Villareal vs Ramirez

Summary: The partnership has a juridical personality separate and distinct from that of each of the partners.
Since the capital was contributed to the partnership, as in this case, and not to petitioners, it is the
partnership that must refund the equity of the retiring partners, the amount to be refunded is necessarily
limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists
of all its assets. However, before the partners can be paid their shares, the creditors of the partnership
must first be compensated. After all the creditors have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners shares.

Doctrine: A share in a partnership can be returned only after the completion of the latter’s dissolution
liquidation and winding up of the business

Facts:
Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for
the operation of a restaurant and catering business under the name “Aquarius Food House and Catering
Services.” Villareal was appointed general manager and Carmelito Jose, operations manager. Respondent
Donaldo Ramirez joined as a partner on September 5, 1984 with a capital contribution of P250,000 which
was paid by his parents, Respondents Cesar and Carmelita Ramirez. Jesus Jose withdrew from the
partnership and his capital contribution of P250,000 was refunded to him in cash by agreement of the
partners.

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant,
allegedly because of increased rental. The restaurant furniture and equipment were deposited in the
respondents’ house for storage. On March 1, 1987, respondent spouses wrote petitioners, saying that they
were no longer interested in continuing their partnership or in reopening the restaurant, and that they were
accepting the latter’s offer to return their capital contribution. Respondent wrote another letter informing
petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in the equity of the partnership. The repeated
oral and written requests were, however, left unheeded.

Respondents filed before the RTC for the collection of a sum of money from petitioners. Petitioners
contended that respondents had expressed a desire to withdraw from the partnership and had called for
its dissolution under Articles 1830 and 1831; that respondents had been paid, upon the turnover to them
of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of
their equity because their share, together with the rest of the capital of the partnership, had been spent as
a result of irreversible business losses.

In their Reply, respondents alleged that had not received any regular report or accounting from the latter,
who had solely managed the business. Respondents also alleged that they expected the equipment and
the furniture stored in their house to be removed by petitioners as soon as the latter found a better location
for the restaurant. RTC ruled that the parties had voluntarily entered into a partnership, which could be
dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant.
Hence, the trial court rendered a judgment in favor of respondents and ordering the petitioners to pay
jointly and severally.

Issue: WON petitioners are liable to respondents for the latter’s share in the partnership

Ruling:
NO. We hold that respondents have no right to demand from petitioners the return of their equity share.

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved
when respondents informed petitioners of the intention to discontinue it because of the former’s
dissatisfaction with, and loss of trust in, the latter’s management of the partnership affairs. Except as
managers of the partnership, 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, the amount to be refunded is necessarily limited to its total resources. In other words, it
can only pay out what it has in its coffers, which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership must first be compensated. After all the creditors
have been paid, whatever is left of the partnership assets becomes available for the payment of the partners
shares.

The records show that the partnership capital was actually reduced. When petitioners and respondents
ventured into business together, they should have prepared for the fact that their investment would either
grow or shrink. In the present case, the investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be returned to them, because one third of
the partnership properties at the time of dissolution did not amount to that much.

It is a long-established doctrine that the law does not relieve parties from the effects of unwise, foolish or
disastrous contracts they have entered into with all the required formalities and with full awareness of what
they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed,
simply because their contracts turn out to be disastrous deals or unwise investments. A share in a
partnership can be returned only after the completion of the latter’s dissolution, liquidation and winding up
of the business.

Magdusa vs Alabaran

Summary: Magdusa and Albaran et. al. formed a partnership for sale of general merchandise. Magdusa
contributed money and others contributed their labor. Albaran et. al., expressed their desire to withdraw
and made a demand for payment of their shares. Magdusa refused. The court ruled that A partner's share
cannot be returned without first dissolving and liquidating the partnership, for the return is dependent on
the discharge of the creditors, whose claims enjoy preference over those of the partners
Doctrine: .A partner's share cannot be returned without first dissolving and liquidating the partnership,
for the return is dependent on the discharge of the creditors, whose 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.

Facts:

Gregorio Magdusa and Albaran et. al., together with various other persons, had verbally formed a
partnership de facto, for the sale of general merchandise in Surigao, Surigao, to which Magdusa 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, Albaran et. al.
expressed their desire to withdraw from the partnership, and Magdusa 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 Magdusa. Albaran et. al. thereafter made demands
upon Magdusa for payment, but Magdusa having refused, they filed the initial complaint in the Court of
First Instance of Bohol. Magdusa defended by denying any partnership with Albaran et. al., whom he
claimed to be mere employees of his.

Court of First Instance of Bohol: Dismissed the complaint on the ground that the other were
indispensable parties but hid not been impleaded. It also refused to give credence to Exhibit "C",

Court of Appeals: the Court of Appeals reversed.

Issue:

Whether or not Albaran et. al’s can collect their shares in the partnership.

Held:

NO, they cannot collect until they first make a dissolution and liquidation. A partner's share can
not be returned without first dissolving and liquidating the partnership, 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 Alabaran et. al, as retiring partners, can not be repaid, for the firm's outside creditors
have preference over the assets of the enterprise, and the firm's property can not be diminished to their
prejudice. Finally, Magdusa 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.

Yu v. NLRC and Jade Mountain

FACTS:

Petitioner Yu was hired as the Assistant General Manager of Jade Mountain Products Company Limited
primarily responsible for the overall operations of marble quarrying and export business of said partnership.
He was hired by a virtue of a Partnership Resolution in 1985 with a monthly salary of P4,000.00.

Initially he received only half of his stipulated monthly salary and was promised by the partners that the
balance would be paid upon securing additional operating funds from abroad. However, in 1988 without
his knowledge the general partners as well as one of the limited partners sold and transferred their interest
to Willy Co and Emmanuel Zapanta.
Thus the new major partners decided to transfer the firm’s main office but opted to continue the operation
of the old partnership under its old firm name and with all its employees and workers except for the
petitioner. Upon knowing of the changes in the partnership, petitioner went to the new main office to meet
the new partners and demand the payment of his unpaid salaries, but the latter refused to pay him and
instead informed him that since he bought the business from the original partners, it was for him to decide
whether or not he was responsible for the obligations of the old partnership including petitioners unpaid
salaries. Hence, petitioner was dismissed from said partnership.

ISSUES:

1. Whether the partnership which had hired the petitioner as Asst. General Manager had been extinguished
and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta.

2. Whether petitioner could assert his rights under his employment contract as against the new partnership

HELD:

1. Yes. The legal effect of the changes in the membership of the partnership was the dissolution of the
old partnership which had hired the petitioner in 1984 and the emergence of the new firm composed of
Willy Co and Emmanuel Zapanta in 1988. This is based on the following provisions:

Art. 1828. The dissolution of partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as a distinguished from the winding up of
the business.

Art. 1830. Dissolution is caused:

1. without violation of the agreement between the partners;

b. by the express will of any partner, who must act in good faith, when no definite
term or 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;

In the case at bar, the two (2) general partners & and one (1) limited partner 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:

“[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed."

Ordinarily, 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.

2. Yes. What is important for present purposes is that, under the above described situation, not only
the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the
business of the old, dissolved, one, are liable for the debts of the preceding partnership.
In Singson, et al. v. 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.

Under Art. 1840, creditors of the old partnership are also creditors of the new partnership which continued
the business of former without liquidation of the partnership affairs. Thus, creditor of the old Jade Mountain,
such as the petitioner is entitled to enforce his claim for unpaid salaries, as well as other claims relating to
his employment with the old partnership against the new Jade Mountain

However, an assistant general manager belongs to the most senior ranks of management and a new
partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of
Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination
without just or authorized cause. We think that the precise authorized cause for termination in the case at
bar was redundancy.
The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner
himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General
Manager thus became superfluous or redundant. It follows that petitioner Benjamin Yu is entitled to
separation.
However, we consider that Benjamin Yu was very shabbily treated by the new partnership. The old
partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole
marble quarrying, processing and exporting enterprise. The new partnership did not try to suggest that
there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled
the new partnership to terminate his services.
Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the
relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr.
Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages)
accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to
arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond
by paying moral damages.

Partnership; Court agrees with the result reached by the NLRC that the legal effect of the
changes in the membership of the partnership was the dissolution of the old partnership.—In
respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the
changes in the membership of the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.
Occurrence of events which precipitate the legal consequence of dissolution of a partnership
do not automatically result in the termination of the legal personality of the old 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.

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 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.

A withdrawing partner remains liable to a third party creditor of the old partnership.—What is
important for present purposes is that, under the above described situation, not only the retiring partners
(Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. 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.

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.—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 petitioner 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.

The new partnership is entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise taken over.—It is at the same time also
evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant
general manager to run the affairs of the business enterprise taken over. An assistant general manager
belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager
of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not
therefore constitute unlawful termination, or termination without just or authorized cause. We think that
the precise authorized cause for termination in the case at bar was redundancy.

Rojas v. Maglana

FACTS:
Maglana and Rojas executed their Articles of Co-Partnership with only the two of them as partners and
registered the same with the SEC. One of the purposes of the duly-registered partnership was to “apply or
secure timber and/or minor forests products licenses and concessions over public and/or private forest
lands and to operate, develop and promote such forests rights and concessions.”

Under the said Articles of Co-Partnership, Maglana shall manage the business affairs of the partnership,
while Rojas shall be the logging superintendent and shall manage the logging operations of the partnership.
It is also provided in the said articles of co-partnership that all profits and losses of the partnership shall
be divided share and share alike between the partners and there is no definite term of the existence of the
partnership.

For some time, there was no operation of said partnership. Because of the difficulties encountered, Rojas
and Maglana decided to avail of the services of Pahamotang as industrial partner. Maglana, Rojas and
Agustin Pahamotang executed their Articles of Co-Partnership and did not register the same before the
SEC. The second partnership realized profits.

Later, Pahamotang, Maglana and Rojas executed a document agreeing among themselves that Maglana
and Rojas shall purchase the interest, share and participation in the Partnership of Pahamotang. It was
also agreed that the two (Maglana and Rojas) shall become the owners of all equipment contributed by
Pahamotang and the second partnership, be dissolved.

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of their written Articles of Partnership.

Subsequently, Rojas entered into a management contract with another logging enterprise. He left and
abandoned the partnership. He withdrew his equipment from the partnership for use in the newly acquired
area. The equipment withdrawn were his supposed contributions to the first partnership.

Maglana then wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment,
to the capital investments of the partnership as well as his obligation to perform his duties as logging
superintendent. Rojas then told Maglana that he will not be able to comply with the promised contributions
and he will not work as logging superintendent. Maglana then told Rojas that the latter’s share will just be
20% of the net profits. Meanwhile, Rojas took funds from the partnership more than his contribution.
Maglana notified Rojas that he dissolved the partnership.

Rojas filed an action against Maglana for the recovery of properties, accounting, receivership and damages.
The trial court, rendered judgment against Rojas. Rojas interposed the instant appeal.

ISSUES:

(1) What is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang
retired from the second partnership.
(2) Whether or not Maglana can unilaterally dissolve the partnership.
(3) Whether Maglana can be held liable for damages.

RULING:

(1) Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang
can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an
existing partnership, duly registered.
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears
evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution
of the second one, which they unmistakably called an “Additional Agreement”. To all intents and purposes
therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-
Partnership which was never registered. Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly registered articles. As found by the
trial court, it is an admitted fact that even up to now, there are still subsisting obligations and contracts of
the latter. No rights and obligations accrued in the name of the second partnership except in favor of
Pahamotang which was fully paid by the duly registered partnership.

(2) YES, Maglana can unilaterally dissolve the partnership.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership
shall be divided “share and share alike” between the partners.

It is a settled rule that 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 (Article 1786, Civil
Code) and for interests and damages from the time he should have complied with his obligation (Article
1788, Civil Code) Being a contract of partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership.

(3) NO, Maglana is not liable for damages for his withdrawal.

It will be recalled that after the withdrawal of Pahamotang, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the
partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital
investment and to perform his duties as logging superintendent, as stipulated in their partnership
agreement. The records also show that Rojas not only abandoned the partnership but also took funds in
an amount more than his contribution. In the given situation Maglana cannot be said to be in bad faith nor
can he be liable for damages.

SINGSONG v ISABELLA SAWMILL

Summary: Isabela was formed by three partners. When one partner withdraw from the partnership, the
two remaining partners continued the business under the same name. There was no liquidation on the
assets of the partnership. The partnership is then indebted to various creditors. The Court ruled that S
(partner who withdraw) is still liable.
Doctrine: Dissolution is caused by any partnership is caused by any partner ceasing to be associated in
the carrying on of the business. However, on dissolution, the partnership is not terminated but continuous
until the winding up to the business.

Facts: Defendants Garibay, Margarita Saldajeno and Tubungbanua entered into a contract of partnership
under the firm name ‘Isabela Sawmill’. Said partnership owed unpaid balances to plaintiffs.
A civil case for the dissolution was filed by the spouses Saldajeno against Isabela Sawmill, Garibay and
Tubungbanua. Later on said parties entered into a memorandum agreement wherein Garibay and
Tubungbanua have bound themselves to answer for any and all obligations of the defunct partnership to
its creditors and third persons. Defendants Garibay and Tubungbanua did not divide the assets and
properties of the “Isabella Sawmill” between them, but they continued the business of said partnership
under the same firm name.
The remaining partners executed an “Assignment of Rights with Chattel Mortgage” in favor of Saldajeno in
order to secure the performance of their obligations. However, since they defaulted in their payment a
judgment was rendered in favor of Saldejano which caused the foreclosure of the CM. The Provincial Sheriff
published notices that he would sell at a public auction certain properties (of the partnership) mortgaged
by Garibay and Tubungbanua in favor of Saldejano and later on executed a sale in the latter’s favor, selling
for 38K the assets of the partnership. Saldejano in turn sold to Pan Oriental lumber company for 45K part
of the said properties she had bought at the public auction.
The plaintiffs, in a civil action, sought to restrain the Sheriff from proceeding with the sales and to have
the chattel mortgage declared null and void in fraud of creditors. Defendant M. Saldajeno claims that all
the plaintiffs save for Oppan are creditors of Garibay and Tubungbanua and not of the defunct partnership
and that said creditors had knowledge and notice that the former partnership had been dissolved.
The trial court ruled in favor of the plaintiffs thus, the herein defendants appealed. The court ruled that
there was no CM over the properties as such were owned by the partnership and that the plaintiffs have a
preferred right over it as against Saldejano. As such, the latter must pay the plaintiffs the respective
amounts for which the partnership is indebted to them. Garibay and Tubungbanua are also liable to pay to
the plaintiffs whatever amount that they may not collect from Saldajeno. The defendants appealed to the
CA but the latter transferred the records of the case to the SC.

Issue: Whether or not partnership is dissolved by withdrawal of one party.

Ruling: No.
SC: The remaining partners did not terminate the business of the partnership. It is expressly stipulated in
the memorandum agreement that the remaining partners had constituted themselves as the partnership
entity, the “Isabella Sawmill”. There was no liquidation of the assets of the partnership. The remaining
partners continued doing business of the partnership in the name of “Isabella Sawmill”. They used the
properties of the partnership. The properties mortgaged to M. Saldajeno by the remaining partners
belonged to the partnership. It does not appear that the withdrawal of M. Saldajeno was 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 doing business in the name of “Isabela sawmill” could be enforced
against the properties of said partnership. The judicial foreclosure executed in favor of Saldajeno did not
relieve her from liability to the creditors of the partnership. Technically speaking the partnership was
dissolved by the withdrawal of Saldajeno but not terminated and it continued doing business through the
two remaining partners.
The plaintiffs were prejudiced in their rights by the execution of the chattel mortgage over the properties
of the partnership in favor of Saldajeno by the remaining partners and they had a right to file the action to
nullify the chattel mortgage in question. The spouses Saldejano have a right to be reimbursed whatever
amounts they shall pay the appellees by their Garibay and Tubungbanua as in the memorandum
agreement, they undertook to release Saldejano from any obligation of the partnership to third persons.

It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the
carrying on of the business. 18 However, on dissolution, the partnership is not terminated but continuous
until the winding up of the business.
The remaining partners did not terminate the business of the partnership “Isabela Sawmill”. Instead of
winding up the business of the partnership, they continued the business still in the name of said partnership.
It is expressly stipulated in the memorandum-agreement that the remaining partners had constituted
themselves as the partnership entity, the “Isabela Sawmill”. 20 There was no liquidation of the assets of
the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the
business of the partnership in the name of “Isabela Sawmill”. They used the properties of said partnership.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in
the newspapers. The appellees and the public in general had a right to expect that whatever, credit they
extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership
“Isabela Sawmill” could be enforced against the properties of said partnership. The judicial foreclosure of
the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the
creditors of the partnership.
The appellant, Margarita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the
liquidation of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua
continue doing the business of the partnership “Isabela Sawmill” by entering into the memorandum-
agreement with them.

Although it may be presumed that Margarita G. Saldajeno 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. Had Margarita G.
Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua
to continue doing the business of the partnership, the appellees would not have been misled into thinking
that they were still dealing with the partnership “Isabela Sawmill”. Under the facts, it is of no moment that
technically speaking the partnership “Isabela Sawmill” was dissolved by the withdrawal therefrom of
Margarita G. Saldajeno. The partnership was not terminated and it continued doing business through the
two remaining partners.

Goquiolay et.al. v. Sycip et.al. (G.R. L-11840)

CASE SUMMARY
Antonio Goquiolay (Antonio) and Tan Sin An (Tan) entered into a partnership wherein Tan was the
managing partner and Antonio was the co-partner. The managing partner managed the partnership
exclusively while the co-partner did not have any voice or participation but may examine the partnership
accounts once every six months. It was also indicated that in case of death of either partner, the partnership
will continue and the deceased partner will be represented by his heirs or assigns. When Tan died, his
widow Kong Chai Pin (Kong) was appointed the administratrix of his estate.

Kong sold the 49 lots mortgaged by the partnership to Sycip and Lee. Learning about this, Antonio filed a
petition in the intestate proceedings to set aside the order of the probate court in approving the sale in so
far as his interest over the lots was concerned. The probate court annulled the sale with respect to the
60% interest of Antonio, however, when Kong appealed said decision, it was certified to the SC which in
turn set aside the orders of the probate court for failure to include indispensable parties. New pleadings
were filed but was denied by the lower court, hence Antonio appealed to the SC.

The SC decided in favour of Kong, holding that while Kong did not automatically replace Tan as the
managing general partner in the partnership, her affirmative actions manifested her intent to be bound as
a general partner, and more importantly, by allowing Kong to retain control of the firm’s property from
1942 to 1949, Antonio estopped himself to deny her legal representation of the partnership, with the power
to bind it. Finally, the SC held that the consent of the other partners were not needed to perfect the sale
since strangers dealing with a partnership have the right to assume that every general partner has power
to bind the partnership.

MOTION FOR RECONSIDERATION: denied

In his MR, Antonio Goquiolay insists that Kong Chai Pin, widow of Tan Sin Tan, never became more than a
limited partner incapacitated by law to manage the affairs of the partnership and that the sale should be
set aside because it was executed to defraud Antonio of his share.
The SC recalls the following settled points:

• The case at hand deals with the transfer of partnership property by one partner, acting in behalf
of the partnership, to a stranger.
• The partnership was expressly organized to “engage in real estate business, either by buying and
selling real estate”
In the issue if whether Kong is just a limited partner
▪ No. She is a general partner.
▪ SC response to the argument that the authority given by Antonio was merely to manage property
and not to alienate:
o This overlooks that Kong was not a mere agent because she had become a limited partner
upon her husband’s death, however, Antonio’s authorization to manage the partnership
was proof that he considered and recognized her as a general partner, at least after 1945.
o Remember that "Limited partners may not perform any act of administration with
respect to the interests of the co- partnership, not even in the capacity of agents of
the managing partners."
o By authorizing Kong to manage partnership property, Antonio recognized her as such
partner and is now estopped to deny her position as a general manager
If whether or not there is fraud
▪ No direct evidence of it exists; but appellant points out, as indicia thereof, the allegedly low
price paid for the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
▪ To show that the price was inadequate. appellant relies on the testimony of the realtor Mata, who
in 1955, six years after the sale in question, asserted that the land was worth P312,000.00.
Taking into account the continued rise of real estate values since liberation, and the fact that the
sale in question was practically a forced sale because the partnership had no other means
to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy"
as to justify rescission of the sale.

DOCTRINES
• The right of exclusive management conferred upon Tan Sin An, being premised upon trust
and confidence, was a mere personal right that terminated upon Tan's demise.
• The provision in the Articles of Co-partnership 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 relates to the succession in the proprietary interest
of each partner.
• General Rule: 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 said provision, became
individual partners with Antonio Goquiolay upon Tan's demise. Minority of the heirs
is not a bar to the application of that clause in the articles of co-partnership. Heirs liability
in the partnership being limited to the value of their importance, they become no more
than limited partners, when they manifest their intent to be bound as general partners.
• Exception: Although the heir of a partner ordinarily becomes a limited partner for his own
protection, yet the heir may disregard it and instead elect to become a collective
or general partner, with all the rights and obligations of one. This choice pertains
exclusively to the heir, and does not require the assent of the surviving partner.
• As to whether or not the consent of the other partners was necessary to perfect the sale
of the partnership properties, the Court believes that it is not. 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. A third
person has the right to presume that a general partner dealing with partnership property
has the requisite authority from his co-partners.
• By allowing defendant Kong Chai Pin to retain control of the partnership properties from
1942 to 1949, plaintiff Goquiolay estopped himself from denying her (Kong Chai Pin's)
legal representation of the partnership, with the power to bind it by proper contracts.
• By authorizing the widow of the managing partner to manage partnership property (which
a limited partner could not be authorized to do), the other general partner recognized
her as a general partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.
• Where the express and avowed purpose of the partnership is to buy and sell real estate
(as in the present case), the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within
the ordinary powers of the partner.

FACTS

1. Antonio Goquiolay (Antonio) and Tan Sin An (Tan) entered into a general commercial partnership
under the name of Tan Sin An and Antonio C. Goquiolay with the following details for the purpose
of dealing with real estate :
a. Partnership had a capital of PHP 30,000 (PHP 18K given by Antonio, and PHP 12K given
by Tan)
b. Tan is the sole managing partner, while Antonio is the co-partner
c. The affairs of the partnership shall be exclusively managed by the managing partner or by
his authorized agent
d. The co-partner shall have no voice/ participation in the management of the partnership
but shall be able to examine the accounts every 6 months
e. Lifetime is fixed at 10 years
f. In the event that one of the partners dies before the lifetime of the partnership ends, the
deceased partner shall be represented by his heirs or assigns in said co-partnership
g. The partnership can be dissolved and affairs liquidated at any time upon mutual agreement
in writing of the partners.
2. Antonio also executed a general power of attorney which stated that:
a. Besides the powers and duties granted by the partnership to Tan, Tan shall also act as
Antonio’s manager for the partnership for the period of the 10 year term or until the PHP
30,000 shall last
b. To do most acts for Antonio, which included “to sell personal or real properties, such
as land's and buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co­partnership,”
 3. The partnership purchased 3 parcels of land assuming a mortgage obligation (PHP 25K) payable
to La Urbana for a period of 10 years, 10% interest p.a.
4. Another 46 lots were purchased by Tan in his individual capacity and he assumed a payment
of mortgage debt for PHP 35K with interest. The down payment and the amortization were
advanced by Yutivo and Co. for the account of the purchasers.
5. The two separate obligations were consolidated in one instrument where the entire 49 lots were
mortgaged in favour of La Urbana’s successor, Banco Hipotecario de Filipinas. The covenators
bound themselves to pay solidarily the remaining balance of their unpaid accounts within 8 years
with 8% p.a.
6. Tan died, leaving his widow Kong Chai Pin (Kong) and four minor children. Kong was appointed as
administratrix of the intestate estate of Tan.
7. Banco Hipotecario demanded payments from the partnership and upon the request of Yutivo Sons
Hardware, Sing Yee and Cuan paid the remaining balance of the mortaged debt and thus the
mortgage cancelled.
8. Now, we have Yutivo Sons Co. and Sing Yee and Cuan Co. claiming on the intestate proceedings
of Tan as alleged obligations of the partnership since they effectively discharged the
partnership’s obligations to La Urbana and Banco Hipotecario.
9. Kong filed a petition with the probate court for her to be able to sell the 49 parcels of land to
Washington Sycip and Betty Lee to settle the debts of Tan and the partnership. The court approved
the same and Kong executed a Deed of Sale in favour of Sycip and Lee.
10. Sycip and Lee eventually transferred the lots to Insular Development Co.
11. Learning about this sale of the 49 lots, Antonio 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.
12. The probate court annulled the sale with respect to the 60% interest of Antonio, however, Kong
appealed to the CA which certified the same to the SC.
13. The SC set aside the decision of the probate court for failure to implead indispensable parties.
14. New pleadings were filed and Antonio filed a second amended complaint for the annulment of the
sale and the conveyance to Insular Co. This was dismissed by the lower court, hence petitioner
Antonio appealed directly to the SC.

ISSUES AND RULING

WHETHER OR NOT KONG CHAI PIN BECAME THE MANAGING PARTNER OF THE PARNTERSHIP UPON THE
DEATH OF HER HUSBAND.
NO. The general rule is that heirs become limited partners upon the death of Tan, unless otherwise
repudiated by the heirs. In this case however, Kong, through her affirmative actions, manifested her
intent to be bound by the partnership not only as a limited partner but as a general partner.

• 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 heirs of the deceased, by never repudiating or refusing to be bound under the said
provision in the articles, became individual limited partners with Antonio Goquiolay upon
Tan's demise.
• However, in this case, Kong’s acts manifested her intent to be bound as a general partner.
o 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.
 o 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.
• Antonio, by allowing her to retain control of the firm's property from 1942 to 1949,
estopped himself to deny her legal representation of the partnership, with the
power to bind it by proper contracts.

WHETHER OR NOT THE CONSENT OF THE OTHER PARTNERS WAS NECESSARY TO PERFECT THE SALE
TO SYCIP AND LEE.
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.
• Third persons, 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.
• 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 provision of Article 129 of the Code of Commerce1 is an obligation that is 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 regular course of business procedure does not require that each time a third person contracts
with one of the managing partners, he should inquire as to the latter's authority to do
so, or that he should first ascertain whether or not the other partners had given their
consent thereto.
• In fact, Article 130 of the same Code of Commerce provides that even if a new obligation was
contracted against the express will of one of the managing partners, "it shall not
be annulled for such reason, and it shall produce its effects without prejudice to the responsibility
of the member or members who contracted it, for the damages they may have caused
to the common fund."
• 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:
o "Should no agreement have been made with respect to the form of management, the
following rules shall be observed: (1) All the partners shall be considered agents, and
whatever any one of them may do individually shall bind the partnership; but each
one may oppose any act of the others before it has become legally binding. xxx"
o The records fail to disclose that Antonio made any opposition to the sale to Sycip and Lee
and only interposed these objections after the deed of conveyance was executed and
approved by the probate court.

WHETHER OR NOT THE SALE OF THE PARTNERSHIP PROPERTIES WAS ONLY A DEVICE TO EASE OUT
ANTONIO FROM THE PARTNERSHIP.

1
"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." (Emphasis supplied)
NO. There is complete failure of proof, moreover, that the price for which the properties were
sold was unreasonably low, or in any way unfair, since appellants presented no evidence of the
market value of the lots as of the time of their sale to appellees Sycip and Lee.
• The alleged value of P31,056.58 in May of 1955 is no proof of the market value in 1949,
specially because in the interval, the new owners appear to have converted the land into
a subdivision, which they could not do without improving the property at their expense.
• Kong Chai Pin hardly had any choice but to execute the questioned sale, as it appears
that the partnership had neither cash nor other properties with which to pay its obligations.

DISPOSITIVE
WHEREFORE, finding no reversible error in the appealed judgment, we affirm the same, with
costs against appellant Antonio Goquiolay.

RESOLUTION OF THE MOTION FOR RECONSIDERATION OF GOQUIOLAY

In his MR, Antonio Goquiolay insists that Kong Chai Pin, widow of Tan Sin Tan, never became more than a
limited partner incapacitated by law to manage the affairs of the partnership and that the sale should be
set aside because it was executed to defraud Antonio of his share.

The SC recalls the following settled points:

• The case at hand deals with the transfer of partnership property by one partner, acting in behalf
of the partnership, to a stranger.
• The partnership was expressly organized to “engage in real estate business, either by buying and
selling real estate”
SC response on the claim that there is not one iota of evidence that Kong managed and retained possession
of the partnership properties:
• Antonio himself admitted that he allowed Kong to continue managing the properties
• He ratified the same admission when he stated that the plantation was being occupied at a certain
time by Kong and were receiving quite a lot of benefit from the said plantation
• Both the testimonies of the witnesses of Kong do not belie or contradict Antonio’s admission that
he allowed the widow to just “do it” (meaning to manage the partnership)
o Kong’s witnesses pertained to the Japanese occupation period, while Antonio’s authority
was given to Kong after the occupation.
• Antonio actually manifested his willingness that Kong should manage the partnership properties
o Whether or not she complied with this authority is a question between her and the
appellant, and is not here involved. But the authority was given, and she did have
it when she made the questioned sale, because it was never revoked.

SC response to the argument that the authority given by Antonio was merely to manage property and not
to alienate:
• This overlooks that Kong was not a mere agent because she had become a limited partner upon
her husband’s death, however, Antonio’s authorization to manage the partnership was
proof that he considered and recognized her as a general partner, at least after 1945.
o Remember that "Limited partners may not perform any act of administration with
respect to the interests of the co- partnership, not even in the capacity of agents of
the managing partners."
 o By authorizing Kong to manage partnership property, Antonio recognized her as
such partner and is now estopped to deny her position as a general manager
• 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.
o Hence, the contractual stipulation does actually contemplate that the heirs would become
general partners rather than limited ones.
• Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949, there
was more than ample time for Goquiolay to take up the management of these properties,
or at least ascertain how its affairs stood.
o For seven years Goquiolay could have asserted his alleged rights, and by suitable
notice in the commercial registry could have warned strangers that they must deal
with him alone, as sole general partner. But he did nothing of the sort, and did not
even take steps to pay, or settle, the firm debts that were overdue since before
the outbreak of the last war.
o He did not even take steps, after Tan died, to cancel, or modify, the provisions
of the partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership.
o This laches certainly contributed to confirm the view that the widow of Tan Sin An
had, or was given, authority to manage and deal with the firm's properties, apart
from the presumption that a general partner dealing with partnership property has
the requisite authority from his co-partners.
SC on the propriety of the sale:
• Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage * * * in buying and selling real estate" (Art. IV, No. 1, Articles
of Co-partnership), it cannot be maintained that the sale was made in excess of her powers as
general partner

SC on the alleged fraud:

• No direct evidence of it exists; but appellant points out, as indicia thereof, the allegedly low
price paid for the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
• To show that the price was inadequate. appellant relies on the testimony of the realtor Mata, who
in 1955, six years after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate values since liberation, and the
fact that the sale in question was practically a forced sale because the partnership had
no other means to pay its legitimate debts, this evidence certainly does not show such
"gross inadequacy" as to justify rescission of the sale.
• The fraud charged not being one used to obtain a party's consent to a contract (i.e.,
not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud of
creditors that gives rise to a rescission of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the action for rescission
is subsidiary; it cannot be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same".
• Since there is no allegation, or evidence, that Antonio cannot obtain reparation from the
widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintainable, even if the fraud charged actually did exist.
MOTION FOR RECONSIDERATION DENIED.