YU v.
NATIONAL LABOR RELATIONS, 224 SCRA 75 Article 1828 of the Civil Code provides as follows:
Facts: Petitioner 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" ("Jade Mountain"). The partnership was originally
organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as
general partners and Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all
citizens of the Republic of China (Taiwan), 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, under a Memorandum Agreement dated 26 June
1984 with the Cruz spouses. The partnership had its main office in
Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution as
Assistant General Manager with a monthly salary of P4,000.00.
According to petitioner Yu, however, he 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. Benjamin 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.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal 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. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired
the great bulk of the partnership interest. 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, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the operation
of the marble quarry was entered into with the Cruz spouses in
February of 1988. The actual operations of the business enterprise
continued as before. All the employees of the partnership continued
working in the business, all, save petitioner Benjamin Yu as it turned
out.
On 16 November 1987, having learned of the transfer of the firm's
main office from Makati to Mandaluyong, petitioner Benjamin Yu
reported to the Mandaluyong office for work and there met private
respondent Willy Co for the first time. Petitioner 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.
On 21 December 1988, Benjamin 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 in the main that Benjamin Yu was never hired as an
employee by the present or new partnership.
Labor Arbiter: decided in favor of petitioner and declared him illegally
dismissed.
NLRC: reversed the decision of the LA. 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. Finally, the NLRC held
that Benjamin Yu's claim for unpaid wages should be asserted against
the original members of the preceding partnership.
Petitioner’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 Jade Mountain could not have been affected by
changes in the latter's membership.
Issues: (1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by a
new partnership composed of Willy Co and Emmanuel Zapanta; and
(2) if indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.
Ruling: Yes.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.
"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;
x x x                          x x x                             x x x
(b) by the express will of any partner, who must act in good faith, when
no definite term or particular undertaking is specified;
x x x                          x x x                             x x x
(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                          x x x                             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 record does not
show what happened to the remaining 18% of the original partnership
interest. 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."
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.
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 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 creditors of the dissolved partnership
are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;
(2) When all but one partner retire and assign (or the representative of
a deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
(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 representatives 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                          x x x                             x x x"
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. It is not necessary
for the Court to determine under which one or more of the above six
(6) paragraphs, the case at bar would fall, if only because the facts on
record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that 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.
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.  partnership contract, which is to annul and without legal existence by
Petitioner was entitled to separation pay, moral damages, interest of
6% per annum on the amount of unpaid wages, and attorney’s fees.
ARBES v. POLISTICO, G.R. No. 31057, 1929
Facts: This is an action to bring about liquidation of the funds and
property of the association called "Turnuhan Polistico & Co." The
plaintiffs were members or shareholders, and the defendants were
designated as president-treasurer, directors and secretary of said
association.
This case is brought before the court for the second time. The first one
was when the same plaintiffs appeared from the order of the court
below requiring the plaintifs to amend their complaint 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.) The case having been remanded to the court
of origin, both parties amended, respectively, their complaint and their
answer, and by agreement of the parties, 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 Commissioner rendered his report as follows: Php 109, 620.70 as
income, Php 85, 012.90 as expenses, and Php 24, 607 as cash on
hand.
The defendants objected to the commissioner's report, but the trial
court, having examined the reasons for the objection, found the same
sufficiently explained in the report and the evidence, and accepting it,
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.
Issue: Whether or not the objection to the commissioner's report
should have been admitted by the court below. (or Whether or not
partners can demand reimbursement of their contributions after the
partnership has been declared unlawful)
Ruling: The trial examined the evidence and the commissioner's
report, and accepted the findings of fact made in the report. We find no
convincing arguments on the appellant's brief to justify a reversal of the
trial court's conclusion admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful
partnership (U.S. vs. Baguio, 39 Phil., 962), but the appellants allege
that because it is so, 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.
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
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.
We deem in pertinent to quote Manresa's commentaries on article
1666 at length, as a clear explanation of the scope and spirit of the
provision of the Civil Code which we are concerned. Commenting on
said article Manresa, among other things says:
When the subscriptions of the members have been paid to
the management of the partnership, and employed by the
latter in transactions consistent with the purposes of the
partnership may the former demand the return of the
reimbursement thereof from the manager or administrator
withholding them? Apropos of this, it is asserted: If the
partnership has no valid existence, if it is considered
juridically non-existent, the contract entered into can have no
legal effect; and in that case, how can it give rise to an action
in favor of the partners to judicially demand from the
manager or the administrator of the partnership capital, each
one's contribution?
Ricci decides the matter quite clearly, dispelling all doubts
thereon. He holds that the partner who limits himself to
demanding only the amount contributed by him need
not resort to the partnership contract on which to base
his action. And he adds in explanation that the partner
makes his contribution, which passes to the managing
partner for the purpose of carrying on the business or
industry which is the object of the partnership; or in other
words, to breathe the breath of life into a partnership
contract with an objection forbidden by law. And as said
contrast does not exist in the eyes of the law,  the
purpose from which the contribution was made has not come
 into existence, and the administrator of the partnership
holding said contribution retains what belongs to
others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled
to recover it.
But this is not the case with regard to profits earned in
the course of the partnership, because they do not
constitute or represent the partner's contribution but are
the result of the industry, business or speculation which
is the object of the partnership, and therefor, in order to
demand the proportional part of the said profits, the
partner would have to base his action on the contract
which is null and void, since this partition or distribution
of the profits is one of the juridical effects thereof.
Wherefore considering this contract as non-existent, by
reason of its illicit object, it cannot give rise to the necessary
action, which must be the basis of the judicial complaint. It
would be immoral and unjust for the law to permit a profit
from an industry prohibited by it.
Hence the distinction made in the second paragraph of this
article of this Code, providing that the profits obtained by
unlawful means shall not enrich the partners, but shall upon
the dissolution of the partnership, be given to the charitable
institutions of the domicile of the partnership, or, in default of
such, to those of the province. This is a new rule,
unprecedented by our law, introduced to supply an obvious
deficiency of the former law, which did not describe the
purpose to which those profits denied the partners were to
be applied, nor state what to be done with them.
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.
Our Code does not state whether, upon the dissolution of the
unlawful partnership, the amounts contributed are to be
returned by the partners, because it only deals with the
disposition of the profits; but the fact that said
contributions are not included in the disposal
prescribed profits, shows that in consequences of said
exclusion, the general law must be followed, and hence
the partners should reimburse the amount of their
respective contributions. Any other solution is immoral,
and the law will not consent to the latter remaining in the
possession of the manager or administrator who has refused
to return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish
Civil Code, vol. XI, pp. 262-264)
AGAD v. MABATO, 23 SCRA 1223 (1968)
Facts: Alleging that he and defendant Severino Mabato are —
pursuant to a public instrument (Annex A) dated August 29, 1952 —
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 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, 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 that the
complaint be dismissed and that Annex "A" be declared void ab initio.
The trial court granted the motion to dismiss. 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.
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.
Issue: Whether or not "immovable property or real rights" have
been contributed to the partnership under consideration.
Ruling: 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 P2,000.00, of which P1,000.00
has been contributed by Severino Mabato and P1,000.00 has been
contributed by Mauricio Agad.
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.
Article 1773 of the Civil Code is not in point. The order appealed is
hereby set aside and the case is remanded to the lower court for
further proceedings.
IDOS v. CA, 296 SCRA 194, 1998
A case for violation of BP 22
Facts: The complainant Eddie Alarilla supplied chemicals and rawhide
to the accused-appellant Irma L. Idos for use in the latter's business of
manufacturing leather. In 1985, he joined the accused-appellant's
business and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties
agreed to terminate their partnership. Upon liquidation of the business
the partnership had as of May 1986 receivables and stocks worth
P1,800,000.00. The complainant's share of the assets was
P900,000.00 to pay for which the accused-appellant issued the
following postdated checks, all drawn against Metrobank Branch in
Mandaue, Cebu: 1) 103110295 8-15-86: P135,828.87; 2) 103110294:
P135,828.87; 3) 103115490 9-30-86: P135,828.87; and 4) 103115491
10-30-86: P126,656.01.
The complainant was able to encash the first, second, and fourth
checks, but the third check (Exh. A) which is the subject of this case,
was dishonored on October 14, 1986 for insufficiency of funds. The
complainant demanded payment from the accused-appellant but the
latter failed to pay. He made a formal demand for payment but in a
letter, the accused-appellant denied liability. She claimed that the
check had been given upon demand of complainant only as
"assurance" of his share in the assets of the partnership and that it was
not supposed to be deposited until the stocks had been sold.
Complainant danied that the checks issued to him by accused-
appellant were subject to the disposition of the stocks and the
collection of receivables of the business. But the accused-appellant
insisted that the complainant had known that the checks were to be
funded from the proceeds of the sale of the stocks and the collection of
receivables. She claimed that the complainant himself asked for the
checks because he did not want to continue in the tannery business
and had no use for a share of the stocks. On February 15, 1992, the
trial court rendered judgment finding the accused-appellant guilty of the
crime charged. The Court of Appeals affirmed the decision of the trial
court.
Issue: Whether respondent court erred in holding that the subject
check was issued by petitioner to apply on account or for value, that is,
as part of the consideration of a "buy-out" of said complainant's interest
in the partnership, and not merely as a commitment on petitioner's part
to return the investment share of complainant, along with any profit
pertaining to said share, in the partnership.
Ruling: Evidence on record would show that the subject check was to Absent the first element of the offense penalized under B.P. 22, which
be funded from receivables to be collected and goods to be sold by the is "the making, drawing and issuance of any check to apply on account
partnership, and only when such collection and sale were or for value", petitioner's issuance of the subject check was not an act
realized. Thus, there is sufficient basis for the assertion that the contemplated in nor made punishable by said statute.
petitioner issued the subject check (Metrobank Check No. 103115490
dated October 30, 1986, in the amount of P135,828.87) to evidence
only complainant's share or interest in the partnership, or at best, to
show her commitment that when receivables are collected and goods
are sold, she would give to private complainant the net amount due SY v. CA, 313 SCRA 328 (1999)
him representing his interest in the partnership. It did not involve a debt
of or any account due and payable by the petitioner.
[REVIEW, UNFINISHED]

Two facts stand out. Firstly, three of four checks were properly
encashed by complainant; only one (the third) was not. But eventually
even this one was redeemed by petitioner. Secondly, even private
complainant admitted that there was no consideration whatsoever for
the issuance of the check, whose funding was dependent on future
sales of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties had agreed to
dissolve the partnership, such agreement did not automatically put an
end to the partnership, since they still had to sell the goods on hand
and collect the receivables from debtors. In short, they were still in
the process of "winding up" the affairs of the partnership, when
the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1)
dissolution; (2) winding-up; and (3) termination. These stages are
distinguished, to wit:
(1) Dissolution Defined – Dissolution is the change in the relation of the
partners caused by any partner ceasing to be associated in the
carrying on of the business (Art. 1828). It is that point of time the time
the partners cease to carry on the business tonether.
(2) Winding Up Defined – Winding up is the process of settling
business affairs of dissolution.
(NOTE: Examples of winding up: the paying of previous
obligations; the collecting of assets previously demandable; even new
business if needed to wind up, as the contracting with a demolition
company for the demolition of the garage used in a "used car"
partnership.)
(3) Termination Defined – Termination is the point in time after all the
partnership affairs have been wound up. 
These final stages in the life of a partnership are recognized under the
Civil Code that explicitly declares that upon dissolution, the partnership
is not terminated, to wit:
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.
Art. 1829. On dissolution the partnership is not terminated,
but continues until the winding up of partnership affairs is completed.
The best evidence of the existence of the partnership, which was not
yet terminated (though in the winding up stage), were the unsold goods
and uncollected receivables, which were presented to the trial court.
Since the partnership has not been terminated, the petitioner and
private complainant remained as co-partners. The check was thus
issued by the petitioner to complainant, as would a partner to another,
and not as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check
was issued merely to evidence the complainant's share in the
partnership property, or to assure the latter that he would receive in
time his due share therein. The alternative view that the check was in
consideration of a "buy out" is but a theory, favorable to the
complainant, but lacking support in the record; and must necessarily
be discarded.
For there is nothing on record which even slightly suggest that
petitioner ever became interested in acquiring, much less keeping, the
shares of the complainant. What is very clear therefrom is that the
petitioner exerted her best efforts to sell the remaining goods and to
collect the receivables of the partnership, in order to come up with the
amount necessary to satisfy the value of complainant's interest in the
partnership at the dissolution thereof. To go by accepted custom of the
trade, we are more inclined to the view that the subject check was
issued merely to evidence complainant's interest in the partnership.
Thus, we are persuaded that the check was not intended to apply on
account or for value; rather it should be deemed as having been drawn
without consideration at the time of issue.
Facts: G.R. No. 94285
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. The partners and their respective shares are reflected in the
Amended Articles of Partnership as follows: Sy Yong Hu, P31,000;
Jose Sy, P205, 000; James Sy, P112, 000; Marciano Sy, P143, 000;
Willie Sy, P85, 000; Vicente Sy, P85, 000; and Jesus Sy, P88, 000.
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. At present, the partnership has valuable assets
such as tracts of lands planted to sugar cane and commercial lots in
the business district of Bacolod City.
Sometime in September, 1977, during the lifetime of all the partners,
Keng Sian brought an action, docketed as Civil Case No. 13388
before the then CFI 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, 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.
In their answer, the defendants, including Sy Yong Hu himself,
countered that Keng Sian is only a house helper of Sy Yong Hu and
his wife, subject properties "are exclusively owned by defendant
partnership, and plaintiff has absolutely no right to or interest therein."
During the pendency of said civil case, 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. A decision (Sison
Decision) was rendered by Hearing Officer Sison 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 (Abello decision), but clarifies that: (1) the partnership was
dissolved by express will of the majority and not ipso facto because of
the death of any partner in view of the stipulation of Articles of
Partnership and the provisions of the New Civil Code particularly Art.
1837 [2] and Art. 1841. (2) The Managing Partner designated by the
majority, namely Jesus Sy, vice Vicente Sy (deceased) shall only act
as a manager in liquidation and he shall submit to the Hearing Officer
an accounting and a project of partition, within 90 days from receipt of
this decision. (3) The petitioner is also required within the same period
to submit his counter-project of partition, from date of receipt of the
Managing Partner's project of partition. (4) The case is remanded to
the Hearing Officer for evaluation and approval of the accounting and
project of partition. On the basis of the above decision of the SEC en
banc, Hearing Officer a partial partition of certain partnership assets.
Therefrom, respondents seasonably appealed.
In the meantime, the RTC appointed Felix Ferrer as a Special
Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No.
13388. Ferrer then moved to intervene in the proceedings in SEC
Case No. 1648, for the partition and distribution of the partnership
assets, on behalf of the respondent Intestate Estate.
In December 1985, Ferrer filed an Amended Complaint on behalf of
respondent Intestate Estate in Civil Case No. 13388, wherein he joined
Keng Sian as plaintiff and thereby withdrew as defendant in the case.
Special Administrator Ferrer adopted the theory of Keng Sian that the
assets of the partnership belong to Keng Sian and Sy Yong Hu (now
represented by the Estate of Sy Yong Hu) in co-ownership, which
assets were wrongfully diverted in favor of the defendants.
The motion to intervene filed by Ferrer on behalf of the respondent
Estate, was denied and appealed to the Commission en banc. In its
decision (Sulit decision) the SEC reversed the denial of the motion to
intervene, and gave due course to the same intervention. The case is
remanded to the court below for further proceeding on the aspect of
partition and/or distribution of partnership assets. The said decision of
the SEC en banc reiterated that the Abello decision, which upheld the
order of dissolution of the partnership, had long become final and
executory. No further appeal was taken from the Sulit Decision.
During the continuation of the proceedings in SEC Case No. 1648,
now presided over by Hearing Officer Tongco who had substituted
Hearing Officer Sison, the propriety of placing the Partnership under
receivership was taken up. The parties brought to the attention of the
Hearing Officer the fact of existence of Civil Case No. 903 (formerly
Civil Case No. 13388) pending before the RTC. They also agreed that
during the pendency of the aforesaid court case, there will be no
disposition of the partnership assets.  Hearing Officer Tongco came
out with an Order (Tongco Order) incorporating the above
submissions of the parties and placing the partnership under a
receivership committee, explaining that "it is the most equitable fair and
just manner to preserve the assets of the partnership during the
pendency of the civil case in the Regional Trial Court of Bacolod City."
The SEC en banc affirmed the Tongco Order. The Court of Appeals set
aside the Tongco and Lopez Orders, and remanded the case for
further execution of the 1982 Abello and 1988 Sulit Decisions, ordering
the partition and distribution of the partnership properties. However,
the Court of Appeals reversed its Decision and remanded the case to
the SEC for the formation of a receivership committee, as envisioned
in the Tongco Order.
Issue: Whether or not the Court of Appeals erred in reinstating the
Tongco Order which had suspended the dissolution of the partnership
and the distribution of the assets, and in placing the partnership
properties under receivership pending the Resolution of Civil Case No.
13388
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.
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.
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 (13388) 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.
Petitioners also assail the propriety of the receivership theorizing that
there was no necessity therefor, and that such remedy should be
granted only in extreme cases, with respondent being duty-bound to
adduce evidence of the grave and irremediable loss or damage which
it would suffer if the same was not granted. It is further theorized that,
at any rate, the rights of respondent Intestate Estate are adequately
protected since notices of lis pendens of the aforesaid civil case have
been annotated on the real properties of the partnership.
To bolster petitioners' contention, they maintain that they are the
majority partners of the partnership Sy Yong Hu & Sons 96% of its
equity. As such, they have the greatest interest in preserving the
partnership properties for themselves, and therefore, keeping the said
properties in their possession will not bring about any feared damage
or dissipation of such properties, petitioner's stressed.
The findings of the Court of Appeals accord with existing rules and
jurisprudence on receivership.
As alleged by the respondents and as shown by the records there is
now pending civil case entitled "Keng Sian and Intestate of Sy Yong
Hu vs. Jayme Sy, Jesus Sy, Marciano Sy, Willy Sy, Intestate of Jose
Sy, Intestate of Vicente Sy, Sy Yong Hu & co and SyYong Hu & Sons".
Moreover, a review of the records reveal that certain properties in
question have already been sold as of 1987.
To ensure that no further disposition shall be made of the questioned
assets and in view of the pending civil case in the lower court, there is
a compelling necessity to place all these properties and assets under
the management of a receivership committee. The receivership
committee, which will provide active participation, through a designated
representative, on the part of all interested parties, can best protect the
properties involved and assure fairness and equity for all.
Receivership, which is admittedly a harsh remedy, should be granted
with extreme caution. Sound bases therefor must appear on record,
and there should be a clear showing of its necessity. The need for a
receivership in the case under consideration can be gleaned from the
aforecited disquisition by the Court of Appeals finding that the
properties of the partnership were in danger of being damaged or lost
on account of certain acts of the appointed manager in liquidation.
Moreover, it has been held by this Court that an order placing the
partnership under receivership so as to wind up its affairs in an
orderly manner and to protect the interest of the plaintiff (herein
private respondent) was not tainted with grave abuse of
discretion. The allegation that respondents' rights are adequately
protected by the notices of lis pendens in Civil Case 903 is inaccurate.
As pointed out in their Comment to the Petition, the private
respondents claim that the partnership assets include the income and
fruits thereof. Therefore, protection of such rights and preservation of
the properties involved are best left to a receivership committee in
which the opposing parties are represented.
What is more, as held in Go Tecson vs. Macaraig:
The power to appoint a receiver pendente lite is discretionary with the
judge of the court of first instance; and once the discretion is exercised,
the appellate court will not interfere, except in a clear case of abuse
thereof, or an extra limitation of jurisdiction.
Here, no clear abuse of discretion in the appointment of a receiver in
the case under consideration can be discerned.
TORRES v. CA, 320 SCRA 428 (19990
Facts: Sisters Antonia Torres and Emeteria Baring, 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 had it registered in his
name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the JVA, 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.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's
lack of funds or means and skills." They add that respondent used the
loan not for the development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.
On the other hand, 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 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. He did all of these for a
total expense of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests, petitioners
refused to cause the clearing of the claims, thereby forcing him to give
up on the project.  LUMBER COMPANY, as represented by Tan Eng Lay.
CA: held that petitioners and respondent had formed a partnership for
the development of the subdivision. Thus, they must bear the loss
suffered by the partnership in the same proportion as their share in the
profits stipulated in the contract. Disagreeing with the trial court's
pronouncement that losses as well as profits in a joint venture should
be distributed equally, the CA invoked Article 1797 of the Civil Code
which 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.
The CA elucidated further: In the absence of stipulation, the share of
each partner in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not be liable for
the losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a
share in the profits in proportion to his capital.
Issue: Whether or not there was a partnership.
Ruling:
A reading of the terms embodied in the Agreement indubitably shows
the existence of a partnership pursuant to Article 1767 of the Civil
Code.
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.
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which
was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners'
acts were not the cause of the failure of the project. But it also ruled
that neither was respondent responsible therefor. In imputing the
blame solely to him, petitioners failed to give any reason why we
should disregard the factual findings of the appellate court relieving
him of fault.
HEORS OF TAN ENG KEE v. CA, 341 SCRA 740 (2000)
Facts: Following the death of Tan Eng Kee on September 13, 1984,
Matilde Abubo, the common-law spouse of the decedent, joined by
their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE,
filed suit against the decedent's brother TAN ENG LAY on February
19, 1990. The complaint, docketed as Civil Case No. 1983-R in the
RTC of Baguio City was for accounting, liquidation and winding up of
the alleged partnership formed after World War II between Tan Eng
Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an
amended complaint  impleading private respondent herein BENGUET
The amended complaint principally alleged that after the second World
War, Tan Eng Kee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business
of selling lumber and hardware and construction supplies. They named
their enterprise "Benguet Lumber" which they jointly managed until
Tan Eng Kee's death. Petitioners herein averred that the business
prospered due to the hard work and thrift of the alleged partners.
However, they claimed that in 1981, Tan Eng Lay and his children
caused the conversion of the partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful
participation in the profits of the business. Petitioners prayed for
accounting of the partnership assets, and the dissolution, winding up
and liquidation thereof, and the equal division of the net assets of
Benguet Lumber.
The RTC rendered judgment declaring that Benguet Lumber is a joint
venture, akin to a particular partnership; Ordering the defendant Tan
Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of
Benguet Lumber Company, Inc. so the plaintiffs know their proper
share in the business; Ordering the appointment of a receiver to
preserve and/or administer the assets of Benguet Lumber Company,
Inc. until such time that said corporation is finally liquidated are
directed to submit the name of any person they want to be appointed
as receiver failing in which this Court will appoint the Branch Clerk of
Court or another one who is qualified to act as such.
CA reversed the decision of the RTC.
Issue: Whether or not Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber.
Ruling: No. Tan Eng Kee was only an employee, not a partner.
Besides, it is indeed odd, if not unnatural, that despite the forty years
the partnership was allegedly in existence, Tan Eng Kee never asked
for an accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an
accounting as long as the partnership exists. We have allowed a
scenario wherein "[i]f excellent relations exist among the partners at
the start of the 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." But in the situation in the
case at bar, the deferment, if any, had gone on too long to be
plausible.
A demand for periodic accounting is evidence of a partnership. During
his lifetime, Tan Eng Kee appeared never to have made any such
demand for accounting from his brother, Tang Eng Lay.
Where circumstances taken singly may be inadequate to prove the
intent to form a partnership, nevertheless, the collective effect of these
circumstances (Article 1769, NCC) may be such as to support a finding
of the existence of the parties' intent. Yet, in the case at bench, even
the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet Lumber, but in
what capacity is unclear. We cannot discount the likelihood that as a
member of the family, he occupied a niche above the rank-and-file
employees. He would have enjoyed liberties otherwise unavailable
were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority
over his fellow employees, thereby entitling him to exercise powers of
supervision. It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber
Company.
There being no partnership, it follows that there is no dissolution,
winding up or liquidation to speak of. Hence, the petition must fail.
SUNGA-CHAN v. CHUA, 363 SCRA 249 (2001)
Facts: On June 22, 1992, Chua filed a complaint against Lilibeth
Sunga Chan and Cecilia Sunga, daughter and wife, respectively of the
deceased Jacinto L. Sunga, for Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages with Writ
of Preliminary Attachment with the RTC of Sindangan, Zamboanga del
Norte.
Respondent alleged that in 1977, he verbally entered into a partnership
with Jacinto in the distribution of Shellane 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. As
compensation, Jacinto would receive a manager’s fee or 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.
Allegedly, Shellite’s business operation went quite well and was
profitable. 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.
Upon Jacintos 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 respondents consent. Despite respondents 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.
On March 31, 1991, petitioner Lilibeth disbursed out of the partnership
funds the amount of P200,000.00 and partially paid the same to
respondent. She allegedly informed respondent that the P200,000.00
represented partial payment of the latters 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.
The trial court rendered its decision directing petitioners to render an
accounting of the properties, assets, income and profits of the Shellite
Gas Appliance Center since the time of death of Jacinto L. Sunga,
from whom they continued the business operations including all
businesses derived from the Shellite Gas Appliance Center; ordering
them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the
interest, shares, participation and equity in the partnership, or the value
thereof in money or moneys worth, if the properties are not physically
divisible.
The CA affirmed.
Issue: Whether or not there was a partnership between respondent
and Jacinto.
Ruling: Yes. Petitioners reliance alone on the Dead Mans Statute to
defeat respondents claim cannot prevail over the factual findings of the
trial court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial
evidence, but the documentary evidence as well, the trial court and the
Court of Appeals considered the evidence for respondent as sufficient
to prove the formation of a partnership, albeit an informal one.
With regard to petitioners insistence that laches and/or prescription
should have extinguished respondents claim, we agree with the trial
court and the Court of Appeals that the action for accounting filed by
respondent three (3) years after Jacintos 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 partners 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
after Jacintos death that respondent as the surviving partner had the
right to an account of his interest as against petitioners. It bears
stressing that while Jacintos 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 an 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. 
VESAGAS v. CA, 371 SCRA 508 (2001)
Facts: The respondent spouses Raniel are members in good standing
of the Luz Village Tennis Club, Inc. (club). They alleged that petitioner
Vesagas, who claims to be the clubs duly elected president, in
conspiracy with petitioner Asis, who, claims to be its duly elected vice-
president and legal counsel, summarily stripped them of their lawful
membership, without due process of law. Respondent spouses filed a
Complaint with the SEC against the petitioners and asked the
Commission to declare as illegal their expulsion from the club as it was
allegedly done in utter disregard of the provisions of its by-laws as well
as the requirements of due process. They likewise sought the
annulment of the amendments to the by-laws made on December 8,
1996, changing the annual meeting of the club from the last Sunday of
January to November and increasing the number of trustees from nine
to fifteen. Finally, they prayed for the issuance of a TRO and Writ of
Preliminary Injunction. The application for TRO was denied by SEC
Hearing Officer Soller.
The SEC decided in favor of respondents. Dissatisfied with the verdict,
petitioners promptly sought relief with the CA. The appellate court,
however, dismissed the petition and the subsequent motion for
reconsideration.
Petitioner’s Contention: since its inception in the 1970s, the club in
practice has not been a corporation. They add that it was only the
respondent spouses, motivated by their own personal agenda to make
money from the club, who surreptitiously caused its registration with
the SEC. They then assert that, at any rate, the club has already
ceased to be a corporate body. Therefore, no intra-corporate relations
can arise as between the respondent spouses and the club or any of
its members. Petitioners insist that since the club is not a corporation,
the SEC does not have the power or authority to inquire into the
validity of the expulsion of the respondent spouses and not the correct
forum to review the challenged act. In conclusion, petitioners put
respondent spouses to task for their failure to implead the club as a
necessary or indispensable party to the case. They claim in gratia
argumenti that while the club may have been considered a corporation
during a brief spell, still, at the time of the institution of this case with
the SEC, the club was already dissolved by virtue of a Board
resolution.
Issue: Whether or not the club is a corporation.
Ruling: Records show that the association is duly registered with the
association and a certificate of incorporation was issued. Clearly, the
Commission has jurisdiction over the said association. Moreover, by
their own admission contained in the various pleadings which they
have filed in the different stages of this case, petitioners themselves
have considered the club as a corporation. This admission, under the
rules of evidence, binds them and may be taken or used against
them. 5 Since the admission was made in the course of the
proceedings in the same case, it does not require proof, and actually
may be contradicted only by showing that it was made through
palpable mistake or that no such admission was made.
The necessary implication of all these is that petitioners recognized
and acknowledged the corporate personality of the club. Otherwise,
there is no cogency in spearheading the move for its dissolution.
Petitioners were therefore well aware of the incorporation of the club
and even agreed to get elected and serve as its responsible officers
before they reconsidered dissolving its corporate form.
The petitioner’s argument that the club was already dissolved at the
time of the filing of this case will not carry the day for the petitioner.
The Corporation Code establishes the procedure and other formal
requirements a corporation needs to follow in case it elects to dissolve
and terminate its structure voluntarily and where no rights of creditors
may possibly be prejudiced, thus:
Sec. 118. Voluntary dissolution where no creditors are affected.- If
dissolution of a corporation does not prejudice the rights of any creditor
having a claim against it, the dissolution may be effected by majority
vote of the board of directors or trustees and by a resolution duly
adopted by the affirmative vote of the stockholders owning at least two-
thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3)
of the members at a meeting to be held upon call of the directors or
trustees after publication of the notice of time, place and object of the
meeting for three (3) consecutive weeks in a newspaper published in
the place where the principal office of said corporation is located; and if
no newspaper is published in such place, then in a newspaper of
general circulation in the Philippines, after sending such notice to each
stockholder or member either by registered mail or by personal
delivery at least 30 days prior to said meeting. A copy of the resolution
authorizing the dissolution shall be certified by a majority of the board
of directors or trustees and countersigned by the secretary of the
corporation. The Securities and Exchange Commission shall
thereupon issue the certificate of dissolution.11cräläwvirtualibräry
We note that to substantiate their claim of dissolution, petitioners
submitted only two relevant documents: the Minutes of the First Board
Meeting held on January 5, 1997, and the board resolution issued on
April 14, 1997 which declared to continue to consider the club as a
non-registered or a non-corporate entity and just a social association of
respectable and respecting individual members who have associated
themselves, since the 1970s, for the purpose of playing the sports of
tennis x x x. Obviously, these two documents will not suffice. The
requirements mandated by the Corporation Code should have been
strictly complied with by the members of the club. The records reveal
that no proof was offered by the petitioners with regard to the notice
and publication requirements. Similarly wanting is the proof of the
board members certification. Lastly, and most important of all, the SEC
Order of Dissolution was never submitted as evidence.
We rule that the present dispute is intra-corporate in character. In the
first place, the parties here involved are officers and members of the
club. More significantly, the present conflict relates to, and in fact arose
from, this relation between the parties. The subject of the complaint,
namely, the legality of the expulsion from membership of the
respondents and the validity of the amendments in the clubs by-laws
are, furthermore, within the Commissions jurisdiction.
VILLAREAL v. RAMIREZ, 406 SCRA 145 (2003)
Facts: On July 25, 1984, 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 Efren C. Ramirez joined as a partner in the
business on September 5, 1984. His capital contribution of P250,000
was paid by his parents, Respondents Cesar and Carmelita Ramirez.
After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him. 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.
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. Carmelita Ramirez 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 then filed a Complaint for the collection of a sum of
money.
In their Answer, petitioners contended that respondents had expressed
a desire to withdraw from the partnership and had called for its
dissolution under Articles 1830 and 1831 of the Civil Code; 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 they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation
were true, then the loans incurred by petitioners should be regarded as
purely personal and, as such, not chargeable to the partnership. The
former further averred that they 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.
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment. The furniture and the
equipment stored in their house were inventoried and appraised at
P29,000. The display freezer was sold for P5,000 and the proceeds
were paid to them.
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.
CA: held that although respondents had no right to demand the return
of their capital contribution, the partnership was nonetheless dissolved
when petitioners lost interest in continuing the restaurant business with
them. Because petitioners never gave a proper accounting of the
partnership accounts for liquidation purposes, and because no
sufficient evidence was presented to show financial losses. Hence, this
Petition.
Issue: (1) whether petitioners are liable to respondents for the latter’s
share in the partnership; and (2) whether the CA’s computation of
P253,114 as respondents’ share is correct.
Ruling:
Share in Partnership
Both the trial and the appellate courts 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
former’s 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. Respondents consequently
demanded from petitioners the return of their one-third equity in the
partnership.
We hold that respondents have no right to demand from
petitioners the return of their equity share. 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.
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the 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.
Evidently, in the present case, 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 — in other
words, sold and converted to cash — and all partnership creditors, if
any, paid. The CA’s computation of the amount to be refunded to
respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross assets to
be distributed to the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea that the capital
contribution at the beginning of the partnership remains intact,
unimpaired and available for distribution or return to the partners. Such
idea is speculative, conjectural and totally without factual or legal
support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does
not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented
before the trial court showed that the business had made meager
profits. However, notable therefrom is the omission of any provision
for the depreciation of the furniture and the equipment. The
amortization of the goodwill (initially valued at P500,000) is not
reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses,
which consequently decreased the capital of the partnership. Both the
trial and the appellate courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed to recognize the
consequent corresponding decrease of the capital.
Second, the CA’s finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by evidence.
We sustain the contrary finding of the RTC, which had rejected the
contention that the obligation belonged to the partnership.
Third, the CA failed to reduce the capitalization by P250,000, which
was the amount paid by the partnership to Jesus Jose when he
withdrew from the partnership.
Because of the above-mentioned transactions, 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.  of a corporation. It is specifically governed by Section 122 of the
The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that
the restaurant would no longer be reopened by petitioners. Hence, the
former cannot be faulted for not disposing of the stored items to
recover their capital investment.
YU v. YUKAYGUAM, 589 SCRSA 588 (2009)
Facts: Herein petitioners are members of the Yu Family, particularly,
the father, Anthony S. Yu; the wife, Rosita G. Yu; and their son, Jason
G. Yu. Herein respondents composed the Yukayguan Family, namely,
the father, Joseph S. Yukayguan; the wife, Nancy L. Yukayguan; and
their children Jerald Nerwin L. Yukayguan and Jill Neslie Yukayguan.
Petitioner Anthony is the older half-brother of respondent Joseph.
Petitioners and the respondents were all stockholders of Winchester
Industrial Supply, Inc. (Winchester, Inc.), a domestic corporation
engaged in the operation of a general hardware and industrial supply
and equipment business.
The case at bar was initiated before the RTC by respondents as a
derivative suit, on their own behalf and on behalf of Winchester, Inc.,
primarily in order to compel petitioners to account for and reimburse to
the said corporation the corporate assets and funds which the latter
allegedly misappropriated for their personal benefit. During the
pendency of the proceedings before the court a quo, the parties were
able to reach an amicable settlement wherein they agreed to divide the
assets of Winchester, Inc. among themselves. This amicable
settlement was already partially implemented by the parties, when
respondents repudiated the same, for which reason the RTC
proceeded with the case on its merits. On 10 November 2004, the RTC
promulgated its Decision dismissing respondents’ Complaint for failure
to comply with essential pre-requisites before they could avail
themselves of the remedies under the Interim Rules of Procedure
Governing Intra-Corporate Controversies; and for inadequate
substantiation of respondents’ allegations in said Complaint after
consideration of the pleadings and evidence on record.
In its Decision dated 15 February 2006, the Court of Appeals affirmed,
on appeal, the findings of the RTC that respondents did not abide by
the requirements for a derivative suit, nor were they able to prove their
case by a preponderance of evidence. Respondents filed a Motion for
Reconsideration of said judgment of the appellate court, insisting that
they were able to meet all the conditions for filing a derivative suit.
Pending resolution of respondents’ Motion for Reconsideration, the
Court of Appeals urged the parties to again strive to reach an amicable
settlement of their dispute, but the parties were unable to do so. The
parties were not able to submit to the appellate court, within the given
period, any amicable settlement; and filed, instead, their Position
Papers. This effectively meant that the parties opted to submit
respondents’ Motion for Reconsideration of the 15 February 2006
Decision of the Court of Appeals, and petitioners’ opposition to the
same, for resolution by the appellate court on the merits.
It was at this point that the case took an unexpected turn.
In accordance with respondents’ allegation in their Position Paper that
the parties subsequently filed with the SEC, and the SEC already
approved, a petition for dissolution of Winchester, Inc., the Court of
Appeals remanded the case to the RTC so that all the corporate
concerns between the parties regarding Winchester, Inc. could be
resolved towards final settlement.
In one stroke, with the use of sweeping language, which utterly lacked
support, the Court of Appeals converted the derivative suit between the
parties into liquidation proceedings.
Issue: Whether or not the CA erred in converting the derivative suit
between the parties into liquidation proceedings.
Ruling: A derivative action is a suit by a shareholder to enforce a
corporate cause of action. The corporation is a necessary party to the
suit. And the relief which is granted is a judgment against a third
person in favor of the corporation. Similarly, if a corporation has a
defense to an action against it and is not asserting it, a stockholder
may intervene and defend on behalf of the corporation. By virtue of
Republic Act No. 8799, otherwise known as the Securities Regulation
Code, jurisdiction over intra-corporate disputes, including derivative
suits, is now vested in the Regional Trial Courts designated by this
Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November
2000.
In contrast, liquidation is a necessary consequence of the dissolution
Corporation Code, which reads:
SEC. 122. Corporate liquidation. – Every corporation whose charter
expires by its own limitation or is annulled by forfeiture or otherwise, or
whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for
three (3) years after the time when it would have been so dissolved, for
the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets, but not for the purpose of
continuing the business for which it was established.
At any time during said three (3) years, said corporation is authorized
and empowered to convey all of its property to trustees for the benefit
of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the beneficial
interest in the stockholders, members, creditors or other persons in
interest.
Upon winding up of the corporate affairs, any asset distributable to any
creditor or stockholder or member who is unknown or cannot be found
shall be escheated to the city or municipality where such assets are
located.
Except by decrease of capital stock and as otherwise allowed by this
Code, no corporation shall distribute any of its assets or property
except upon lawful dissolution and after payment of all its debts and
liabilities.
Following the voluntary or involuntary dissolution of a corporation,
liquidation is the process of settling the affairs of said corporation,
which consists of adjusting the debts and claims, that is, of collecting
all that is due the corporation, the settlement and adjustment of claims
against it and the payment of its just debts. More particularly, it entails
the following:
Winding up the affairs of the corporation means the collection of all
assets, the payment of all its creditors, and the distribution of the
remaining assets, if any among the stockholders thereof in accordance
with their contracts, or if there be no special contract, on the basis of
their respective interests. The manner of liquidation or winding up may
be provided for in the corporate by-laws and this would prevail unless it
is inconsistent with law.
Petitioner and Sunshine formed Sasays Closet Co. (SCC), a
partnership registered with the SEC on 17 October 2002. SCC was
engaged in the supply, trading, retailing of garments such as
underwear, childrens wear, womens and mens wear, and other
incidental activities related thereto. For its products, SCC used the
trademark "Naturals with Design," which it filed with the Intellectual
Property Office and registered.  These products were primarily
supplied to SM, which assigned to them the vendor code "190501" for
purposes of identification. SCC used the facilities and equipment
owned by RGP, as well as the latters business address, which was
also the residential address of respondents.

In August 2003, Sunshine pulled out of the partnership, because she

It may be undertaken by the corporation itself, through its Board of
was hired to work in an international school. Respondent  Imelda took
Directors; or by trustees to whom all corporate assets are conveyed for
over Sunshine’s responsibilities in the partnership.rνll
liquidation; or by a receiver appointed by the SEC upon its decree
dissolving the corporation.
On 14 December 2005, petitioner sent an email to respondent Imelda
asking to be reimbursed for expenses incurred in the former’s travel to
Glaringly, a derivative suit is fundamentally distinct and
China. Respondent Imelda replied the following day, stating that the
independent from liquidation proceedings. They are neither part of
partnership could not reimburse petitioner, because the trip was
each other nor the necessary consequence of the other. There is
personal and not business-related. In the same email, respondent
totally no justification for the Court of Appeals to convert what was
Imelda vented her frustration over the fact that she, together with
supposedly a derivative suit instituted by respondents, on their own
respondent Rodrigo, had been doing all the work for SCC and incurring
behalf and on behalf of Winchester, Inc. against petitioners, to a
expenses that they did not charge to the partnership.
proceeding for the liquidation of Winchester, Inc.
Respondent Imelda then informed petitioner of the formers
decision to dissolve the partnership. Despite the objections of
While it may be true that the parties earlier reached an amicable petitioner to the dissolution of SCC, various amounts were paid to her
settlement, in which they agreed to already distribute the assets of by respondents from January to April 2006 representing her share in
Winchester, Inc., and in effect liquidate said corporation, it must be the partnership assets.½ll
pointed out that respondents themselves repudiated said amicable
settlement before the RTC, even after the same had been partially
Meanwhile, on 27 March 2006, petitioner established Tezares
implemented; and moved that their case be set for pre-trial. Attempts
Enterprise, a sole proprietorship engaged in supplying and trading of
to again amicably settle the dispute between the parties before the
clothing and accessories except footwear. Also in March 2006, she
Court of Appeals were unsuccessful.
discovered that underwear products bearing the brand "Naturals" were
being sold in SM with vendor code "180195." This code was registered
Moreover, the decree of the Court of Appeals to remand the case to to RGP, a fact confirmed by test buys conducted by her lawyers on 13
the RTC for the "final settlement of corporate concerns" was solely and 14 May 2006.½ll
grounded on respondents’ allegation in its Position Paper that the
parties had already filed before the SEC, and the SEC approved, the
On 5 June 2006, a search warrant for unfair competition under Section
petition to dissolve Winchester, Inc. The Court notes, however, that
168 in relation to Section 170 of R.A. 8293 was issued by the RTC of
there is absolute lack of evidence on record to prove said allegation.
Manila, against respondents at their address.The search warrant called
Respondents failed to submit copies of such petition for dissolution of
for the seizure of womens undergarments bearing the brand
Winchester, Inc. and the SEC Certification approving the same. It is a
"Naturals," as well as equipment and papers having the vendor code
basic rule in evidence that each party must prove his affirmative
"180195" or the inscription "RGP." The search warrant was
allegation. Since it was respondents who alleged the voluntary
implemented on the same day. However, it was quashed by the same
dissolution of Winchester, Inc., respondents must, therefore, prove
court upon motion of respondents. The trial court ruled that
it. This respondents failed to do.
respondents did not pass off "Naturals" as the brand of another
manufacturer. On the contrary, they used the brand in the honest belief
Even assuming arguendo that the parties did submit a petition for the that they owned SCC, the owner of the brand.
dissolution of Winchester, Inc. and the same was approved by the
SEC, the Court of Appeals was still without jurisdiction to order the final
On 9 June 2006, petitioner filed a criminal complaint for unfair
settlement by the RTC of the remaining corporate concerns. It must be
competition against respondents and Sunshine before the City
remembered that the Complaint filed by respondents before the RTC
Prosecution Office of Makati City. Assistant City Prosecutor Imelda P.
essentially prayed for the accounting and reimbursement by petitioners
Saulog found probable cause to indict respondents for unfair
of the corporate funds and assets which they purportedly
competition. She ruled that they had clearly passed off the "Naturals"
misappropriated for their personal use; surrender by the petitioners of
brand as RGPs even if the brand was owned by SCC. According to the
the corporate books for the inspection of respondents; and payment by
prosecutor, SCC was indeed dissolved when respondent Imelda
petitioners to respondents of damages. There was nothing in
manifested her intention to cease from the partnership in an email sent
respondents’ Complaint which sought the dissolution and liquidation of
to petitioner on 15 December 2005. The prosecutor said, however, that
Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc.
it remained operational, since the process of winding up its business
could not have resulted in the conversion of respondents’ derivative
had not been completed. Thus, SCC remained the owner of the
suit to a proceeding for the liquidation of said corporation, but only in
"Naturals" brand, and petitioner being a legitimate partner thereof had
the dismissal of the derivative suit based on either compromise
a right to file the complaint against respondents. The prosecutor found
agreement or mootness of the issues.
no probable cause against Sunshine, as it was established that she
had withdrawn from SCC as of August 2003.‚rνll
Clearly, in issuing its assailed Resolutions dated 18 July 2006 and 19
April 2007, the Court of Appeals already went beyond the issues raised
The DOJ reversed the findings of the prosecution. Contrary to the
in respondents’ Motion for Reconsideration. Instead of focusing on
prosecutors finding, the DOJ found that SCC had effectively wound up
whether it erred in affirming, in its 15 February 2006 Decision, the
the latters partnership affairs on 24 April 2006 when petitioner was
dismissal by the RTC of respondents’ Complaint due to respondents’
reimbursed for her trip to China. That was the last of the payments
failure to comply with the requirements for a derivative suit and submit
made to her to cover her share in the partnership affairs, which started
evidence to support their allegations, the Court of Appeals unduly
after respondent Imelda manifested her intention to cease from the
concentrated on respondents’ unsubstantiated allegation that
partnership business. Thus, when the criminal complaint for unfair
Winchester, Inc. was already dissolved and speciously ordered the
competition was filed on 9 June 2006, there was "no longer any
remand of the case to the RTC for proceedings so vitally different from
competition, unfair or otherwise, involving the partnership."
that originally instituted by respondents.
Furthermore, the DOJ ruled that even if SCC had not yet terminated its
business and therefore still existed, respondents had the right to use
the "Naturals" brand, as they were already the exclusive owners of
SCC following the completion of payments of petitioners share in the
TORRES v. PEREZ, 686 SCRA 615 (2012) partnership affairs.

Facts: Respondents Imelda and Rodrigo are spouses who own RGP
Footwear Manufacturing (RGP), which supplies ladies shoes to Shoe
Mart (SM). They met petitioner when she sold them business-class
plane tickets to the United States in 2002.  She was also interested in
doing business with SM, and they suggested that she form a
partnership with their daughter Sunshine, nicknamed Sasay.½ll
The trial court maintained the correctness of its finding of existence of
probable cause in the case and ruled that the findings of the DOJ
would be better appreciated and evaluated in the course of the trial.
The CA affirmed the findings of the DOJ and the RTC of Manila,
Branch 24 that respondents used the "Naturals" brand because they
believed that they were the owners of SCC, which owned the brand.
Furthermore, the partnership had been terminated as of April 2006;
hence, the filing of the criminal complaint on 9 June 2006 could no
longer prosper. Even if SCC had not yet terminated its business,
respondents, having bought petitioner out of SCC, were already its
exclusive owners and, as such, had the right to use the "Naturals"
brand.
Issue: Whether there exists probable cause to indict respondents for
unfair competition (violation of Section 168 in relation to Section 170)
under R.A. 8293.
Ruling: No. In this case, much more important than the issue of
protection of intellectual property is the change of ownership of SCC.
The arguments of petitioner have no basis, because respondents are
the exclusive owners of SCC, of which she is no longer a partner.
Based on the findings of fact of the CA and the DOJ, respondents
have completed the payments of the share of petitioner in the
partnership affairs. Having bought her out of SCC, respondents
were already its exclusive owners who, as such, had the right to
use the "Naturals" brand.
The use of the vendor code of RGP was resorted to only for the
practical purpose of ensuring that SMs payments for the "Naturals"
products would go to respondents, who were the actual suppliers.
Furthermore, even if we were to assume that the issue of protection of
intellectual property is paramount in this case, the criminal complaint
for unfair competition against respondents cannot prosper, for the
elements of the crime were not present. We have enunciated in CCBPI
v. Gomez that the key elements of unfair competition are "deception,
passing off and fraud upon the public." No deception can be imagined
to have been foisted on the public through different vendor codes,
which are used by SM only for the identification of suppliers
products.µÎ½Î¹rυαllαωlιb
G.R. No. 70926. January 31, 1989
DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE
COURT and LEUNG YIU, respondents.
FACTS: The Sun Wah Panciteria, a restaurant, 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. 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. The receipt was written in
Chinese characters. The private respondent identified the signature on
the receipt as that of the petitioner because it was affixed by the latter
in his (private respondents') presence. Witnesses So Sia and Antonio
Ah Heng corroborated the private respondent’s testimony to the effect
that they were both present when the receipt was signed by the
petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt evidencing delivery of his own investment in
another amount of P4,000.00. The signatures in the two receipts were
indeed the signatures of the petitioner.
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. Chief of the Savings Department of the China
Banking Corporation testified that said check was deposited by and
duly credited to the private respondents savings account with the bank.
Another witness Elvira Rana testified that the check in question was in
fact and in truth drawn by the petitioner and debited against his own
account in said bank and the said check was returned to the petitioner
as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He alleged that he 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
and the Equitable Banking Corporation's Check in the amount of
P12,000.00.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and
operations of the panciteria. Hence, the two courts declared that the
private petitioner is entitled to a share of the annual profits of the
restaurant.
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with
the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that
"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".
Therefore, the lower courts did not err in construing the complaint as
one wherein the private respondent asserted his rights as partner of
the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given
its ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of
destitution. But this circumstance under which the P4,000.00 was
given to the petitioner does not obtain in this case.' The complaint
explicitly stated that "as a return for such financial assistance, plaintiff
(private respondent) would be entitled to twenty-two percentum (22%)
of the annual profit derived from the operation of the said panciteria.'
The well-settled doctrine is that the '"... nature of the action filed in
court is determined by the facts alleged in the complaint as constituting
the cause of action." (De Tavera v. Philippine Tuberculosis Society,
Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
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. The resolution of the
Intermediate Appellate Court ordering the payment of the petitioner's
obligation shows that the same continues until fully paid.
ISSUE: Whether or not the payment of a share of profits shall continue
into the future with no fixed ending date.
RULING: No. 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.
G.R. No. L-11840. July 26, 1960
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN
and ANTONIO C. GOQUIOLAY", Plaintiffs-Appellants, vs.
WASHINGTON Z. SYCIP, ET AL., Defendants-Appellees.
PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE;
PERSONAL RIGHT; TERMINATION UPON MANAGER-PARTNER’S
DEATH. — 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.
FACTS: On May 29, 1940, 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, stipulating that 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 (Art. XIII,
articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of
attorney that 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, to carry on to the best
advantage and interest of the said co-partnership, to make and
execute, sign, seal and deliver for the co-partnership, and in its name,
all bills, bonds, notes, specialties, and trust receipts or other
instruments or documents in writing whatsoever kind or nature which
shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal
properties, to secure the obligation of the co-partnership, to buy real or
personal properties for cash or upon such terms as he may deem
advisable, to sell personal or real properties, such as lands and
buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co-partnership, to borrow money on behalf
of the co-partnership and to issue promissory notes for the repayment
thereof, to deposit the funds of the co-partnership in any local bank or
elsewhere and to draw checks against funds so deposited.
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
purchased the three (3) parcels of land, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construcción y
Prestamos" for a period of ten (10) years, with 10% interest per
annum. 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 down payment and the
amortization were advanced by Yutivo and Co., for the account of the
purchasers.
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") and the covenantors bound themselves
to pay, jointly and severally, the remaining balance of their unpaid
accounts within eight 8 years, with 8% annual interest, payable in 96
equal monthly installments.
On June 26, 1942, 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
alleged obligations of the partnership. Disclaiming knowledge of said
claims at first, Kong Chai Pin later admitted the claims and they were
accordingly approved by the Court.
In 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. Pursuant to a court order, the
administratrix executed a deed of sale of the 49 parcels of land to the
defendants Washington Sycip and Betty Lee in consideration of
P37,000.00 and of vendees’ assuming payment of the claims filed by
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
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 probate
court annulled the sale executed by the administratrix with respect to
the 60% interest of Antonio Goquiolay over the properties sold. King
Chai Pin appealed to the Court of Appeals, which court later certified
the case to us, we rendered decision setting aside the orders of the
probate court complained of and remanding the case for new trial, due
to the non-inclusion of indispensable parties.
The second amended complaint in the case at bar prays 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; hence, this appeal
taken directly to us by the plaintiffs.
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 and
selling real estate, and “in general real estate agency and brokerage
business.”
ISSUE: Whether or not the lower court erred in finding that Kong Chai
Pin managed the business of the partnership after the death of her
husband, and that Antonio Goquiolay knew it.
RULING: No. 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.
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 became a limited partner, Goquiolay’s authorization to manage
the partnership property was proof that he considered and recognized
her as general partner, at least since 1945. The reason is plain: Under
the 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
of agents of the managing partners.”
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.
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 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. It must be remembered that
the articles of co-partnership here involved expressly stipulated it.
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.
Of course, the stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited
responsibility for the obligations of the firm. The heirs, in other words,
cannot be compelled to become general partners against their wishes.
But because they are not so compellable, it does not legitimately follow
that they may not voluntarily choose to become general partners,
waiving the protective mantle of the general laws of succession. The
heir never was a limited partner, but chose to be, and became, a
general partner right at the start. It is immaterial that the heir’s name
was not included in the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly contemplated the
admission of the partner’s heirs into the partnership.
It must never be overlooked that this case involves the rights acquired
by strangers, and does not deal with the rights arising between
partners Goquiolay and the widow of Tan Sin An. Knowing that by law
a limited partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescence of
the surviving partners were perfectly justified in assuming that she had
become a general partner, and, therefore, in negotiating with her as
such a partner, having authority to act for, and in behalf of, the firm.
This belief, be it noted, was shared even by the probate court that
approved the sale by the widow of the real property standing in the
partnership name. That belief was fostered by the very inaction of
appellant Goquiolay. 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. 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,
because he was not interested (supra), and he did not even take steps
to pay, or settle, the firm debts that were overdue since before the
outbreak of the last war. He did not even take steps, after Tan Sin An
died, to cancel, or modify, the provisions of the partnership articles that
he (Goquiolay) would have no intervention in the management of the
partnership. 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 (Litton v. Hill and Cerón, Et Al., 67 Phil.,
513; quoted in our main decision, p. 11).
“The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in asking the
other’s consent before contracting for the partnership. This obligation
of course is not imposed upon a third person who contracts with the
partnership. Neither is it necessary for the third person to ascertain if
the managing partner with whom he contracts has previously obtained
the consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary,
is acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed
(No. 18, section 334, Code of Civil Procedure), and that the law has
been obeyed (No. 31, section 334). This last presumption is equally
applicable to contracts which have the force of law between the
parties." (Litton v. Hill & Cerón, Et Al., 67 Phil., 509, 516) (Emphasis
supplied)
It is next urged that the widow, even as a partner, had no authority to
sell the real estate of the firm. This argument is lamentably superficial
because it fails to differentiate between real estate acquired and held
as stock-in-trade and real estate held merely as business site for the
partnership. Where the partnership business is to deal in merchandise
and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it
is not in line with the normal business of the firm. But 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.
In Rosen v. Rosen, 212 N. Y. Supp. 405, 406, it was held that “a
partnership to deal in real estate may be created and either partner
has the legal right to sell the firm real estate”. In Chester v. Dickerson,
54 N. Y. 1, 13 Am. Rep. 550, it was held that when the partnership
business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the
sale of real estate.” And in Rovelsky v. Brown, 92 Ala. 522, 9 South
182, 25 Am. St., Rep. 83, it was held that
“if the several partners engaged in the business of buying and selling
real estate cannot bind the firm by purchases or sales of such property
made in the regular course of business, then they are incapable of
exercising the essential rights and powers of general partners and their
association is not really a partnership at all, but a several agency.”
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.
G.R. No. L-11840. December 10, 1963
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
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 as Administratrix of the
husband's estate and as partner in lieu of the husband), in favor of the
buyers Washington Sycip and Betty Lee.
Appellant Goquiolay, in his motion for reconsideration, insist that,
contrary to our holding, Kong Chai Pin, widow of the deceased partner
Tan Sin An, never became more than a limited partner, incapacitated
by law to manage the affairs of partnership; that the testimony of her
witness Young and Lim belies that she took over the administration of
the partnership property; and that, in any event, the sale should be set
aside because it was executed with the intent to defraud appellant of
his share in the properties sold.
Three things must be always held in mind in the discussion of this
motion to reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property
by one partner, acting in behalf of the firm, to a stranger. There is no
question between partners inter se;
(b) That partnership was expressly organized: “to engage in real estate
business, either by buying and selling real estate.” The Articles of co-
partnership, in fact, expressly provided that:
IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and selling real
estates; to subdivide real estates into lots for the purpose of leasing
and selling them.;
(c) That the properties sold were not part of the contributed capital
(which was in cash) but land precisely acquired to be sold, although
subject to a mortgage in favor of the original owners, from whom the
partnership had acquired them.
ISSUE: Whether or not widow of the deceased partner Tan Sin An,
never became more than a limited partner, incapacitated by law to
manage the affairs of partnership
RULING: No. It is first averred that there is “not one iota of evidence”
that Kong Chai Pin managed and retained possession of the
partnership properties. Suffice it to point out that appellant Goquiolay
himself admitted it. These admissions of Goquiolay are certainly
entitled to greater weight than those of Hernando Young and Rufino
Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando
Young, that the witness found the properties “abandoned and
undeveloped”, omits to mention that said part of the testimony. Plainly,
both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the widow
“could just do it” (i.e., continue to manage the properties). Witnesses
Lim and Young referred to the period of Japanese occupation; but
Goquiolay's authority was, in fact, given to the widow in 1945, after the
occupation.
Again, the disputed sale by the widow took place in 1949. That Kong
Chai Pin carried out no acts of management during the Japanese
occupation (1942-1944) does not mean that she did not do so from
1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim
and Young; he actually manifested his willingness that the widow
should manage the partnership properties. 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.
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 became a limited partner, Goquiolay's authorization to manage
the partnership property was proof that he considered and recognized
her as 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 of 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 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.
It must be remember that the articles of co-partnership here involved
expressly stipulated 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).
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 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 have 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.
Of course, the stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited
responsibility for the obligations of the firm. The heirs, in other words,
cannot be compelled to become general partners against their wishes.
But because they are not so compellable, it does not legitimately follow
that they may not voluntarily choose to become general partners,
waiving the protective mantle of the general laws of succession. And in
the latter event, it is pointless to discuss the legality of any conversion
of a limited partner into a general one. The heir never was a limited
partner, but chose to be, and became, a general partner right at the
start.
It is immaterial that the heir's name was not included in the firm name,
since no conversion of status is involved, and the articles of co-
partnership expressly contemplated the admission of the partner's
heirs into the partnership.
It must never be overlooked that this case involved the rights acquired
by strangers, and does not deal with the rights existing between
partners Goquiolay and the widow of Tan Sin An. Knowing that by law
a limited partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescence (or
at least without apparent opposition) of the surviving partners were
perfectly justified in assuming that she had become a general partner,
and, therefore, in negotiating with her as such a partner, having
authority to act for, and in behalf of the firm. This belief, be it noted,
was shared even by the probate court that approved the sale by the
widow of the real property standing in the partnership name. That
belief was fostered by the very inaction of appellant Goquiolay. 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. 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, because he was not
interested, and he did not even take steps to pay, or settle the firm
debts that were overdue since before the outbreak of the last war. He
did not even take steps, after Tan Sin An died, to cancel, or modify, the
provisions of the partnership articles that he (Goquiolay) would have
no intervention in the management of the partnership. 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 to requisite authority from his co-partners
(Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main
decision, p. 11).
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the othe, undoubtedly creates on
obligation between the two partners, which consists in asking the
other's consent before contracting for the partnership. This obligation
of course is not imposed upon a third person who contracts with the
partnership. Neither it is necessary for the third person to ascertain if
the managing partner with whom he contracts has previously obtained
the consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed
(No. 18, section 334, Code of Civil Procedure), and that the law has
been obeyed (No. 31, section 334). This last presumption is equally
applicable to contracts which have the force of law between the
parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis
supplied.)
It is next urged that the widow, even as a partner, had no authority to
sell the real estate of the firm. This argument is lamentably superficial
because it fails to differentiate between real estate acquired and held
as stock-in-trade and real estate held merely as business site
(Vivante's "taller o banco social") for the partnership. Where the
partnership business is to deal in merchandise and goods, i.e.,
movable property, the sale of its real property (immovables) is not
within the ordinary powers of a partner, because it is not in line with the
normal business of the firm. But 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 from part of
its stock-in-trade, and the sale thereof is in pursuance of partnership
purposes, hence within the ordinary powers of the partner. This
distinction is supported by the opinion of Gay de Montella.
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 power as general
partner.
Neither was there any anomaly in the filing of the claims of Yutivo and
Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in
proceedings for the settlement of the estate of Tan Sin An. This for two
reasons: First, Tan Sin An and the partnership "Tan Sin An &
Goquiolay" were solidary (Joint and several) debtors, and Rule 87,
section 6 is the effect that:
Where the obligation of the decedent is joint and several with another
debtor, the claim shall be filed against the decedent as if he were the
only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sim An personally, and
a mortgage is indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt (Civ. Code of 1889,
Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration: 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 al, 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 Goquiolay 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.
G.R. No. L-14832. January 28, 1961
NG CHO CIO ET AL., plaintiffs-appellants, vs. NG DIONG, defendant-
appellant.
C. N. HODGES, ET AL., defendants-appellees.
FACTS: On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng
Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into a
contract of general co-partnership under the name NG CHIN BENG
HERMANOS. The partnership was to exist for a period of 10 years and
Ng Diong was named as managing partner. On May 10, 1935, the
articles of co-partnership were amended by extending its life to 16
years more to be counted from May 23, 1925, or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan
and Investment Board a loan in the amount of P30, 000.00 and of P50,
000.00, and to guarantee its payment it executed in its favor a
mortgage on lots of the cadastral survey of Iloilo.
Sometime in 1938, the partnership was declared insolvent upon
petition of its creditors wherein one Crispino Melocoton was elected as
assignee. As a consequence, the titles to the seven parcels of land
were issued in his name as assignee. In due time, the creditors filed
their claims in said proceeding.
On August 9, 1940, a majority of the creditors with claims, and the
partners of the firm, acting thru counsel, entered into a composition
agreement whereby it was agreed that said creditors would receive
20% of the amount of their claims in full payment thereof. Prior to this
agreement, however, defendant Julian Go had already acquired the
rights of 24 of the creditors of the insolvent whose total claims
amounted to P139,323.10. Said composition agreement was approved
by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had
succeeded the National Loan and Investment Board assigned its rights
and interests in the loans obtained from it by the partnership in favor of
C.N. Hodges, together with the right and interest in the mortgage
executed to secure the loans. Since said loans became due and no
payment was forthcoming, Hodges asked permission from the
insolvency court to file a complaint against the assignee to foreclose
the mortgage executed to secure the same in a separate proceeding,
and permission having been grante. Meanwhile, war broke out and
nothing appears to have been done in the insolvency proceedings. The
court records were destroyed. However, they were reconstituted later
and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go,
who acquired most of the claims of the creditors, filed a petition with
the insolvency court praying at the insolvency proceedings be closed
or terminated cause the composition agreement the creditors had
submitted relative to the settlement of the claims had already been
approved. On October 6, 1946, the court, acting favorably on the
petition, ordered, closure of the proceedings directing the assignee to
turn and reconvey all the properties of the partnership back to the latter
as required by law.
As of said date, April 2, 1946, 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, and to that effect Ng Diong executed a deed of sale
thereof in favor of Hodges for the sum of P124,580.00. Out of this
price; the sum of P103,883.34 was applied to the payment of the debt
of the partnership to Hodges and the balance was paid to the other
creditors of the partnership. On the same date, Hodges executed
another contract giving the partnership the right to repurchase Lots
Nos. 237, 386 and 829 in installments for the sum of P26,000.00 within
three years with interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to
Julian Go in the amount of P24,864.62 under the composition
agreement, nor did it have any money to repurchase Lots Nos. 237,
386 and 829 and so Ng Diong, in behalf of the partnership, transferred
the right of the latter to repurchase the same from Hodges to Julian Go
in full payment of the partnership's indebtedness to him. And having
Julian Go exercised the option January 6, 1948, Hodges executed a
deed of sale of the properties in his favor, and pursuant thereto the
register of deeds issued new titles' in his name covering said lots. On
May 29, 1948, Hodges executed another deed of sale covering Lots
Nos. 317-A, 236-B, 233 and 540 for the sum of P119,067.79 in favor of
Jose C. Tayengco. And on August 31, 1948, Tayengco mortgaged said
lots, together with three other lots of his, to the Bank of the Philippine
Islands to secure a loan of P126,000.00 to be used in the construction
of a commercial building on said lots.
ISSUE: Whether or not the sale made by Ng Diong in behalf of the
partnership NG CHIN BENG HERMANOS of the seven lots belonging
to it in favor of C. N. Hodges on April 2, 1946 is null and void because
at that time said parcels were still in the custody of the assignee of the
insolvency proceedings, or in custodia legis, and, hence, the same is
null and void
RULING: No. It should be recalled that on August 8, 1940 the majority
of the creditors of the partnership, as well as the representatives of the
latter, submitted to the court taking cognizance of the insolvency
proceedings a composition agreement whereby it was agreed that said
creditors would receive 20% of the amount of their claims in full
payment thereof. This agreement was approved which, in
contemplation of law, has the effect of putting an end to the insolvency
proceedings. However, no further step was taken thereon because of
the outbreak of the war. Later, the record of the case was reconstituted
and the parties on August 15, 1945 filed a petition with the court
praying for the dismissal and closure of the proceedings in view of the
approval of the aforesaid composition agreement, and acting favorably
thereon, the court issued an order declaring the proceedings
terminated and ordering the assignee to return and reconvey the
properties the partnership. The actual reconveyance was done by the
assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the
insolvency ended on said date. Since then partnership became,
restored to its status quo. It again reacquired its personality as such
with Ng Diong as its general manager. From that date on its properties
ceased to be in custodia legis. Such being the case, it is obvious that
when Ng Diong as manager of the partnership sold the seven parcels
of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale
acknowledged before a notary public on April 6, 1946, the properties
were already was at liberty to do what it may deem convenient and
proper to protect its interest. And acting accordingly, Ng Diong made
the sale in the exercise of the power granted to him by the partnership
in its articles of co-partnership. We do not, therefore, find anything
irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already
expired, the question may be fixed: Who shall wind up it business
affairs? May its manager still execute the sale of its properties to C. N.
Hodges as was done by Ng Diong? The answer to this question cannot
but be in the affirmative 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. And considering
that war had intervened and the affairs of the partnership were placed
under receivership up to October 6, 1945, we are of the opinion that
Ng Diong could still exercise his power as liquidator when he executed
the sale in question in favor of C. N. Hodges. This is sanctioned by
Article 228 of the Code of Commerce which was the law in force at the
time.
G.R. No. L-10040. January 31, 1916
EUGENIA LICHAUCO, ET AL., Plaintiffs-Appellants, vs. FAUSTINO
LICHAUCO, Defendant-Appellant.
FACTS: This action was brought by two of the partners of an
enterprise of which the defendant was manager, to secure an
accounting of its affairs, and the payment to the plaintiffs of their
respective shares of capital and profits.
The defendant admitted the allegations of the complaint as to the
organization of the enterprise and the participation of the plaintiffs
therein, but he contended that the plaintiffs could not maintain this
action under the terms of the written contract by virtue of which the
enterprise was organized. Judgment was rendered for the balance
shown to be due the plaintiffs. To this judgment, both plaintiffs and
defendant excepted, and the record is now before us on their
respective bills of exceptions.
In October, 1901, a notarial instrument was executed in Manila, by the
terms of which a partnership was duly organized for the purpose of
carrying on a rice-cleaning business at Dagupan, and for the purchase
and sale of “palay” and rice. The articles of association, which were not
recorded in the mercantile registry, contain, among others, the
following provisions:
2. The association will be named F. Lichauco Hermanos and will be
domiciled in the center of its operations, that is, in the pueblo of
Dagupan, Province of Pangasinan.
3. The association cannot be dissolved except by the consent and
agreement of two-thirds of its partners and in the event of the death of
any of the latter, the heirs of the deceased, if they be minors or
otherwise incapacitated, shall be represented in the association by
their legal representatives or if two-thirds of the surviving partners
agree thereto, the participation of the deceased partner may be
liquidated.
4. The management and direction of the association shall be in
charged of Don Faustino Lichauco y Santos, who shall be domiciled in
this city of Manila, with ample powers to direct and manage the
business; to carry out all manner of purchases and sales of “palay,”
rice, chattels, machinery and whatsoever may be necessary and
proper for the business of the association; to make all contracts of
every kind related to said business, either orally, in private documents
or in public instruments, as he deems fit; to appoint subordinates and
other employees such as may be necessary; and finally to perform
whatever acts and things he may deem suitable to the interest of the
association; and to appear before the courts of justice and other
authorities and public offices in such matters as may concern the
association and to appoint agents for those matters to which he cannot
attend personally.
The business thus organized was carried on until May, 1904, when it
was found to be unprofitable and discontinued by the defendant
manager; and thereafter, the machinery of the rice mil was dismantled
by his orders, and offered for sale. No accounting ever was made to
his associates by the defendant until this action was instituted in
October, 1912, although it appears that in the year 1905, Mariano
Limjap, one of the participants in the venture, demanded a rendition of
accounts; and that Eugenia Lichauco, one of the plaintiffs in this action,
made repeated unsuccessful demands for the return of her share of
the capital invested in the enterprise. And yet it further appears that
during all that time the defendant manager of the defunct enterprise
had in his possession not less than P20,000, the cash balance on
hand, over and above all claims of indebtedness after suspending
operations in 1904; and that since that time he received or should have
received substantial sums of money from the sale of the machinery of
the dismantled mill.
There is evidence in the record tending to show that the defendant
informed some of his associates, about the year 1906 or 1907, that the
whole enterprise was bankrupt; and it appears that some months prior
to the institution of this action, he rendered upon demand of counsel, a
so-called account showing a balance to the credit of the enterprise of
only P643.64; although at the trial, some six months afterwards, he
expressly admitted the existence of a cash balance of some
P23,131.53, and the amount by the trial judge as due by him on
account of the venture was P29,549.99. The defendant explained that
the account rendered to counsel for the plaintiffs showing a balance of
P634.64 was mailed by one of his employees without his knowledge,
and that it was a stupid blunder which he greatly regretted; and it
would seem that his statement as to the bankruptcy of the enterprise
were not intended to be understood as an assertion that there was no
balance due the partners, but merely that the enterprise had not paid,
and that the losses of operation had exceeded the profits.
Giving the defendant the benefit of the doubt, we are inclined to accept
these explanations of these incidents, as it is hardly possible that he
could have hoped to escape indefinitely the necessity of accounting for
his management of the enterprise, and thus permanently retain in his
own possession the substantial balance due to his associates. But it is
to be observed that, viewed for many standpoint, these statements,
made and rendered by the defendant as to the affairs of the
association, taken together with the other evidence in the record, leave
no room for doubt that from the time he concluded the operations of
the business in 1904 until the date of the institution of this action in
1912 he made no attempt to account to his associates or to turn over
to them the amount due them on a proper accounting.
ISSUE: Whether or not the trial court erred in rendering judgment in
favor of the plaintiffs and against the defendant for any sum, without
first decreeing a dissolution of the association and final liquidation of its
assets in accordance with paragraph 10 of the articles of association,
and because such judgment is not within the issues joined.
RULING: No. It is elementary that no lawful liquidation and distribution
of capital and assets of any company or association can ever take
place except upon dissolution thereof.
These contentions of counsels for the defendant take no account of the
provisions of both the Civil and Commercial Codes for the dissolution
and liquidation of the different classes of partnerships and mercantile
associations upon the occurrence of certain contingencies not within
the control of the partners. The provisions of paragraph 10 of the
articles of partnership prohibiting the dissolution of the association
under review, except by the consent and agreement of two-thirds of its
partners, denied the right to a less number of the partners to effect a
dissolution of the partnership through judicial intervention or otherwise;
but in no wise limited or restricted the rights of the individual partners in
the event the dissolution of the association was effected, not by any
act of theirs, but by the express mandate of statutory law. 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.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the
means by which partnership as defined in that code, may be
terminated. The first article of that chapter is as follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted expires.
(2) When the thing is lost, or the business for which it was constituted
ends.
(3) By the natural death, civil interdiction, or insolvency of any of the
partners, and in the case provided for in article 1699.
(4) By the will of any of the partners, subject to the provisions of
articles 1705 and 1707.
Partnerships, to which article 1670 refers, are excepted from the
provisions of Nos. 3 and 4 of this article, in the cases in which they
should exist, according to the Code of Commerce.
1670. Civil partnerships, on account of the objects for which they are
destined, may adopt all the forms accepted by the Code of Commerce.
In this case, the provisions of the same shall be applicable, in so far as
they are not in conflict with those of the present Code.
Articles 221 and 222 of the Code of Commerce are as follows:
221. Associations of any kind whatsoever shall be completely
dissolved for the following reasons:
(1) The termination of the period fixed in the articles of association of
the conclusion of the enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited co-partnerships shall furthermore be totally
dissolved for the following reasons:
(1) The death of one of the general partners if the articles of co-
partnership do not contain an express agreement that the heirs of
deceased partner are to continue in the co-partnership, or an
agreement to the effect that said co-partnership will continue between
the surviving partners.
(2) The insanity of a managing partner or any other cause which
renders him incapable of administering his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions of law the association
of which the defendant was nominated manager was totally dissolved
in the year 1904, when the rice mill for the operation of which it was
organized was dismantled, the machinery offered for sale and the
whole enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of
the defendant to liquidate its affairs and account to his associates for
their respective shares in the capital invested - this not merely from the
very nature of his relation to the enterprise and of his duties to those
associated with him as partners, but also by the express mandate of
the law. The association having been dissolved by the termination and
abandonment of the enterprise for which it was organized, he owed
this duty to liquidate and account to all and to each of his associates,
and upon his failure to perform that duty, all or any of them had a clear
legal right to compel him to fulfill it. Each of his associates had a
perfect right to demand for himself a full, complete and satisfactory
accounting, and in the event that he conceived himself aggrieved in
this regard, to institute the appropriate judicial proceedings to secure
relief.
The duty of the defendant to liquidate the affairs of the enterprise and
to account to his associates promptly upon the dissolution of the
association in the year 1904 is expressly prescribed in the Commercial
Code, whether we regard the association, so far as it affects the
mutual rights and obligations of the partners, as clothed with the forms
of a “sociedad de cuentas en participacion” (joint account partnership)
or a “sociedad en comindata.”
Article 243 of the Code of Commerce prescribes with reference to
“cuentas en participacio” (joint accounts) that:
243. The liquidation shall be effected by the manager, and after the
transactions have been concluded he shall render a proper account of
its results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited co-partnerships, should there be no
opposition on the part of any of the partners, the persons who
managed the common funds shall continue in charge of the liquidation;
but should all the partners not agree thereto a general meeting shall be
called without delay, and the decision adopted at the same shall be
enforced with regard to the appointment of liquidators from among the
members of the association or not, as well as in all that refers to the
form and proceedings of the liquidation and the management of the
common funds.
230. Under the penalty of removal the liquidators shall -
(1) Draw up and communicate to the members, within the period of
twenty days, an inventory of the common property, with a balance of
the association in liquidation according to its books.
(2) Communicate in the same manner to the members every month the
condition of the liquidation.
We conclude that an express statutory obligation imposed upon the
defendant an imperative obligation to proceed without delay to the
liquidation of the association in the year 1904 and the further duty to
account to his associates for the result of that liquidation. While he
appears to have gone forward with the liquidation far enough to collect
all the cash resources of the association into his own hands, how
utterly failed neglected to account therefor to his associates or to make
any attempt so to do, and we are of opinion that the plaintiffs were
clearly entitled to bring this action to compel an accounting, and the
payment of their respective shares of the capital invested, together
with damages resulting from the failure of the defendant to perform the
duty expressly imposed upon him by statute. The damages arising
from the failure to account consisted of the loss of the use of the
money to which they would have been entitled upon a proper
accounting, from the date at which it should have been turned over by
the defendant until it is actually paid by him, that is to say, interest on
that amount at the rate of six per centum per annum until paid.
G.R. No. L-45464. April 28, 1939
JOSUE SONCUYA, plaintiff-appellant, vs. CARMEN DE LUNA,
defendant-appellee.
FACTS: In 1936, plaintiff filed an amended complaint against Carmen
de Luna in her own name and as co-administratrix of the intestate
estate, of Librada Avelino, in praying that defendant be sentenced to
pay him the sum of P700,432 as damages and costs. 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 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, filed a motion
praying that the amended complaint be dismissed. Said motion was
granted by The CFI of Manila. Appellant took an appeal.
ISSUE: Whether or not the CFI erred in dismissing the amended
complaint
RULING: No. 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 and that the complaint is ambiguous, unintelligible and
vague.
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. 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 a liquidation has been effected nor is it prayed that it be made.
(Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the complaint
are not sufficient to constitute a cause of action on the part of plaintiff
as member of the partnership "Centro Escolar de Señoritas" to collect
damages from defendant as managing partner thereof, without a
previous liquidation, we do not deem it necessary to discuss the
remaining question of whether or not the complaint is ambiguous,
unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so
hold that 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.
G.R. No. L-27343. February 28, 1979
MANUEL G. SINGSONG, et al., BACOLOD SOUTHERN LUMBER
YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees, vs.
ISABELA SAWMILL, et al., defendants-appellants.
FACTS: In 1951 the defendants Leon Garibay, Margarita G. Saldejeno,
and Timoteo Tubungbanua entered into a Contract of Partnership
under the firm name “Isabela Sawmill”.
That in 1956, the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and
two Tractors to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purchase price, the said
partnership agreed to make arrangements with the International
Harvester Company at Bacolod City so that the latter would sell farm
machinery to Oppen, Esteban, Inc. with the understanding that the
price was to be paid by the partnership. That through the method of
payment stipulated in the contract, the International Harvester
Company has been paid a total of P19,211.11, leaving an unpaid
balance of P1,288.89.
In 1958, Civil Case No. 4797 was filed by the spouses Cecilio
Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill,
Leon Garibay, and Timoteo Tubungbanua. Defendants Leon Garibay,
Timoteo Tubungbanua and Margarita G. Saldajeno entered into a
“Memorandum Agreement” and executed a document entitled
“Assignment of Rights with Chattel Mortgage”. That thereafter the
defendants Leon Garibay and Timoteo Tubungbanua did not divide the
assets and properties of the “Isabela Sawmill” between them, but they
continued the business of said partnership under the same firm name
“Isabela Sawmill”.
In 1959, the Provincial Sheriff of Negros Occidental published two (2)
notices that he would sell at public auction certain trucks, tractors,
machinery, office equipment and other things that were involved in
Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." In
1969, the Provincial Sheriff of Negros Occidental executed a
Certificate of Sale in favor of the defendant Margarita G. Saldajeno, as
a result of the sale conducted by him.
In 1959, the defendant Margarita G. Saldajeno executed a deed of sale
in favor of the Pan Oriental Lumber Company transferring to the latter
for the sum of P45,000.00 the trucks, tractors, machinery, and other
things that she had purchased at a public.
The fact that the defendant ‘Isabela Sawmill’ is indebted to the plaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid
balance of an obligation of P20,500.00 contracted is expressly
admitted in paragraph 2 and 3 of the Stipulation.
It is contended by the appellants that the CFI of Negros Occidental had
no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen,
Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod
Southern Lumber Yard sought to collect sums of money, the biggest
amount of which was less than P2,000.00 and, therefore, within the
jurisdiction of the municipal court.
ISSUE: Whether or not the remaining partners terminate the business
of the partnership “Isabela Sawmill”.
RULING: No. 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. However, on dissolution, the partnership is not terminated
but continuous until the winding up to 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”.
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.
The properties mortgaged to Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua, belonged to the
partnership “Isabela Sawmill.” The appellant, Margarita G. Saldajeno,
was correctly held liable by the trial court because she purchased at
public auction the properties of the partnership which were mortgaged
to her.
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, Margrita 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 action 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 doping business
through the two remaining partners.
G.R. No. L-17526. June 30, 1962
GREGORIO MAGDUSA, ET AL., petitioners, vs. GERUNDIO
ALBARAN, ET AL., respondents.
FACTS: The CA 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, 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
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 CFI of Bohol dismissed the complaint on the ground that the other
were indispensable parties but did not been impleaded. Upon appeal,
the CA reversed.
ISSUE: Whether or not the appellees' action cannot be entertained,
because in the distribution of all or part of a 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: Yes. A partner's share cannot 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
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, cannot 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 cannot be diminished to their prejudice. Finally,
the appellant cannot 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.
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: Originally, this litigation was a complaint filed by respondent
Tan Put only against the spouses-petitioners Antonio Lim Tanhu and
Dy Ochay. Subsequently, in an amended complaint, their son Lim Teck
Chuan and the other spouses-petitioners Alfonso Leonardo Ng Sua
and Co Oyo and their son Eng Chong Leonardo were included as
defendants. In said amended complaint, respondent Tan alleged that
she is the widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company with Antonio Lim
Tanhu and Alfonso Ng Sua that defendant 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 Company, defendants managed to use
the funds of the partnership to purchase lands and building's in the
cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay
and Minglanilla, some of which were hidden, but the description of
those already discovered were stated.
In a single answer with counterclaim, over the signature of their
common counsel, defendants denied specifically not only the allegation
that respondent Tan is the widow of Tee Hoon because, according to
them, his legitimate wife was Ang Siok Tin still living and with whom he
had four (4) legitimate children, a twin born in 1942, and two others
born in 1949 and 1965, all presently residing in Hongkong, but also all
the allegations of fraud and conversion quoted above, the truth being,
according to them, that proper liquidation had been regularly made of
the business of the partnership and Tee Hoon used to receive his just
share until his death, as a result of which the partnership was
dissolved and what corresponded to him were all given to his wife and
children.
On February 3, 1973, however, the date set for the pre-trial, both of the
two defendants-spouses the Lim Tanhus and Ng Suas, did not appear,
for which reason, upon motion of plaintiff, they were all “declared in
DEFAULT when they failed to appear at the pre-trial.”
Upon learning of these orders, the defendant Lim Teck Cheng and
defendant Eng Chong Leonardo, thru their counsels, filed a motion for
reconsideration thereof. These motions were denied in an order dated
December 6, 1974 but received by the movants only on December 23,
1974. By resolution of January 24, 1975, the Court of Appeals
dismissed said petition, holding that its filing was premature,
considering that the motion to quash the order of October 28, 1974
was still unresolved by the trial court. On the other hand, on January
20, 1975, the other defendants, petitioners herein, filed their notice of
appeal, appeal bond and motion for extension to file their record on
appeal, which was granted.
ISSUE: Whether or not plaintiff is married to the deceased Tee Hoon
Lim Po Chuan to be entitled to ¹/3 share of the assets and properties of
the partnership.
RULING: No. Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and wife
“shall be set forth in an instrument” signed by the parties as well as by
their witnesses and the person solemnizing the marriage. Accordingly,
the primary evidence of a marriage must be an authentic copy of the
marriage contract. While a marriage may also be proved by other
competent evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the person who
allegedly solemnized a marriage is not admissible evidence of such
marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court.
In the case at bar, the purported certification issued by a Mons. Jose
M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not,
therefore, competent evidence, there being absolutely no showing as
to unavailability of the marriage contract and, indeed, as to the
authenticity of the signature of said certifier, the jurat allegedly signed
by a second assistant provincial fiscal not being authorized by law,
since it is not part of the functions of his office. Besides, inasmuch as
the bishop did not testify, the same is hearsay.
Incidentally, another memorandum purports to be the certificate of birth
of one Antonio T. Uy supposed to have been born on March 23, 1937
at Centro Misamis, Misamis Occidental, the son of one Uy Bien, father,
and Tan Put, mother. Significantly, respondents have not made any
adverse comment on this document. It is more likely, therefore, that the
witness is really the son of plaintiff by her husband Uy Kim Beng. But
she testified she was childless. So which is which? In any event, if on
the strength of this document, Nuñez is actually the legitimate son of
Tan Put and not her adopted son, he would have been but 13 years
old in 1949, the year of her alleged marriage to Po Chuan, and even
then, considering such age, his testimony in regard thereto would still
be suspect.
We refer to the income tax return of the deceased Tee Hoon Lim Po
Chuan indicating that the name of his wife was Ang Sick Tin and (2)
the quitclaim, wherein plaintiff Tan Put stated that she had been living
with the deceased without benefit of marriage and that she was his
“common-law wife”. Surely, these two documents are far more reliable
than all the evidence of the plaintiff put together.
And in regard to the quitclaim containing the admission of a common-
law relationship only, it is to be observed that His Honor found that
“defendants Lim Tanhu and Ng Sua had the plaintiff execute a
quitclaim where they gave plaintiff the amount of P25,000 as her share
in the capital and profits of the business of Glory Commercial Co.
which was engaged in the hardware business”, without making
mention of any evidence of fraud and misrepresentation in its
execution, thereby indicating either that no evidence to prove that
allegation of the plaintiff had been presented by her or that whatever
evidence was actually offered did not produce persuasion upon the
court. Stated differently, since the existence of the quitclaim has been
duly established without any circumstance to detract from its legal
import, the court should have held that plaintiff was bound by her
admission therein that she was the common-law wife only of Po Chuan
and what is more, that she had already renounced for valuable
consideration whatever claim she might have relative to the
partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations,
there are mentioned and discussed in the memorandum of petitioners
(1) the certification of the Local Civil Registrar of Cebu City and (2) a
similar certification of the Apostolic Prefect of the Philippine
Independent Church, Parish of Sto. Niño, Cebu City, that their
respective official records corresponding to December 1949 to
December 1950 do not show any marriage between Tee Hoon Lim Po
Chuan and Tan Put, neither of which certifications have been
impugned by respondent until now, it stands to reason that plaintiff's
claim of marriage is really unfounded. Indeed, not only does this
document prove that plaintiff's relation to the deceased was that of a
common-law wife but that they had settled their property interests with
the payment to her of P40,000.
In the light of all these circumstances, 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.
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. 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 huge profits.”
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; ...”
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.”
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.” 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, 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.
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.
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.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no
known income except their salaries. On the other hand, with respect to
Lim Tanhu, the decision itself states that according to 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. And he had a net income of P32,000 for which be paid a
tax of P3,512.40. As early as 1962, “his fishing business in Madridejos
Cebu was making money, and he reported a net gain from operation
the amount of P865.64”. 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. 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. 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
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, in
the same breath, they have also been sentenced to partition and give
¹/3 share 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.
Cristobal Bonnevie vs. Jaime Hernandez
95 Phil. 175
FACTS: Plaintiffs with other associates formed a secret partnership for
the purpose of acquiring the properties of the MERALCO. No formal
articles were drawn as the members intended to incorporate once the
deal had been consummated. In the meantime they elected
Serranzana and Serrano general manager and secretary-treasurer.
Negotiation for purchase commenced but as it made no headway
defendant Hernandez was taken in as member so that he could push
the deal through. Using partnership funds, he was able to buy the
MERALCO properties for P122,000.
The members then proceeded with formation of the proposed
corporation, apportioning among themselves its shares of stock in
proportion to their contributions to the capital and their individual efforts
in acquiring of the MERALCO properties. But before the incorporation
papers could be perfected, plaintiffs together with Judge Reyes
expressed their desire to withdraw from the partnership and get back
their investment due to fear that the venture might be a failure. The
members agreed to a resolution that those partners who did not want
to remain in the association should be allowed to withdraw and get
back their contributions. Plaintiffs et al. withdrew from the partnership,
and the same was dissolved. The next day the withdrawing partners
were reimbursed their respective contributions to the partnership fund.
The members who remained in formed the corporation and took in new
associates. And defendant, 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.”
On its first year, the company was losing money but the business
became profitable eventually. Two years from their withdrawal from the
partnership, 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.
Defendant's answer denies that he has made any profit out of the
assignment in question and alleges that in any event plaintiffs, after
their withdrawal from the partnership, ceased to have any further
interest in the subsequent transactions of the remaining members.
Plaintiffs filed a 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.
ISSUE: Whether or not the partnership had realized profit out of the
MERALCO properties made by the defendant to the corporation. No.
If there was indeed a profit, Whether or not the plaintiffs are entitled for
their share out of such profit. No.
RULING:
1. No. It is true that the value set for those properties in the deed of
assignment was P365,000 when the acquisition price was only
P122,000. The difference between the two sums was really made out
of the transaction, for the assignment was not made for cash but in
payment for subscriptions to shares of stock in the assignee, and while
those shares had a total face value of P225,000 this is not necessarily
their real worth.
2. No Assuming that the assignment actually brought profit to the
partnership, it plaintiffs were still not entitled to receive from the profit.
Plaintiffs maintain that the latter should be held liable for damages
caused to them, consisting of the loss of their share of the profits, due
to defendant's failure to perform his duty as a liquidator of the
dissolved partnership
On the theory that as managing partner, it was defendant's duty to
liquidate its affairs upon its dissolutions. Plaintiffs never asked for
liquidation during the dissolution. No liquidation was called for because
when plaintiffs withdrew from the partnership the understanding was
that after they had been reimbursed their investment, they were no
longer to have any further interest in the partnership or its assets and
liabilities.
As a general rule, when a partner retires from the firm, he is entitled to
the payment of what may be due him after liquidation. But certainly no
liquidation is necessary where there is already a settlement or an
agreement as to what the retiring partner shall receive, similar to the
instant case.
A settlement was agreed upon on the very day the partnership was
dissolved. When plaintiffs and Judge Jaime Reyes withdrew from the
partnership, the only condition was that they were to be repaid their
contributions or investments within three days from said date.
Condition was fulfilled when on the following day they were reimbursed
the respective amounts due them pursuant to the agreement.
Acceptance by the withdrawing partners, including plaintiffs, of their
investment, was understood and intended by all the parties as a final
settlement of their 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.
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, to
change the firm name to ROSS, SELPH and CARRASCOSO; on 6
July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO &
MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA &
LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; 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.
On February 17, 1988, petitioner-appellant wrote the respondents-
appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.
“I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm.”
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
“Further to my letter to you today, I would like to have a meeting with
all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like to
have this resolved soon because it has to do with my own plans.”
On 19 February 1988, petitioner-appellant wrote respondents-
appellees another letter stating:
“The partnership has ceased to be mutually satisfactory because of the
working conditions of our employees including the assistant attorneys.
All my efforts to ameliorate the below subsistence level of the pay
scale of our employees have been thwarted by the other partners. Not
only have they refused to give meaningful increases to the employees,
even attorneys, are dressed down publicly in a loud voice in a manner
that deprived them of their self-respect. The result of such policies is
the formation of the union, including the assistant attorneys.”
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution
and liquidation of partnership. On 13 July 1988, respondents-appellees
filed their opposition to the petition. Petitioner filed his Reply to the
Opposition. On 31 March 1989, the hearing officer rendered a decision
enjoining petitioner and respondenst to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares
of any retiring or withdrawing partner in the partnership interest.
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 parties sought a reconsideration of the above 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. SEC issued an order denying reconsideration,
as well as rejecting the petition for receivership. The parties filed with
the appellate court separate appeals.
During the pendency of the case with the Court of Appeals, Attorney
Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05
September 1991 and 21 December 1991. The Court of Appeals,
finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from.
ISSUE:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless
of his good or bad faith; and
RULING:
1. Yes. A partnership that does not fix its term is a partnership at will.
That the law firm “Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega
and Castillo,” is indeed such a partnership need not be unduly
belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does
not provide for a specified period or undertaking. The “DURATION”
clause simply states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act
as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and to appear for
and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere
when legally authorized to do so."
The “purpose” of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for
articles on partnership at will as none would so exist. Apparently what
the law contemplates, is a specific undertaking or “project” which has a
definite or definable period of completion.
The birth and life of a partnership at will is predicated on the mutual
desire and consent of the partners. The right to choose with whom a
person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each partner's capability
to give it, and the absence of a cause for dissolution provided by the
law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for
damages.
2. NO. 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, mutual agency arises and the doctrine of
delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for
damages.
The dissolution of a partnership is the change in the relation of the
parties caused by any partner ceasing to be associated in the carrying
on, as might be distinguished from the winding up of, the business.
Upon its dissolution, the partnership continues and its legal personality
is retained until the complete winding up of its business culminating in
its termination.
The liquidation of the assets of the partnership following its dissolution
is governed by various provisions of the Civil Code; however, an
agreement of the partners, like any other contract, is binding among
them and normally takes precedence to the extent applicable over the
Code's general provisions.
The term “retirement” must have been used in the articles, as we so
hold, in a generic sense to mean the dissociation by a partner,
inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
25. Jesus Sy et al, vs. Court of Appeals (G.R. No. 94285
August 31, 1999)

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, 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, 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.
On September 20, 1978, Marciano prayed that he be
appointed as Managing partner to replace Jose who just died.
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 decision (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 (Abello decision)
IN THE MEAN TIME … Branch 43 of the Regional Trial Court
of Negros Occidental appointed one Felix Ferrer as a Special
Administrator for the Intestate Estate of Sy Yong Hu in Civil
Case No. 13388. It appears that sometime in December, 1985,
Special Administrator Ferrer filed an Amended Complaint on
behalf of respondent Intestate Estate in Civil Case No. 13388,
wherein he joined Keng Sian as plaintiff and thereby withdrew
as defendant in the case. Special Administrator Ferrer adopted
the theory of Keng Sian that the assets of the partnership
belong to Keng Sian and Sy Yong Hu.
During the continuation of the proceedings in SEC Case No.
1648, now presided over by Hearing Officer Felipe S. Tongco
who had substituted Hearing Officer Sison, the propriety of
placing the Partnership under receivership was taken up. The
parties brought to the attention of the Hearing Officer the fact
of existence of Civil Case No. 903 (formerly Civil Case No.
13388) pending before the Regional Trial Court of Negros
Occidental. They also agreed that during the pendency of the
aforesaid court case, there will be no disposition of the
partnership assets. On October 5, 1988, Hearing Officer
Tongco came out with an Order (Tongco Order) incorporating
the above submissions of the parties and placing23 the
partnership under a receivership committee, explaining that "it
is the most equitable fair and just manner to preserve the
assets of the partnership during the pendency of the civil case
in the Regional Trial Court of Bacolod City."
On January 15, 1990, the Court of Appeals granted the petition
and set aside the Tongco and Lopez Orders, and remanded
the case for further execution of the 1982 Abello and 1988 Sulit
Decisions, ordering the partition and distribution of the
partnership properties.
Private respondent seasonably interposed a motion for
reconsideration of such decision of the Court of Appeals.
Acting thereupon on June 27, 1990, the Court of Appeals
issued its assailed Resolution, reversing its Decision of
January 15, 1990, and remanding the case to the SEC for the
formation of a receivership committee, as envisioned in the
Tongco Order.
Petitioner’s argument: They theorize that the 1988 Tongco
Decision varied the 1982 Abello Decision affirming the
dissolution of the partnership, contrary to the final and
executory tenor of the said judgment. To buttress their theory,
petitioners offer the 1988 Sulit Decision which, among others,
expressly confirmed the finality of the Abello Decision.
On the same premise, petitioners aver that when Hearing
Officer Tongco took over from Hearing Officer Sison, he was
left with no course of action as far as the proceedings in the
SEC Case were concerned other than to continue with the
partition and distribution of the partnership assets. Thus, the
Order placing the partnership under a receivership committee
was erroneous and tainted with excess of jurisdiction.
Issue: WON the contentions are tenable?
Ruling:
The contentions are untenable. 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.
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.
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.
*Re the receivership
As alleged by the respondents and as shown by the records
there is now pending civil case entitled "Keng Sian and
Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy, Marciano Sy,
Willy Sy, Intestate of Jose Sy, Intestate of Vicente Sy, Sy Yong
Hu & co and Sy Yong Hu & Sons" denominated as Civil Case
No. 903 before Branch 50 of the Regional Trial Court of
Bacolod City.

Moreover, a review of the records reveal that certain properties

in question have already been sold as of 1987, as evidenced
by deeds of absolute sale executed by Jesus in favor of
Reynaldo Navarro (p. 331, Rollo), among others.

To ensure that no further disposition shall be made of the

questioned assets and in view of the pending civil case in the
lower court, there is a compelling necessity to place all these
properties and assets under the management of a receivership
committee. The receivership committee, which will provide
active participation, through a designated representative, on
the part of all interested parties, can best protect the properties
involved and assure fairness and equity for all.

Receivership, which is admittedly a harsh remedy, should be

granted with extreme caution.52 Sound bases therefor must
appear on record, and there should be a clear showing of its
necessity.53 The need for a receivership in the case under
consideration can be gleaned from the aforecited disquisition
by the Court of Appeals finding that the properties of the
partnership were in danger of being damaged or lost on
account of certain acts of the appointed manager in liquidation.

The dispositions of certain properties by the said manager, on

the basis of an order of partial partition, dated December 2,
1986, by Hearing Officer Sison, which was not yet final and
executory, indicated that the feared irreparable injury to the
properties of the partnership might happen again. So also, the
failure of the manager in liquidation to submit to the SEC an
accounting of all the partnership assets as required in its order
of April 29, 1988, justified the SEC in placing the subject
assets under receivership.

Moreover, it has been held by this Court that an order placing

the partnership under receivership so as to wind up its affairs
in an orderly manner and to protect the interest of the plaintiff
(herein private respondent) was not tainted with grave abuse of
discretion.54 The allegation that respondents' rights are
adequately protected by the notices of lis pendens in Civil
Case 903 is inaccurate. As pointed out in their Comment to the
Petition, the private respondents claim that the partnership
assets include the income and fruits thereof. Therefore,
protection of such rights and preservation of the properties
involved are best left to a receivership committee in which the
opposing parties are represented.

What is more, as held in Go Tecson vs. Macaraig:

The power to appoint a receiver pendente lite is discretionary with the

judge of the court of first instance; and once the discretion is
exercised, the appellate court will not interfere, except in a clear case
of abuse thereof, or an extra limitation of jurisdiction.

Here, no clear abuse of discretion in the appointment of a

receiver in the case under consideration can be discerned.
26. *Same case sa no. 25*
27. LILIBETH SUNGA-CHAN and CECILIA SUNGA *Re Dead man’s statute
vs. LAMBERTO T. CHUA (G.R. No. 143340 - August 15, Two reasons forestall the application of the "Dead Man's
2001) Statute" to this case.

Facts: First, petitioners filed a compulsory counterclaim against

Lamberto T. Chua filed a complaint against Lilibeth Sunga
Chan and Cecilia Sunga, daughter and wife, respectively of the
deceased Jacinto L. Sunga, 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.
He alleges that 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, 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, 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.
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.
The trial court ruled in favor of petitioner and such was affirmed
by the CA.
Respondent’s argument:
In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners
argues that these courts were proscribes from hearing the
testimonies of respondent and his witness, Josephine, to prove
the alleged partnership three years after Jacinto's death. To
support this argument, petitioners invoke the "Dead Man's
Statute' or "Survivorship Rule" under Section 23, Rule 130 of
the Rules of Court.
Respondents also argued that prescription or laches has
already attached to the case.
respondents in their answer before the trial court. Well
entrenched is the rule that when it is the executor or
administrator or representatives of the estates that sets up the
counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the
counterclaim. Moreover, as defendant in the counterclaim,
respondent is not disqualified from testifying as to matters of
facts occurring before the death of the deceased, said action
not having been brought against but by the estate or
representatives of the deceased.
Second, the testimony of Josephine is not covered by the
"Dead Man's Statute" for the simple reason that she is not "a
party or assignor of a party to a case or persons in whose
behalf a case is prosecuted." Petitioners' insistence that
Josephine is the alter ego of respondent does not make her an
assignor because the term "assignor" of a party means
"assignor of a cause of action which has arisen, and not the
assignor of a right assigned before any cause of action has
arisen." Plainly then, Josephine is merely a witness of
respondent, the latter being the party plaintiff.
*Re: PRESCRIPTION of action
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.

Issue:
WON the action for "Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages
with Writ of Preliminary Attachment" has already prescribed?

Ruling:
*Re existence of partnership
A partnership may be constituted in any form, except where
immovable property of real rights are contributed thereto, in
which case a public instrument shall necessary.Hence, based
on the intention of the parties, as gathered from the facts and
ascertained from their language and conduct, a verbal contract
of partnership may arise.

*Non-registration with SEC

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 Code25 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.
28. G.R. No. 144214. July 14, 2003
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE v. DONALDO EFREN C. RAMIREZ and
CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ
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.

Facts: In the present case, the exact amount of refund equivalent to

On July 25, 1984, 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.
respondents one-third share in the partnership cannot be
determined until all the partnership assets will have been
liquidated -- in other words, sold and converted to cash -- and
all partnership creditors, if any, paid. The CAs computation of
the amount to be refunded to respondents as their share was
thus erroneous.

Respondent Donaldo Efren C. Ramirez joined as a partner in
the business on September 5, 1984. His capital contribution of
P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez.
After Jesus Jose withdrew from the partnership in January
1987, 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 latters offer to return their capital contribution.
They likewise informed petitioner that the furniture and
equipment stored in their house was deteriorating. These
request were unheeded. They filed before the RTC of Makati,
Branch 59 a complaint for the collection of a sum of money
from petitioners.
In their Answer, petitioners contended that respondents had
expressed a desire to withdraw from the partnership and had
called for its dissolution under Articles 1830 and 1831 of the
Civil Code; 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.
The RTC ruled in favor of the respondents but its decision did
not rule on the respective rights of the parties and merely ruled
on the damages and costs.
The CA was erroneous in computing that the total capital
contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea that the
capital contribution at the beginning of the partnership remains
intact, unimpaired and available for distribution or return to the
partners. In the present case, the financial statements
presented before the trial court showed that the business had
made meager profits. However, notable therefrom is the
omission of any provision for the depreciation of the furniture
and the equipment. The amortization of the goodwill (initially
valued at P500,000) is not reflected either. Properly taking
these non-cash items into account will show that the
partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership.
Moreover, the CA failed to reduce the capitalization by
P250,000, which was the amount paid by the partnership to
Jesus Jose when he withdrew from the partnership.
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.
*Re the argument that the respondents should just sell the
furniture in their possession to be treated as their share in the
partnership - The delivery of the store furniture and equipment
to private respondents was for the purpose of storage. They
were unaware that the restaurant would no longer be reopened
by petitioners. Hence, the former cannot be faulted for not
disposing of the stored items to recover their capital
investment.

On appeal to the CA, it ruled that since the partnership had an

outstanding obligation of P240,658.00 (loan) must have to be
deducted from the remaining capitalization of the said
partnership which is in the amount of P1,000,000.00 resulting
in the amount of P759,342.00, and in order to get the share of
[respondents], this amount of P759,342.00 must be divided
into three (3) shares or in the amount of P253,114.00 for each
share and which is the only amount which [petitioner] will
return to [respondents] representing the contribution to the
partnership minus the outstanding debt thereof.

Issue:
1. WON the petitioners are liable for the respondents
share in the partnership?
2. WON the CA’s computation was correct?

Ruling:
1st issue:
We hold that respondents have no right to demand from
petitioners the return of their equity share. 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.

2nd issue:
Since it is the partnership, as a separate and distinct entity,
that must refund the shares of the 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
29. G.R. No. 30616 : December 10, 1990
EUFRACIO D. ROJAS vs. CONSTANCIO B. MAGLANA
Facts:
On January 14, 1955, Maglana and Rojas executed their
Articles of Co-Partnership called Eastcoast Development
Enterprises (EDE) with only the two of them as partners. The
partnership EDE with an indefinite term of existence was duly
registered on January 21, 1955 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." A duly registered Articles of Co-Partnership was
filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with
the Bureau of Forestry which was approved and Timber
License No. 35-56 was duly issued. Under the said Articles of
Co-Partnership, appellee Maglana shall manage the business
affairs of the partnership, including marketing and handling of
cash and is authorized to sign all papers and instruments
relating to the partnership, while appellant 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.
From January 14, 1955 to April 30, 1956, 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. On March 4,
1956, Maglana, Rojas and Agustin Pahamotang executed their
Articles of Co-Partnership. The term of the second partnership
was at a fixed term of 30 years.
On October 25, 1956, Pahamotang, Maglana and Rojas
agreed that Maglana and roxas shall purchase the interest,
share and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. 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, Roxas entered into a management contract with
another logging enterprise, the CMS Estate, Inc. He left and
abandoned the partnership. He even withdrew his equipment
from the partnership. Roxas then told Maglana that he will not
be able to comply with his obligations, Maglana then told Rojas
that the latter's share will just be 20% of the net profits. Such
was the sharing from 1957 to 1959 without complaint or
dispute.
Meanwhile, Rojas took funds from the partnership more than
his contribution. Maglana told Roxas that he will be dissolving
the partnership.
The lower court’s decision:
The partnership of Roxas and Maglana after Pahamotang left
is a de facto partnership and one at will and that from 1957 to
1959, the sharing is on the basis of 80% for the defendant and
20% for the plaintiff of the profits, but from 1960 to the date of
dissolution, February 23, 1961, the plaintiff's share will be on
the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to
any share in the profits of the said partnership.
Issue:
1. What was the partnership relations of Roxas and
Maglana after Pahamotang left the group.
2. WON Maglana can unilaterally dissolve the
partnership? If yes, can he be made liable for
damages under Article 1830, par. 2 of the Civil Code.
Ruling:
1st issue:
It is not the intention of the parties to dissolve the first
partnership upon the constitution of the second one apparent
from the fact that they called the second agreement as
“Additional Agreement”. Except for the fact that they took in
one industrial partner; gave him an equal share in the profits
and fixed the term of the second partnership to thirty (30)
years, everything else was the same. Thus, they adopted the
same name, EASTCOAST DEVELOPMENT ENTERPRISES,
they pursued the same purposes and the capital contributions
of Rojas and Maglana as stipulated in both partnerships call for
the same amounts. Just as important is the fact that all
subsequent renewals of Timber License No. 35-36 were
secured in favor of the First Partnership, the original licensee.
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.
The dissolution of the second partnership did not affect the first
partnership which continued to exist. Significantly, Maglana
and Rojas agreed to purchase the interest, share and
participation in the second partnership of Pahamotang and that
thereafter, the two (Maglana and Rojas) became the owners of
equipment contributed by Pahamotang. 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.
2nd issue:
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.
But an accounting must first be made and which in fact was
ordered by the trial court and accomplished by the
commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding
contribution of the partners from 1956-1961 are as follows:
Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have
contributed P160,984.00, contributed P267,541. 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. Being a
contract of partnership, each partner must share in the profits
and losses of the venture. That is the essence of a partnership.
Thus, as reported in the Commissioners' Report, Rojas is not
entitled to any profits. In their voluminous reports which was
approved by the trial court, they showed that on 50-50% basis,
Rojas will be liable in the amount of P131,166.00; on 80-20%,
he will be liable for P40,092.96 and finally on the basis of
actual capital contribution, he will be liable for P52,040.31.
*Is Maglana liable for damages?
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.
30. G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, et al., vs. ISABELA SAWMILL
Facts:
The facts as found by the trial court are as follows;
on January 30, 1951 the defendants Leon Garibay, Margarita
G. Saldejeno, and Timoteo Tubungbanua entered into a
Contract of Partnership under the firm name "Isabela Sawmill".
on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a
Motor Truck and two Tractors to the partnership Isabela
Sawmill for the sum of P20,500.00. In order to pay the said
purcahse price, the said partnership agreed to make
arrangements with the International Harvester Company at
Bacolod City so that the latter would sell farm machinery to
Oppen, Esteban, Inc. with the understanding that the price was
to be paid by the partnership. Through this method of payment,
the International Harvester Company has been paid a total of
P19,211.11, leaving an unpaid balance of P1,288.89.
On April 25, 1958 Civil Case No. 4797 was filed by the
spouses Cecilio Saldajeno and Margarita G. Saldajeno against
the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua
Margarita G. Saldajeno and her husband, Cecilio Saldajeno
alleged that he defendant Isabela Sawmill has been dissolved
by virtue of an action entitled "In the matter of: Dissolution of
Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et
al. vs. Isabela Sawmill, et al., Civil Case No. 4787, Court of
First Instance of Negros Occidental and that as a result of the
said dissolution and the decision of the Court of First Instance
of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo
Tubungbanua became the successors-in-interest to the said
defunct partnership and have bound themselves to answere for
any and all obligations of the defunct partnership to its
creditors and third persons. Thereafter the defendants Leon
Garibay and Timoteo Tubungbanua did not divide the assets
and properties of the "Isabela Sawmill" between them, but they
continued the business of said partnership under the same firm
name "Isabela Sawmill".
The properties mortgaged to Margarita G. Saldajeno by the
remaining partners, Leon Garibay and Timoteo Tubungbanua,
belonged to the partnership "Isabela Sawmill." The appellant,
Margarita G. Saldajeno, was correctly held liable by the trial
court because she purchased at public auction the properties
of the partnership which were mortgaged to her.
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 proeprties 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, margrita G. Saldajeno, cannot complain. She is
partly to blame for not insisting on the liquidaiton 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
action in good faith, the appellees aslo 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 aprtnership, the applees
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 doping business through the two remaining
partners.

It was admitted by the respondents that all the plaintiffs herein, The plaintiffs-appellees were prejudiced in their rights by the
with the exceptionof the plaintiff Oppen, Esteban, Inc. are execution of the chattel mortgage over the properties of the
creditors of Messrs. Leon Garibay and Timoteo Tubungbanua partnership "Isabela Sawmill" in favopr of Margarita G.
and not of the defunct Isabela Sawmill and as such they have
Saldajeno by the remaining partners, Leon Garibay and
no cause of action against answering defendant herein and the
defendant Isabela Sawmill and that all the plaintiffs herein, Timoteo Tubungbanua. Hence, said appelees have a right to
except for the plaintiff Oppen, Esteban, Inc. granted cash file the action to nullify the chattel mortgage in question.
advances, gasoline, crude oil, motor oil, grease, rice and nipa
to the defendants Leon Garibay and Timoteo Tubungbanua *Paki basa sa full text guys kay bisan ako nag libog sa facts
with the knowledge and notice that the Isabela Sawmill as a huhuhu*
former partnership of defendants Margarita G. Isabela Sawmill
as a former partnership of defendants Margarita G. Saldajeno,
Leon Garibay and Timoteo Tubungbanua, has already been
dissolved.

Issue:
WON the CA erred in holding that the withdrawal of Margarita
from the partnership caused the complete disappearance of
extinction of the partnership.

Ruling:
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 partnershop is not
terminated but continuous until the winding up to the business.
19

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.
31. G.R. No. L-48113 April 7, 1947
NGO TIAN TEK and NGO HAY vs. PHILIPPINE
EDUCATION CO., INC.
Facts:
This is an action instituted by 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, 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.
In 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.
In the year 1930, the Lee Guan Box Factory was established a
few meters from the Modern Box Factory, under the
management of Vicente Tan. 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. Moreover, the testimony
of Ngo Hay that he sold to Vicente Tan the Lee Guan Box
company was found by the referee as untrue and simulated.
These statements serve effectively to confirm the evidence for
the plaintiff that it was Ngo Hay's representations of ownership
of, and responsibility for, Lee Guan Box Factory that induced
them to open credit for that concern. It must be stated that in
this connection — to answer appellant's fitting observation —
that the plaintiff and the assignors have considered Ngo Hay,
the Modern Box Factory and Ngo Hay and Co. as one and the
same, through the acts of the partners themselves, and that
the proof as to Ngo Hay's statements regarding the ownership
of Lee Guan Box Factory must be taken in that view. Ngo Hay
was wont to say 'he' owned the Modern Box Factory, meaning
that he was the principal owner, his other partner being Ngo
Tian Tek. Now, it needs no demonstration — for appellant
does not deny it — that the obligations of the Lee Guan Box
Factory must rest upon its known owner. And that owner in
Ngo Tian Tek and Ngo Hay.
Issues:
1. WON the Lee Guan Box was a subsidiary of Modern
Box Factory
2. WON the Respondent has the right to sue for the
credits assigned by five entities which Lee Guan Box
Factory originally contracted, it being argued that the
assignment, intended only for purposes of collection,
did not make said respondent the real party in
interest.
3. WON the suit should be dismissed because of the
death of Ngo Hay.
Ruling:
1st issue:
Yes, the CA erred in ruling that hat Lee Guan Box Factory was
a subsidiary of the Modern Box Factory and in disregarding the
fact that the contracts evidencing the debts in question were
signed by Vicente Tan alias Chan Sy, without any indication
that tended to involve the Modern Box Factory or the petitioner.
In the first place, we are concluded by the finding of the Court
of Appeals regarding the ownership by the petitioner of Lee
Guan Box Factory. Secondly, the circumstances that Vicente
Tan alias Chan Sy acted in his own name cannot save the
petitioner, in view of said ownership, and because contracts
entered into by a factor of a commercial establishment known
to belong to a well known enterprise or association, shall be
understood as made for the account of the owner of such
enterprise or association, even when the factor has not so
stated at the time of executing the same, provided that such
contracts involve objects comprised in the line and business of
the establishment. (Article 286, Code of Commerce.) The fact
that Vicente Tan did not have any recorded power of attorney
executed by the petitioner will not operate to prejudice third
persons, like the respondent Philippine Education Co., Inc.,
and its assignors.
2nd issue:
The finding of the Court of Appeals that there is nothing
"simulated in the assignment," precludes us from ruling that
respondent company is not a bona fide assignee. Even
assuming, however, that said assignment was only for
collection, we are not prepared to say that, under section 114
of the Code of Civil Procedure, in force at the time this action
was instituted, ours is not one of those jurisdictions following
the rule that "when a choose, capable of legal assignment, is
assigned absolutely to one, but the assignment is made for
purpose of collection, the legal title thereto vests in the
assignee, and it is no concern of the debtor that the equitable
title is in another, and payment to the assignee discharges the
debtor." (5 C. J., section 144, p. 958.) No substantial right of
the petitioner could indeed be prejudiced by such assignment,
because section 114 of the Code of Civil Procedure reserves
to it "'any set-off or other defense existing at the time of or
before notice of the assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is
personal to the contracting parties and does not follow
assignment," and that the contracts assigned to the respondent
company "are immoral and against public policy and therefore
void," constitute defenses on the merits, but do not affect the
efficacy of the assignment. It is obvious that, apart from the
fact that the petitioner can not invoke fraud of its authorship to
evade liability, the appealed decision is founded on an
obligation arising, not from fraud, but from the very contracts
under which merchandise had been purchased by Lee Guan
Box Factory.
For us to sustain petitioner's contention will amount to an
unauthorized reversal of the following conclusion of fact of the
Court of Appeals: "The stereotyped manner in which
defendants obtained goods on credit from the six companies,
Vicente Tan's sudden disappearance, the execution of the fake
sale Exhibit 7 to throw the whole responsibility upon the absent
or otherwise insolvent Tan, defendant's mercurial and
unbelievable theories as to the ownership of the Modern Box
Factory and Lee Guan Box Factory — obviously adopted in a
vain effort to meet or explain away the evidentiary force of
plaintiff's documentary evidence — are much too significant to
permit a declaration that the attachment was not justified.
3rd issue:
Regarding the suggestion in petitioner's memorandum that this
case should be dismissed because of the death of Ngo Hay, 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.
32. G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO & FELIPE DELUAO vs. NICANOR
CASTEEL
Facts:
FACTS: In 1940 Nicanor Casteel unsuccessfully registered a
fishpond in a big tract of swampy land, 178.76 hectares, in the
then sitio of Malalag, municipality of Padada, Davao for 3
consecutive times because the Bureau of Fisheries did not act
upon his previous applications.
Despite the said rejection, Casteel did not lose interest.
Because of the threat poised upon his position by the other
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. But lacking financial resources at that time,
he sought financial aid from his uncle Felipe Deluao.
Moreover, upon learning that portions of the area applied for by
him were already occupied by rival applicants, Casteel
immediately filed a protest. Consequently, two administrative
cases ensued involving the area in question.
However, despite the finding made in the investigation of the
above administrative cases, the Director of Fisheries
nevertheless rejected Casteel's application on October 25,
1949, required him to remove all the improvements which he
had introduced on the land, and ordered that the land be
leased through public auction.
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
On November 29, 1949 the Director of Fisheries rejected the
application filed by Felipe Deluao on November 17, 1948.
Unfazed by this rejection, Deluao reiterated his claim over the
same area in the two administrative cases and asked for
reinvestigation of the application of Nicanor Casteel over the
subject fishpond.
The Secretary of Agriculture and Natural Resources rendered
a decision ordering Casteel to be reinstated in the area and
that he shall pay for the improvement made thereupon.
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.
Issue:
WON the partnership created between the parties was
dissolved?
Ruling:
Yes. Art. 1830(3) of the Civil Code enumerates, as one of the
causes for the dissolution of a partnership, "... any event which
makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership." The
approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore
several provisions of law which made the continuation of the
partnership unlawful and therefore caused its ipso facto
dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a
fishpond permit (the permittee) from transferring or subletting
the fishpond granted to him, without the previous consent or
approval of the Secretary of Agriculture and Natural
Resources. To the same effect is Condition No. 3 of the
fishpond permit which states that "The permittee shall not
transfer or sublet all or any area herein granted or any rights
acquired therein without the previous consent and approval of
this Office." Parenthetically, we must observe that in DANR
Case 353-B, the permit granted to one of the parties therein,
Leoncio Aradillos, was cancelled not solely for the reason that
his permit covered a portion of the area included in the
appellant's prior fishpond application, but also because, upon
investigation, it was ascertained thru the admission of Aradillos
himself that due to lack of capital, he allowed one Lino Estepa
to develop with the latter's capital the area covered by his
fishpond permit F-289-C with the understanding that he
(Aradillos) would be given a share in the produce thereof.
Sec. 40 of Commonwealth Act 141, otherwise known as the
Public Land Act, likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the
violation of this condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case: Provided, further, That nothing
contained in this section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands leased under this
Act, or under any previous Act, to persons, corporations, or
associations which under this Act, are not authorized to lease public
lands.
Finally, section 37 of Administrative Order No. 14 of the
Secretary of Agriculture and Natural Resources issued in
August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms and
conditions as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be
allowed. — If the permittee or lessee had, unless otherwise specifically
provided, held the permit or lease and actually operated and made
improvements on the area for at least one year, he/she may request
permission to sub-lease or transfer the area and improvements under
certain conditions.
(a) Transfer subject to approval. — A sub-lease or transfer shall only
be valid when first approved by the Director under such terms and
conditions as may be prescribed, otherwise it shall be null and void. A
transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and
forfeiture of the bond and for granting the area to a qualified applicant
or bidder, as provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two
equal parts of the fishpond between the appellees and the
appellant after it shall have been awarded to the latter, and
therefore it envisaged the unauthorized transfer of one-half
thereof to parties other than the applicant Casteel, it was
dissolved by the approval of his application and the award to
him of the fishpond. The approval was an event which made it
unlawful for the business of the partnership to be carried on or
for the members to carry it on in partnership.
*Assuming arguendo that the foregoing laws did not dissolve
the partnership:
Casteel wrote to Deluao his desire to to divide the fishpond so
that he could administer his own share, such division to be
subject to the approval of the Secretary of Agriculture and
Natural Resources. Inasmuch as the erstwhile partners
articulated in the aforecited letters their respective resolutions
not to share the fishpond with each other — in direct violation
of the undertaking for which they have established their
partnership — each must be deemed to have expressly
withdrawn from the partnership, thereby causing its dissolution
pursuant to art. 1830(2) of the Civil Code which provides, inter
alia, that dissolution is caused "by the express will of any
partner at any time."
33. G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN vs.
FELICIANO VELEZ
Facts: Plaintiff, Antonio M. Pabalan, was the owner in fee
simple of a rural estate consisting of an hacienda known by the
name of "Pantayani," which was devoted to agricultural
purposes. the plaintiff, desiring to make use of the two
properties described, and lacking the required means for the
purpose, entered into an agreement with the said Walter A.
Fitton whereby they formed a regular mercantile partnership for
the development of the said properties and for the manufacture
and sale of their products and other business pertinent thereto.
that the sum of 9,000 pesos Mexican currency was fixed as the
amount of the capital stock of the partnership, of which 3,000
pesos, in cash, were to be contributed by the plaintiff and
6,000 pesos, in real property, by the said Fitton; that, for the
purpose of obtaining the said 3,000 pesos, the plaintiff sold his
two aforementioned real properties to Walter A. Fitton. The
latter, bound himself to pay into the funds of the said
partnership, as the plaintiff's capital, the remaining 3,000 pesos
of the selling price; that it was furthermore agreed that the two
said real properties should constitute the capital of Walter A.
Fitton in the partnership, which would be known by the name of
"A. M. Pabalan and Company". All the foregoing facts were
recorded in the instrument of sale and organization of the
partnership, executed before the notary public.
When the partner Fitton died, the latter failed to pay into the
partnership funds the said 3,000 pesos, the remainder of the
price of the properties purchased by him, or any part thereof,
and did not pay the said sum or any part of the same to the
plaintiff;
Owing to the failure of Fitton to comply with his obligation, the
properties in question had been entirely unproductive and
losses and damages had been occasioned to the plaintiff in the
sum of 2,000 pesos Philippine currency. Plaintiff, therefore,
prayed for the rescission of the contract entered into, by
himself, and Walter A. Fitton, the dissolution of the partnership
"A. M. Pabalan and Company," and the annulment of the sale
of the said properties, by returning to the defendant a sum in
Philippine currency equivalent to the 3,000 pesos in Mexican
currency received from Walter A. Fitton, and that the defendant
be sentenced to pay to the plaintiff, as losses and damages,
the sum of 2,000 pesos, and to the payment of the cost of the
suit, in addition to the other remedies sought.
the sum of which the said price consisted; it is therefore
unquestionable that he did not comply with his two principal
obligations, assumed in the said double contract wherein he
expressly agreed that the said P3,000, a part of the price of the
two pieces of land that he purchased from Pabalan, would be
by him turned into the fund of the general partnership which
they had formed, as capital of the partner Pabalan.
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 the prayer rightfully and lawfully made
by the partner who did not violate his obligations as set forth in
the said contract.
During the course of this suit in the Court of First Instance, the
plaintiff, Antonio M. Pabalan, also died; and if the latter, while
living, was not obliged, according to clause 10 of the articles of
partnership, to continue in the company after the decease of
his copartner, and had a right to withdraw therefrom or from
the heirs of the deceased Walter A. Fitton, after the death of
the partner Pabalan, neither are the latter's successors in
interest obliged to continue in the company, and, therefore,
under this circumstance, the propriety of the judgment
appealed from is still more evident. 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's 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.

The plaintiff's claim is founded on the alleged fact that the said
Walter A. Fitton failed to comply with his obligations as
stipulated in the said double contract, inasmuch as he did not
pay into the funds of the company entitled "A. M. Pabalan and
Company," as the capital of the partner Pabalan, the sum of
P3,000, or the remainder of P6,000, the price of the properties
which he had purchased from the plaintiff, did not pay to the
latter the said amount, nor any part thereof, nor was such
payment made, after the said Fitton's death, by the
administrator of the latter's estate.

Issue:
Is the partner entitled to recission?

Ruling:
After the organization of the general mercantile partnership
denominated "A. M. Pabalan and Company," through the
aforesaid instrument of June 27, 1900, the partner Fitton did
not turn into the company funds the sum of P3,000, in the
name and to the credit of Pabalan, as the latter's capital, which
sum was a part of the price of the sale of the two real
properties purchased from the said Pabalan by his partner
Fitton who, in turn, brought the said two parcels of land, as his
capital, into the common fund, without having paid the said
sum up to the time when he absented himself from these
Islands, a few months after the establishment of the
partnership, and died in a foreign country.

It was duly proved at the trial of this case, that the partner
Walter A. Fitton failed to observe the stipulations of the two
aforesaid contracts; that he did not pay any part of the price of
the sale of the two parcels of land which he had purchased
from his partner, Antonio M. Pabalan, and, consequently, did
not turn into the company funds, as capital of the said Pabalan,
34. G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT
CORPORATION and RAFAELITO W. LOPEZ
vs.
MA. CLARITA T. LAZATIN-MAGAT, et al.
Facts:
Primelink Properties and Development Corporation (Primelink
for brevity) is a domestic corporation engaged in real estate
development. Rafaelito W. Lopez is its President and Chief
Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T.
Lazatin, Jaime T. Lazatin and Jose Marcos T. Lazatin (the
Lazatins for brevity), are co-owners of two (2) adjoining parcels
of land, with a combined area of 30,000 square meters, located
in Tagaytay City and covered by Transfer Certificate of Title
(TCT) No. T-108484 of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented
by Lopez, in his capacity as President, entered into a Joint
Venture Agreement5 (JVA) for the development of the
aforementioned property into a residential subdivision to be
known as "Tagaytay Garden Villas." Under the JVA, the
Lazatin siblings obliged themselves to contribute the two
parcels of land as their share in the joint venture. For its part,
Primelink undertook to contribute money, labor, personnel,
machineries, equipment, contractor’s pool, marketing activities,
managerial expertise and other needed resources to develop
the property and construct therein the units for sale to the
public.
It was agreed that during the first two years of the project, the
developer and landowner can draw allowances or make
advances not exceeding a total of twenty percent (20%) of the
net revenue for that period, on the basis of sixty percent (60%)
for the DEVELOPER and forty percent (40%) for the
LANDOWNERS. After two years, the DEVELOPER and the
LANDOWNERS shall be entitled to drawing allowances and/or
advances equivalent to sixty percent (60%) and forty percent
(40%), respectively, of the total net revenue or income of the
sale of the units.
Their sharing in the profits were as follows; 60% for the
petitioner and 40% for the respondents. (Net revenue)
The lazatins informed petitioner that they had decided to
rescind the JVA effective upon its receipt of the said letter.
They filed a a complaint for rescission accounting and
damages, with prayer for temporary restraining order and/or
preliminary injunction against Primelink and Lopez before the
RTC of Tagaytay.
The RTC rendered a decision rescinding the JVA and ordered
the defendants to turn over the possession including all
improvements therein, of the real estate property belonging to
the plaintiffs.
Petitioner’s argument:
They argue that the said decision unconditionally awarded to
respondents all the improvements on the project without
requiring them to pay the value thereof or to reimburse
petitioner from all its expenses. They likewise pointed out that
all the improvements were not prayed for in the complaint.
Laslty, They insist that respondents cannot rescind and, at the
same time, retain the consideration, or part of the
consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties
must be restored to their original positions as nearly as
possible upon the rescission of a contract.
Issue:
(1) whether respondents are entitled to the possession of the
parcels of land covered by the JVA and the improvements
thereon introduced by petitioners as their contribution to the
JVA;
(2) whether petitioners are entitled to reimbursement for the
value of the improvements on the parcels of land.
Ruling:
1st issue:
The trial court was not precluded from awarding possession of
the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides
that a pleading shall specify the relief sought but it may add as
general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a
specific remedy, proper relief may be granted by the court if
the facts alleged in the complaint and the evidence introduced
so warrant. The court shall grant relief warranted by the
allegations and the proof even if no such relief is prayed for.
The trial court was not proscribed from placing respondents in
possession of the parcels of land and the improvements on the
said parcels of land. It bears stressing that the parcels of land,
as well as the improvements made thereon, were contributed
by the parties to the joint venture under the JVA, hence,
formed part of the assets of the joint venture. The trial court
declared that respondents were entitled to the possession not
only of the parcels of land but also of the improvements
thereon as a consequence of its finding that petitioners
breached their agreement and defrauded respondents of the
net income under the JVA.
2nd issue:
When the RTC rescinded the JVA on complaint of respondents
based on the evidence on record that petitioners willfully and
persistently committed a breach of the JVA, the court thereby
dissolved/cancelled the partnership.54 With the rescission of
the JVA on account of petitioners’ fraudulent acts, all authority
of any partner to act for the partnership is terminated except so
far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished. On
dissolution, the partnership is not terminated but continues until
the winding up of partnership affairs is completed. Winding up
means the administration of the assets of the partnership for
the purpose of terminating the business and discharging the
obligations of the partnership.
The transfer of the possession of the parcels of land and the
improvements thereon to respondents was only for a specific
purpose: the winding up of partnership affairs, and the partition
and distribution of the net partnership assets as provided by
law. After all, Article 1836 of the New Civil Code provides that
unless otherwise agreed by the parties in their JVA,
respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of the
last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding
up by the court.
It must be stressed, too, that although respondents acquired
possession of the lands and the improvements thereon, the
said lands and improvements remained partnership property,
subject to the rights and obligations of the parties, inter se, of
the creditors and of third parties under Articles 1837 and 1838
of the New Civil Code, and subject to the outcome of the
settlement of the accounts between the parties as provided in
Article 1839 of the New Civil Code, absent any agreement of
the parties in their JVA to the contrary. Until the partnership
accounts are determined, it cannot be ascertained how much
any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding
that it be indemnified for the value of the improvements on the
parcels of land owned by the joint venture/partnership. Notably,
the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the
parties when dissolution is caused in contravention of the partnership
agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution
wrongfully, to damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if
they all desire to continue the business in the same name either by
themselves or jointly with others, may do so, during the agreed term
for the partnership and for that purpose may possess the partnership
property, provided they secure the payment by bond approved by the
court, or pay to any partner who has caused the dissolution wrongfully,
the value of his interest in the partnership at the dissolution, less any (c) Those owing to partners by way of contribution.
damages recoverable under the second paragraph, No. 1(b) of this
article, and in like manner indemnify him against all present or future
partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second
paragraph, No. 2, all the rights of a partner under the first paragraph,
subject to liability for damages in the second paragraph, No. 1(b), of
this article.

(b) If the business is continued under the second paragraph, No. 2, of

this article, the right as against his co-partners and all claiming through
them in respect of their interests in the partnership, to have the value
of his interest in the partnership, less any damage caused to his co-
partners by the dissolution, ascertained and paid to him in cash, or the
payment secured by a bond approved by the court, and to be released
from all existing liabilities of the partnership; but in ascertaining the
value of the partner’s interest the value of the good-will of the business
shall not be considered.

And under Article 1838 of the New Civil Code, the party entitled to
rescind is, without prejudice to any other right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for
any sum of money paid by him for the purchase of an interest in the
partnership and for any capital or advances contributed by him;

(2) To stand, after all liabilities to third persons have been satisfied, in
the place of the creditors of the partnership for any payments made by
him in respect of the partnership liabilities; and

(3) To be indemnified by the person guilty of the fraud or making the

representation against all debts and liabilities of the partnership.

The accounts between the parties after dissolution have to be settled

as provided in Article 1839 of the New Civil Code:

Art. 1839. In settling accounts between the partners after dissolution,

the following rules shall be observed, subject to any agreement to the
contrary:

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the payment of all
the liabilities specified in No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as

follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

(3) The assets shall be applied in the order of their declaration in No. 1
of this article to the satisfaction of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the

amount necessary to satisfy the liabilities.

(5) An assignee for the benefit of creditors or any person appointed by

the court shall have the right to enforce the contributions specified in
the preceding number.

(6) Any partner or his legal representative shall have the right to
enforce the contributions specified in No. 4, to the extent of the amount
which he has paid in excess of his share of the liability.

(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.

(8) When partnership property and the individual properties of the

partners are in possession of a court for distribution, partnership
creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured
creditors.

(9) Where a partner has become insolvent or his estate is insolvent,

the claims against his separate property shall rank in the following
order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

35. Marjorie Tocao vs. CA and Nenita Anay
In this case, petitioner Tocao’s unilateral exclusion of private
Facts: respondent from the partnership is shown by her memo to the
Nenita A. Anay met petitioner William T. Belo, then the vice- Cubao office plainly stating that private respondent was, as of
president for operations of Ultra Clean Water Purifier, through October 9, 1987, no longer the vice-president for sales of
her former employer in Bangkok. Belo introduced Anay to Geminesse Enterprise. By that memo, petitioner Tocao
petitioner Marjorie Tocao, who conveyed her desire to enter effected her own withdrawal from the partnership and
into a joint venture with her for the importation and local considered herself as having ceased to be associated with the
distribution of kitchen cookwares. Belo volunteered to finance partnership in the carrying on of the business. Nevertheless,
the joint venture and assigned to Anay the job of marketing the the partnership was not terminated thereby; it continues until
product considering her experience and established the winding up of the business.
relationship with West Bend Company, a manufacturer of
kitchen wares in Wisconsin, U.S.A. Under the joint venture, The winding up of partnership affairs has not yet been
Belo acted as capitalist, Tocao as president and general undertaken by the partnership. This is manifest in petitioners’
manager, and Anay as head of the marketing department and claim for stocks that had been entrusted to private respondent
later, vice-president for sales. Anay organized the in the pursuit of the partnership business.
administrative staff and sales force while Tocao hired and fired
employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The
parties agreed that Belo’s name should not appear in any
documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in
securing distributorship of cookware from that company. 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 Belo’s assurances that he was sincere, dependable
and honest when it came to financial commitments.

Fast forward to October 9, 1987, Anay learned that Marjorie

Tocao had signed a letter 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.

Nenita A. Anay filed a complaint for sum of money with

damages against Marjorie D. Tocao and William Belo before
the Regional Trial Court of Makati, Branch 140.

The RTC ruled that there was a partnership between the

partners. The CA dismissed their appeal.

Issue:
WON the act of Marjorie Tocao in informing her that she was
no longer the VP of Geminesse Enterprise dissolved the
partnership?

Ruling:
a mere falling out or misunderstanding between partners does
not convert the partnership into a sham organization.40 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. Thus:

"x x x. 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 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.
LIMITED PARTNERSHIP
1. G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., SANTIAGO JO CHUNG, ET
AL.
vs.
PACIFIC COMMERCIAL COMPANY, ET AL.
Facts:
*Most of the discussions were in Spanish so wala kaayo nako
na gets ang names, type of business, etc sa case.*
In this case, it was prayed for by the creditors the Pacific
Commercial Company, Piñol & Company, Riu Hermanos, and
W. H. Anderson & Company that the Sociedad Mercantil, Teck
Seing & Co., Ltd. As general partners and as such to require
each of said partners to file an inventory of his property in the
manner required by section 51 of Act No. 1956. 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.
The issue in the case relates to a determination of 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.
Issue:
WON the document established a general partnership or a
limited partnership?
Ruling:
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.)
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.
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.
Articles 127 and 237 of the Code of Commerce make all the
members of the general copartnership 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.
Section 51 of the Insolvency Law, likewise, makes all the
property of the partnership and also all the separate property of
each of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are solvent, the
creditors may proceed both against the firm and against the
solvent partner or partners, first exhausting the assets of the
firm before seizing the property of the partners.

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