13,800, for
the collection of which sum defendant, as manager
of the partnership, filed the corresponding claim with
the said army after the war; that the claim was
"finally" approved and the full amount paid — the
complaint does not say when — but defendant has
persistently refused to deliver one-half of it, or P6,900,
to plaintiff notwithstanding repeated demands,
investing the whole sum of P13,800 for her own
benefit. Plaintiff, therefore, prays for judgment
declaring the existence of the alleged partnership
and requiring the defendant to pay him the said sum
of P6,900, in addition to damages and costs.
one-half of the purchase price of lumber sold by the
partnership to the United States Army. - NO
Held: Sison's complaint does not show why he should
be entitled to the sum he claims. It does not allege
that there has been a liquidation of the partnership
business and the said sum has been found to be due
him as his share of the profits. The proceeds from the
sale of a certain amount of lumber cannot be
considered profits until costs and expenses have
been deducted. Moreover, the profits of the business
cannot be determined by taking into account the
result of one particular transaction instead of all the
transactions had. Hence, the need for a general
liquidation before a member of a partnership may
claim a specific sum as his share of the profits.
14. G.R. No. L-24243 January 15, 1926
ILDEFONSO DE LA ROSA, administrator of the intestate
estate of the deceased Go-Lio, plaintiff-appellant,
vs.
ENRIQUE ORTEGA GO-COTAY, defendant-appellant.
Facts:
During the Spanish regime the Chinamen Go-Lio and
Vicente Go-Sengco formed a society for the
purchase and sale of articles of commerce, and for
this purpose they opened a store in the town of San
Isidro, Nueva Ecija. Later Go-Lio went to China.
Vicenyte Go-Sengco died and his son Enrique
Ortega Go-Cotay took charge of the businesses.
Go-Lio died in China in October, 1916, leaving a
widow and three children, one of whom came to
the Philippines and filed a petition for the
appointment of Ildefonso de la Rosa as administrator
of the intestate estate of his deceased father, which
petition was granted by the Court of First Instance of
Nueva Ecija. Ildefonso de la Rosa, in his capacity as
administrator of the intestate estate of the deceased
Go-Lio, requested Enrique Go-Cotay to wind up the
business and to deliver to him the portion
corresponding to the deceased Go-Lio. Enrique
Ortega Go-Cotay denied the petition, alleging that
the business was his exclusively. The Court of First
Instance of Nueva Ecija appointed Justo Cabo-
Chan, Francisco T. Tantengco and Go-Tiao, as
commissioners to make an inventory, liquidate and
determine the one-half belonging to the plaintiff of
all the property of the store in question. After trial and
the parties having introduced all their evidence, the
lower court, by order of December 13, 1924,
disapproved the report of the commissioners
Tantengco and Cua Poco, but approved, with slight
modifications, the report of commissioner Cabo-
Chan, holding that the result of the liquidation
showed liabilities to the amiount of P89,690.45 in view
of which plaintiff had nothing to recover from
defendant, as there was no profit to divide.
Issue:
Whether the loss should be borne to the partnership
Ruling:
August 3, 1918, defendant assumed complete
responsibility for the business by objecting to the
appointment of a receiver as prayed for by plaintiff,
and giving a bond therefor. Until that date his acts
were those of a managing partner, binding against
the partnership; but thereafter his acts were those of
a receiver whose authority is contained in section
175 of the Code of Civil Procedure.
A receiver has no right to carry on and conduct a
business unless he is authorized or directed by the
court to do some, and such authority is not derived
from an order of appointment to take and preserve
the property. It does not appear that the defendant
as a receiver was authorized by the court to
continue the business of the partnership in
liquidation. This being so, he is personally liable for
the losses that the business amy have sustained. (34
Cyc., 296.) The partnership must not, therefore, be
liable for the acts of the defendant in connection
with the management of the business until August 3,
1918, the date when he ceased to be a member
and manager in order to become receiver.
As to the first semester of 1918, during which time the
defendant had seen managing the business of the
partnership as a member and manager, taking into
account that the profits had been on the increase,
said profits having reached the amount of
P10,174.69 in the year 1917, it would not be an
exaggeration to estimate that the profits for 1918
would have been at least the same as the profits of
1917; so that for the first half of 1918, the profit would
be P5,087.34.
15. G.R. No. L-17526 June 30, 1962
GREGORIO MAGDUSA, ET AL., petitioners,
vs.
GERUNDIO ALBARAN, ET AL., respondents.
Facts:
The Court of Appeals found that appellant and
appellees, together with various other persons, had
verbally formed a partnership de facto, for the sale
of general merchandise in Surigao, Surigao, to which
appellant contributed P2,000 as capital, and the
others contributed their labor, under the condition
that out of the net profits of the business 25% would
be added to the original capital, and the remaining
75% would be divided among the members in
proportion to the length of service of each.
Sometime in 1953 and 1954, the appellees expressed
their desire to withdraw from the partnership, and
appellant thereupon made a computation to
determine the value of the partners' shares to that
date. The results of the computation were embodied
in the document Exhibit "C", drawn in the
handwriting of appellant. Appellees thereafter
made demands upon appellant for payment, but
appellant having refused, they filed the initial
complaint in the court below. Appellant defended
by denying any partnership with appellees, whom
he claimed to be mere employees of his.
The Court of First Instance of Bohol refused to give
credence to Exhibit "C", and dismissed the complaint
on the ground that the other were indispensable
parties but hid not been impleaded. Upon appeal,
the Court of Appeals reversed, with the result noted
at the start of this opinion.
Issue:
Whether appellees action can be entertained
because the distribution of all or part of the
partnership’s assets, all the partners have no interest
and are indispensable parties without whose
intervention no decree of distribution can be validly
entered.
Ruling:
A partner's share can not be returned without first
dissolving and liquidating the partnership (Po Yeng
Cheo vs. Lim Ka Yam, 44 Phil. 177), for the return is
dependent on the discharge of the creditors, whose
claims enjoy preference over those of the partners;
and it is self-evident that all members of the
partnership are interested in his assets and business,
and are entitled to be heard in the matter of the
firm's liquidation and the distribution of its property.
The liquidation Exhibit "C" is not signed by the other
members of the partnership besides appellees and
appellant; it does not appear that they have
approved, authorized, or ratified the same, and,
therefore, it is not binding upon them. At the very
least, they are entitled to be heard upon its
correctness.
In addition, unless a proper accounting and
liquidation of the partnership affairs is first had, the
capital shares of the appellees, as retiring partners,
can not be repaid, for the firm's outside creditors
have preference over the assets of the enterprise
(Civ. Code, Art. 1839), and the firm's property can
not be diminished to their prejudice. Finally, the
appellant can not be held liable in his personal
capacity for the payment of partners' shares for he
does not hold them except as manager of, or trustee
for, the partnership. It is the latter that must refund
their shares to the retiring partners. Since not all the
members of the partnership have been impleaded,
no judgment for refund can be rendered, and the
action should have been dismissed.
16. G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch
III, CFI, Cebu and TAN PUT, respondents.
Facts:
Tee Hoon Lim Po Chuan, Alfonso Ng Sua and
Antonio Lim Tanhu were partners in the commercial
partnership of Glory Commercial Company with Tee
Hoon as the manager. When Tee Hoon died, Tan Put,
claiming to be the widow, filed a complaint against
spouses Antonio Lim Tanhu and Dy Ochay. Later, the
complaint included Lim Tanhu’s son Lim Teck Chuan,
as well as the spouses Alfonso Ng Sua and Co Oyo,
and their son Eng Chong Leonardo. Tan Put claims in
her complaint that after Tee Hoon died, there was
no liquidation of the company assets made and that
she owns one third of the company shares. However,
Lim Tanhu, Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo continued to manage the company and
used the company funds to acquire lands and
buildings in several areas. Allegedly, the defendants
also used the company assets to organize another
corporation known as Glory Commercial, Inc.
Subsequently, Tan Put amended her complaint and
added other averments. According to Tan Put, she
had asked the defendants to liquidate the business
of the defunct partnership including real estate
investments in Hong Kong. The defendants did not
make good in their promise to liquidate the said
properties, and instead, induced her to execute a
quitclaim of all her rights and interests in the same.
After the quitclaim was executed, Lim Tanhu
allegedly offered to pay her P65,000 and issued a
receipt to her bearing the said amount. She signed
the receipt but was not given a copy of it and had
not received the said money. When she eventually
made a formal demand for the accounting and
liquidation of the partnership company’s assets, the
defendants refused and stated that they will not give
her share.
Issue:
Whether plaintiff is entitled to the share of the
partnership
Ruling:
We find no alternative but to hold that plaintiff Tan
Put's allegation that she is the widow of Tee Hoon Lim
Po Chuan has not been satisfactorily established
and that, on the contrary, the evidence on record
convincingly shows that her relation with said
deceased was that of a common-law wife and
furthermore, that all her claims against the company
and its surviving partners as well as those against the
estate of the deceased have already been settled
and paid. 2. If, as We have seen, plaintiff's evidence
of her alleged status as legitimate wife of Po Chuan
is not only unconvincing but has been actually
overcome by the more competent and weighty
evidence in favor of the defendants, her attempt to
substantiate her main cause of action that
defendants Lim Tanhu and Ng Sua have defrauded
the partnership Glory Commercial Co. and
converted its properties to themselves is even more
dismal. From the very evidence summarized by His
Honor in the decision in question, it is clear that not
an iota of reliable proof exists of such alleged
misdeeds.
Of course, the existence of the partnership has not
been denied, it is actually admitted impliedly in
defendants' affirmative defense that Po Chuan's
share had already been duly settled with and paid
to both the plaintiff and his legitimate family. But the
evidence as to the actual participation of the
defendants Lim Tanhu and Ng Sua in the operation
of the business that could have enabled them to
make the extractions of funds alleged by plaintiff is
at best confusing and at certain points manifestly
inconsistent.
In her amended complaint, plaintiff repeatedly
alleged that as widow of Po Chuan she is entitled to
¹/3 share of the assets and properties of the
partnership. In fact, her prayer in said complaint is,
among others, for the delivery to her of such
¹/3 share. His Honor's statement of the case as well as
his findings and judgment are all to that same effect.
But what did she actually try to prove at the ex-
parte hearing?
According to the decision, plaintiff had shown that
she had money of her own when she "married" Po
Chuan and "that prior to and just after the marriage
of the plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage,
upon the suggestion of Po Chuan, the plaintiff sold
her drugstore for P125,000 which amount she gave
to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co.
sometime in 1950; that after the investment of the
above-stated amount in the partnership, its business
flourished and it embarked in the import business
and also engaged in the wholesale and retail trade
of cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed
of P125,000 to the capital of the partnership by
reason of which the business flourished and amassed
all the millions referred to in the decision has not
been alleged in the complaint, and inasmuch as
what was being rendered was a judgment by
default, such theory should not have been allowed
to be the subject of any evidence. But inasmuch as
it was the clerk of court who received the evidence,
it is understandable that he failed to observe the
rule. Then, on the other hand, if it was her capital that
made the partnership flourish, why would she claim
to be entitled to only to ¹/3 of its assets and profits?
Under her theory found proven by respondent court,
she was actually the owner of everything,
particularly because His Honor also found "that
defendants Lim Tanhu and Ng Sua were partners in
the name but they were employees of Po Chuan
that defendants Lim Tanhu and Ng Sua had no
means of livelihood at the time of their employment
with the Glory Commercial Co. under the
management of the late Po Chuan except their
salaries therefrom; ..." (p. 27, id.) Why then does she
claim only ¹/3 share? Is this an indication of her
generosity towards defendants or of a concocted
cause of action existing only in her confused
imagination engendered by the death of her
common-law husband with whom she had settled
her common-law claim for recompense of her
services as common law wife for less than what she
must have known would go to his legitimate wife and
children?
Actually, as may be noted from the decision itself,
the trial court was confused as to the participation
of defendants Lim Tanhu and Ng Sua in Glory
Commercial Co. At one point, they were deemed
partners, at another point mere employees and then
elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And
the confusion is worse comfounded in the judgment
which allows these "partners in name" and "partners-
employees" or employees who had no means of
livelihood and who must not have contributed any
capital in the business, "as Po Chuan was practically
the owner of the partnership having the controlling
interest", ¹/3 each of the huge assets and profits of
the partnership. Incidentally, it may be observed at
this juncture that the decision has made Po Chuan
play the inconsistent role of being "practically the
owner" but at the same time getting his capital from
the P125,000 given to him by plaintiff and from which
capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties
shown by her exhibits to be in the names of
defendants Lim Tanhu and Ng Sua were bought by
them with partnership funds, His Honor confirmed the
same by finding and holding that "it is likewise clear
that real properties together with the improvements
in the names of defendants Lim Tanhu and Ng Sua
were acquired with partnership funds as these
defendants were only partners-employees of
deceased Po Chuan in the Glory Commercial Co.
until the time of his death on March 11, 1966." (p.
30, id.) It Is Our considered view, however, that this
conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the
decision how said defendants could have extracted
money from the partnership in the fraudulent and
illegal manner pretended by plaintiff. Neither in the
testimony of Nuñez nor in that of plaintiff, as these
are summarized in the decision, can there be found
any single act of extraction of partnership funds
committed by any of said defendants. That the
partnership might have grown into a multi-million
enterprise and that the properties described in the
exhibits enumerated in the decision are not in the
names of Po Chuan, who was Chinese, but of the
defendants who are Filipinos, do not necessarily
prove that Po Chuan had not gotten his share of the
profits of the business or that the properties in the
names of the defendants were bought with money
of the partnership. In this connection, it is decisively
important to consider that on the basis of the
concordant and mutually cumulative testimonies of
plaintiff and Nuñez, respondent court found very
explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co. he was the one who made the
final decisions and approved the appointments
of new Personnel who were taken in by the
partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are brothers,
the latter to (2) being the elder brothers of the
former; that defendants Lim Tanhu and Ng Sua
are both naturalized Filipino citizens whereas the
late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the
partnership having the controlling interest; that
defendants Lim Tanhu and Ng Sua were partners
in name but they were mere employees of Po
Chuan;
If Po Chuan was in control of the affairs and the
running of the partnership, how could the
defendants have defrauded him of such huge
amounts as plaintiff had made his Honor believe?
Upon the other hand, since Po Chuan was in control
of the affairs of the partnership, the more logical
inference is that if defendants had obtained any
portion of the funds of the partnership for
themselves, it must have been with the knowledge
and consent of Po Chuan, for which reason no
accounting could be demanded from them
therefor, considering that Article 1807 of the Civil
Code refers only to what is taken by a partner
without the consent of the other partner or partners.
Incidentally again, this theory about Po Chuan
having been actively managing the partnership up
to his death is a substantial deviation from the
allegation in the amended complaint to the effect
that "defendants Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan and Eng Chong
Leonardo, through fraud and machination, took
actual and active management of the partnership
and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Co., defendants
managed to use the funds of the partnership to
purchase lands and buildings etc. (Par. 4, p. 2 of
amended complaint, Annex B of petition) and
should not have been permitted to be proven by the
hearing officer, who naturally did not know any
better.
Moreover, it is very significant that according to the
very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to
have been acquired by the defendants Lim Tanhu
and Ng Sua with funds of the partnership appear to
have been transferred to their names only in 1969 or
later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation
to account to anyone for such acquisitions in the
absence of clear proof that they had violated the
trust of Po Chuan during the existence of the
partnership. (See Hanlon vs. Hansserman and. Beam,
40 Phil. 796.)
There are other particulars which should have
caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuñez testified that "for about 18 years
he was in charge of the GI sheets and sometimes
attended to the imported items of the business of
Glory Commercial Co." Counting 18 years back from
1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate
produced by the same witness as his birth certificate,
shows he was born in March, 1942, how could he
have started managing Glory Commercial Co. in
1949 when he must have been barely six or seven
years old? It should not have escaped His Honor's
attention that the photographs showing the
premises of Philippine Metal Industries after its
organization "a year or two after the establishment
of Cebu Can Factory in 1957 or 1958" must have
been taken after 1959. How could Nuñez have been
only 13 years old then as claimed by him to have
been his age in those photographs when according
to his "birth certificate", he was born in 1942? His
Honor should not have overlooked that according to
the same witness, defendant Ng Sua was living in
Bantayan until he was directed to return to Cebu
after the fishing business thereat floundered,
whereas all that the witness knew about defendant
Lim Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only
told to him allegedly by Po Chuan, which testimonies
are veritably exculpatory as to Ng Sua and hearsay
as to Lim Teck Chuan. Neither should His Honor have
failed to note that according to plaintiff herself, "Lim
Tanhu was employed by her husband although he
did not go there always being a mere employee of
Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and
Ng Sua had no known income except their salaries.
Actually, it is not stated, however, from what
evidence such conclusion was derived in so far as
Ng Sua is concerned. On the other hand, with
respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed
income tax return of Lim Tanhu for 1964, he had an
income of P4,800 as salary from Philippine Metal
Industries alone and had a total assess sable net
income of P23,920.77 that year for which he paid a
tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit
GG-Pretrial in the year, he had a net income of
P32,000 for which be paid a tax of P3,512.40. (id.) As
early as 1962, "his fishing business in Madridejos Cebu
was making money, and he reported "a net gain
from operation (in) the amount of P865.64" (id., per
Exhibit VV-Pre-trial.) From what then did his Honor
gather the conclusion that all the properties
registered in his name have come from funds
malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co.
without the aid of any accountant or without the
same being explained by any witness who had
prepared them or who has knowledge of the entries
therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the
conclusions His Honor made out of them. In Exhibit
SS-Pre-trial, the reported total assets of the company
amounted to P2,328,460.27 as of December, 1965,
and yet, Exhibit TT-Pre-trial, according to His Honor,
showed that the total value of goods available as of
the same date was P11,166,327.62. On the other
hand, per Exhibit XX-Pre-trial, the supposed balance
sheet of the company for 1966, "the value of
inventoried merchandise, both local and imported",
as found by His Honor, was P584,034.38. Again, as of
December 31, 1966, the value of the company's
goods available for sale was P5,524,050.87, per
Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-
trial, the supposed Book of Account, whatever that
is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the
observation that His Honor, unless he is a certified
public accountant, was hardly qualified to read
such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an
injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His
Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it
can be very clearly seen in Exhibits 11-4, 11-4- A, 11-
5 and 11-6-Pre-trial, Glory Commercial Co. had
accounts payable as of December 31, 1965 in the
amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit
anyone to predicate any claim or right from
respondent court's unaided exercise of accounting
knowledge.Additionally, We note that the decision
has not made any finding regarding the allegation
in the amended complaint that a corporation
denominated Glory Commercial Co., Inc. was
organized after the death of Po Chuan with capital
from the funds of the partnership. We note also that
there is absolutely no finding made as to how the
defendants Dy Ochay and Co Oyo could in any way
be accountable to plaintiff, just because they
happen to be the wives of Lim Tanhu and Ng Sua,
respectively. We further note that while His Honor has
ordered defendants to deliver or pay jointly and
severally to the plaintiff P4,074,394.18 or ¹/3 of the
P12,223,182.55, the supposed cash belonging to the
partnership as of December 31, 1965, in the same
breath, they have also been sentenced to partition
and give ¹/3share of the properties enumerated in
the dispositive portion of the decision, which
seemingly are the very properties allegedly
purchased from the funds of the partnership which
would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming
there has not yet been any liquidation of the
partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have
the status of a partnership in liquidation and the only
right plaintiff could have would be to what might
result after such liquidation to belong to the
deceased partner, and before this is finished, it is
impossible to determine, what rights or interests, if
any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or
properties may be adjudicated to the heir or legal
representative of the deceased partner without the
liquidation being first terminated.
Indeed, only time and the fear that this decision
would be much more extended than it is already
prevent us from further pointing out the inexplicable
deficiencies and imperfections of the decision in
question. After all, what have been discussed should
be more than sufficient to support Our conclusion
that not only must said decision be set aside but also
that the action of the plaintiff must be totally
dismissed, and, were it not seemingly futile and
productive of other legal complications, that plaintiff
is liable on defendants' counterclaims. Resolution of
the other issues raised by the parties albeit important
and perhaps pivotal has likewise become
superfluous.
17. G.R. No. L-5837 May 31, 1954
CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants,
vs.
JAIME HERNANDEZ, defendant-appellee.
Facts:
Plaintiffs with other associates formed a syndicate or
secret partnership for the purpose of acquiring the
plants, franchises and other properties of the Manila
Electric Co. — hereinafter called the Meralco — in
the provinces of Camarines Sur, Albay, and
Sorsogon, with the idea of continuing that
company's business in that region. No formal articles
were drawn for it was the purpose of the members
to incorporate once the deal had been
consummated. But in the meantime they elected
Pedro Serranzana and David Serrano general
manager and secretary-treasurer, respectively, of
the partnership. Negotiation for the purchase was
commenced, but as it made no headway,
defendant was taken in as a member of the
partnership so that he could push the deal through,
and to that end he was given the necessary power
of attorney. Using partnership funds, defendant was
able to buy the Meralco properties for P122,000,
paying P40,000 upon the signing of the deed of sale
and agreeing to pay the balance in two equal
installments. before the incorporation papers could
be perfected, several partners, not satisfied with the
way matters were being run and fearful that the
venture might prove a failure because the business
was not going well and there was a possibility of their
being assessed more than their original investments
when the time came to meet the two installments of
the unpaid purchase price due the Meralco,
expressed their desire to withdraw from the
partnership and get back the money they had
invested therein. The partnership was then dissolved.
In accordance with the terms of the resolution, the
withdrawing partners were, on the following day,
reimbursed their respective contributions to the
partnership fund. Following the dissolution of the
partnership, the members who preferred to remain
in the business went ahead with the formation of the
corporation, taking in new associates as
stockholders. And defendant, on his part, in
fulfillment of his trust, made a formal assignment of
the Meralco properties to the treasurer of the
corporation, giving them a book value of P365,000,
in return for which the corporation issued, to the
various subscribers to its capital stock, shares of stock
of the total face value of P225,000 and assumed the
obligation of paying what was still due the Meralco
on the purchase price. The new corporation was
named "Bicol Electric Company."Two years from their
withdrawal from the partnership, when the
corporate business was already in a prosperous
condition, plaintiffs brought the present suit against
Jaime Hernandez, claiming a share in the profit the
latter is supposed to have made from the
assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225,000
and their share of it to be P115,312.50.
Issue:
Whether plaintiffs are still entitled to the share in the
alleged profits after withdrawal from the partnership
Ruling:
As a general rule, when a partner retires from the
firm, he is entitled to the payment of what may be
due him after a liquidation. But certainly no
liquidation is necessary where there is already a
settlement or an agreement as to what the retiring
partner shall receive. In the instant case, it appears
that a settlement was agreed upon on the very day
the partnership was dissolved. For when plaintiffs and
Judge Jaime Reyes withdrew from the partnership
on that day they did so as agreed to by all the
partners, subject to the only condition that they were
to be repaid their contributions or investments within
three days from said date. And this condition was
fulfilled when on the following day they were
reimbursed the respective amounts due them
pursuant to the agreement.
There is evidence that the partnership was at that
time operating its business at a loss and that the
partnership did not have necessary funds to meet its
obligation to Meralco for the balance of the
purchase price. And in that connection it should be
recalled that nonpayment of that obligation would
result in the partnership losing its entire investment
because of the penalty clause in the deed of sale.
Because of these circumstances there is every
reason to believe that plaintiffs together with Judge
Jaime Reyes, withdrew from the partnership for fear
that they might lose their entire investment should
they choose to remain in the partnership which then
faced the danger of losing its entire assets. As
testified to by Judge Reyes, one of the withdrawing
partners, it was clearly understood that upon their
withdrawal and return to them of their investment
they would have nothing more to do with the
association. It must, therefore, have been the
intention or understanding of the parties that the
withdrawing partners were relinquishing all their
rights and interest in the partnership upon the return
to them of their investment. That Judge Reyes did not
join the plaintiffs in this action is a clear indication
that such was really the understanding. Judge Reyes
has testified that when he was invited to join in the
present claim he refused because he did not want
to be a "sin verguenza." And, indeed, if the
agreement was that the withdrawing partners were
still to have participation in the subsequent
transactions of the partnership so that they would
have a share not only in the profits but also in the
losses, it is not likely that their investment would have
been returned to them. It is, therefore, our conclusion
that the acceptance by the withdrawing partners,
including the plaintiffs, of their investment in the
instant case was understood and intended by all the
parties as a final settlement of whatever rights or
claim the withdrawing partners might have in the
dissolved partnership. Such being the case they are
now precluded from claiming any share in the
alleged profits, should there be any, at the time of
the dissolution.
18. G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR.,
and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.
Facts:
The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were
several subsequent amendments to the articles of
partnership on 18 September 1958, to change the
firm [name]. On 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners
with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as
junior partners. Petitioner filed with this Commission's
Securities Investigation and Clearing Department
(SICD) a petition for dissolution and liquidation of
partnership. The hearing officer rendered a decision
ruling that P]etitioner's withdrawal from the law firm
Bito, Misa & Lozada did not dissolve the said law
partnership. On appeal, the SEC en banc reversed
the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved
the partnership of "Bito, Misa & Lozada. The parties
sought a reconsideration of the decision. Attorney
Misa, in addition, asked for an appointment of a
receiver to take over the assets of the dissolved
partnership and to take charge of the winding up of
its affairs. On 4 April 1991, respondent SEC issued an
order denying reconsideration, as well as rejecting
the petition for receivership, and reiterating the
remand of the case to the Hearing Officer.
Issue:
Whether the partnership of Bito, Misa, and Lozada is
a partnership at will and that the withdrawal of
private respondent dissolved the partnership
regardless of his good faith or bad faith
Ruling:
A partnership that does not fix its term is a partnership
at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored.
The birth and life of a partnership at will is predicated
on the mutual desire and consent of the partners.
The right to choose with whom a person wishes to
associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and
the absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good
faith, not that the attendance of bad faith can
prevent the dissolution of the partnership4 but that it
can result in a liability for damages. 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 theright, 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.
19. [G.R. No. 127405. October 4, 2000]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs. COURT OF APPEALS and NENITA A.
ANAY, respondents.
Facts:
Private respondent Nenita A. Anay met
petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her
former employer in Bangkok. Belo introduced Anay
to petitioner Marjorie Tocao, who conveyed her
desire to enter into a joint venture with her for the
importation and local distribution of kitchen
cookwares. Belo volunteered to finance the joint
venture and assigned to Anay the job of marketing
the product considering her experience and
established relationship with West Bend Company, a
manufacturer of kitchen wares in Wisconsin,
U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager,
and Anay as head of the marketing department
and later, vice-president for sales. The parties
agreed further that Anay would be entitled to: (1)
ten percent (10%) of the annual net profits of the
business; (2) overriding commission of six percent
(6%) of the overall weekly production; (3) thirty
percent (30%) of the sales she would make; and (4)
two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the
strength of Belos assurances that he was sincere,
dependable and honest when it came to financial
commitments. On August 31, 1987, she received a
plaque of appreciation from the administrative and
sales people through Marjorie Tocao[4] for her
excellent job performance. On October 7, 1987, in
the presence of Anay, Belo signed a
memo[5] entitling her to a thirty-seven percent (37%)
commission for her personal sales "up Dec 31/87.
Belo explained to her that said commission was
apart from her ten percent (10%) share in the
profits. On October 9, 1987, Anay learned that
Marjorie Tocao had signed a letter[6] addressed to
the Cubao sales office to the effect that she was no
longer the vice-president of Geminesse Enterprise.
The following day, October 10, she received a note
from Lina T. Cruz, marketing manager, that Marjorie
Tocao had barred her from holding office and
conducting demonstrations in both Makati and
Cubao offices.[7] Anay attempted to contact Belo.
She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to
February 5, 1988 and the audit of the company to
determine her share in the net profits. When her
letters were not answered, Anay consulted her
lawyer, who, in turn, wrote Belo a letter. Still, that
letter was not answered. Marjorie Tocao and Belo
asserted that the alleged agreement with Anay that
was neither reduced in writing, nor ratified, was
either unenforceable or void or inexistent. As far as
Belo was concerned, his only role was to introduce
Anay to Marjorie Tocao. There could not have been
a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as
marketing demonstrator of Geminesse Enterprise for
an agreed remuneration, and her complaint
referred to either her compensation or dismissal,
such complaint should have been lodged with the
Department of Labor and not with the regular court.
Issue:
Whether there exist a partnership and plaintiff Anay
was a partner of Marjorie tacao and Belo and for
that, the former is entitled to her share after her
exclusion from the partnership
Ruling:
To be considered a juridical personality, a
partnership must fulfill these requisites: (1) two or
more persons bind themselves to contribute money,
property or industry to a common fund; and (2)
intention on the part of the partners to divide the
profits among themselves.[15] It may be constituted in
any form; a public instrument is necessary only where
immovable property or real rights are contributed
thereto.[16] This implies that since a contract of
partnership is consensual, an oral contract of
partnership is as good as a written one. Where no
immovable property or real rights are involved, what
matters is that the parties have complied with the
requisites of a partnership. The fact that there
appears to be no record in the Securities and
Exchange Commission of a public instrument
embodying the partnership agreement pursuant to
Article 1772 of the Civil Code[17] did not cause the
nullification of the partnership. The pertinent
provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality
separate and distinct from that of each of the
partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the
expertise to engage in the business of distributorship
of cookware. Private respondent contributed such
expertise to the partnership and hence, under the
law, she was the industrial or managing partner. It
was through her reputation with the West Bend
Company that the partnership was able to open the
business of distributorship of that companys
cookware products; it was through the same efforts
that the business was propelled to financial success.
Petitioner Tocao herself admitted private
respondents indispensable role in putting up the
business when, upon being asked if private
respondent held the positions of marketing manager
and vice-president for sales.
A mere falling out or misunderstanding between
partners does not convert the partnership into a
sham organization.]The partnership exists until
dissolved under the law. Since the partnership
created by petitioners and private respondent has
no fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it
may be dissolved by the will of a partner. 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 partners capability to give it, and
the absence of cause for dissolution provided by the
law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that
the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in
a liability for damages.An unjustified dissolution by a
partner can subject him to action for damages
because by the mutual agency that arises in a
partnership, the doctrine of delectus
personae allows the partners to have
the power, although not necessarily the right to
dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral
exclusion of private respondent from the partnership
is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of
Geminesse Enterprise.[43] By that memo, petitioner
Tocao effected her own withdrawal from the
partnership and considered herself as having
ceased to be associated with the partnership in the
carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues
until the winding up of the business.[44]
The winding up of partnership affairs has not yet
been undertaken by the partnership. This is manifest
in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the
partnership business.
20. G.R. No. 94285 August 31, 1999
JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF
VICENTE SY,
HEIR OF MARCIANO SY represented by JUSTINA VDA.
DE SY and WILLIE SY, petitioners,
vs.
THE COURT OF APPEALS, INTESTATE ESTATE OF SY
YONG HU,
SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES
AND EXCHANGE COMMISSION, respondents.
Facts:
Sy Yong Hu & Sons is a partnership of Sy Yong Hu and
his sons, Jose Sy, Jayme Sy, Marciano Sy, Willie Sy,
Vicente Sy, and Jesus Sy, registered with the SEC on
March 29, 1962, with Jose Sy as managing partner.
Partners Sy Yong Hu, Jose Sy, Vicente Sy, and
Marciano Sy died on May 18, 1978, August 12, 1978,
December 30, 1979 and August 7, 1987, respectively.
Sometime in September, 1977, during the lifetime of
all the partners, Keng Sian brought an
action,7 docketed as Civil Case No. 13388 before the
then Court of First Instance of Negros Occidental,
against the partnership as well as against the
individual partners for accounting of all the
properties allegedly owned in common by Sy Yong
Hu and the plaintiff (Keng Sian), and for the delivery
or reconveyance of her one-half (1/2) share in said
properties and in the fruits thereof. Keng Sian averred
that she was the common law wife of partner Sy
Yong Hu, that Sy Yong Hu, together with his
children,8 who were partners in the partnership,
connived to deprive her of her share in the properties
acquired during her cohabitation with Sy Yong Hu,
by diverting such properties to the partnership.
Marciano Sy filed a petition for declaratory relief
against partners Vicente Sy, Jesus Sy and Jayme Sy,
docketed as SEC Case No. 1648, praying that he be
appointed managing partner of the partnership, to
replace Jose Sy who died on August 12, 1978.
Answering the petition, Vicente Sy, Jesus Sy and
Jaime Sy, who claim to represent the majority interest
in the partnership, sought the dissolution of the
partnership and the appointment of Vicente Sy as
managing partner. In due time, Hearing Officer
Emmanuel Sison came out with a decision11 (Sison
Decision) dismissing the petition, dissolving the
partnership and naming Jesus Sy, in lieu of Vicente
Sy who had died earlier, as the managing partner in
charge of winding the affairs of the partnership.The
Sison decision was affirmed in toto by the SEC en
banc in a decision. On the basis of the decision of
the SEC en banc, Hearing Officer Sison approved a
partial partition of certain partnership assets in an
order dated December 2, 1986. Therefrom,
respondents seasonably appealed.
Issue:
Whether the dissolution of the partnership did mean
that the juridical entity was immediately terminated
and that the distribution of its assets to its partners
should be perfunctorily follow.
Ruling:
Petitioners fail to recognize the basic distinctions
underlying the principles of dissolution, winding up
and partition or distribution. 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 its business.
Upon its dissolution, the partnership continues and its
legal personality is retained until the complete
winding up of its business culminating in its
termination.46
The dissolution of the partnership did not mean that
the juridical entity was immediately terminated and
that the distribution of the assets to its partners should
perfunctorily follow. On the contrary, the dissolution
simply effected a change in the relationship among
the partners. The partnership, although dissolved,
continues to exist until its termination, at which time
the winding up of its affairs should have been
completed and the net partnership assets are
partitioned and distributed to the partners.47
The error, therefore, ascribed to the Court of Appeals
is devoid of any sustainable basis. The Abello
Decision though, indeed, final and executory, did
not pose any obstacle to the Hearing Officer to issue
orders not inconsistent therewith. From the time a
dissolution is ordered until the actual termination of
the partnership, the SEC retained jurisdiction to
adjudicate all incidents relative thereto. Thus, the
disputed order placing the partnership under a
receivership committee cannot be said to have
varied the final order of dissolution. Neither did it
suspend the dissolution of the partnership. If at all, it
only suspended the partition and distribution of the
partnership assets pending disposition of Civil Case
No. 903 on the basis of the agreement by the parties
and under the circumstances of the case. It bears
stressing that, like the appointment of a manager in
charge of the winding up of the affairs of the
partnership, said appointment of a receiver during
the pendency of the dissolution is interlocutory in
nature, well within the jurisdiction of the SEC.
Furthermore, having agreed with the respondents
not to dispose of the partnership assets, petitioners
effectively consented to the suspension of the
winding up or, more specifically, the partition and
distribution of subject assets. Petitioners are now
estopped from questioning the order of the Hearing
Officer issued in accordance with the said
agreement.
21. G.R. No. 143340 August 15, 2001
LILIBETH SUNGA-CHAN and CECILIA
SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
Facts:
On June 22, 1992, Lamberto T. Chua (hereafter
respondent) filed a complaint against Lilibeth Sunga
Chan (hereafter petitioner Lilibeth) and Cecilia
Sunga (hereafter petitioner Cecilia), daughter and
wife, respectively of the deceased Jacinto L. Sunga
(hereafter Jacinto), for "Winding Up of Partnership
Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary
Attachment" with the Regional Trial Court, Branch 11,
Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally
entered into a partnership with Jacinto in the
distribution of Shellane Liquefied Petroleum Gas
(LPG) in Manila. For business convenience,
respondent and Jacinto allegedly agreed to register
the business name of their partnership, SHELLITE GAS
APPLIANCE CENTER (hereafter Shellite), under the
name of Jacinto as a sole proprietorship.
Respondent allegedly delivered his initial capital
contribution of P100,000.00 to Jacinto while the latter
in turn produced P100,000.00 as his counterpart
contribution, with the intention that the profits would
be equally divided between them. The partnership
allegedly had Jacinto as manager, assisted by
Josephine Sy (hereafter Josephine), a sister of the
wife respondent, Erlinda Sy. As compensation,
Jacinto would receive a manager's fee or
remuneration of 10% of the gross profit and
Josephine would receive 10% of the net profits, in
addition to her wages and other remuneration from
the business. While Jacinto furnished respondent with
the merchandise inventories, balance sheets and
net worth of Shellite from 1977 to 1989, respondent
however suspected that the amount indicated in
these documents were understated and
undervalued by Jacinto and Josephine for their own
selfish reasons and for tax avoidance. Upon Jacinto's
death in the later part of 1989, his surviving wife,
petitioner Cecilia and particularly his daughter,
petitioner Lilibeth, took over the operations, control,
custody, disposition and management of Shellite
without respondent's consent. Despite respondent's
repeated demands upon petitioners for accounting,
inventory, appraisal, winding up and restitution of his
net shares in the partnership, petitioners failed to
comply. Petitioner Lilibeth allegedly continued the
operations of Shellite, converting to her own use and
advantage its properties. Petitioner Lilibeth allegedly
informed respondent that the P200,000.00
represented partial payment of the latter's share in
the partnership, with a promise that the former would
make the complete inventory and winding up of the
properties of the business establishment. Despite
such commitment, petitioners allegedly failed to
comply with their duty to account, and continued to
benefit from the assets and income of Shellite to the
damage and prejudice of respondent.
Issue:
Whether the death of Jacinto immediately
terminated the partnership
Ruling:
The action for accounting filed by respondents three
(3) years after Jacinto's death was well within the
prescribed period. The Civil Code provides that an
action to enforce an oral contract prescribes in six
(6) years while the right to demand an accounting
for a partner's interest as against the person
continuing the business accrues at the date of
dissolution, in the absence of any contrary
agreement. Considering that the death of a partner
results in the dissolution of the partnership , in this
case, it was Jacinto's death that respondent as the
surviving partner had the right to an account of his
interest as against petitioners. It bears stressing that
while Jacinto's death dissolved the partnership, the
dissolution did not immediately terminate the
partnership. The Civil Code expressly provides that
upon dissolution, the partnership continues and its
legal personality is retained until the complete
winding up of its business, culminating in its
termination. In a desperate bid to cast doubt on the
validity of the oral partnership between respondent
and Jacinto, petitioners maintain that said
partnership that had initial capital of P200,000.00
should have been registered with the Securities and
Exchange Commission (SEC) since registration is
mandated by the Civil Code, True, Article 1772 of the
Civil Code requires that partnerships with a capital of
P3,000.00 or more must register with the SEC,
however, this registration requirement is not
mandatory. Article 1768 of the Civil Code explicitly
provides that the partnership retains its juridical
personality even if it fails to register. The failure to
register the contract of partnership does not
invalidate the same as among the partners, so long
as the contract has the essential requisites, because
the main purpose of registration is to give notice to
third parties, and it can be assumed that the
members themselves knew of the contents of their
contract. In the case at bar, non-compliance with
this directory provision of the law will not invalidate
the partnership considering that the totality of the
evidence proves that respondent and Jacinto
indeed forged the partnership in question.
22. G.R. No. L-22825 February 14, 1925
TESTATE ESTATE OF LAZARO MOTA, deceased, ET
AL., plaintiffs-appellants,
vs.
SALVADOR SERRA, defendant-appellee.
Facts:
Plaintiffs and defendant entered into a contract of
partnership, marked Exhibit A, for the construction
and exploitation of a railroad line from the "San
Isidro" and "Palma" centrals to the place known as
"Nandong. The plaintiffs were entrusted with the
administration of the partnership. The defendant
entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de
Luzuriaga, whereby he sold to the latter the estate
and central known as "Palma" with its running
business, as well as all the improvements,
machineries and buildings, real and personal
properties, rights, choses in action and interests,
including the sugar plantation of the harvest year of
1920 to 1921, covering all the property of the vendor.
This contract was executed before a notary public
of Iloilo and is evidenced by Exhibit 1 of the
defendant. Before the delivery to the purchasers of
the hacienda thus sold, Eusebio R. de Luzuriaga
renounced all his rights under the contract of
January 29, 1920, in favor of Messrs. Venancio
Concepcion and Phil. C. Whitaker. This gave rise to
the fact that on July 17, 1920, Venancio Concepcion
and Phil. C. Whitaker and the herein defendant
executed before Mr. Antonio Sanz, a notary public
in and for the City of Manila, another deed of
absolute sale of the said "Palma" Estate for the
amount of P1,695,961.90, of which the vendor
received at the time of executing the deed the
amount of P945,861.90, and the balance was
payable by installments in the form and manner
stipulated in the contract. The purchasers
guaranteed the unpaid balance of the purchase
price by a first and special mortgage in favor of the
vendor upon the hacienda and the central with all
the improvements, buildings, machineries, and
appurtenances then existing on the said hacienda.
Afterwards, on January 8, 1921, Venancio
Concepcion and Phil. C. Whitaker bought from the
plaintiffs the one-half of the railroad line pertaining
to the latter, executing therefor the document
Exhibit 5. The price of this sale was P237,722.15,
excluding any amount which the defendant might
be owing to the plaintiffs. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker paid
the sum of P47,544.43 only. In the deed Exhibit 5, the
plaintiffs and Concepcion and Whitaker agreed,
among other things, that the partnership "Palma"
and "San Isidro," formed by the agreement of
February 1, 1919, between Serra, Lazaro Mota, now
deceased, and Juan J. Vidaurrazaga for himself and
in behalf of his brother, Felix and Dionisio
Vidaurrazaga, should be dissolved upon the
execution of this contract, and that the said
partnership agreement should be totally cancelled
and of no force and effect whatever. So it results that
the "Hacienda Palma," with the entire railroad, the
subject-matter of the contract of partnership
between plaintiffs and defendant, became the
property of Whitaker and Concepcion. Phil. C.
Whitaker and Venancio Concepcion having failed
to pay to the defendant a part of the purchase
price, that is, P750,000, the vendor, the herein
defendant, foreclosed the mortgage upon the
said hacienda, which was adjudicated to him at the
public sale held by the sheriff for the amount of
P500,000, and the defendant put in possession
thereof, including what was planted at the time,
together with all the improvements made by Messrs.
Phil. C. Whitaker and Venancio Concepcion.
Issue:
Whether the dissolution of the partnership exempt
defendant Serra with his obligation
Ruling:
By virtue of the contract, the plaintiffs and Phil. C.
Whitaker and Venancio Concepcion, by common
consent, decided to dissolve the partnership
between the "Hacienda Palma" and "Hacienda San
Isidro," thus cancelling the contract of partnership of
February 1, 1919.
Defendant's contention signifies that any person,
who has contracted a valid obligation with a
partnership, is exempt from complying with his
obligation by the mere fact of the dissolution of the
partnership. Defendant's contention is untenable.
The dissolution of a partnership must not be
understood in the absolute and strict sense so that at
the termination of the object for which it was
created the partnership is extinguished, pending the
winding up of some incidents and obligations of the
partnership, but in such case, the partnership will be
reputed as existing until the juridical relations arising
out of the contract are dissolved. This doctrine has
been upheld by the supreme court of Spain in its
decision of February 6, 1903, in the following case:
There was a partnership formed between several
persons to purchase some lands sold by the state.
The partnership paid the purchase price and
distributed among its members the lands so
acquired, but after the lapse of some time, one of
the partners instituted an action in the court of
Badajoz, praying that he be accepted as a partner
with the same rights and obligations as the others, for
the reason that he had not been allowed all that he
had a right to. The court granted the petition, which
judgment was affirmed by the Audiencia de
Caceres.
23. G.R. No. 1011 May 13, 1903
JOSE MACHUCA, plaintiff-appellee, vs.
CHUIDIAN, BUENAVENTURA & CO., defendants-
appellants.
FACTS:
In 1882, defendants are organized as a regular
general partnership in Manila; it was a continuation
of a prior partnership of the same name. It was
stipulated that the partners’ liability should be
"limited to the amounts brought in by them”.
Thereafter, partners contributed additional amounts.
In 1888, the partnership went into liquidation, and it
does not appear that the liquidation had been
terminated.
During liquidation, the accounts-current of Telesforo
Chuidian and Candelaria Chuidian had diminished
while Mariano Buenaventura’s acct had increased.
In 1894, Mariano Buenaventura died and his estate
passed to his children (among whom was Vicente
Buenaventura).
In 1898, Vicente Buenaventura executed a public
instrument wherein he "assigns to Jose Garcia 25%
share in all that may be obtained by whatever right
in whatever form from the liquidation of the
partnership of Chuidian, Buenaventura & Co. xxx”
Garcia now asks to have the credit assigned to him
to be recorded in the books of the partnership.
Likewise, to receive immediately
25% of the amount representing Vicente
Buenaventura’s share in the account-current.
ISSUE:
Whether Garcia is entitled to 25% of D. Vicente
Buenaventura's share in the partnership's assets.
RULING:
NO. Garcia is NOT entitled.
Under clause 19 of the partnership agreement of the
parties, the partnership would be liquidated:
 liabilities to non-partners are to be
discharged first;
 claims of the Chuidian minors are to be next
satisfied (does not appear how they
acquired such);
 advances made by a partner;
 leaving the ultimate residue (if any) to be
distributed, among the partners in the
proportions they may be entitled.
 Hence, Vicente Buenaventura (rights are
those of his decesead father, Mariano) is NOT
entitled to receive any part of the assets until
the creditors who are nonpartners and the
Chuidian minors are paid. Whatever rights
Vicente had either as creditor or partner, he
could only transfer subject to this condition.
Vicente cannot transfer the partnership's assets to 3rd
person but may transfer/assign a partner's interest
(share in profits & losses) on the partnership
 By that instrument he undertakes to assign to
Garcia not a present interest in the assets of
the partnership but an interest in whatever
"may be obtained from the liquidation of the
partnership," which Garcia is to receive "in
the same form in which it may be obtained
from said partnership," and "on the date
when Messrs. Chuidian, Buenaventura & Co.,
in liquidation, shall have effected the
operations necessary in order to satisfy" the
claims of D. Vicente Buenaventura.
CFI decision (which favoured Garcia) REVERSED and
SET ASIDE. Case is REMANDED to the court a quo.
 The plaintiff will be entitled to receive from
the assets of the partnership, if any remain, at
the termination of the liquidation.
 Court did not discuss how would the partners
share in the remaining assets, if there is any,
in proportion to their contributions.
24. [G.R. No. 144214. July 14, 2003]
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners, vs. DONALDO EFREN C.
RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, respondents.
FACTS:
In 1984, Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for
the operation of a restaurant and catering business.
Respondent Ramirez joined as a partner in the
business with the capital contribution of P250, 000.
In 1987, Jesus Jose withdrew from the partnership
and within the same time, Villareal and Carmelito
Jose, petitioners closed the business without prior
knowledge of respondents.
Respondents wrote a letter to petitioners stating that
they were no longer interested in continuing the
partnership and that they were accepting the
latter’s offer to return their capital contribution. This
was left unheeded by the petitioners, and by reason
of which respondents filed a complaint in the RTC.
RTC ruled that the parties had voluntarily entered
into a partnership, which could be dissolved at any
time, and this dissolution was showed by the fact
that petitioners stopped operating the restaurant.
On appeal, CA upheld RTC’s decision that the
partnership was dissolved and it added that
respondents had no right to demand the return of
their capital contribution. However since petitioners
did not give the proper accounting for the
liquidation of the partnership, the CA took it upon
itself to compute their liabilities and the amount that
is proper to the respondent. The computation of
which was :( capital of the partnership – outstanding
obligation) / remaining partners =amount due to
private respondent.
(Note: Both the trial and the appellate courts and
the SC, actually, found that a partnership had
indeed existed, and that it was dissolved on March
1, 1987. They found that the dissolution took place
when respondents informed petitioners of the
intention to discontinue it because of the formers
dissatisfaction with, and loss of trust in, the latter’s
management of the partnership affairs. These
findings were amply supported by the evidence on
record.)
ISSUE:
Whether petitioners are liable to respondents for the
latter’s equity share in the partnership
RULING:
NO. Respondents have no right to demand from
petitioner the return of their equity share. As found by
the court, petitioners did not personally hold its
equity or assets. “The partnership has a juridical
personality separate and distinct from that of each
of the partners.” Since the capital was contributed
to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring
partners.
However, before the partners can be paid their
shares, the creditors of the partnership must first be
compensated. Therefore, the exact amount of
refund equivalent to respondents’ one-third share in
the partnership cannot be determined until all the
partnership assets will have been liquidated and all
partnership creditors have been paid. CA’s
computation of the amount to be refunded to
respondents as their share was thus erroneous.
LIMITED PARTNERSHIP
Articles 1843 to 1867
1. TECK SEING AND CO., LTD., petitioner-
appellee. SANTIAGO JO CHUNG, ET AL.,
partners, vs. PACIFIC COMMERCIAL
COMPANY, ET AL., creditorsappellants. G.R.
No. 19892 September 6, 1923
“Doctrine of Substantial Compliance (Article 1844,
last par.): Substantial, rather than strict, compliance
in good faith with the legal requirements is all that is
necessary for the formation of a limited partnership;
otherwise, when there is not even substantial
compliance, the partnership becomes a general
partnership as far as third persons are concerned “
FACTS:
In this case, the respondents who are creditors of the
petitioner partnership sought that TECK SEING AND
CO., LTD be adjudged insolvent.
The counsel for the petitioners asserted that Teck
Seing & Co., Ltd., is "una sociedad mercantil "de
facto" solamente" (only a de facto commercial
association)
Article 125 of the Code of Commerce provides that
the articles of general copartnership must contain
the names of the partners the names, surnames, and
domiciles of the partners; the firm name; the names,
and surnames of the partners to whom the
management of the firm and the use of its signature
is instrusted; the capital which each partner
contributes in cash, credits, or property, stating the
value given the latter or the basis on which their
appraisement is to be made; the duration of the
copartnership; and the amounts which, in a proper
case, are to be given to each managing partner
annually for his private expenses, while the
succeeding article of the
Code provides that the general copartnership must
transact business under the name of all its members,
of several of them, or of one only.
Teck Seing & Co., Ltd has complied with all the
requirements except that relating to the composition
of the firm name.
The contention of the creditors and appellants is that
the partnership contract established a general
partnership notwithstanding the fact that Teck Seing
& Co., Ltd., a general copartnership failed to include
the name of one of the partners
in the firm name.
RELEVANT PROVISIONS UNDER THE CODE OF
COMMERCE
Article 119 - requires every commercial association
before beginning its business to state its article,
agreements, and conditions in a public instrument,
which shall be presented for record in the mercantile
registry.
Article 120 - provides that the persons in charge of
the management of the association who violate the
provisions of the foregoing article shall be
responsible in solidum to the persons not members of
the association with whom they may have
transacted business in the name of the association.
Article 126 - requires a general partnership to
transact business under the name of all its members,
of several of them, or of one only to protect the
public from imposition and fraud; and that the
provision of said article 126 is for the protection of the
creditors rather than of the partners themselves. And
consequently the doctrine was enunciated that the
law must be unlawful and unenforceable only as
between the partners and at the instance of the
violating party, but not in the sense of depriving
innocent parties of their rights who may have dealt
with the offenders in ignorance of the latter having
violated the law; and that contracts entered into by
commercial associations defectively organized are
valid when voluntarily executed by the parties, and
the only question is whether or not they complied
with the agreement.
ISSUE:
Whether Teck Seing & Co. is a general partnership
RULING:
YES. It would seem that Teck Seing & Co., Ltd. has
fulfilled the provisions of article 119.
The Supreme Court held that contract of partnership
found in the document hereinbefore quoted
established a general partnership or, to be more
exact, a partnership as this word is used in the
Insolvency Law.
The legal intention deducible from the acts of the
parties controls in determining the existence of a
partnership. If they intend to do a thing which in law
constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such
relation.
Here, the intention of the persons making up Teck
Seing & co., Ltd. was to establish a partnership which
they erroneously denominated a limited partnership.
If this was their purpose, all subterfuges resorted to in
order to evade liability for possible losses, while
assuming their enjoyment of the advantages to be
derived from the relation, must be disregarded. The
partners who have disguised their identity under a
designation distinct from that of any of the members
of the firm should be penalized, and not the creditors
who presumably have dealt with the partnership in
good faith.
2. G.R. No. L-11840 December 10, 1963
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-
appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-
appellees.
“The heir ordinarily becomes a limited partner for his
own protection, because he would normally prefer
to avoid any liability in excess of the value of the
estate inherited so as not to jeopardize his personal
assets. But this statutory limitation of responsibility
being designed to protect the heir, the latter may
disregard it and instead elect to become a
collective or general partner, with all the rights and
privileges of one, and answering for the debts of the
firm not only with the inheritance but also with the
heir's personal fortune. This choice pertains
exclusively to the heir, and does not require the
assent of the surviving partner.”
FACTS:
Tan Sin An and Antonio C. Goquiolay entered into a
general commercial partnership under the
partnership name "Tan Sin An and Antonio C.
Goquiolay", for the purpose in dealing in real state.
The co-partnership shall be composed of said Tan Sin
An as sole managing and partner (sic), and Antonio
C. Goquiolay as co-partner. The affairs of co-
partnership shall be managed exclusively by the
managing and partner or by his authorized agent,
and it is expressly stipulated that the managing and
partner may delegate the entire management of
the affairs of the co-partnership by irrevocable
power of attorney to any person, firm or corporation
he may select. 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 six (6) months at any time during ordinary
business hours.
The lifetime of the partnership was fixed at ten
(10) years and also that —In the event of the death
of any of the partners at any time before the
expiration of said term, the co-partnership shall not
be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs
or assigns in said co-partnership (Art. XII, Articles of
Co- Partnership). However, the partnership could be
dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners.
"Tan Sin An and Goquiolay" purchased the three (3)
parcels of land. Another 46 parcels were purchased
by Tan Sin An in his individual capacity. The two
separate obligations were consolidated in an
instrument executed by the partnership and Tan Sin
An, whereby the entire 49 lots were mortgaged in
favor of the "Banco Hipotecario de Filipinas"
In 1942, Tan Sin An died, leaving as surviving heirs his
widow, Kong Chai Pin, and four minor children.
Repeated demands for payment were made by the
Banco Hipotecario on the partnership and on Tan Sin
An. In 1944, the defendant Sing Yee and Cuan, Co.,
Inc., upon request of defendant Yutivo Sans
Hardware Co., paid the remaining balance of the
mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee
and Cuan Co., Inc. filed their claims in the intestate
proceedings of Tan Sin An for P62,415.91 and
P54,310.13, respectively, as alleged obligations of
the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest
and taxes paid in amortizing and discharging their
obligations to "La Urbana" and the "Banco
Hipotecario".
Kong Chai Pin filed a petition with the probate court
for authority to sell all the 49 parcels of land to
Washington Z, Sycip and Betty Y. Lee, for the purpose
preliminary of settling the aforesaid debts of Tan Sin
An and the partnership. Pursuant to a court order, a
deed of sale of the 49 parcels of land to the
defendants Washington Sycip and Betty Lee.
Learning about the sale to Sycip and Lee, the
surviving partner Antonio Goquiolay fileda petition in
the intestate proceedings seeking to set aside the
order of the probate court approving the sale in so
far as his interest over the parcels of land sold was
concerned.
ISSUE/RULING:
Whether the widow of Kong Chai Pin is a general
partner.
YES. Appellants argue, however, that since the "new"
members' liability in the partnership was limited
merely to the value of the share or estate left by the
deceased Tan Sin An, they became no more than
limited partners and, as such, were disqualified from
the management of the business under Article 148 of
the Code of Commerce. Although ordinarily, this
effect follows from the continuance of the heirs in
the partnership, it was not so with respect to the
widow Kong Chai Pin, who, by her affirmative and selling real estate, and "in general real estate
actions, manifested her intent to be bound by the agency and brokerage business"
partnership agreement not only as a limited but as a
general partner.

Thus, she managed and retained possession of the

partnership properties and was admittedly deriving
income therefrom up to and until the same were sold
to Washington Sycip and Betty Lee. In fact, by
executing the deed of sale of the parcels of land in
dispute in the name of the partnership, she was
acting no less than as a managing partner. Having
thus preferred to act as such, she could be held
liable for the partnership debts and liabilities as a
general partner, beyond what she might have
derived only from the estate of her deceased
husband. By allowing her to retain control of the
firm's property from 1942 to 1949, plaintiff estopped
himself to deny her legal representation of the
partnership, with the power to bind it by the proper
contracts.

Whether the consent of the other partners was

necessary to perfect the sale of the partnership
properties to Washington Sycip and Betty Lee.

NO. The answer is, we believe, in the negative.

Strangers dealing with a partnership have the right
to assume, in the absence of restrictive clauses in the
co-partnership agreement, that every general
partner has power to bind the partnership, specially
those partners acting with ostensible authority. And
so, we held in one case:
. . . Third persons, like the plaintiff, are not
bound in entering into a contract with any of
the two partners, to ascertain whether or not
this partner with 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 partners. Its
knowledge is enough that it is contracting
with the partnership which is represented by
one of the managing partners.

"There is a general presumption that each individual

partner is an agent for the firm and that he has
authority to bind the firm in carrying on the
partnership transactions."

In this case, the records fail to disclose that appellant

Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty
Lee; on the contrary, it appears that he (Goquiolay)
only interposed his objections after the deed of
conveyance was executed and approved by the
probate court, and, consequently, his opposition
came too late to be effective.

WON the sale of real properties resulted to dissolution

of the partnership.

NO. Appellants also question the validity of the sale

covering the entire firm realty, on the ground that it,
in effect, threw the partnership into dissolution, which
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
dissolution, since the firm was not organized to
exploit these precise lots but to engage in buying