BusOrg - Case Digest Set 2

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Obligations of Partners; Property Rights of Partners
CASES ASSIGNEE STATUS
1. Sancho v. Lizarraga, 55 Abela ●

Phil 601
2. Uy vs Puzon, 79 SCRA Abrasaldo ●

598
3. Moran, Jr. vs. CA, 133 Aleria ●

SCRA 88
4. Lozana vs. Depakakibo, Aparri ●

107 Phil 728
5. Pang Lim vs. Lo Seng, GR Atup ●

No. L-16318, October 21,
1921
6. Evangelista & Co. vs. Abad Banggat ●

Santos, GR No. L-31684
7. Ramnani vs. CA, 196 Basilisco ●

SCRA 731
8. Fue Leung vs. IAC, 169 Basman ●

SCRA 746.
9. Sison vs. H. Mc Quaid, 94 Bontuyan ●

Phil 201
10. Ornum vs. Lasala, 74 Phil Bullina ●

241
11. Liwanag vs. CA, GR No. Busque ●

114398
12. US vs. Clarin, 7 Phil 504 Caban ●
13. Martinez vs. Ong Pong Co, Cabello ●

GR No. L-5236
14. Pabalan vs. Velez, GR No. Cajegas ●

L-5953, February 24, 1912
15. Teague vs. Martin, GR No. Caniga ●

30286, September 12,
Please lang guys, ayaw tawon ipaste dire sa footer. Don’t double click this portion.
1929
16. Litton vs. Hill & Ceron, et. Castres ●

al., GR No. L-45624, April
25, 1939
17. Bachrach vs. La Catapang ●

Protectora, GR No. L-
11624, January 21, 1918
18. Catalan vs. Gatchalian, Ching ●

105 Phil 1270.
19. Pioneer Insurance vs. CA, Cuizon ●

GR No. 84197, July 28,
1989
20. Soncuya vs De Luna, GR Dapitan ●

No. L-45464, April 28,
1939
21. Agustin vs Inocencio, GR Daud ●

No. L-3745, October 26,
1907
22. Clemente vs. Galvan, GR Dela Cruz ●

No. L-45662, April 26,
1939
23. Leyte-Samar-Sales and K. Demafiles ●

Tomassi vs. S. Cea and O.
Castrilla, 93 Phil 100
24. Phil. National Bank vs. Lo, Diana ●

50 Phil 803
25. Island Sales, Inc. vs United Directo ●

Pioneers Gen.
Construction Co., 65 SCRA
544
26. Compania Maritima vs. Echegorin ●

Munoz, 9 Phil 326
27. Dietrich vs. Freeman, 18 Elorde ●

Phil 341
28. Santiago Syjuco, Inc. vs. Fernandez ●

Castro, 175 SCRA 171
29. Liwanag and Reyes vs. Galvez ●

Workmen’s Compensation
Commission, 105 Phil 741
30. Pioneer Insurance & Gonzales, Cyril ●

Security Corporation vs.
CA, 175 SCRA 668
31. Viuda de Chan vs. Pen, 53 Gonzales, Jashera ●
Phil 906
Dissolution
CASES ASSIGNEE STATUS
1. Yulo v. Yang Chiao Seng, Guelos ●

106 Phil 111
2. Tuazon v. Bolanos, 95 Phil Guinto ●

106
3. Villareal vs. Ramirez, 406 Hao ●

SCRA 145
4. Abong v. WCC, 54 SCRA Jayme ●

54 (1973)
5. Arbes v. Polistico, 53 Phil Josol ●

489
6. Campos Rueda & Co. v. Lagarto ●

Pacific Commercial Co., 44
Phil 916
7. CIR v. Suter, 27 SCRA 152 Libarios ●
8. Dauden-Hernandez v. de Macadine ●
los Angeles, 27 SCRA
1276
9. Sancho v. Lizarraga, 55 Malabute ●

Phil 601
10. Pang Lim v. Lo Seng, 42 Manalac ●

Phil 282
11. Catalan v. Gatchalian, 105 Marzan ●

Phil 1270 (1959)
12. Island Sales, Inc. v. United Muana ●

Pioneers, 65 SCRA 554
13. Yu vs. National Labor Rapisura ●

Relations Commission, 224
SCRA 75
14. Testate Estate of Mota vs. Sagulo ●

Serra, 47 Phil. 464 [1926]
15. Lota vs. Tolentino, 90 Phil. Said ●

829
16. Goquiolay vs. Sycip, 108 Serrano ●

Phil. 947
17. Goquiolay vs. Sycip, 9 Torrevillas ●

SCRA 663, Resolution of
Motion for Reconsideration
18. Ng Cho Cio vs. Ng Diong, Valles ●

1 SCRA 275
19. Lichauco vs. Lichauco, 33 Yu ●

Phil. 350
20. Soncuya vs. De Luna, 67 Zambrano ●

Phil. 646
21. Singsong vs. Isabela Abela ●

Sawmill, 88 SCRA 623
22. Po Yeng Cheo vs. Lim Ka Abrasaldo ●

Yan, 44 Phil. 172
23. Laguna Transportation Co., Aleria ●

Inc. vs. Social Security
System, 107 Phil. 833
24. Magdusa vs. Albaran, 5 Aparri ●

SCRA 511
25. Lim Tanhu vs. Remolete, Atup ●

66 SCRA 425
26. Bonnevie vs. Hernandez, Banggat ●

GR No. L-5837, May 31,
1954
1.Sancho v. Lizarraga, 55 Phil 601
PRELIMINARIES
Who is the plaintiff
Maximiliano Sancho
Who is the defendant:

Severiano Lizarraga
Nature of the Action filed in the SC? What is the case all about in Summary?
Appeal from the decision of the Court of First Instance of Manila
What is the Case filed in the original court?

An action for the rescission of a partnership contract
What is the cause of action? If Based on law, cite the legal basis of the claim.
The defendant had not contributed all the capital he had bound himself to invest.
From which court Originated?
Court of First Instance of Manila
Court a quos ruling and brief reason why?
The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it dissolved on account of the expiration
of the period for which it was constituted, and ordered the defendant, as managing partner, to proceed
without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts
and vouchers within the period of thirty days from receipt of notice of said judgment, without costs
Who won? Who is liable? Dispositive Portion.
Severino Lizzaraga: WON: appeal was dismissed for it was premature
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full
force, without special pronouncement of costs. So ordered.
Principle: Article 1124 of the Civil Code cannot be applied to the case in question, because it refers to
the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of
partnership in particular. And it is a well known principle that special provisions prevail over general
provisions.
Facts:
The plaintiff (Sancho) brought an action for the rescission of a partnership contract between himself and
the defendant (Lizarriaga), entered into on October 15, 1920.
The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim.
without delay to liquidate it.
The plaintiff appealed from said decision.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this
appeal is premature and therefore will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts, have not been made and submitted,
the case cannot be deemed terminated in said court and its ruling is not yet appealable.
Issue/s: Whether or not the plaintiff had the right to demand rescission of the partnership contract
according to Article 1124 of the Code?
Ruling: No. Owing to the defendant's failure to pay to the partnership the whole amount which he bound
himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned
thereby, but the plaintiff did not thereby acquire the right to demand rescission of the partnership contract
according to article 1124 of the Code. This article cannot be applied to the case in question, because it
refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the
contract of partnership in particular. And it is a well known principle that special provisions prevail over
general provisions.
2. Uy vs Puzon, 79 SCRA 598
PRELIMINARIES
Who is the plaintiff: WILLIAM UY
Who is the defendant: BARTOLOME PUZON, substituted by FRANCO PUZON
Appeal from the decision of the Court of First Instance of Manila.
The dissolution of the partnership and payment of damages.
Breach of partnership agreement .
Article 1838, however, allows rescission or annulment of a partnership contract on the ground of fraud or
misrepresentation committed by one of the parties thereto.
Court of First Instance of Manila.
After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in the capital of the partnership applied partnership
funds to his personal use; ousted the plaintiff from the management of the firm, and caused the failure of
the partnership to realize the expected profits of at least P400,000.00. As a consequence, the trial court
dismissed the defendant's counterclaim and ordered the dissolution of the partnership. The trial court
further ordered the defendant to pay the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal before
this Court.
WILLIAM UY – won
BARTOLOME PUZON – liable
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed with
costs against the appellant, it being understood that the liability mentioned herein shall be home by the
estate of the deceased Bartolome Puzon, represented in this instance by the administrator thereof,
Franco Puzon.
Principle:
A partner in a construction venture who failed to stand by his commitment to the partnership will be
ordered to reimburse to his co-partner whatever the latter invested and spent for the projects of the
venture. Since the defendant-appellant was at fault, the trial court properly ordered him to reimburse the
plaintiff-appellee whatever amount latter had invested in or spent for the partnership on account of
construction projects.
Article 1838, however, allows rescission or annulment of a partnership contract on the ground of fraud or
misrepresentation committed by one of the parties thereto.
Facts:
Bartolome Puzon (Puzon) had a contract with the Republic of the Philippines for the construction of the
Ganyangan Bato Section of the Pagadian Zamboanga City Road and of five (5) bridges. However, Puzon
found difficulty in accomplishing both projects, so he established a partnership with William Uy (Uy) as
sub-contractor of the projects for financial assistance and the profits shall be divided equally between
them; the resulting partnership is “UP Construction Company”.
The partners agreed to contribute P50, 000 each as capital. However, Puzon failed to pay but promised to
contribute his share as soon as his application of loan with the PNB shall be approved. Uy gave Puzon
advance contribution of his share in partnership for Puzon to pay his obligations with PNB.
Uy was entrusted with the management of the project since Puzon is busy with his other projects;
whatever expense Uy may incur shall be considered part of his contribution. Upon approval of Puzon’s
loan with the PNB, he gave Uy P60, 000 for reimbursement of Uy’s contribution and Puzon’s contribution
to the partnership capital. To guarantee the payment of the loan, Puzon assigned to PNB all payments to
be received on account of the contracts with the Bureau of Public Highways for the construction; this was
done without the knowledge and consent of Uy.
Financial demands of the project increased, thus, Uy called on Puzon to place his capital contribution;
Puzon failed to do so. Uy thereafter sent letters of demand to which Puzon replied that he’s not capable of
putting additional capital. Puzon wrote UP Construction Company terminating their subcontract
agreement.
Uy was then not allowed in the office of UP Construction Company and his authority to deal with BPH was
revoked. Hence, he instituted an action against Puzon seeking the dissolution of the partnership and
payment of damages for the violation of the latter of the terms of their partnership agreement.
RTC found that Puzon failed to contribute his share in the capital of the partnership and caused the failure
of partnership to realize expected profits. The court ordered the dissolution of the partnership and Puzon
to pay Uy a certain sum. Franco Puzon substituted Bartolome Puzon on the appeal of the case before the
Supreme Court.
Issue/s:
Whether the amount of money ordered by the trial court for the failure to contribute his share in the capital
of the partnership is proper – Yes.
Ruling:
The award of P200,000.00 as his share in the unrealized profits of the partnership is proper.
Under Article 2200 of the Civil Code, indemnification for damages shall comprehend not only the value of
the loss suffered, but also that of the profits which the obligee failed to obtain. In other words lucrum
cessans is also a basis for indemnification. There is no doubt Uy failed to make profits because of
Puzon's breach of contract. The partnership showed some profits even though the profit and loss
statement showed net loss; it may be due to error in accounting.
Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and subcontract
agreements, and considering the fact that the total contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial court of the amount
of P200,000.00, as compensatory damages, is not speculative, but based on reasonable estimate.
Only Puzon failed to give his full contribution while Uy contributed much more than what was expected of
him.
3. Moran, Jr. vs. CA, 133 SCRA 8
PRELIMINARIES
Who is the plaintiff:
Isabelo Moran Jr.

Court of Appeals and Mariano E. Pecson
Petition for review on certiorari of the decision of the respondent Court of Appeals which ordered
petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.

an action for the recovery of a sum of money
(3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of
P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of
unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3)
moral and exemplary damages and attorney's fees.

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the suit

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits
gained by the partnership in the sale of the two thousand (2,000) copies of the posters, with interests at
the legal rate on both amounts from the date the complaint was filed until full payment is made.
Principle:
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes
a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and
for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil
Code).
Facts:
Mariano Pecson and Isabelo Moran agreed to contribute P 15,000 on February 22, 1971 each
for the purpose of printing 95,000 posters for the delegates of the 1971 Constitutional Convention. Both
agreed that Moran will supervise the work and Pecson would receive a commission of P 1,000 a month
starting April 15, 1971 up to December 15, 1971. Moreover, on December 15, 1971, a liquidation of the
accounts in the distribution and printing of the 95,000 posters would be made.
Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were
printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.
Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of
money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership
agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the
partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note,
payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees.
CFI ruled in favor of Pecson stating that there existed a partnership agreement between the two.
The trial court also found that they have contributed money for the said venture since only 2000 copies
were printed out of the 95, 000. Moreover, with Moran’s inability to give full contribution, the court decided
that each party is entitled to rescind the contract they entered into. The court ruled that Moran should
return to Pecson P 17, 0000 with interest.
Both parties appealed to the CA where it ruled against Moran ordering defendant-appellant Isabelo C.
Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under
their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is
made. Before the Supreme Court, petitioner assailed the decision of the appellate court.
Issue/s:
1. Whether or not the award of P47, 500 as Pecson’s share in the unrealized profit is correct.
2. Whether or not the award of P 8, 000 as Pecson’s supposed commission has a justifiable
basis.
Ruling:
1. No, the award of P47, 500 as Pecson’s share in the unrealized profit is incorrect.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time he should have complied with his obligation (Art.
1788, Civil Code).
Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we
allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant
therein was remiss in his obligations as a partner and as prime contractor of the construction projects in
question. This case was decided on a particular set of facts. We awarded compensatory damages in the
Uy case because there was a finding that the constructing business is a profitable one and that the UP
construction company derived some profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show that the partnership made some profits
during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September
30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative.
In the instant case, there is no evidence whatsoever that the partnership between the petitioner and the
private respondent would have been a profitable venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of speculative damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him.
In this case, however, there was mutual breach. Private respondent failed to give his entire contribution
in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of
the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the
posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides:

The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership. And even with an assurance made by one of the partners that they
would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this
case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a
month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of
which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take
various factors into account. The failure of the Commission on Elections to proclaim all the 320
candidates of the Constitutional Convention on time was a major factor. The petitioner undesirable his
best business judgment and felt that it would be a losing venture to go on with the printing of the agreed
95,000 copies of the posters. Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any amount from
the petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter
used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00.
This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And
since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private respondent.
2. No, it is not justifiable.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, the private respondent is not entitled to the P8,000.00 commission.
4. Lozana vs. Depakakibo, 107 Phil 728

- Mauro Lozana

- Serafin Depakakibo
- Plaintiff Mauro Lozana entered into a contract of partnership with defendant Serafin Depakakibo,
capitalized at the sum of PHP 30,000 with the former furnishing 60% thereof and the defendant 40% for
the purpose of maintaining, operating and distributing electric light and power in the Municipality of
Dumangas, Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor. This franchise was cancelled, and
thus a temporary certificate of public convenience was issued to Olimpia Decolongon. Because of the
cancellation of Buenaflor’s franchise, Lozana sold a generator to the new grantee Decolongon.
Depakakibo on the other hand, sold a diesel engine to spouses Felix Jimena and Felina Harder.

- Plaintiff Mauro Lozana brought an action against the defendant, alleging that he is the owner of the
Generator Buda (Diesel) and prayed that said properties be delivered back to him.
- Depakakibo appealed the decision to the Court of Appeals, and the latter certified the same to the
Supreme Court as there were only questions of law in the case.

- Court of First Instance of Iloilo
- Upon examining the contract of partnership, especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric light and power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such as to make
the contract of partnership, null and void ab initio.

- Depakakibo won.
Dispositive Portion:
- FOR THE FOREGOING CONSIDERATIONS, the judgement appealed from as well as the order of
the court for the taking of the property into custody by the sheriff must be, as they hereby are SET ASIDE
and the case REMANDED to the court below for further proceedings in accordance with law.
Principle:
- An equipment which was contributed by one of the partners to the partnership becomes the property
of the partnership and as such cannot be disposed of by the party contributing the same without the
consent or approval of the partnership or of the other partner. (Clemente v. Galvan)
Facts:
On November 16, 1954 plaintiff Mauro Lozana entered into a contract with defendant Serafin Depakakibo
wherein they established a partnership capitalized at the sum of P30,000, plaintiff furnishing 60% thereof
and the defendant, 40%, for the purpose of maintaining, operating and distributing electric light and power
in the Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor.
However, the franchise or certificate of public necessity and convenience in favor of the said Mrs. Piadosa
Buenaflor was cancelled and revoked by the Public Service Commission on May 15, 1955.
A temporary certificate of public convenience was issued in the name of Olimpia D. Decolongon on
December 22, 1955.
Because of the cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein
Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee
Olimpia D. Decolongon, by a deed dated October 30, 1955.
Defendant Depakakibo, on the other hand, sold one Crossly Diesel Engine to the spouses Felix Jimenea
and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Lozana brought an action against the defendant, alleging that he is the
owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires connecting
the generator to the different houses supplied by electric current in the Municipality of Dumangas, and
that he is entitled to the possession thereof, but that the defendant has wrongfully detained them as a
consequence of which plaintiff suffered damages.
On December 5, 1955, defendant filed an answer, denying that the generator and the equipment
mentioned in the complaint belong to the plaintiff and alleging that the same had been contributed by the
plaintiff to the partnership entered into between them in the same manner that defendant had contributed
equipment also, and therefore that he is not unlawfully detaining them.
By way of counterclaim, defendant alleged that under the partnership agreement the parties were to
contribute equipment, plaintiff contributing the generator and the defendant, the wires for the purpose of
installing the main and delivery lines. Defendant, therefore, among others, prayed that the court order
dissolution of the partnership, after the accounting and liquidation of the same.
The lower court declared that the contract of partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the owner of the franchise. Judge Pantaleon A.
Pelayo issued an order in said case authorizing the sheriff to take possession of the generator and 70
wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of the defendant.
Issue/s:
1. Whether or not the alleged property is owned by Lozana.
2. Whether or not the declaration of the lower court that the contract of partnership was null and void is
correct.
Ruling:
First Issue: No
The Buda diesel engine contributed by the plaintiff had become the property of the partnership and not of
the plaintiff.
It was not stated that there has been a liquidation of the partnership. As properties of the partnership, the
same could not be disposed of by the party contributing the same without the consent or approval of the
partnership or of the other partner.
Second Issue: No. The contract of partnership is valid.
The Anti-Dummy law is only applicable to aliens, and in this case, plaintiff and respondent are both
Filipinos. Thus, the Anti-Dummy law has not been violated, therefore, the partnership is not null and void.
The agreement could have been submitted to the PSC if the rules of the latter require them to be
presented, but the fact of furnishing the current holder of the franchise alone, without previous approval of
the PSC, does not per se make the contract of partnership null and void from the beginning and
render the partnership entered into void and non-existent.
The lower court thus erred in declaring that the contract was illegal and that the parties are not bound by
the partnership such that the contribution of Lozana did not pass to the partnership as property.
The proper remedy now therefore, as correctly pleaded by the defendant in his counterclaim, is to
dissolve the partnership and its assets liquidated, not for each contributing partner to claim back
what he had contributed.
5. Pang Lim vs. Lo Seng, GR No. L-16318, October 21, 1921
PRELIMINARIES
Who is the plaintiff: PANG LIM and BENITO GALVEZ
Who is the defendant: LO SENG
Nature of the Action filed in the SC? What is the case all about in Summary? Petition for review on
certiorari
What is the Case filed in the original court? Action for Unlawful Detainer
What is the cause of action? If Based on law, cite the legal basis of the claim. Demand possession
of an unlawfully taken property
Court a quos ruling and brief reason why? In favor of plaintiff based on article 1571 of the Civil Code.
ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease
in force at the time of making the sale, unless the contrary is stipulated, and subject to the
provisions of the Mortgage Law.
Who won? Who is liable? Dispositive Portion. Defendant. The judgment appealed from will be
reversed, and the defendant will be absolved from the complaint. It is so ordered, without express
adjudication as to costs.
Principle: “Partners are required to exhibit towards each other the highest degree of good faith”
“Accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of another,
apply exclusively to his own benefit the results of the knowledge and information gained in the character
of partner”
Facts: Lo Seng and Pang Lim were partners in the business of running a distillery, known as "El
Progreso”.
The land on which said distillery is located was to the firm of Lo Seng and Co. for the term of three years.
Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented
by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years.
Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position
of sole owner.
Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary public a
deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery
plant. But this document was never recorded in the registry of property.
Thereafter, Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to
yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez
in the court of the justice of the peace of Paombong to recover possession of the premises.
Plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely,
first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and incompatible. Every competent person is by law
bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regards any contract previously
entered into by himself
Issue/s: WON Pang Lim, having been a participant in the contract of lease now in question, is in a
position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful detainer by
him.
Ruling: NO. While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of
this lease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng
of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in
the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which he has
received full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the
circumstance that prior to the acquisition of this property Pang Lim had been partner with Lo Seng and
Benito Galvez an employee. Both therefore had been in relations of confidence with Lo Seng and in that
position had acquired knowledge of the possibilities of the property and possibly an experience which
would have enabled them, in case they had acquired possession, to exploit the distillery with profit.
It would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim,
after profiting by the sale of his interest in a business, worthless without the lease, could intervene as
purchaser of the property and confiscate for his own benefit the property which he had sold for a valuable
consideration to Lo Seng.
Above all other persons in business relations, partners are required to exhibit towards each other the
highest degree of good faith. In fact the relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the other. If one partner obtains in his own
name and for his own benefit the renewal of a lease on property used by the firm, to commence at a date
subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a
constructive trustee of the firm as to such lease. As Lo Seng is vested with the possessory right as
against Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez. Having lawful possession as
against one cotenant, he is entitled to retain it against both.
6. Evangelista & Co. vs. Abad Santos, GR No. L-31684
PRELIMINARIES
Who is the plaintiff: EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B.
NAVARRO and LEONARDA ATIENZA ABAD SABTOS
Who is the defendant: ESTRELLA ABAD SANTOS
Principle:
Facts:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955
the Articles of Co-partnership were amended so as to include herein respondent, Estrella Abad Santos,
as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonarda Atienza Abad Santos
and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of
P17,500 each
On December 17, 1963 herein respondent filed suit against the three other partners, alleging that the
partnership, which was also made a party-defendant, had been paying dividends to the partners except to
her; and that notwithstanding her demands the defendants had refused and continued to refuse to let her
examine the partnership books or to give her information regarding the partnership affairs or to pay her
any share in the dividends declared by the partnership
The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and by way of affirmative defense alleged that the amended Articles of Co-partnership
did not express the true agreement of the parties, which was that the plaintiff was not an industrial
partner; that she did not in fact contribute industry to the partnership.
Issue/s: Whether Abad Santos is entitled to see the partnership books because she is an industrial
partner in the partnership
Ruling: Yes, Abad Santos is entitled to see the partnership books.
The Supreme Court ruled that according to ART. 1299. Any partner shall have the right to a formal
account as to partnership affairs:
(1)If he is wrongfully excluded from the partnership business or possession of its property by his
co-partners;
(2)If the right exists under the terms of any agreement;
(3)As provided by article 1807;
(4)Whenever other circumstances render it just and reasonable."
In the case at hand, the company is estopped from denying Abad Santos as an industrial partner because
it has been 8 years and the company never corrected their agreement in order to show their true
intentions. The company never bothered to correct those up until Abad Santos filed a complaint.
7. Ramnani vs. CA, 196 SCRA 731
PRELIMINARIES
Spouses Ishwar
Choithram et al
Petition for review

Reconveyance with damages

CFI of Rizal
Principle:
Facts: Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood.
Ishwar and his spouse Sonya had their main business based in New York. Realizing the difficulty of
managing their investments in the Philippines they executed a general power of attorney on January 24,
1966 appointing Navalrai and Choithram as attorneys-in-fact, empowering them to manage and conduct
their business concern in the Philippines
On February 1, 1966 and on May 16, 1966, Choithram entered into two agreements for the purchase of
two parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership. A
building was constructed thereon by Choithram in 1966. Three other buildings were built thereon by
Choithram through a loan of P100,000.00 obtained from the Merchants Bank as well as the income
derived from the first building.
Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative to these
properties during the period 1967 to 1970. Choithram failed and refused to render such accounting.
Thereafter, Ishwar revoked the general power of attorney. Choithram and Ortigas were duly notified of
such revocation on April 1, 1971 and May 24, 1971, respectively. Said notice was also registered with the
Securities and Exchange Commission on March 29, 1971 and was published in the April 2, 1971 issue of
The Manila Times for the information of the general public.
Nevertheless, Choithram, transferred all rights and interests of Ishwar and Sonya in favor of his daughter-
in-law, Nirmla Ramnani, on February 19, 1973.
On October 6, 1982, Ishwar and Sonya filed a complaint against Choitram and/or spouses Nirmla and
Moti and Ortigas for reconveyance of said properties or payment of its value and damages.
Issue/s:Whether Ishram can recover the entire properties subject in the ligitation
Ruling: No, Ishram cannot recover the entire properties subject.
The Supreme Court held that despite the fact that Choithram, et al., have committed acts which
demonstrate their bad faith and scheme to defraud spouses Ishwar and Sonya of their rightful share in the
properties in litigation, the Court cannot ignore the fact that Choithram must have been motivated by a
strong conviction that as the industrial partner in the acquisition of said assets he has as much claim to
said properties as Ishwar, the capitalist partner in the joint venture.
Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels of land in
question from Ortigas as attorney-in-fact of Ishwar. Instead of paying for the lots in cash, he paid in
installments and used the balance of the capital entrusted to him, plus a loan, to build two buildings.
Although the buildings were burned later, Choithram was able to build two other buildings on the property.
He rented them out and collected the rentals. Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is now.
Justice and equity dictate that the two share equally the fruit of their joint investment and efforts. Perhaps
this Solomonic solution may pave the way towards their reconciliation. Both would stand to gain. No one
would end up the loser. After all, blood is thicker than water.
8. Fue Leung vs. IAC, 169 SCRA 746
PRELIMINARIES
Who is the plaintiff: DAN FUE LEUNG
Who is the defendant: HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU
The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court which
affirmed the decision of the then Court of First Instance which states that private respondent Leung Yiu is
a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria. Moreoever, ordering the
petitioner to pay to the private respondent his share in the annual profits of the said restaurant. The Sun
Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.

Complaint filed by respondent Leung Yiu to recover the sum equivalent to 22% of the annual profits
derived from the operation of Sun Wah Panciteria since October 1995 from petitioner Dan Fue Leung.
The private respondent's cause of action is premised upon the failure of the petitioner to give him the
agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.

CFI of Manila, Branch II

Both the trial court and the appellate court found that Leung Yiu is a partner in the setting up and
operations of the panciteria. Hence, the two courts declared that the Leung is entitled to a share of the
annual profits of the restaurant
Respondent won. Petitioner is liable.
WHEREFORE,
respondent courtthe petition for with
is AFFIRMED review is hereby DISMISSED
a MODIFICATION that as for lack ofabove,
indicated merit.the
Thepartnership
decision of
of the
the
parties is ordered dissolved.
Principle:
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an
representative accountthe
as against of winding
his interest shall or
up partners accrue to any partners
the surviving partner, ororthe
hisperson
legal
or partnership continuing the business, at the date of dissolution, in the absence or any
agreement to the contrary.
Regarding the 1807,

Articles 1806, prescriptive period
and 1809 within
show thatwhich the to
the right private respondent
demand may demand
an accounting an long
exists as accounting,
as the
partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final
accounting is done.
Facts:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court which
affirmed the decision of the then Court of First Instance which states that private respondent Leung Yiu is
a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria. Moreoever, ordering the
petitioner to pay to the private respondent his share in the annual profits of the said restaurant. The Sun
Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent claimed that Sun Wah Panciteria was actually a partnership and that he was one of the
partners having contributed P4,000.00 to its initial establishment. This is evidenced by a receipt wherein
the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by
the latter's Equitable Banking Corporation Check from the profits of the operation of the restaurant for the
year 1974.
Petitioner denied having received from the private respondent the amount of P4,000.00. He contested
and impugned the genuineness of the receipt. The petitioner did not receive any contribution at the time
he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. Petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned
and operated by himself alone. Fue Leung also flatly denied having issued to the private respondent the
receipt and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00.
Both the trial court and the appellate court found that Leung Yiu is a partner in the setting up and
operations of the panciteria. Hence, the two courts declared that the Leung is entitled to a share of the
annual profits of the restaurant. Leung argues that the courts erroneously interpreted 'financial assistance'
to mean the contribution of capital by a partner to a partnership. He also raises the issue of prescription
since the alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or
after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days considering no written
demands were ever made by Leung.
Issue/s:
Whether or not private respondent is a partner of the petitioner in Sun Wah Panciteria.
Ruling:
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a
partnership:
1) two or more persons bind themselves to contribute money, property, or industry to a common
fund; and
2) intention on the part of the partners to divide the profits among themselves
As stated relations
excellent by the respondent,
exist among a partner sharesatnot
the partners theonly
startin ofprofits but also
business and inallthe
thelosses of the
partners arefirm.
moreIf
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits
is perfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime
within ten years from the start of operations, such rights are irretrievably lost. The private respondent's
cause of action is premised upon the failure of the petitioner to give him the agreed profits in the operation
of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in
the partnership.
It is Article
1842 states:1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article
The right to an
representative accountthe
as against of winding
his interest shall or
up partners accrue to any partners
the surviving partner, ororthe
hisperson
legal
or partnership continuing the business, at the date of dissolution, in the absence or any
agreement to the contrary.
Regarding the 1807,

Articles 1806, prescriptive period
and 1809 within
show thatwhich the to
the right private
demandrespondent may demand
an accounting an long
exists as accounting,
as the
partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:
xxx xxx xxx

(3) A the
on of partner has been guilty of such conduct as tends to affect prejudicially the carrying
business;
(4) A partner
otherwise willfully orhimself
so conducts persistently commits
in matters a breach
relating of the partnership
to the partnership agreement,
business or
that it is not
reasonably practicable to carry on the business in partnership with him;
xxx xxx xx
(6) Other circumstances render a dissolution equitable.
There shallbecause
dissolution be a liquidation and winding
the continuation uppartnership
of the of partnership
has affairs,
becomereturn of capital, and other incidents of
inequitable.
9. Sison vs. H. Mc Quaid, 94 Phil 201
PRELIMINARIES
Who is the plaintiff: Sergio V. Sison
Who is the defendant: Helen J. Mcquaid
Plaintiff 'Seeks to recover from defendant one-half of the purchase price of lumber sold by the partnership
to the United States Army. But his complaint does not show why he should be entitled to the sum he
claims. It does not allege that there has been a liquidation of their partnership business. and the said sum
has been found to be due him as his share of the profits. The complaint states no cause of action.
The proceeds from the sale of a certain amount of lumber - cannot be considered profits until costs and
expenses have been deducted. Moreover, the profits of a business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions had. Hence, the need for a
general liquidation before a member of a partnership may claim a specific sum as his share of the profits.
What is the Case filed in the original court? Action for Collection of Sum of Money
Plaintiff brought an action alleging that during the year 1938 the latter borrowed from him various sums of
money.
From which court Originated? Court of First Instance of Manila
CFI Manila - the court dismissed the case; no cause of action
Court of Appeals - certified the case here on the ground that the appeal involved only questions of law.
Defendant - The order of dismissal is affirmed, but on the ground that the complaint states no cause of
action and without prejudice to the filing of an action for accounting or liquidation should that be what
plaintiff really wants. Without costs in this instance.
Principle: Liquidation shall happen before a partner may claim his share of profit from the partnership.
Facts:
Plaintiff brought an action in the CFI against defendant. Defendant borrowed from him money (P 2,210) to
enable her to pay her obligations and to add to her capital in her lumber business. She could not pay so
she proposed to take plaintiff as a partner in her business, plaintiff to contribute the P 2,210 due him from
defendant.
Before the last World War, the partnership sold 230,000‐board ft. of lumber to the US Army for P
13,800.00.
Defendant refused to deliver ½ of it (P 6,900.00) to plaintiff despite his repeated demands.
Plaintiff filed an action to compel defendant to pay him his half of the profit from the partnership.
The case was dismissed upon the ground of prescription.
Issue/s: Whether or not the plaintiff is entitled to the sum he claims.
Ruling:
NO. Order of dismissal was affirmed, but on the ground that the complaint states no cause of action. It is
not clear from the complaint just when the cause of action accrued. Thus, the dismissal of the case is
erroneous. However, order should be retained on the ground that the complaint has no cause of action.
Plaintiff seeks to recover from defendant one-half of the purchase price of lumber sold by the partnership
to the United States Army. But his complaint does not show why he should be entitled to the sum he
claims. It does not allege that there has been a liquidation of the partnership business and the said
sum has been found to be due him as his share of the profits.
The proceeds from the sale of a certain amount of lumber cannot be considered profits until costs and
expenses have been deducted. Moreover, the profits of the business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions had.
Hence, the need for a general liquidation before a member of a partnership may claim a specific sum as
his share of the profits.
10. Ornum vs. Lasala, 74 Phil 241
PRELIMINARIES
Who is the plaintiff: Mariano Lasala, et. al., the respondents, the children, and successor of all the rights
and interest of late Pedo Lasala, the capitalist partner that contributed the sum of P 1,000.00.
Who is the defendant: Jose Ornum and Emerenciana Ornum, the petitioners, who contributed P 505.54
as their capital, industrial partners, managing partners, and run the business in Romblon.
This is an action to appeal the decision of CA that reversed the decision of the CFI of Manila. The
assailed decision held that the final statement of accounts as remained unsigned by the respondents, the
same stands disapproved.
The initial complaint has been filed by the respondents/plaintiff after they announced the desire to
dissolve the partnership. After twenty years, the partnership has grown to such extent that the total value
including profits amounted to P44,618.67 from initial capital of P1,000.00 from Pedro Lasala, the
predecessor-in-interest of the respondents, and P505.54 capital and industry provided by the petitioners.
During that twenty years, Pedro Lasala died and the respondents succeeded to all his rights and interest
in the partnership. After that, no formal partnership agreement was ever executed. The partners, in fact,
never knew other personally. Nonetheless, the business continued and accumulated profits.
The petitioners, as managing partners, were received one-half of the net gains, and the other half was to
be divided between them and the Lasala group in proportion to the capital put in by each group. The
partners were given the election, as evidenced by the statement of account [written in Spanish (x_x)], to
invest their respective shares in such profits as additional capital. The petitioners accordingly let a greater
part of their profits as additional investment in the partnership. Before the last statement of accounts was
made, the respondents had received P5,387.29 by way of profits. The last and final statement of account
was prepared by the petitioners after the respondent announced their desire to dissolve the partnership
and remitted and paid to the respondent the total amount corresponding to respondents [ Cantidad nota
que debe corresponder a los hermanos Lasala P2,718.47 (Amount noted that must correspond to the
Lasala brothers P2,718.47)]. The latter, however, did signed the said statement of accounts. Thereafter,
the respondent filed the complaint, and prayed for the accounting and final liquidation of assets of
partnership.

This is a complaint praying for an accounting and final liquidation of the assets of the partnership.
Right of the partners or their successors-in-interest for an accounting and liquidation of the partnership
asset. (The case does not mention any legal basis from the Old Civil Code)
The Court of First Instance of Manila

Court of First Instance of Manila held that the last and final statement of accounts prepared by the
petitioners was tacitly approved and accepted by the respondents who, by virtue of the above-quoted
letter of Father Mariano Lasala, lost their right to a further accounting from the moment they received and
accepted their shares as itemized in said statement.
Court of Appeals reversed the decision of CFI Manila, on the ground that as the final statement of
accounts remains unsigned by the respondents, the same stands disapproved.

The petitioners won the case.
The respondents were charged the cost.
The appealed decision is hereby reversed and the petitioners (defendants below) absolved from the
complaints of the respondents (plaintiffs below), with costs against the latter.
Principle:
Partnership; Accounts and Accounting; When Statement of Accounts is Deemed Approved.—Held: That
the last and final statement of accounts quoted in the decision had been approved by the respondents.
This approval resulted, by virtue of the letter of Father Mariano Lasala of July 19, 1932, from the failure of
the respondents to object to the statement and from their promise to sign the same as soon as they
received their shares as shown in said statement. After such shares had been paid by the petitioners and
accepted by the respondents without any reservation, the approval of the statement of accounts was
virtually confirmed and its signing thereby became a mere formality to be complied with by the
respondents exclusively. Their refusal to sign, after receiving their shares, amounted to a waiver of that
formality in favor of the petitioners who had already performed their obligation.
Id.; Id.; Id.; Approval of Statement of Accounts Precludes Right to Further Liquidation .— This approval
precludes any right on the part of the respondents to a further liquidation, unless the latter can show that
there was fraud, deceit, error or mistake in said approval. The Court of Appeals did not make any finding
that there was fraud, and on the matter of error or mistake, its pronouncement that the evidence tends to
prove that there were mistakes in the petitioners' statements of accounts, without specifying the mistakes,
merely intimates, in the opinion of this court, a suspicion and is not such a positive and unmistakable
finding of fact as to justify a revision, especially because the Court of Appeals has relied on the bare
allegations of the parties.
Facts:
The respondents, Mariano Lasala, et. al., are natives of Taal, Batangas and resided in Manila. The
petitioners, Jose Ornum and Emerenciana Ornum are also natives of Taal, Batangas but resided in
Tablas, Romblon.
In 1908, Pedro Lasala, the father of the respondents, and Emerenciano Ornum formed a partnership.
Pedro provided a capital of PhP 1, 000 to Emerenciano to conduct a business in Romblon.
In 1912, Emerenciano was replaced by Jose and Emerenciana. The petitioners contributed PhP 505.54.
Thus, the capital for the business of Romblon had a total of PhP 1, 505.54.
Upon the death of Pedro, his children, the respondents, succeeded to all his rights and interest in the
partnership. Jose and Emerenciana received half of the net gains. The other half is divided between them
and the Lasalas. The Lasalas decided to give a portion of their profits as capital in the partnership.
After 20 years, the business has a total value of PhP 44, 618.67. After some time, the respondents had
announced their desire to dissolve the partnership.
Consequently, the petitioners gave a last and final statement of accounts to the respondents dated May
27, 1932.
Mariano Lasala, the spokesman of the respondents, wrote a letter to the petitioners to remit the amounts
contained in the statement of accounts. The petitioners accepted the request. However, the statement of
accounts was not signed by the respondents.
A complaint was filed by the respondents “praying for an accounting and final liquidation of the assets of
the partnership.” The Court of First Instance held that the last and final statement of accounts was tacitly
approved by the respondents through the letter of their spokesman. The Court of Appeals reversed the
decision on the ground that the final statement of accounts remained unsigned.
Issue/s:
Whether the last and final statement of accounts has been approved by the respondents and precludes
them for any right to a further liquidation.
Ruling:
Yes, the last and final statement of accounts is deemed approved by the respondents and precluded
them for any right to a further liquidation.
The Supreme Court held that the petitioners' final statement of accounts had been approved by the
respondents and no justifiable reason (fraud, deceit, error or mistake) has been positively and
unmistakably found by the Court of Appeals so as to warrant the liquidations sought by the respondents.
The failure of the respondents to object to the statement and from their promise to sign the same as soon
as they received their shares as shown in said statement. After such shares had been paid by the
petitioners and accepted by the respondents without any reservation, the approval of the statement of
accounts was virtually confirmed and its signing thereby became a mere formality to be complied with by
the respondents exclusively. Their refusal to sign, after receiving their shares, amounted to a waiver of
that formality in favor of the petitioners who had already performed their obligation.
This approval precludes any right on the part of the respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or mistake in said approval. The Court of Appeals did not
make any finding that there was fraud, and on the matter of error or mistake, its pronouncement that the
evidence tends to prove that there were mistakes in the petitioners' statements of accounts, without
specifying the mistakes, merely intimates, in the opinion of this court, a suspicion and is not such a
positive and unmistakable finding of fact as to justify a revision, especially because the Court of Appeals
has relied on the bare allegations of the parties.
In justice to the petitioners, however, the Supreme Court added that, considering that they ran the
business of the partnership for about twenty years at a place far from the residence of the respondents
and without the latter's intervention; that the partners did not even know each other personally; that no
formal partnership agreement was entered into which bound the petitioners under specific conditions; that
the petitioners could have easily and freely alleged that the business became partial, or even a total, loss
for any plausible reason which they could have concocted, it appearing that the partnership engaged in
such uncertain ventures as agriculture, cattle raising and operation of rice mill, and the petitioners did not
keep any regular books of accounts; that the petitioners were still frank enough to disclose that the
original capital of P1,505.54 amounted, as of the date of the dissolution of the partnership, to P44,618.67;
and that the respondents had received a total of P8,105.76 out of their capital of P1,000, without any
effort on their part, we are reluctant even to make the conjecture that the petitioners had ever intended to,
or actually did, take undue advantage of the absence and confidence of the respondents. Indeed, we feel
justified in stating that the petitioners have here given a remarkable demonstration of the legendary
honesty, good faith and industry with which the natives of Taal pursue business arrangements similar to
the partnership in question, and we would hate, in the absence of any sufficient reason, to let such a
beautiful legend have a distateful ending.
11. Liwanag vs. CA, GR No. 114398
PRELIMINARIES
Who is the plaintiff: Ms. Carmen Liwanag
Who is the defendant: Court of Appeals
What is the Case filed in the original court? Petitioner was charged with the crime of estafa before the
Regional Trial Court.
Art. 315 of the Revised Penal Code (Estafa)
Court a quos ruling and brief reason why? Liwanag was guilty of estafa.
Principle:
Even assuming that a contract of partnership was indeed entered into by and between the parties,
we have ruled that when money or property have been received by a partner for a specific purpose
(such as that obtaining in the instant case) and he later misappropriated it, such partner is guilty of
estafa.
Estafa is a crime committed by a person who defrauds another causing him to suffer damages, by means
of unfaithfulness or abuse of confidence, or of false pretenses of fraudulent acts. From the foregoing, the
elements of estafa are present, as follows: (1) that the accused defrauded another by abuse of
confidence or deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the
offended party or third party, and it is essential that there be a fiduciary relation between them either in
the form of a trust, commission or administration.
Facts:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of complainant
Isidora Rosales (Rosales) and asked her to join them in the business of buying and selling cigarettes.
Convinced of the feasibility of the venture, Rosales readily agreed.
Under their agreement, Rosales would give the money needed to buy the cigarettes while Liwanag and
Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are sold;
otherwise the money would be returned to Rosales. Consequently, Rosales gave several cash advances
to Liwanag and Tabligan amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the
progress of the transactions. The visits, however, suddenly stopped, and all efforts by Rosales to obtain
information regarding their business proved futile.
Alarmed by this development and believing that the amounts she advanced were being misappropriated,
Rosales filed a case of estafa against Liwanag.
Liwanag advances the theory that the intention of the parties was to enter into a contract of partnership,
wherein Rosales would contribute the funds while she would buy and sell the cigarettes, and later divide
the profits between them.
Issue/s: Was there a partnership? Is Liwanag guilty of estafa?
Ruling: No, there was no partnership and Liawanag was guilty of estafa.
The money delivered to Liwanag was for a specific purpose, that is, for the purchase of cigarettes,
and in the event the cigarettes cannot be sold, the money must be returned to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and between the
parties, we have ruled that when money or property have been received by a partner for a specific
purpose (such as that obtaining in the instant case) and he later misappropriated it, such partner is
guilty of estafa.
In the instant petition, however, it is evident that Liwanag could not dispose of the money as she
pleased because it was only delivered to her for a single purpose, namely, for the purchase of
cigarettes, and if this was not possible then to return the money to Rosales.
Since in this case there was no transfer of ownership of the money delivered, Liwanag is liable
for conversion under Art. 315, par. l(b) of the Revised Penal Code.
12. US vs. Clarin, 7 Phil 504
PRELIMINARIES
Pedro Larin (filed by the Prosecutor)

Eusebio Clarin
This is an appeal made by the defendant on the decision of the CFI - Pampanga.

Information for Estafa
No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the
prejudice of another, shall appropriate or misapply any money, goods, or any kind of personal
property which they may have received as a deposit on commission for administration or in any
other character producing the obligation to deliver or return the same," (as, for example, in
commodatum, precarium, and other unilateral contracts which require the return of the same thing
received) does not include money received for a partnership; otherwise the result would be that, if
the partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly
for the share of the capitalist partner who reserved the ownership of the money brought in by him,
it would have to answer to the charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it. (Old Penal Code, law applicable
in this case)
Estafa - Art. 315. Swindling (estafa). — Any person who shall defraud another by any of the means
mentioned hereinbelow:
1. With unfaithfulness or abuse of confidence, namely:

Xxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal
property received by the offender in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having received such
money, goods, or other property. (Revised Penal Code)

Court of First Instance - Pampanga

The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to six
months' arresto mayor, to suffer the accessory penalties, and to return to Pedro Larin P172, besides
P30.50 as his share of the profits, or to subsidiary imprisonment in case of insolvency, and to pay the
costs.

Eusebio Clarin - We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for
estafa is dismissed without prejudice to the institution of a civil action.
Liability: Still subject to determination in a civil action
Principle:
Facts:
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and
Carlos de Guzman, might buy and sell mangoes, and, believing that he could make some money in this
business, the said Larin made an agreement with the three men by which the profits were to be divided
equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained P203
from the business, but did not comply with the terms of the contract by delivering to Larin his half of the
profits; neither did they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against
Eusebio Clarin in which he accused him of appropriating to himself not only the P172 but also the share
of the profits that belonged to Larin, amounting to P15.50.
Issue/s:
Whether or not Clarin is guilty of estafa.
Ruling:
No.
When 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, a contract is formed which is called
partnership.
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he
invested his capital in the risks or benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the usufruct of his money, it would not
devolve upon of his three partners to return his capital to him, but upon the partnership of which he
himself formed part, or if it were to be done by one of the three specifically, it would be Tarug, who,
according to the evidence, was the person who received the money directly from Larin.
The P172 having been received by the partnership, the business commenced and profits accrued, the
action that lies with the partner who furnished the capital for the recovery of his money is not a criminal
action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership
and a levy on its assets if there should be any.
The provision of estafa in the Penal Code does not include money received for a partnership ; otherwise
the result would be that, if the partnership, instead of obtaining profits, suffered losses, as it could not be
held liable civilly for the share of the capitalist partner who reserved the ownership of the money brought
in by him, it would have to answer to the charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.
13. Martinez vs. Ong Pong Co, GR No. L-5236
PRELIMINARIES
Who is the plaintiff: PEDRO MARTINEZ
Who is the defendant: ONG PONG CO and ONG LAY
Complaint to compel the defendants to render him an accounting of the partnership as agreed to, or
else to refund him the P1,500 that he had given.
From which court Originated? CFI-Manila

CFI ordered Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500 which, together
with Ong Lay.
Pedro Martinez won, Ong Pong was held liable.
In view of the foregoing judgment appealed from is hereby affirmed, provided, however, that the
defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest thereon at
the rate of 6 per cent per annum from the time of the filing of the complaint, and the costs, without
special ruling as to the costs of this instance. So ordered.
Principle:
Administrators, as agents of the company, incurred the liabilities peculiar to every agent,
among which is that of rendering account to the principal of their transactions, and paying him
everything they may have received by virtue of the mandatum.
Facts:
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a
private document, acknowledged that they had received the same with the agreement, as stated by
them, "that we are to invest the amount in a store, the profits or losses of which we are to divide with
the former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render him an
accounting of the partnership as agreed to, or else to refund him the P1,500 that he had given them
for the said purpose. Ong Pong Co alone appeared to answer the complaint; he admitted the fact of
the agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but
he alleged that Ong Lay, who was then deceased, was the one who had managed the business, and
that nothing had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff
agreed.
The judge of the Court of First Instance of the city of Manila ordered Ong Pong Co to return to the
plaintiff one-half of the said capital of P1,500 which, together with Ong Lay, he had received from the
plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent per
annum for the six months that the store was supposed to have been open, both sums in Philippine
currency, making a total of P840, with legal interest thereon at the rate of 6 per cent per annum, from
the 12th of June, 1901, when the business terminated and on which date he ought to have returned
the said amount to the plaintiff, until the full payment thereof with costs.
Issue/s:
Whether or not Pedro Martinez has the right to participate in the management.
Ruling:
YES. The whole action is based upon the fact that the defendants received certain capital from the
plaintiff for the purpose of organizing a company; they, according to the agreement, were to handle
the said money and invest it in a store which was the object of the association; they, in the absence
of a special agreement vesting in one sole person the management of the business, were the actual
administrators thereof; as such administrators they were the agent of the company and incurred the
liabilities peculiar to every agent, among which is that of rendering account to the principal of
their transactions, and paying him everything they may have received by virtue of the
mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such account nor
proven the losses referred to by Ong Pong Co; they are therefore obliged to refund the money that
they received for the purpose of establishing the said store — the object of the association. This was
the principal
As in the partnership there were two administrators or agents liable for the above-named amount,
article 1138 of the Civil Code has been invoked; this latter deals with debts of a partnership where
the obligation is not a joint one, as is likewise provided by article 1723 of said code with respect to
the liability of two or more agents with respect to the return of the money that they received from
their principal.
In view of the foregoing judgment appealed from is hereby affirmed, provided, however, that the
defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest thereon at
the rate of 6 per cent per annum from the time of the filing of the complaint, and the costs, without
special ruling as to the costs of this instance. So ordered.
14. Pabalan vs. Velez, GR No. L-5953, February 24, 1912
PRELIMINARIES
Who is the plaintiff: Antonio M. Pabalan
Who is the defendant:Feleciano Velez
Nature of the Action filed in the SC? What is the case all about in Summary?This case was
appealed by counsel for the plaintiff, from the judgment rendered by the Honorable Judge A. S.
Crossfield.
What is the Case filed in the original court?written complaint for the rescission of the double
contract
What is the cause of action? If Based on law, cite the legal basis of the claim. When Fitton died,
he failed to pay into the partnership funds the remaining P3,000. Owing to the failure of Fitton to
comply with his obligation, the properties in question had been entirely unproductive resulting in
losses and damages to Pabalan. P
From which court Originated? Court of First Instance
Principle: PARTNERSHIP; FAILURE OF PARTNER TO PAY IN His SHARE.—If a partner fails to

bring into the company funds, within the time stipulated, the share of the capital pledged by him,
the company is entitled to proceed against his property for the collection thereof or to rescind the
agreement, with respect to such delinquent partner, and to retain the portion of the company's
funds belonging to him.
Facts:
Pabalan owned two lots, a rural estate devoted to agricultural purposes and an urban lot.
In his desire to put the two lots to productive use, he agreed to enter into a regular mercantile partnership
with Walter Fitton.
The agreement stipulates that they form a partnership “AM Pabalan and Company” with a capital stock of
P9,000; that Pabalan would contribute P3,000 in cash while Fitton would contribute P6,000 in real
property; that Pabalan would sell his two lots to Fitton for P6,000; that Pabalan would receive P3,000 of
the purchase price while the remaining will be his contribution to the capital; and that Fitton would
contribute the said two lots as his agreed capital contribution.
Pabalan received P3,000 of the purchase price.
When Fitton died, he failed to pay into the partnership funds the remaining P3,000.
Owing to the failure of Fitton to comply with his obligation, the properties in question had been entirely
unproductive resulting in losses and damages to Pabalan.
Plaintiff prayed for rescission of the double contract (partnership and sale) entered into.
Defendant is the administrator of Fitton’s estate. The defendant argues: That, according to the said
articles of partnership, the plaintiff had the management of agricultural matters pertaining to the
properties, rural and urban, described therein, and, consequently, was alone responsible for the
successful management of the company; that, also, according to the articles of partnership, either of the
two partners had charge of the management, direction, and administration of the company; that, some
months after the execution of the said instrument of partnership, Walter A. Fitton was obliged, for reasons
of health, to go abroad, where he resided until his death, and during his absence from this city the
plaintiff, Antonio M. Pabalan, with notable negligence and abandonment of the interests of the company,
failed to attend to the administration of its affairs and did not employ on his part any means to maintain in
a productive condition the two properties brought into the partnership by the partner Fitton, and that,
through the negligence, abandonment, and carelessness of the plaintiff Pabalan, the defendant suffered
losses and damages in the sum of P3,000 Philippine currency; the latter, therefore, prayed that the
complaint be dismissed and that, by reason of his cross-complaint and counterclaim, an award be made
in his behalf, and against the plaintiff, for losses and damages, in the sum of P3,000 Philippine currency,
with the costs
Issue/s:This litigation concerns the dissolution of a regular mercantile partnership and the rescission of
the sale of certain real properties, the contracts with respect to which were entered into between Antonio
M. Pabalan y Santos, on one hand, and Walter A. Fitton, on the other, according to a notarial instrument
executed by the contracting parties on July 27, 1900
Ruling:
Article 1506 of the Civil Code prescribes: The sale shall be rescinded for the same causes as all other
obligations, etc.
Article 1124 provides: The right to rescind the obligations is considered as implied in mutual ones, in case
one of the obligated persons does not comply with what is incumbent upon him. The person prejudiced
may choose between exacting the fulfillment of the obligation or its rescission, with indemnity for
damages and the payment of interest in either case. He may also demand the rescission, even after
having requested its fulfillment, should the latter appear impossible.
The court shall order the rescission demanded, unless there are sufficient causes authorizing it to fix a
period. This is understood without prejudice to the rights of third acquirers, in accordance with articles
1295 and 1298, and with the provisions of the Mortgage Law.
Article 116 of the Code of Commerce prescribes: Articles of association by which two or more persons
obligate themselves to place in a common fund any property, industry, or any of these things, in order to
obtain profit, shall be commercial, no matter what its class may be, provided it has been established in
accordance with the provisions of this code.
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, 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. (Arts. 140 and 141 of the Code of Commerce.
15. Teague vs. Martin, GR No. 30286, September 12, 1929
PRELIMINARIES
Who is the plaintiff: M. Teague
Who is the defendant: H. Martin, J.T. Maddy, and L.H. Golucke
This is an Appeal from a judgment of the Court of First Instance of Manila.

Complaint for dissolution of a partnership.
Plaintiff alleged that some properties owned by the partnership were in the possession of the defendants
who made use of them, to the damage and prejudice of the plaintiff.

CFI-Manila

The lower court declared the dissolution of the partnership and found that the barge Lapu-Lapu, as well
as a Ford Truck and adding machine belonged exclusively to the plaintiff, M. Teague, but the said plaintiff
must return to and reimburse the partnership the sum of P14,032.26 taken from its funds for the purchase
and equipment of the said barge Lapu-Lapu; and also to return the sum of P1,230 and P228 used for
buying the Ford truck and adding machine, respectively.

Defendants Martin, Maddy and Golucke won in this case.
Plaintiff Teague was made liable to the partnership.
In all things and respects, the judgment of the lower court as to the merits is affirmed, with the
modification only that P2,000 shall be deducted from the amount of the judgment which was awarded
against the plaintiff, such deduction to be made for and on account of such use of the Lapu-Lapu by the
partnership, with costs against the appellant.
Principle:
WHEN PARTNER MUST ACCOUNT.—Where one party to a partnership, without any authority, takes
and uses the money of the firm in the purchase of property which he acquired and had registered in his
own name, in a suit for the dissolution of the partnership, he will be required to account to his partners for
the money which he used in such purchase.
WHEN PARTNERSHIP SHOULD ACCOUNT.—Where it appears that such partnership had the use and
benefit of such property, it will be required to account to the owner for the reasonable value of its use.
Facts:
Plaintiff Teague alleged that he and the defendants formed a partnership for the operation of a fish
business under the trade name "Malangpaya Fish Co," with a capital of P35,000, of which plaintiff paid
P25,000, the defendant Martin P5,000, Maddy P2,500, and Golucke P2,500.
Teague further alleged that he was named the general manager to take charge of the business, with full
power to do and perform all acts necessary to carry out the purposes of the partnership. He also
contended that a lighter called Lapu-Lapu and a motorship called Barracuda which were properties of the
partnership were in the possession of the defendants who made use of them, to the damage and
prejudice of the plaintiff. Thus, plaintiff asked for the dissolution of the partnership.
The defendants claimed, among others, that the amount of the capital was P45,000, of which the plaintiff
agreed to contribute P35,000; that P20,000 of the capital was to be used for the purchase of the
equipment of the Manila Fish Co., Inc. and the balance placed to the checking account of the new
company. Defendant Martin specifically denied that "plaintiff was named general manager of the
partnership," and alleged that, under the partnership agreement, Teague was in-charge of selling fish in
Manila and purchasing supplies. Martin admitted that the partnership purchased the motorship Barracuda,
but he denied that the partnership owned the lighter Lapu-Lapu and any other properties as mentioned in
Teague’s complaint.
The defendants did not object to the dissolution of the partnership, but prayed for an accounting with the
plaintiff. The lower court declared the dissolution of the partnership and found that the Lapu-Lapu, as well
as a Ford Truck and adding machine belonged exclusively to the plaintiff, M. Teague, but the said plaintiff
must return to and reimburse the partnership the sum of P14,032.26 taken from its funds for the purchase
and equipment of the said barge Lapu-Lapu; and also to return the sum of P1,230 and P228 used for
buying the Ford truck and adding machine, respectively.
Issue/s:
1. WON plaintiff Teague should account to his partners for the money which he used in purchasing
the Lapu-Lapu, the Ford truck and the adding machine.
2. WON the plaintiff should be compensated by the partnership for the latter’s use of the property in
question.
Ruling:
1. YES. The Supreme Court agreed with the trial court that the Lapu-Lapu, the Ford truck, and the
adding machine were purchased by the plaintiff and paid for out of the funds of the partnership,
and that by his own actions and conduct, and the taking of the title in his own name, he is now
estopped to claim or assert that they are not his property or that they are the property of the
company.
His authority was confined and limited to the "selling of fish in Manila and the purchase of
supplies." It must be conceded that, standing alone, the power to sell fish and purchase supplies
does not carry with it or imply the authority to purchase the said properties. From which it must
follow that he had no authority to purchase the same, as neither of them can be construed as
supplies for the partnership business. Thus, having no authority, Teague shall be required to
account to his partners for the money which he used in such purchase.
2. YES. After trial, the Court found that the partnership had the use and benefit of the Lapu-Lapu in
its business for a period of about six months, and that the partnership has never paid anything for
its use.
It is true that there is no testimony as to the value of such use, but the cost of the Lapu-Lapu and
the time of its use and the purpose for which it was used, all appear in the record.
For such reason, in the interest of justice, plaintiff, as the owner of the Lapu-Lapu, should be
compensated for the reasonable value of the time which the partnership made use of the same.
16. Litton vs. Hill & Ceron, et. al., GR No. L-45624, April 25, 1939
PRELIMINARIES
Who is the plaintiff: GEORGE LITTON
Who is the defendant: HILL & CERON, ET AL.
Nature of the Action filed in the SC? What is the case all about in Summary? This is a petition to
review on certiorari the decision of the Court of Appeals in a case originating from the Court of First
Instance of Manila wherein the herein petitioner George Litton filed a complaint against Hill & Ceron,
Robert Hill, Carlos Ceron and Visayan Surety & Insurance Corporation for the recovery of the unpaid
balance of P720.
What is the Case filed in the original court? Recovery of a sum of money
What is the cause of action? If Based on law, cite the legal basis of the claim. Inability to pay the
balance from the sale of mining claims.
From which court Originated? CFI Manila
Court a quos ruling and brief reason why? The lower court ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety &
Insurance Corporation. The CA affirmed the said decision by concluding that Ceron did not intend to
represent and did not act for the firm Hill & Ceron in the transaction involved in this litigation.
Who won? Who is liable? Dispositive Portion. Petitioner won the case. The defendants are ordered to
pay to the plaintiff, jointly and severally, the sum of P720, with legal interest, from the date of the filing of
the complaint, minus the commission of one-half per cent (½%) from the original price of P1,870, with the
costs to the respondents.
Principle:
Under article 226 of the Code of Commerce, the dissolution of a commercial association shall not cause
any prejudice to third parties until it has been recorded in the commercial registry.
The Supreme Court of Spain held that the dissolution of a partnershíp by the will of the partners which is
not registered in the commercial registry, does not prejudice third persons.
Facts:
On February 14, 1934, the plaintiff sold and delivered to Carlos Ceron, who is one of the managing
partners of Hill & Ceron, a certain number of mining claims.
By virtue of said transaction, defendant Ceron delivered to plaintiff a document evidencing the receipt of
share certificates Nos. 4428, 4429 and 6699 for 5,000, 5,000 and 7,000 shares respectively — total
17,000 shares of Big Wedge Mining Company, sold at P0.11 (eleven centavos) per share or P1,870.00
less 1/2 percent brokerage.
Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid balance of P720.
When Litton was unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety &
Insurance Corporation, he filed a complaint in the CFI Manila against the said defendants for the recovery
of the said balance.
During the trial, Robert Hill testified that he and Ceron, during the partnership, had the same power to buy
and sell; that in said partnership, Hill as well as Ceron made the transaction as partners in equal parts;
that on the date of the transaction, the partnership between Hill and Ceron was in existence.
After that date, Hill & Ceron sold shares of the Big Wedge; and when the transaction was entered into
with Litton, it was neither published in the newspapers nor stated in the commercial registry that the
partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th, he advised the plaintiff not to deliver shares for sale or
on commission to Ceron because the partnership was about to be dissolved; however, the partnership
was not in fact dissolved on February 14th, the date when the transaction with Ceron took place .
The court ordered Carlos Ceron personally to pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety & Insurance Corporation.
The CA affirmed the said decision by concluding that Ceron did not intend to represent and did not act for
the firm Hill & Ceron in the transaction involved in this litigation. The articles of copartnership of 'Hill &
Ceron’ provides that a written contract of the firm can only be signed by one of the partners if the other
partner consented. Without the consent of one partner, the other cannot bind the firm by a written
contract. Now, assuming for the moment that Ceron attempted to represent the firm in this contract with
the plaintiff (the plaintiff conceded that the firm name was not mentioned at that time), the latter has failed
to prove that Hill had consented to such contract.
Issue/s:
Whether or not Ceron’s acts bind the partnership.
Ruling:
Yes, Ceron’s acts bind the partnership.
Under article 226 of the Code of Commerce, the dissolution of a commercial association shall not cause
any prejudice to third parties until it has been recorded in the commercial registry. (See also Cardell vs.
Mañeru, 14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a partnership by the will
of the partners which is not registered in the commercial registry, does not prejudice third persons.
(Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of Commerce of December 7, 1933,
prohibits brokers from buying and selling shares on their own account.
The SC dissented from the view of the CA that for one of the partners to bind the partnership the consent
of the other is necessary. Third persons, like the plaintiff, are not bound in entering into a contract with
any of the two partners to ascertain whether or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make inquiries as to the agreements between the
partners. Its knowledge is enough that it is contracting with the partnership which is represented by one of
the managing partners.
There is a general presumption that each individual partner is an authorized agent for the firm and that he
has authority to bind the firm in carrying on the partnership transactions. (Mills vs. Riggle, 112 Pac., 617.)
The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by
one of the members of the firm acting apparently on its behalf and within the scope of his authority. (Le
Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)
It is provided under the articles of partnership of Hill & Ceron that the purpose of copartnership is to
engage in the business of brokerage in general, such as stock and bond brokers, real brokers, investment
security brokers, shipping brokers, and other activities pertaining to the business of brokers in general.
The kind of business in which the partnership Hill & Ceron is to engage being thus determined, none of
the two partners, under article 130 of the Code of Commerce, may legally engage in the business of
brokerage in general as stock brokers, security brokers and other activities pertaining to the business of
the partnership. Ceron, therefore, could not have entered into the contract of sale of shares with Litton as
a private individual, but as a managing partner of Hill & Ceron.
The defendants are ordered to pay to the plaintiff, jointly and severally, the sum of P720, with legal
interest, from the date of the filing of the complaint, minus the commission of one-half per cent (½%) from
the original price of P1,870, with the costs to the respondents.
Motion for reconsideration:
The above decision was sustained.
Article 130 of the Code of Commerce provides that
No new obligation shall be contracted against the will of one of the managing partners, should he have
expressly stated it; but if, however, it should be contracted it shall not be annulled for this reason, and
shall have its effects without prejudice to the liability of the partner or partners who contracted it to
reimburse the firm for any loss occasioned by reason thereof. (Emphasis supplied.)
Under the aforequoted provisions, when, not only without the consent but against the will of any of the
managing partners, a contract is entered into with a third person who acts in good faith, and the
transaction is of the kind of business in which the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability of the guilty partner.
The reason or purpose behind these legal provisions is no other than to protect a third person who
contracts with one of the managing partners of the partnership, thus avoiding fraud and deceit to which
he may easily fall a victim without this protection which the Code of Commerce wisely provides.
If we are to interpret the articles of partnership in question by holding that it is the obligation of the third
person to inquire whether the managing copartner of the one with whom he contracts has given his
consent to said contract, which is practically casting upon him the obligation to get such consent, this
interpretation would, in similar cases, operate to hinder effectively the transactions, a thing not desirable
and contrary to the nature of business which requires promptness and dispatch one the basis of good
faith and honesty which are always presumed.
17. Bachrach vs. La Protectora, GR No. L-11624, January 21, 1918
PRELIMINARIES: Obligations of partners among themselves
Who is the plaintiff: E.M Barach
Who is the defendant: La Protectora, et. Al ( Nicolas Segundo, Antonio Adiarte, Ignacio Flores and
Modesto Serrano)
What is the Case filed in the original court? (Did not mention)
CFI. To recover the unpaid balance based on the promissory notes, together with the
sum due for additional purchases, the present action was instituted in the Court of First
Instance of the city of Manila, upon May 29, 1914, against "La Protectora" and the five
individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano.
From which court Originated? CFI of the City of Manila
CFI. To recover the unpaid balance based on the promissory notes, together with the sum due for
additional purchases, the present action was instituted in the Court of First Instance of the city of
Manila, upon May 29, 1914, against "La Protectora" and the five individuals Marcelo Barba, Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano.
Who won? The petitioner
Who is liable?
The defendants
Dispositive Portion:
From what has been said it results that the appellants are severally liable for their respective
shares of the entire indebtedness found to be due; and the Court of First Instance committed no
error in giving judgment against them. The amount for which judgment should be entered is P7,037,
to which shall be added (1) interest at 10 per cent per annum from June 23, 1913, to be calculated
upon the sum of P4.121; (2) interest at 6 per cent per annum from July 21, 1915, to be calculated
upon the sum of P2,961; (3) the further sum of P1,030.25, this being the amount stipulated to be
paid by way of attorney's fees. However, it should be noted that any property pertaining to "La
Protectora" should first be applied to this indebtedness pursuant to the judgment already entered in
this case in the court below; and each of the four appellants shall be liable only for the one-fifth part
of the remainder unpaid.
Let judgment be entered accordingly, without any express finding of costs of this instance.
So ordered.
Principle:
Their liability is based on the fact that they are members of the civil partnership and as such
are liable for its debts. It is true that article 1698 of the Civil Code declares that a member of a civil
partnership is not liable in solidum (solidariamente) with his fellows for its entire indebtedness; but it
results from this article, in connection with article 1137 of the Civil Code, that each is liable with the
others (mancomunadamente) for his aliquot part of such indebtedness.
Facts:
Defendants Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto Serrano formed
a civil partnership called “La Protectora” for the purpose of engaging in the business of transporting
passengers and freight at Laoag, Ilocos Norte. In order to provide the enterprise with means of
transportation, Marcelo Barba, acting as manager, negotiated for the purchase of 2 automobile
trucks from E. M. Bachrach for P16,500.
Barba paid P3,000 in cash and for the balance executed promissory notes . One of these
promissory notes was signed in the following manner: “P.P La Protectora, By Marcelo Barba
Marcelo Barba” The other 2 notes were signed in the same way but the word “by” was omitted. It
was obvious that in signing the notes, Barba intended to bind both the partnership and himself.
The defendants executed a document in which they declared that they were members of La
Protectora and that they had granted to its president full authority to contract for the purchase of the
2 automobiles. The document was delivered by Barba to Bachrach at the time the vehicles were
purchased. From time to time after the first purchase was made, Marcelo Barba purchased of the
plaintiff various automobile effects and accessories to be used in the business of "La Protectora."
The indebtedness resulting from these additional purchases amounted to the sum of P2,916.57.
Consequently, Bahrach foreclosed a chattel mortgage on the trucks but there was still
balance. To recover the balance, action was instituted against “La protectora” and the 5 individuals
Marcelo, Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano. Judgment
was rendered against the defendants. The 4 other individual (who signed the document to which
reference has been made, authorizing Barba to purchase the two trucks appealed.
CFI ruled against the appellants-defendants.
Issues:
Whether or not the defendants (individuals) are liable for the firm debts. YES
Whether or not Barba is a partner in the partnership and has the authority to incur obligation
against the partnership. YES
Ruling:
The court ruled in the affirmative. The defendants (individuals) are liable for the firm debts.
a. Yes. Promissory notes constitute the obligation exclusively of La Protectora and Barba.
They do not constitute an obligation directly binding the defendants. Their liability is based
on the principles of partnership liability. A member is not liable in solidum with his fellows for
the entire indebtedness but is liable with them or his aliquot part.
SC obiter: The document was intended merely as an authority to enable Barba to bind the
partnership and that the parties to the instrument did not intend to confer upon Barba an authority to
bind them personally.
The business conducted under the name of "La Protectora" was evidently that of a civil
partnership; and the liability of the partners to this association must be determined under the
provisions of the Civil Code.
The authority of Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully
established by the document executed by the four appellants upon June 12, 1913. The transaction
by which Barba secured these trucks was in conformity with the tenor of this document. The
promissory notes constitute the obligation exclusively of "La Protectora" and of Marcelo Barba; and
they do not in any sense constitute an obligation directly binding on the four appellants. However,
their liability is based on the fact that they are members of the civil partnership and as such are liable
for its debts.
The Court of First Instance seems to have founded its judgment against the appellants in
part upon the idea that the document executed by them constituted an authority for Marcelo Barba to
bind them personally, as contemplated in the second clause of article 1698 of the Civil Code. That
cause says that no member of the partnership can bind the others by a personal act if they have not
given him authority to do so. We think that the document referred to was intended merely as an
authority to enable Barba to bind the partnership and that the parties to that instrument did not intend
thereby to confer upon Barba an authority to bind them personally. It is obvious that the contract
which Barba in fact executed in pursuance of that authority did not by its terms profess to bind the
appellants personally at all, but only the partnership and himself. It follows that the four appellants
cannot be held to have been personally obligated by that instrument; but, as we have already seen,
their liability rests upon the general principles underlying partnership liability.
b. On the second issue. The court ruled in the affirmative. Barba is a partner in the partnership
and has the authority to incur obligation against the partnership.
There is no proof in the record showing what the agreement, if any, was made with regard to
the form of management. Under these circumstances it is declared in article 1695 of the Civil Code
that all the partners are considered agents of the partnership. Barba therefore must be held to have
had authority to incur these expenses. But in addition to this he is shown to have been in fact the
president or manager, and there can be no doubt that he had actual authority to incur this obligation.
Hence, from what has been said it results that the appellants are severally liable for their
respective shares of the entire indebtedness found to be due; and the Court of First Instance
committed no error in giving judgment against them. Each of the four appellants shall only be
liable for the one-fifth of the remainder unpaid.
18. Catalan vs. Gatchalian, 105 Phil 1270.
PRELIMINARIES
Who is the plaintiff: Catalan
Who is the defendant: Gatchalian
Principle:
Every partner is an agent of partnership for the purpose of its business and the act of
every partner, including the execution in the partnership, name of any instrument, for apparently
carrying on in the usual way of business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has
no authority.
Facts:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the
improvements thereon to secure a credit from the latter. The partnership failed to pay the obligation. The
properties were sold to Dr. Marave at a public auction. Catalan redeemed the property and he contends
that title should be cancelled and a new one must be issued in his name.
Issue/s:
Did Catalan’s redemption of the properties make him the absolute owner of the lands?
Ruling:
No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to
any benefits or profits derived from his act as a partner.
Consequently, when Catalan redeemed the properties in question, he became a trustee and held the
same in trust for his copartner Gatchalian, subject to his right to demand from the latter his contribution to
the amount of redemption.
19. Pioneer Insurance vs. CA, GR No. 84197, July 28, 1989
PRELIMINARIES
G.R. No. 84197 - PIONEER INSURANCE & SURETY CORPORATION
G.R. No. 84157 - JACOB S. LIM

G.R. No. 84197 - THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM
G.R. No. 84157 - COURT OF APPEALS, PIONEER INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO MAGLANA
Consolidated petitions the subject matter of which is the CA’s decision, dismissing Pioneer’s complaint
against the respondents (in GR No. 84197) and upholding the CFI’s decision on Lim’s liability against
respondents Cervantes, Bormaheco and Maglana.
This case tackled the obligation of Petitioner Lim, who received funds from the respondents, by
misrepresenting that they will form a new corporation to expand his airline business, where in fact he has
no intention for such. When Lim experienced a setback, he then invoked that he and respondents formed
a de facto partnership, thus losses must be distributed in accordance with the law on partnerships.
Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment
against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
Respondents, Cervanteses, Bormaheco and Maglana, likewise, filed a cross-claim against Lim alleging
that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages
for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the
purchase of the aircrafts in question.
Pioneer’s cause of action is the recovery of money for the amount it paid to JDA as a surety.
Respondents’ ( Cervanteses, Bormaheco and Maglana), cause of action is the recovery of sums of
money which they contributed to Lim for the purchase of the aircrafts.

Court a quos ruling and brief reason why? In favor of respondents
Jacob Lim was adjudged to pay to the respondents (Cervanteses, Bormaheco and Maglana) their
contribution in the purchase of the aircraft with legal interest, attorneys fees, moral and exemplary
damages and other additional expenses which the respondents incurred. (NO DISCUSSION AS TO THIS
RULING)
The respondents (Cervanteses, Bormaheco and Maglana) won.

Jacob Lim was liable.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.
Principle:
Facts:
Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of
Southern Air Lines (SAL) a single proprietorship.
When Lim bought from Japan Domestic Airlines (JDA) two DC-3A aircrafts and a set of spare parts for
$109, 000.00, respondents Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana contributed funds for such
purchases. The funds were supposed to be their contributions to a new corporation proposed by Lim to
expand his airline business.
A surety bond was executed by Pioneer Insurance and Surety Corporation (petitioner in G.R. No. 84197)
in favor of JDA, in behalf of Lim, for the balance price of the aircrafts and spare parts. Respondents
executed indemnity agreements in favor of Pioneer, whereby they bound themselves to jointly and
severally indemnify Pioneer against all damages, losses, etc. that it may incur as a surety. Lim also
executed a chattel mortgage on the aircrafts purchased in favor of Pioneer as security.
Lim eventually failed to pay. Pioneer paid on his behalf. Pioneer filed an action for judicial foreclosure with
an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that
they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for
being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase
of the aircrafts in question.
The CFI ruling on the cross-claim held that Lim is liable to pay to the respondents (Cervanteses,
Bormaheco and Maglana) their contribution in the purchase of the aircraft with legal interest, attorneys
fees, moral and exemplary damages and other additional expenses which the respondents incurred. The
CFI’s ruling was affirmed by the CA.
On the theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio
Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the venture in proportion to
their contribution.
Lim then questioned the CA’s findings ordering him to reimburse certain amounts given by the
respondents as their contributions to the intended corporation.
Issue/s:
(1) Whether the failure to incorporate created a de facto partnership between Lim and
respondents.
(2) Whether losses should be distributed in proportion to their contribution.
Ruling:
(1) No de facto partnership was created among the parties.
While it has been held that as between themselves the rights of the stockholders in a
defectively incorporated association should be governed by the supposed charter and the
laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who
attempt, but fail, to form a corporation and who carry on business under the corporate
name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615,
Ann. Cas. 1913A 1065).
However, such a relation does not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as between themselves, when their purpose is
that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116
U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice
between the parties; thus, one who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as
to be liable as such in an action for settlement of the alleged partnership and contribution
(Ward v. Brigham, 127 Mass. 24).
In the instant case, the denial of Lim on his receipt of funds from respondents, his failure
to incorporate his airline in accordance with his agreement with respondents and by
dealing with the airline’s property in his personal capacity as owner of SAL, the Court
concluded that Lim never had intention to form a corporation with the respondents.
(2) No. Lim must bear all the losses. There being no de facto partnership, Lim is not entitled
to ask for the reimbursement of the supposed losses of the proposed corporation.
20. Soncuya vs De Luna, GR No. L-45464, April 28, 1939
PRELIMINARIES
Who is the plaintiff: Josue Soncuya
Who is the defendant: Carmen De Luna
Principle:
For a partner to be able to claim from another partner who manages the general co-partnership, allegedly
suffered by him by reason of the fraudulent administration of the latter, a previous liquidation of said
partnership is necessary.
Facts:
Petitioner Josue Soncuya filed a complaint against respondent Carmen De Luna for damages as a result
of the fraudulent administration of the partnership, “Centro Escolar de Senoritas” of which petitioner and
the deceased Avelino Librada were members.
For the purpose of adjudicating to plaintiff damages which he alleged to have suffered as a partner, it is
necessary that a liquidation of the business be made that the end profits and losses may be known and
the causes of the latter and the responsibility of the defendant as well as the damages in which each
partner may have suffered, maybe determined.
Issue/s:
Whether the petitioner is entitled to damages. No
Ruling:
The complaint is not sufficient to constitute a cause of action on the part of the plaintiff as a member of
the partnership to collect damages from defendant as managing partner thereof, without previous
liquidation.
It was not alleged in the complaint that such a liquidation has been effected nor is it prayed that it be
made.
Consequently, there is no reason or cause for plaintiff to institute the action for damages which he claims
from the managing partner Carmen de Luna. Thus, for a partner to be able to claim from another partner
who manages the general co-partnership, allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said partnership is necessary.
21. Agustin vs Inocencio, GR No. L-3745, October 26, 1907
PRELIMINARIES
Who is the plaintiff: JUAN AGUSTIN, ET AL.
Who is the defendant: BARTOLOME INOCENCIO
Nature of the Action filed in the SC? What is the case all about in Summary? This is an appeal from
the judgment of a Trial Court.
What is the Case filed in the original court? Collection of money arising from the partnership’s debts.
What is the cause of action? If Based on law, cite the legal basis of the claim. Plaintiffs alleged that
they were not notified of the amount borrowed by Inocencio from his wife, therefore they are not liable to
pay such debt.
From which court Originated? The Trial Court (Not mentioned in the case).
Court a quos ruling and brief reason why? The trial court treated his claim on this note, as well as the
sum of P2,024.49 furnished by him, as an addition to his capital in the firm, rather than as a loan, and this
constitutes one of the grounds of error stated by the Appellant. If considered as a loan, this sum would
place the defendant as a creditor in a stronger position, as against his associates than if regarded as a
mere contribution to capital. The error, if it be an error, is not, therefore, prejudicial to the plaintiff, but is
rather beneficial to him. The respondent did not except to it.
Who won? Who is liable? Dispositive Portion. Inocencio won. Juan Agustin, et al. are liable.
Dispositive portion: Of the four parties plaintiff, but one, Victor del Rosario, is interested in this appeal,
which has been dismissed as to the others, and as to him the judgment of the trial court must be affirmed,
with costs of this instance. So ordered.
Principle: PARTNERSHIP; ADVANCES ALLOWED MANAGING PARTNER. — On the adjustment of the

accounts of a partnership, the managing partner may be allowed funds borrowed or advanced and
necessary to the completion of the work, within the scope of the business and expressly provided for by
agreement among the partners.
Facts:
The parties are all industrial partners. They contributed from the profits of their business the sum of
P807.28 as a fund toward the construction of a casco.
Inocencio, being the managing partner, borrowed P3,500 from his wife to complete the construction since
the estimated cost of the casco was around P4,300. Inocencio, however, failed to notify his partners of
the borrowing of money and payment of the various items from time to time, but it was shown that the
books were at all times open for their inspection.
Agustin, representing all the partners, was also present at the construction of the casco, in charge of the
practical work and cognizant of its needs and its progress.
The note was passed into the hands of Inocencio by reason of the successive deaths of his wife and their
only child.
The trial court treated his claim as an addition to his capital in the firm, rather than as a loan.
Issue/s: Whether or not Inocencio, in borrowing money and advancing funds, he was acting within the
scope of his authority as a managing partner.
Ruling: Yes. The work done in the casco having been within the scope of the association and necessary
to carry out its express object, the borrowing of the money required to carry it on, with the acquiescence if
not with the affirmative consent of his associates, was not outside the powers of the managing partner
and constitutes a debt for which all the associates are liable.
22. Clemente vs. Galvan, GR No. L-45662, April 26, 1939
PRELIMINARIES
- ENRIQUE CLEMENTE
Who is the defendant

- DIONISIO GALVAN (defendant) and JOSE ECHEVARRIA (intervenor)
- On June 6, 1931, plaintiff and defendant organized a civil partnership which they named "Galvan
y Compañia" to engage in the manufacture and sale of paper and other stationery. But a year
after such organization, the plaintiff commenced the present case for the dissolution of the
partnership and to compel defendant to whom the management thereof was entrusted to submit
an accounting of his administration and to deliver to him his share as such partner. In the
meantime the judgments rendered in two other cases were made executory so in order to avoid
the attachment and subsequent sale of the machines by the sheriff for the satisfaction from the
proceeds thereof of the judgments rendered in the two cases aforecited, plaintiff agreed with the
intervenor, who is his nephew, to execute, as he in fact executed in favor of the latter, a deed of
mortgage encumbering the machines described in said deed.

- for the dissolution of the partnership and to compel defendant to whom the management thereof
was entrusted to submit an accounting of his administration and to deliver to him his share as
such partner
- Not mentioned
From which court Originated?:

- Court of First Instance of manila
Court a quos ruling and brief reason why?:

- CFI manila- and with respect to the complaint of the intervenor, the mortgage executed in his
favor by plaintiff is declared null and void, and said complaint in intervention, as well as the
counterclaim filed by the defendant against the intervenor, is dismissed, without pronouncement
as to costs.
- SC- said machines belong to the partnership and shall belong to it until partition is effected
according to the result thereof after the liquidation.

- Enrique Clemente (Plaintiff): In view of all the foregoing, the judgment appealed from is affirmed,
with costs against the appellant.
Principle:
- If the property belong to the partnership then it shall belong to it until partition is effected
according to the result thereof after the liquidation.
Facts:
On June 6, 1931, plaintiff and defendant organized a civil partnership which they named "Galvan y
Compañia" to engage in the manufacture and sale of paper and other stationery. They agreed to invest
therein a capital of P100,000, but as a matter of fact they did not cover more than one-fifth thereof, each
contributing P10,000
Hardly a year after such organization, the plaintiff commenced the present case in CFI Manila to ask for
the dissolution of the partnership and to compel defendant to whom the management thereof was
entrusted to submit an accounting of his administration and to deliver to him his share as such partner. In
his answer defendant expressed his conformity to the dissolution of the partnership and the liquidation of
its affairs; but by way of counter-claim.
On petition of the plaintiff a receiver and liquidator to take charge of the properties and business for the
partnership while the same was not yet definitely dissolved, was appointed, the person chosen being
Juan D. Mencarini. The latter was already discharging the duties of his office when the court, by virtue of
a petition ex parte of the plaintiff, issued the order of May 24, 1933, requiring said receiver to deliver to
the plaintiff certain machines which were then at Nos. 705-707 Ylaya Street, Manila but authorizing him to
charge their value of P4,500 against the portion which may eventually be due to said plaintiff. To comply
with said order, the receiver delivered to plaintiff the keys to the place where the machines were found,
which was the same place where defendant had his home.
In the meantime the judgments rendered in cases entitled "Philippine Education Co., Inc. vs. Enrique
Clemente" for the recovery of a sum of money, and "Jose Echevarria vs. Enrique Clemente", also for the
recovery of a sum of money, respectively, were made executory; and in order to avoid the attachment and
subsequent sale of the machines by the sheriff for the satisfaction from the proceeds thereof of the
judgments rendered in the two cases aforecited, plaintiff agreed with the intervenor, who is his nephew, to
execute, as he in fact executed in favor of the latter, a deed of mortgage encumbering the machines
described in said deed in which it is stated that "they are situated on Singalong Street No. 1163", which is
a place entirely different from the house Nos. 705 and 707 on Ylaya Street hereinbefore mentioned.
Issue/s:
Whether or not the mortgage between Clemente and his nephew (intervenor, plaintiff in the case) is valid
Ruling:
No, The evidence of record shows that the machines in contention originally belonged to the defendant
and from him were transferred to the partnership Galvan y Compania.
This being the case, said machines belong to the partnership and not to him, and shall belong to it until
partition is effected according to the result thereof after the liquidation.
Also, Clemente did not have actual possession of the machines, thus, he could not in any manner
mortgage them.
23. Leyte-Samar-Sales and K. Tomassi vs. S. Cea and O. Castrilla, 93

Phil 100
PRELIMINARIES
THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI
Who is the defendant: SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of Leyte
and OLEGARIO LASTRILLA
The case commenced when the sheriff sold at auction to Robert Dorfe and Pepito Asturias "all the rights,
interests, titles and participation" of the FELCO in certain buildings and properties described in the
certificate, for a total price of eight thousand and one hundred pesos. But, Olegario Lastrilla filed in the case
a motion, wherein he claimed to be the owner by purchase of all the "shares and interests" of Fred Brown in
the FELCO, and requested "under the law of preference of credits" that the sheriff be required to retain in
his possession so much of the deeds of the auction sale as may be necessary "to pay his right".
Claim of ownership over the shares and interest in a partnership.
The case filed in the Court of First Instance of Leyte, is a suit for damages by the Leyte-Samar Sales Co.
(hereinafter called LESSCO) and Raymond Tomassi against the Far Eastern Lumber & Commercial Co.
(unregistered commercial partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas,
Olegario Lastrilla filed in the case a motion, wherein he claimed to be the owner by purchase of all
the "shares and interests" of Fred Brown in the FELCO, and requested "under the law of
preference of credits" that the sheriff be required to retain in his possession so much of the deeds
of the auction sale as may be necessary "to pay his right".
Court of First Instance of Leyte
Lastilla was already a partner of FELCO. If he was a creditor of the FELCO, perhaps or maybe. But he was
not. The partner of a partnership is not a creditor of such partnership for the amount of his shares.
The Court held that all orders of the respondents judge requiring delivery of 17 per cent of the proceeds of
the auction sale to respondent Olegario Lastrilla are null and void; and the costs of this suit shall be taxed
against the latter. The preliminary injunction heretofore issued is made permanent. So ordered.
Principle:
The partner of a partnership is not a creditor of such partnership for the amount of his shares.
Facts:
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages by the Leyte-Samar
Sales Co. (hereinafter called LESSCO) and Raymond Tomassi against the Far Eastern Lumber &
Commercial Co. (unregistered commercial partnership hereinafter called FELCO), Arnold Hall, Fred Brown
and Jean Roxas, judgment against defendants jointly and severally for the amount of P31,589.14 plus costs
was rendered.
The Court of Appeals confirmed the decision of the CFI. The decision having become final, the sheriff sold at
auction to Robert Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of the
defendants in certain buildings and properties described in the certificate, for a total price of eight thousand
and one hundred pesos. But Olegario Lastrilla filed in the case a motion, wherein he claimed to be the owner
by purchase of all the "shares and interests" of defendant Fred Brown in the FELCO, and requested "under
the law of preference of credits" that the sheriff be required to retain in his possession so much of the deeds
of the auction sale as may be necessary "to pay his right".
The judge in his order granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of the money
"for delivery to the assignee, administrator or receiver" of the FELCO. And on motion of Lastrilla, the court
modified its order of delivery and merely declared that Lastrilla was entitled to 17 per cent of the properties
sold.
Issue/s:
Can a partner file proper claim to the proceeds of the sale?
Ruling:
No.
On June 9, 1951 when the sale was effected of the properties of FELCO, Lastilla was already a partner of
FELCO. If he was a creditor of the FELCO, perhaps or maybe. But he was not. The partner of a partnership
is not a creditor of such partnership for the amount of his shares.
Granting that the auction sale did not included the interest or portion of the FELCO properties
corresponding to the shares of Lastrilla in the same partnership, the other purchasers will have to recognize
dominion of Lastrillas over 17 per cent of the properties awarded to them.
So Lastrilla acquired no right to demand any part of the money paid by the purchaser to the sheriff for the
benefit of FELCO and Tomassi for the reason that, his shares could not have been and were not auctioned
off.
Supposing that the shares have been actually sold the owner of property wrongfully sold may not voluntarily
come to court, and insist he approve the sale and claim proceed as owner. The reason is that the sale was
made for the judgment creditor and not for anybody else.
24. Phil. National Bank vs. Lo, 50 Phil 803
PRELIMINARIES
PHILIPPINE NATIONAL BANK, plaintiff-appellee
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Appeal

Collection of Sum of money
Failure of Payment
Iloilo

After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng
indebted to plaintiff Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a
daily interest of P4.14 on the balance on account of the partnership "Tai Sing & Co. for the
sum of P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the Philippine National
Bank the sum of P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest
on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the action. 1a

Decision is in favor with PNB. Defendants are ordered to pay.
“The judgment appealed from is in accordance with the law, and must
therefore be, as it is hereby, affirmed with costs against the appellants. So ordered.
Principle:
All the members of a general partnership, be they managing partners thereof or not,
shall be personally and solidarily liable with all their property, for the results of the
transactions made in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to use it.
Facts:
1. Partnership Name Tai Sing and Co.,( a commercial partnership with a capital of
P40,000 contributed by said partners) NOTE: “TAI” and“SING” are
not surnames of any of the partners.
Partners ( the appellants) Severo Eugenio Lo and Ng Khey Ling,

together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam
and Co Sieng Peng
In the articles of copartnership:
Appointed General Manager

➔ J. A. Say Lian Ping
.
2. Execution of SPA (1)
(1917) - General manager A. Say Lian Ping in favor of A. Y. Kelam
(1918) - obtained a loan of P8,000 in current account from the plaintiff bank. (Exhibit C). As
security for said loan, he mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.)
This credit was renewed several times.
On March 25, 1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed a chattel
mortgage in favor of plaintiff bank as security for a loan of P20,000 with interest (Exhibit D).
This mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of
"Tai Sing & Co., executed another chattel mortgage for the said sum of P20,000 in favor of
plaintiff bank. (Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn
9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter
represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue
of which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank
on January 7, 1921, executing a chattel mortgage
on certain personal property belonging to "Tai Sing & Co.
5. PNB field a complaint of collection of a sum of money
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June 30, P16,518.74

1922
Interest on same from June 30, 1922 to December 3,720.86

31,1924, at 9 per cent per annum
Total 20, 239.00

=========
This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9 per
cent per annum from January 1, 1925 until fully paid, with the costs of the trial.
6. Defendant’s Defense
● that "Tai Sing & Co. was not a general partnership
● that the commercial credit in current account which "Tai Sing & Co. obtained from the
plaintiff bank had not been authorized by the board of directors of the company, nor
was the person who subscribed said contract authorized to make the same, under
the article of copartnership.
● The other defendants, Yap Sing and Ng Khey Ling, answered the complaint denying
each and every one of the allegations contained therein.
● Partnership was dissolved due to J. A. Sai Lian Ping's death in China in November,
1917 was not admitted
7. RTC’s decision in favor with PNB, Defendants are ordered to pay.

8. Anomaly noted in its organization that instead of adopting for their firm name the names of
all of the partners, of several of them, or only one of them, to be followed in the last two
cases, by the words "and to be followed in the last two cases, by the words "and company"
the partners agreed upon "Tai Sing & Co." as the firm name.
Issue/s:
a. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish
the defendants' obligation to the plaintiff bank, because the last debt incurred by the
commercial partnership "Tai Sing & Co., was that evidence by Exhibit F, signed by
Sy Tit as attorney-in-fact of the members of "Tai Sing & Co., by virtue of Exhibit G.
Ruling:
a. No.
As to the alleged death of the manager of the company, Say Lian Ping, before the
attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not
find this fact proven at the hearing.
But even supposing that the court had erred, such an error would not justify the
reversal of the judgment, for two reasons at least: (1) Because Ou Yong Kelam was
a partner who contracted in the name of the partnership, without any objection of the
other partners; and (2) because it appears in the record that the appellant-partners
Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and
he obtained from the plaintiff bank the credit in current account, the debit balance of
which is sought to be recovered in this action.
The judgment against the appellants is in accordance with article 127 of the Code of
Commerce which provides that all the members of a general partnership, be they
managing partners thereof or not, shall be personally and solidarily liable with all their
property, for the results of the transactions made in the name and for the account of
the partnership, under the signature of the latter, and by a person authorized to use
it.
Anent the anomalous adoption of partnership’s name
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-
Seng, cited by appellants, this court held that, as the company formed by defendants
had existed in fact, though not in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in favor of the plaintiff, the same
must be paid by someone. This applies more strongly to the obligations contracted
by the defendants, for they formed a partnership which was registered in the
mercantile register, and carried on business contracting debts with the plaintiff bank.
The anomalous adoption of the firm name above noted does not affect the liability of
the general partners to third parties under article 127 of the Code of Commerce.
And the Supreme Court so held in the case of Jo Chung Cang vs. Pacific
Commercial Co., (45 Phil., 142), in which it said that the object of article 126 of the
Code of Commerce in requiring a general partnership to transact business under the
name of all its members, of several of them, or of one only, is to protect the public
from imposition and fraud; and that the provision of said article 126 is for the
protection of the creditors rather than of the partners themselves.
And consequently the doctrine was enunciated that the law must be unlawful and
unenforceable only as between the partners and at the instance of the violating party,
but not in the sense of depriving innocent parties of their rights who may have dealt
with the offenders in ignorance of the latter having violated the law; and that
contracts entered into by commercial associations defectively organized are valid
when voluntarily executed by the parties, and the only question is whether or not they
complied with the agreement.
Therefore, the defendants cannot invoke in their defense the anomaly in the firm
name which they themselves adopted.
25. Island Sales, Inc. vs United Pioneers Gen. Construction Co., 65

SCRA 544
PRELIMINARIES
Island Sales
United Pioneers General Construction Company
APPEAL from a decision of the Court of First Instance of Manila
United Pioneers, a general partnership formed by 5 partners, purchased by installment a motor

vehicle from Island Sales. United Pioneers defaulted in its payment thus sued with 5 partners.
Upon motion, Lumauig (one of the partners), was removed as defendant. Trial court rendered
judgment in favor of Island Sales and ordered to pay the outstanding balance plus interest.
Moreover, 4 partners shall pay in case United Partners’ property will not suffice to satify the
debt.
Collection of sum of money due in a promissory note in The CFI Manila
“Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts which may
be entered into in the name and for the account of the partnership, under its signature and by a
person authorized to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract.”
CFI Manila – In favor of Island Sales
Pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is
fully paid, plus attorney’s fees which the Court fixes in the sum of Eight Hundred Pesos
(P800.00) and costs.
“The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the understanding that the judgment against these
individual defendants shall be enforced only if the defendant company has no more leviable
properties with which to satisfy the judgment against it.
“The individual defendants shall also pay the costs.”
Island Sales
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without

pronouncement as to costs. SO ORDERED.
Principle:
Condonation by creditor of share in partnerships debt of one partner does not increase
pro rata liability of other partners
Facts:
United Partners Gen. Construction CO (defendant) , a general partnership duly

registered under the laws of the Philippines, purchased from Island Sales (plaintiff), a
motor vehicle on the installment basis and for this purpose executed a promissory note
for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first
installment payable on or before May 22, 1961 and the subsequent installments on the
22nd day of every month thereafter, until fully paid, with the condition that failure to pay
any of said installments as they fall due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco,
Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were
included as co-defendants in their capacity as general partners of the defendant
company.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary liability of
each partner should not exceed one-fifth (1/5 ) of the obligations of the defendant
company.
The trial court denied the said motion notwithstanding the conformity of the plaintiff to
limit the liability of the defendants Daco and Sim to only one-fifth (1/5 ) of the obligations
of the defendant company.
Hence, this appeal.

Issue/s:
What is the extent of the liability of the partners considering that one partner was removed as a c-
defendant on motion of Island Sales
Ruling:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after
all the partnership assets have been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership.
Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code,
the partners are not liable each for the whole debt of the partnership. The liability is pro rata and
in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the
other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership.
Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited
to only one-fifth (1/5 ) of the obligations of the defendant company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said
Lumauig as a general partner in the defendant company.
In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the
plaintiff.
26. Compania Maritima vs. Munoz, 9 Phil 326
PRELIMINARIES
La COMPAÑIA Maritima, plaintiff and appellant
Francisco MUÑOZ ET AL., defendants and appellees.
APPEAL from a judgment of the Court of First Instance of Manila.
In sum
An action against the partnership to recover the sum of P26,828.30, with interest and costs.

CFI - Manila
CFI Manila - Judgment was rendered in the court below acquitting Emilio Muñoz de Bustillo and Rafael
Naval of the complaint, and in favor of the plaintiff and against the defendant partnership.
It is said in the decision of the court below that in the articles of partnership it was called an ordinary,
general mercantile partnership, but that from the articles it does not appear to be such a partnership. In
the brief of the appellees it is also claimed that it is not an ordinary, general commercial partnership.
Compañia Maritima vs. Muñoz et al., 9 Phil., 326, No. 3704 December 12, 1907
Plaintiff La COMPAÑIA Maritima won. Munoz was made liable.
The judgment of the court below is reversed and judgment is ordered against all of the defendants for the
sum of P26,828.30, with interest thereon at the rate of 8 per cent per annum since the 31st day of March,
1905, and for the costs of this action. Execution on such judgment shall not issue against the private
property of the defendants Francisco Munoz, Emilio Munoz, or Rafael Naval until the property of the
defendant Francisco Munoz & Sons is exhausted. No costs will be allowed to either party in this court. So
ordered.
Principle:
1.Partnership; Industrial Partners.—In an ordinary general mercantile partnership the industrial

partners are liable to third parties for the debts and obligations of the partnership.
2.Id.; Id; Salary to Partner.—The mere payment of a salary to one of the partners of a concern and the
subsequent discontinuance of such salary does not destroy the interest of the partner nor relieve him from
partnership liability
3.Id.; Action; Joinder.—Both the partnership and the separate partners thereof may be joined in one
action, but the private property of the latter can not be taken in payment of the firm debts until the
common property of the concern is exhausted. (Art. 237, Code of Commerce.)
Facts:
Francis Muñoz de Bustillo, Emilio Muñoz and Rafael Naval formed an ordinary general commercial
partnership, Francis Muñoz and Sons, for the purpose of carrying a mercantile business.
Muñoz de Bustillo was a capitalist partner while Muñoz and Naval were industrial partners. Plaintiff La
Compania Maritima brought an action to recover the sum of P26,828.30 against the partnership and the
partners in their own individual capacity. Muñoz and Naval were absolved from liability.
In their brief, it is claimed that it is not an ordinary general commercial partnership while in their
article of partnership it is expressly stated that they have agreed and do form an ordinary general
commercial partnership. The object of the partnership is purely mercantile and all requirements under the
Code of Commerce were complied with. The articles of partnership were even recorded in the mercantile
registry of Albay. There is no doubt that there is a partnership.
Appellees also claimed that Muñoz is not a partner because 1) he contributed nothing to the
partnership, 2) he has no salary and 3) he is excluded from the management. The Supreme court in
upholding that Muñoz is a partner stated that 1) he contributed as much as other industrial partner, 2) he
receives a salary, the only difference between him and Naval is that the latter was entitled to a fixed
salary while he is not and 3) that the partners can validly do the exclusion from management in
accordance with the provision of Art. 125 of the Code of Commerce
Issue/s: Is an industrial partner in an ordinary general mercantile partnership liable to third

persons for debts and obligations contracted by the partnership?
Ruling: Yes.
RATIO: In an ordinary general mercantile partnership the industrial partners are liable to third parties for
the debts and obligations of the partnership.
The Supreme Court held that in limited partnership, the Code of Commerce recognizes a difference
between general and special partners, but in a general partnership there is no such distinction — all the
members are general partners. The fact that some may be industrial and some capitalist partners does
not make the members of either of these classes alone such general partners.
The construction of the law should be avoided which would enable two persons, each with a large amount
of private property, to form and carry on a partnership and, upon the bankruptcy of the latter, to say to its
creditors that they contributed no capital to the company but only their services, and that their private
property is not, therefore, liable for its debts.
It should be noted, however, that the execution of the judgment should not issue against the
private property of the partners until the property of the partnership is exhausted.
27. Dietrich vs. Freeman, 18 Phil 341
PRELIMINARIES
GEORGE O. DIETRICH

O.K. FREEMAN ET AL
APPEAL

Recovery for the Sum of Money
The sum of P952 alleged to be the balance due the plaintiff for services performed

Trial Court (Court of First Instance)

All lower courts in favor of plaintiff

Petitioner won. Respondent is liable.
Judgment entered in favor of the plaintiff and against the defendant Whitcomb for the sum of P376, with
interest as fixed by the court below. No costs will be allowed either party in this court.
Principle:
In the case of a civil partnership, the liability of the partners is determined by the provisions of the Civil
Code, and when a contract of services is entered into between an employee and the manager, in the firm
name, the partners composing the firm are liable pro rata for the damages arising out of such contract.
The plaintiff was employed by and peformed services for the Manila Steam Laundry and was not
employed by nor did he perform services for Freeman alone. The public did not deal with Freeman and
Whitcomb personally, but with the Manila Steam Laundry. These two partners were doing business under
this name and, as we have said, it was not a commercial partnership. Therefore, by the express
provisions of articles 1698 and 1137 of the Civil Code the partners are not liable individually for the entire
amount due the plaintiff. The liability is pro rata and in this case the appellant is responsible to the plaintiff
for only one-half of the debt.
Facts:
Action was brought against O. K. Freeman, James L. Pierce, and Burton Whitcomb, as owners and
operators of the Manila Steam Laundry, to recover the sum of P952 alleged to be the balance due the
plaintiff for services performed
Judgment was rendered in favor of the plaintiff and against Freeman and Whitcomb, jointly and severally,
for the sum of P752 complaint as to Pierce was dismissed, Whitcomb alone appealing.
When the plaintiff was first employed on the 9th of January, 1907, this steam laundry was owned and
operated by Freeman and Pierce. Pierce, on the 18th of January, 1907, sold all of his right, title, and
interest in the said laundry to Whitcomb, who, together with Freeman, then became the owners of this
laundry and continued to operate the same as long as the plaintiff was employed.
Whitcomb never knew the plaintiff, never had anything to do with him personally, and that the plaintiff's
contract was with Freeman, the managing partner of the laundry. It further appears from the record that
Pierce, after he sold his interest in this laundry to Whitcomb, continued to look after Whitcomb's interest
by authority of the latter.
Issue/s:
Should Whitcomb be held liable given the fact that he only joined the partnership subsequently?
Ruling: YES
In the organization of this partnership by Freeman and Whitcomb, the above provisions of law were not
complied with; that is, no formal partnership was ever entered into by them, notwithstanding the fact that
they were engaged in the operation of this laundry business.
The purposes for which this partnership was entered into by Freeman and Whitcomb show clearly that
such partnership was not a commercial one; hence the provisions of the Civil Code and not the Code of
Commerce must govern in determining the liability of the partners.
In neither of these cases were the provisions of Articles 17 and 119 of the Code of Commerce complied
with. Those partnerships, although commercial, were not organized in accordance with the provisions of
the Code of Commerce as expressed in those articles.
In a partnership of cuentas en participacion, under the provisions of Article 242 of the Code of
Commerce, those who contract with the person in whose name the business of such a partnership was
conducted shall have only the right of action against such person and not against other persons
interested. So this case is easily distinguished from the case at bar, in that the one did not have the
corporate name while the other was known as the Manila Steam Laundry.
The plaintiff was employed by and performed services for the Manila Steam Laundry and was not
employed by nor did he perform services for Freeman alone. The public did not deal with Freeman and
Whitcomb personally, but with the Manila Steam
28. Santiago Syjuco, Inc. vs. Castro, 175 SCRA 171
PRELIMINARIES
SANTIAGO SYJUCO, INC.

EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE
PARTNERSHIP OF THE HEIRS OF HUGO LIM
PETITION to review the decision of the Regional TrialCourt of Quezon City,

To stop the foreclosure, the Lims—through Atty. MarcialG. Mendiola, who was later joined by Atty. Raul
Correa—filed Civil Case No. 75180 on December 24, 1968 in theCourt of First Instance of Manila (Branch
5). In their complaint they alleged that their mortgage was void, being usurious for stipulating interest of
23% on top of 11% that they had been required to pay as “kickback.” An order restraining the auction sale
was issued two days later, onDecember 26, 1968,
The Lims failed to pay their debt aggregate of the loans stood at P2,460,000.00 despite demands
therefor; that Syjuco Consequently caused extra-judicial proceedings for the foreclosure of the mortgage
to be commenced by the Sheriffof Manila


SANTIAGO SYJUCO-won,
EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE
PARTNERSHIP OF THE HEIRS OF HUGO LIM-Liable
WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that end, all
the matters and incidents with which these proceedings are concerned may be brought to a swift
conclusion:
1. the assailed judgment by default in Civil Case No.Q-36485 , the writ of execution and all other
orders issued in implementation thereof, and all proceedings in the case leading to said judgment
after the filing of the complaint are DECLARED null and void and are hereby SET ASIDE; and the
complaint in said case is DISMISSED for being barred by prior judgment and estoppel, and for
lack of merit;
2. the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule forthwith and
thereafter conduct with all due dispatch the sale at public auction of the mortgaged property in
question for the satisfaction of the mortgage debt of the respondents Lims to petitioner, in the
principal amount of P2,460,000.00 as found in the amended decision in Civil Case No. 75180 of
the Court ofFirst Instance of Manila, interests thereon at the rate of twelve (12%) percent per
annum fromNovember 8, 1967 until the date of sale, plus such other and additional sums for
commissions,expenses, fees, etc. as may be lawfully chargeable in extrajudicial foreclosure and
sale proceedings;
3. the private respondents, their successors and assigns, are PERPETUALLY ENJOINED from
taking any action whatsoever to obstruct, delay or prevent said auction sale;
4. the private respondents (the Lims, the Partnership Of the Heirs of Hugo Lim and Atty. Paterno
R.Canlas) are sentenced, jointly and severally, to pay the petitioner P25,000.00 as nominal
damages andP100,000.00 as exemplary damages, as well as treble costs; and
5. let this matter be referred to the Integrated Bar of the Philippines for investigation, report, and
recommendation insofar as the conduct of Atty.Canlas as counsel in this case and in the other
cases hereinabove referred to is concerned.
Principle:
Partnership; Mortgage; Foreclosure; Estoppel; Doctrine of Estoppel to preclude any attempt to

avoid the mortgage as allegedly unauthorized.—If, therefore, the respondent partnership was
inescapably chargeable with knowledge of the mortgage executed by all the partners thereof, its silence
and failure to impugn said mortgage within a reasonable time, let alone a space of more than seventeen
years, brought into play the doctrine of estoppel to preclude any attempt to avoid the mortgage as
allegedly unauthorized.
Same; Same; Same; Same; Kinds of Estoppel; Estoppel in pais; Estoppel may arise from silence.
—The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law by Art.
1432 of the Civil Code. Coming under this class is estoppel by silence, which obtains here and as to
which it has been held that: “x x x an estoppel may arise from silence as well as from words. ‘Estoppel by
silence’ arises where a person, who by force of circumstances is under a duty to another to speak,
refrains from doing so and thereby leads the other to believe in the existence of a state of facts in reliance
on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is
intentional or negligent. “Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise an equitable estoppel. When the silence is
of such a character and under such circumstances that it would become a fraud on the other party to
permit the party who has kept silent to deny what his silence has induced the other to believe and act on,
it will operate as an estoppel. This doctrine rests on the principle that if one maintains silence, when in
conscience he ought to speak, equity will debar him from speaking when in conscience he ought to
remain silent. He who remains silent when he ought to speak cannot be heard to speak when he should
be silent.”
Same; Same; Same; Same; Rule that where the title to real property is in the names of all the
partners, a conveyance executed by all partners passes all their rights in such property.—Equally
or even more preclusive of the respondent partnership’s claim to the mortgaged property is the last
paragraph of Article 1819 of the Civil Code, which contemplates a situation duplicating the circumstances
that attended the execution of the mortgage in favor of Syjuco and therefore applies foursquare thereto:
“Where the title to real property is in the names of all the partners a conveyance executed by all the
partners passes all their rights in such property.” The term “conveyance” used in said provision, which is
taken from Section 10 of the American Uniform Partnership Act, includes a mortgage. “Interpreting Sec.
10 of the Uniform Partnership Act, it has been held that the right to mortgage is included in the right to
convey. This is different from the rule in agency that a special power to sell excludes the power to
mortgage (Art. 1879).”
Facts:
The private respondents, Eugenio Lim, et al., borrowed from petitioner Santiago Syjuco, Inc., the sum of
P800,000.00. The loan was given on the security of a first mortgage on property registered in the names
of said borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415
of the Registry of Deeds of Manila.
Thereafter, additional loans on the same security were obtained by the private respondents from Syjuco,
so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00, exclusive of interest, and
the security had been augmented by bringing into the mortgage other property, also registered as owned
pro indiviso by the private respondents under two titles: TCT Nos. 75416 and 75418 of the Manila
Registry.
The private respondents failed to pay it despite demands therefore; that Syjuco consequently caused
extra-judicial proceedings for the foreclosure of the mortgage to be commenced by the Sheriff of Manila;
and that the latter scheduled the auction sale of the mortgaged property on December 27, 1968. The
attempt to foreclose triggered off a legal battle that has dragged on for more than twenty years now,
fought through five (5) cases in the trial courts, two (2) in the Court of Appeals, and three (3) more in the
Supreme Court.
One of the complaints filed by the private respondents was filed not in their individual names, but in
the name of a partnership of which they themselves were the only partners: "Heirs of Hugo Lim." The
complaint advocated the theory that the mortgage which they, together with their mother, had individually
constituted (and thereafter amended during the period from 1964 to 1967) over lands standing in their
names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at that time,
having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim," more precisely, on
March 30, 1959, hence, said mortgage was void because executed by them without authority from the
partnership. Syjuco filed an instant petition for certiorari, prohibition and mandamus. It prays in its petition
that the default judgment rendered against it by Judge Castro be annulled on the ground of, among
others, estoppel, res judicata, and Article 1819 of the Civil Code.
Issue/s:
1. Whether or not the private respondents are estopped to avoid the aforementioned mortgage.
2. Whether or not the conveyance of real property belongs to the partnership.
Ruling:
1. Yes. The Supreme Court ruled that the respondent partnership was inescapably chargeable with
knowledge of the mortgage executed by all the partners thereof, its silence and failure to impugn
said mortgage within a reasonable time, let alone a space of more than 17 years, brought into
play the doctrine of estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized. Equally or even more preclusive of the respondent partnership’s claim to the
mortgaged property is the last paragraph of Art. 1819 of the Civil Code, which contemplates a
situation similar to the case at bar. It states that ‘where the title to real property is in the names of
all the partners, a conveyance executed by the entire partners pass all their rights in such
property. Consequently, those members' acts, declarations and omissions cannot be deemed to
be simply the individual acts of said members, but in fact and in law, those of the partnership.
Finally, the Supreme Court emphasizes that the right of the private respondents to assert the
existence of the partnership could have been stressed at the time they instituted their first action,
considering that the actions involved property supposedly belonging to it, and therefore, the
partnership was the real party in interest. What was done by them was to split their cause of
action in violation of the well-known rule that only one suit may be instituted for a single cause of
action.
2. YES. Rule that where the title to real property is in the names of all the partners, a conveyance
executed by all partners passes all their rights in such property.—Equally or even more preclusive
of the respondent partnership’s claim to the mortgaged property is the last paragraph of Article
1819 of the Civil Code, which contemplates a situation duplicating the circumstances that
attended the execution of the mortgage in favor of Syjuco and therefore applies foursquare
thereto: “Where the title to real property is in the names of all the partners a conveyance
executed by all the partners passes all their rights in such property.” The term “conveyance” used
in said provision, which is taken from Section 10 of the American Uniform Partnership Act,
includes a mortgage. “Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that
the right to mortgage is included in the right to convey. This is different from the rule in agency
that a special power to sell excludes the power to mortgage (Art. 1879).”
29. Liwanag and Reyes vs. Workmen’s Compensation Commission,
105 Phil 741
PRELIMINARIES
Who is the plaintiff/appellant:
Benito Liwanag and Maria Liwanag Reyes

Workmen's Compensation Commission
Nature of the Action filed in the SC?

Petition for review by certiorari
What is the case all about in Summary?

The widow and children of the employee of business partners Liwanag and Reyes filed a claim for
compensation with the Workmen’s Compensation Commission. The deceased was killed while in line of
duty. The Commission granted the award and ordered Liwanag and Reyes to pay jointly and severally.
However, Liwanag and Reyes argue that there is nothing in the compensation Act which provides that the
obligation of an employer arising from compensable injury or death of an employee should be solidary

Claim for compensation with the Workmen's Compensation Commission
Right of employees (and their heirs) to compensation

Workmen's Compensation Commission

The Workmen's Compensation Commission granted the claim and ordered apellants to pay jointly and
severally the amount of P3,494.40 to the claimants

Workmen's Compensation Commission won.
Benito Liwanag and Maria Liwanag Reyes were held liable.
Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs against
appellants.
Principle:
Although the Workmen's Compensation Act does not contain any provision expressly declaring that the
obligation of business partners arising from compensable injury or death of an employee should be
solidary, however, there are other provisions of law from which it could be gathered that their liability must
be solidary. Arts. 1711 and 1712 of the New Civil Code and Section 2 of the Workmen's Compensation
Act, reasonably indicate that in compensation cases, the liability of business partners should be solidary.
If the responsibility of the partners were to be merely joint and not solidary, and one of them happens to
be insolvent, the amount awarded to the dependents of the deceased employee would only be partially
satisfied, which is evidently contrary to the intent and purpose of the law to give full protection to the
employee.
Facts:
This is a PETITION for review by certiorari of a decision of the Workmen's Compensation Commission. It
originated from a claim for compensation with the Workmen's Compensation Commission, filed by the
widow and minor children of Roque Balderama. Roque Balderama was employed as security guard by
appellants Benito Liwanag and Maria Liwanag Reyes who are co-owners of Liwanag Auto Supply. He
was killed while in line of duty.
The Workmen's Compensation Commission granted the claim and ordered apellants to pay jointly and
severally the amount of P3,494.40 to the claimants.
Apellants argue that there is nothing in the compensation Act which provides that the obligation of an
employer arising from compensable injury or death of an employee should be solidary; that if the
legislative intent in enacting the law is to impose solidary obligation, the same should have been
specifically provided, and that, in the absence of such clear provision, the responsibility of appellants
should not be solidary but merely joint.
Issue/s:
What is the nature of the liability of the partners?
Ruling:
Ordinarily, the liability of the partners in a partnership is not solidary; but the law governing the liability of
partners is not applicable to the case at bar wherein a claim for compensation by dependents of an
employee who died in line of duty is involved.
And although the Workmen's Compensation Act does not contain any provision expressly declaring
solidary obligation of business partners like the herein appellants, there are other provisions of law from
which it could be gathered that their liability must be solidary.
The provisions of Arts. 1711 and 1712 of the new Civil Code taken together with those of Section 2 of the
Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of business
partners, like appellants, should be solidary; otherwise, the right of the employee may be defeated, or at
least crippled. If the responsibility of appellants were to be merely joint and not solidary, and one of them
happens to be insolvent, the amount awarded to the appellees would only be partially satisfied, which is
evidently contrary to the intent and purposes of the Act.
Since the Workmen's Compensation Act was enacted to give full protection to the employee, reason
demands that the nature of the obligation of the employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary; otherwise, the purpose of the law could not be
attained.
30. Pioneer Insurance & Security Corporation vs. CA, 175 SCRA 668
PRELIMINARIES
In Gr. No. 84197, Plaintiff is PIONEER INSURANCE & SURETY CORPORATION
In Gr. No. 84157, Plaintiff is Jacob S. Lim

In Gr. No. 84197, Respondents are CA, Bormaheco, Constancio Maglana & Jacob Lim
In Gr. No. 84157, Respondents are CA, Pioneer Insurance, Bormaheco, Francisco and Modesto
Cervantes and Constancio Maglana
The action filed before the SC is a consolidated petition questioning the decision of the Court of
Appeals which modified the decision of the then Court of First Instance of Manila in a Civil
Case.
Pioneer Insurance, acting as surety in behalf of Lim the debtor, sought to recover the amount it paid to
Japan Domestic Airlines (JDA), the creditor, after Lim defaulted his installment payment to JDA for the
purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total
agreed price of US $109,000.00 for his airline business under the name and style of Southern Air
Lines (SAL).
In an effort to recover the amount it paid to JDA thru indemnity, Pioneer filed a petition for the
extrajudicial foreclosure of the chattel mortgage before the Sheriff of Davao City which Lim
executed in favor of Pioneer as security for the latter's suretyship.
Pioneer also filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglan
alleging that they were privies to the loan contracts signed by Lim.
The trial court held Lim liable to pay Pioneer but dismissed Pioneer's complaint against all
other defendants.
However, the appellate court modified the trial court's decision in that the plaintiff’s (Pioneer
Insurance) complaint against all the defendants (Lim etc.) was dismissed.
In resolving the two petitions that were consolidated before the Court, it ruled that Pioneer has no
longer cause of action against Lim and other defendants because it appears that Pioneer
reinsured its risk of liability under the surety bond it had executed in favor of JDA, and
collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said
amount to JDA. Hence, Pioneer is not the real party in interest. While the plaintiff Pioneer's
contention that it is representing the reinsurer to recover the amount from defendants, the Court that
its institution of the action is utterly devoid of merit because Pioneer did not even present any
evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an
action for and in behalf of the latter
But the Court sustained lower court’s ruling that defendant Lim should be held liable to pay his
co-defendants' cross-claims in the total amount of P184,878.74 representing (for the recovery
of) their contributions to the proposed corporation because the petitioner never had the
intention to form a corporation with the respondents despite his representations to them, hence, no
de facto partnership was created among the parties.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the
Sheriff of Davao City.
Pioneer also filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
Pioneer’s cause of action is the recovery of money for the amount it paid to JDA as a surety.
Respondents’ ( Cervanteses, Bormaheco and Maglana), cause of action is the recovery of sums of
money which they contributed to Lim for the purchase of the aircrafts.

The trial court held Lim liable to pay Pioneer but dismissed Pioneer's complaint against all
other defendants.
However, the appellate court modified the trial court's decision. The plaintiff’s (Pioneer
Insurance) complaint against all the defendants (including Lim) was dismissed. But in all other
respects, the trial court's decision was affirmed:
By holding defendant Jacob S. Lim to pay cross party plaintiff, Bormaheco, the Cervanteses
one-half and Maglana the other half, the amount of Pl84,878.74 with interest from the filing
of the cross-complaints until the amount is fully paid;
By requiring to pay moral and exemplary damages in the amount of P184,878.84 with
interest from the filing of the cross-complaints until the amount is fully paid; plus moral and
exemplary damages in the amount of P50,000.00 for each of the two Cervanteses.
Furthermore, by requiring Lim to pay P20,000.00 to Bormaheco and the Cervanteses, and
another P20,000.00 to Constancio B. Maglana as attorney's fees.
-----
By holding plaintiff Pioneer to indemnify the defendants Bormaheco and the Cervanteses the
amount of P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966
with legal rate of interest up to the time it is paid.
Furthermore, by requiring plaintiff Pioneer to pay Constancio B. Maglana the amount of

P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed in good
faith.
In Gr. No. 84197, the respondents (Cervanteses, Bormaheco and Maglana & Lim) won. Pioneer was
barred to recover the amount it paid to JDA for being not a real party in interest. The case should
have been filed by the reinsurer.
In Gr. No. 84157, the respondents (Cervanteses, Bormaheco and Maglana) won. Jacob Lim was held
liable to return the money contributed by Cervanteses, Bormaheco and Maglana.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
Principle:
An insurer who has already collected proceeds from its reinsurer can no longer be subrogated to the
rights of the insured. It is instead the reinsurer that may be subrogated as such.
Defective attempt to form a corporation does not result in at least a partnership absent intent to form one.
Facts:
Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines
(SAL), a single proprietorship.
Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the
sale and purchase of two (2) aircrafts and one (1) set of necessary spare parts for the total
agreed price of US$109,000.00.
Pioneer Insurance and Surety Corporation as surety executed and issued its Surety Bond in
behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco),
Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in
both petitions) contributed some funds used in the purchase of the above aircrafts and
spare parts. The funds were supposed to be their contributions to a new corporation
proposed by Lim to expand his airline business.
They (Lim & respondents) executed two (2) separate indemnity agreements in favor of
Pioneer. The indemnity agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from
and against any/all damages, losses, costs, damages, taxes, penalties, charges and
expenses of whatever kind and nature which Pioneer may incur in consequence of having
become a surety and amounts of money which it or its representatives should or may pay or
cause to be paid or become liable to pay on them of whatever kind and nature.
Lim doing business under the name and style of SAL executed in favor of Pioneer a deed of
chattel mortgage as security for the latter's suretyship in favor of the former. It was
stipulated therein that Lim transfer and convey to the surety the two aircrafts.
Lim defaulted on his subsequent installment payments prompting JDA to request payments
from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage
The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-
owners of the aircrafts.
Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
The trial court’s decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.
However, the appellate court modified the trial court's decision in that the plaintiff’s (Pioneer
Insurance) complaint against all the defendants (Lim etc.) was dismissed.
Issue/s:
1.WON the Pioneer Insurance has a cause of action against defendants (indemnitors) with respect
to its obligations to JDA after it was paid with reinsurance money?
2.WON the respondents can recover the amount they give to Lim as contribution to the
proposed corporation by which he failed to incorporate? Or WON no de facto partnership
was created among respondents after their proposed corporation failed to incorporate?
Ruling:
1.No. The Court finds no merit in plaintiffs appeal.
It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in
favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00.
Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for
the recovery of the amount of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer
is not the real party in interest to institute the instant action as it does not stand to be benefited or
injured by the judgment.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are
acquired in similar cases where the original insurer pays a loss.
The rules of practice in actions on original insurance policies are in general applicable to
actions or contracts of reinsurance.
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid
by the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's
complaint as against the respondents for the reason that the petitioner was not the real party in
interest in the complaint and, therefore, has no cause of action against the respondents.
2. Yes. The question is premised on the petitioner's theory that as a result of the failure of
respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to
incorporate, a de facto partnership among them was created, and that as a consequence of
such relationship all must share in the losses and/or gains of the venture in proportion to their
contribution.
The petitioner, therefore, questions the appellate court's findings ordering him to
reimburse certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation, to wit:
"However, defendant Lim should be held liable to pay his co-defendants' cross-claims in
the total amount of P184,878.74 as correctly found by the trial court, with interest from
the filing of the cross-complaints until the amount is fully paid. Defendant Lim should
pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-
half to defendant Maglana. It is established in the records that defendant Lim had duly
received the amount of of P151,000.00 from defendants Bormaheco and Maglana
representing the latter's participation in the ownership of the subject airplanes and spare
parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses,
hence, the total sum of P184,878.74."
However, such a relation does not necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as between themselves, when their purpose is
that no partnership shall exist and it should be implied only when necessary to do justice
between the parties; thus, one who takes no part except to subscribe for stock in a proposed
corporation which is never legally formed does not become a partner with other subscribers
who engage in business under the name of the pretended corporation, so as to be liable
as such in an action for settlement of the alleged partnership and contribution.
In his answer, the petitioner denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court,
however, found through Exhibit 58, that the petitioner received the amount of
P151,000.00 representing the participation of Bormaheco and
Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts.
The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru
the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with
the respondents despite representations to them. This gives credence to the cross-claims
the respondents to the effect that they were induced and lured by the... petitioner to make
contributions to a proposed corporation which was never formed because the petitioner reneged
on their agreement.
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no
de facto partnership was created among the parties which would entitle the petitioner to
a reimbursement of the supposed losses of the proposed corporation.
The record shows that the petitioner was acting on his own and not in behalf of his other would-
be incorporators in transacting the sale of the airplanes and spare parts.
31. Viuda de Chan vs. Pen, 53 Phil 906
PRELIMINARIES
Principle:
Facts:
It appears from the record that on June 13, 1925, the San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C.
instituted insolvency proceedings against Leoncia Vda. de Chan Diaco (alias Lao Liong Naw), alleged to be the owner of a
grocery store on Calle Nueva, Binondo, known as the store of "La Viuda de G. G. Chan Diaco."
In their petition for the declaration of the insolvency, the above-mentioned firms alleged, among other things, that Leoncia was
indebted to them in the sum of P26,234.47, which debt was incurred within thirty days prior to the filing of said petition. It
further appears that other creditors have filed claims against the estate to the amount of P50,000.
The petition for the declaration of insolvency was set down for hearing on June 25, 1925. Leoncia did not appear at the hearing,
notwithstanding the fact that she was duly notified, and the court declared her insolvent and ordered the sheriff to take possession
of her property, the visible part of which at that time consisting of some merchandise, afterwards sold at public auction for
P3,300.
Judge Simplicio del Rosario, in an order dated September 12, 11925, appointed Ricardo Summers, the clerk of the Court of First
Instance of Manila, referee, authorizing him to take further evidence in regard to the questions of fact raised by the motions of
August 5th and 19th.
After various hearings and the taking of considerable testimony, the referee, on February 18, 1926, rendered a report to the court
in which he made the following recommendations:
That the insolvent deliver to the assignee:
(a) The sum of P56,000 more or less that the "encargado" of the insolvent's business, Chan Chiao Wa, had delivered to
her on the 18th of April, 1925, which amount was in fact, on the 19th day of April, 1925, about P56,102.65.
(b) The accounts receivable as of June 19, 1925, or that is to say, two months after the insolvent took charge of her
store, amounting to P40,000.
(c) The amount taken for her own use and out of the business on June 8, 1925, to wit, P2,000.
(d) Another P2,000 that on June 5, 1925, and being already insolvent, the widow of Chan Diaco had taken from the
China Banking corporation for her personal use.
(e) The account books
The report was approved by Judge del Rosario on April 14, 1926, and the merchants Cua Ico, Chan Keep, and Simon A. Chan
Bona were ordered to show cause why they should not return that alleged merchandise to the value of P20,000, alleged to have
been delivered to them by Leoncia, together with P5,000 in cash alleged to have been received from her by the merchant Chua
Ico between the 8th and 11th days of June, 1925.
On April 22, 1926, the attorney for the insolvent filed her exception to the report of the referee, which had already been approved
on April 14, and on July 23, 1926, the court rendered a decision, reaffirming its order of April 14, and ordered the insolvent to
deliver to the assignee the sum of P56,000, more or less. alleged to have been in her possession on April 19, 1925. The court
further ordered her to surrender the books of accounts mentioned in the referee's report together with the accounts receivable
amounting to P40,000 and the sums withdrawn by her from her current account with the China Banking Corporation a few days
prior to the declaration of insolvency; and directed the assignee to file actions against the merchants Cua Ico, Chan Keep, and
Simon A. Chan Bona for the return by them of the sum of P5,000 in cash, plus the merchandise valued at P20,000 delivered to
them by the insolvent in fraud of her creditors.
On August 4, 1926, attorney for the insolvent filed a motion asking the court to dismiss the proceedings against her on the
ground that they should have been brought against the partnership "Lao Liong Naw & Co.," of which she was only a
member. The alleged partnership was evidenced by an agreement dated July 22, 1922, and from which it appeared that
on that date Lao Liong Naw (Leoncia), Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan
Chan had formed a partnership with a capital of P21,000, of which only P4,000 was contributed by Leoncia.
The referee, on February 28, 1927, rendered a second report, in which he found as facts that the alleged partnership
between the insolvent and some of her relatives and employees was only a fictitious organization created for the purpose
of deceiving the Bureau of Customs and enable some of the aforesaid relatives, who were mere coolies, to come to the
Philippines under the status of merchants. He, therefore, recommended that the motion of the insolvent to dismiss the
proceedings against her be denied.
On June 6, 1927, a decision was rendered disapproving the report of the referee. The court, therefore, affirmed the suspension of
the decision of Judge Del Rosario, and on June 23, 1926, dismissed the insolvency proceedings, and ordered the assignee to
return to the sheriff all the property of the insolvent which he, the sheriff, might have in his possession
Issue/s:
WON the creditor is entitled to collect individually from the partners the amount of the debt of the insolvent partnership.
Ruling:
YES. The evidence appearing in the record fully supports the findings of the referee and his report should have been approved by
the court below.
It is to be observed that conceding for the sake of the argument that the debts in question were incurred by the alleged
partnership, it clearly appears from the record that said partnership, as such, has no visible assets that, therefore, the partners
individually must, jointly and severally, respond for its debt (Code of Commerce, art. 127). As the appellee is one of the partners
and admits that she is insolvent, we can see no reason for the dismissal of the proceedings against her. It is further to be noted
that both the partnership and the separate partners thereof may be joined in the same action, though the private property of the
latter cannot be taken in payment of the partnership debts until the common property of the concern is exhausted (Comapnia
Maritima vs. Munoz, 9 Phil., 326) and, under this rule, it seems clear that the alleged partnership here in question may, if
necessary, be included in the case by amendments to the insolvency petition.
We also call attention to the fact that the evidence clearly shows that the business, alleged to have been that of the partnership,
was carried on under the name "Leoncia Vda. de Chan Diaco" or "La Vda. de G. G. Chan Diaco," both of which are names of the
appellee, and we think it can be safely held that a partnership may be adjudged bankrupt in the name of an ostensible partner,
when such name is the name under which the partnership did business.
DISSOLUTION
1. Yulo v. Yang Chiao Seng, 106 Phil 111
PRELIMINARIES
Who is the plaintiff: ROSARIO U. YULO, assisted by her husband JOSE C. YULO
Who is the defendant:YANG CHIAO SENG
Nature and Summary: Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido
A. Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is
prosecuted by the plaintiff.
What is the Case filed in the original court? Mrs. Yulo instituted action, alleging the existence of a
partnership between them and that the defendant Yang Chiao Seng has refused to pay her share from
December, 1949 to December, 1950; that after December 31, 1950 the partnership between Mrs. Yulo
and Yang terminated.
From which court Originated? CFI Manila
Court a quos ruling and brief reason why? . The Court held that the real intention of the parties was to
effect a sub-lease of the property and the partnership agreement was resorted to in order to avoid the
provision in the main lease agreement prohibiting a sublease of the premises. The court took into
consideration the acts of the so-called demanding partner, who had never contributed her supposed
capital contribution, nor helped in the management of the business.
Who won? Who is liable? Dispositive Portion. Defendant Won. Plaintiff Liable.
We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-
appellant.
Principle: A contract of partnership is consensual in nature and is constituted by the real meeting of the
minds; such that even when formal articles of partnership are drawn-up between the parties, when it fact
the evidence shows that they never intended to enter into a partnership, the article of partnership cannot
create a partnership when in fact there has never been a meeting of minds to constitute one.
Facts:
A land on which a theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion Santa
Marina and Maria Carrion Santa Marina.
In the contract of lease it was stipulated that the lease shall continue for an indefinite period of time, but
that after one year the lease may be cancelled by either party by written notice to the other party at least
90 days before the date of cancellation.
On June 17, 1945, defendant Yang Chiao Seng wrote a letter to the plaintiff Mrs. Rosario U. Yulo,
proposing the formation of a partnership between them to run and operate a theatre on the premises
occupied by former Cine Oro at Plaza Sta. Cruz, Manila.
The principal conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly
participation of P3,000 payable quarterly in advance within the first 15 days of each quarter, (2) that the
partnership shall be for a period of 2 years and 6 months, starting from July 1, 1945 to December 31,
1947, with the condition that if the land is expropriated or rendered impracticable for the business, or if the
owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner,
then the partnership shall be terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in
the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after December
31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but if the partnership
agreement is terminated before the lapse of one and a half years period under any of the causes
mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all
improvements that the partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to
December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the
exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed
among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in
case of loss, shall be limited to her capital contribution.
In June, 1946, they executed a supplementary agreement, extending the partnership for a period of three
years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between them at
the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively to the
second party, Mrs. Yulo.
But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the
contract of lease on July 31, 1949.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the
payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against
Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has
not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears.
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on May
26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao Seng
has refused to pay her share from December, 1949 to December, 1950.
In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to
get around the prohibition contained in the contract of lease between the owners and the plaintiff against
the sublease of the said property
Issue/s: Whether or not there was a partnership between petitioner and defendant.
Ruling:
We have gone over the evidence and we fully agree with the conclusion of the trial court that the
agreement was a sublease, not a partnership.
The following are the requisites of partnership: (1) two or more persons who bind themselves to contribute
money, property, or industry to a common fund; (2) intention on the part of the partners to divide the
profits among themselves. (Art. 1767, Civil Code.).
In the first place, the plaintiff did not furnish the supposed P20,000 capital. In the second place, she did
not furnish any help or intervention in the management of the theatre. In the third place, it does not
appear that she has ever demanded from the defendant any accounting of the expenses and earnings of
the business. Were she really a partner, her first concern should have been to find out how the business
was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000 a month, which can not be interpreted in any manner than a payment for the
use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945, which shows that both parties
considered this offer as the real contract between them.
2. Tuazon v. Bolanos, 95 Phil 106
PRELIMINARIES
Who is the plaintiff: J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA
ARANETA, INC.
Who is the defendant: QUIRINO BOLAÑOS
Nature of the Action filed in the SC? What is the case all about in Summary? A case for recovery of
possession of land was filed before the CFI(RTC) by JM Tuason & Co represented by managing partner
Gregoria Araneta. Defendant-appellant argued that he obtained registration of said land thru prescription.
Lower court ruled in favor of the plaintiff-appellee. From the trial court, defendant-appellant filed an appeal
directly before the SC arguing that the case was not brought by the real party in interest.
What is the Case filed in the original court? Action for recovery of possession of land
From which court Originated? CFI(RTC)
Principle: Though a corporation has no power to enter into a partnership, it may nevertheless enter into
a joint venture with another where the nature of that venture is in line with the business authorized by its
charter.
Facts: J. M. TUASON & CO., INC. brought an action in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City, the complaint is
signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel.".
Defendant BOLAÑOS, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of ownership, adverse to
the entire world by defendant and his predecessor in interest" from "time in-memorial".
The lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof to plaintiff and to pay the latter.
Appealing directly to SC.
Bolanos: The trial court erred in not dismissing the case on the ground that the case was not brought by
the real property in interest. He argued that Gregorio Araneta, Inc. cannot act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership.
Issue/s: WoN GREGORIA ARANETA, INC. can represent J. M.TUASON & CO., INC as managing
partner.
Ruling: YES
It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being
represented by another person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. cannot act as managing partner for plaintiff on the theory that it
is illegal for two corporations to enter into a partnership is without merit, for the true rule is that " though a
corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with
another where the nature of that venture is in line with the business authorized by its charter.”
There is nothing in the record to indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not inline with the corporate business of either of them
3. Villareal vs. Ramirez, 406 SCRA 145
PRELIMINARIES
Who is the plaintiff/petitioner:
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE,
Who is the defendant/ respondent:

DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA
C. RAMIREZ,
Petition for Review on Certiorari

Respondents filed a Complaint for the collection of a sum of money from petitioners.
non-return of their one-third share in the equity of the partnership
Regional Trial Court, Branch 148, Makati City

RTC held petitioners pay respondents actual damages, attorney’s fees, and the cost of the suit bc 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- It 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. Decision of the RTC is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision
is rendered ordering the [petitioners] jointly and severally to pay and reimburse to [respondents] the
amount of P253,114.00. No pronouncement as to costs.

Petitioners won. No one is liable.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This
disposition is without prejudice to proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No pronouncement as to costs.
Principle: A share in a partnership can be returned only after the completion of the latters dissolution,
liquidation and winding up of the business.
Facts:
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, formed a partnership for
the operation of a restaurant and catering business under the name “Aquarius Food House and Catering
Services, each contributing P250,000.
Ramirez was later added, contributing P250,000 as well. After some time, J. Jose withdrew from the
partnership; his capital contribution was refunded to him in cash by agreement of the partners.
Without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of
increased rental. On March 1, 1987, The 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. The repeated oral and written requests were,
however, left unheeded
Before the RTC, respondents subsequently filed a Complaint For the collection of a sum of money from
petitioners. The RTC ruled in favor of the respondents, ordering petitioners to pay damages and AF and
costs.
Petitioners: 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.
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. 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.
The CA sustained the lower court’s decision, and made a computation on the petitioners’ liability to
respondents:
Capital, at dissolution: **P1,000,000.00
Less: liability to creditors 240,658.00
Amount to be distributed to partners 759,342.00
Over: Number of partners 3
Each partner’s share at dissolution 253,114.00
Issue/s:
Whether respondents can demand from petitioners the return of their equity share.
Ruling:
NO, he cannot demand return from petitioners.
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.
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 CAs
computation of the amount to be refunded to respondents as their share was thus erroneous.
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 computation of the amount to be refunded to respondents, the CA did not consider:
1. The omission of any provision for the depreciation of the furniture and the equipment.
2. The amortization of the goodwill is not reflected
3. The capitalization amount paid by the partnership to J. Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced.
But the disposition is without prejudice to proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any.
4. Abong v. WCC, 54 SCRA 54 (1973)
PRELIMINARIES
NELLY BALLARES, ANACORITA DAHIL-DAHIL, MANUEL LAHAO-LAHAO, CONCHITA MONTEROYO,
SHIRLEY LOZADA and ROSARIO ALOVA

Dr. Agustino R. Abong
Appeal by certiorari from the decision of the Workmen's Compensation Commission

Seven (7) notices and claims for death compensation were filed with the Bacolod Sub-Regional Office (or
Regional Office No. VII) of the Department of Labor
Sections 2 and 8 of the Workmen's Compensation Act

Bacolod Sub-Regional Office (or Regional Office No. VII) of the Department of Labor

● Bacolod Sub-Regional Office of the Workmen's Compensation Commission
○ Claims granted
○ There is no doubt at all that their deaths arose out of and in the course of their
employment as "washing" or helpers and light tenders of respondent Dr. Agustino R.
Abong. Under Sections 2 and 8 of the Workmen's Compensation Act, as amended, the
deaths of above deceased persons are, therefore, compensable.
○ Section 4-A of the Workmen's Compensation Act provides for payment of an additional
compensation equal to fifty per centum of the compensation to be awarded, in case of
failure of the employer to comply with any order, rule or regulation of the Workmen's
Compensation Act in the event of the death of the employee or employees concerned.
○ Petitioner filed a (1) motion to set aside the order declaring him in default and a (2)
separate motion to set aside the Decision of the Acting Referee - DENIED
○ Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of the Workmen
Compensation Commission rendered a decision affirming the earlier decision of the
referee
○

Respondents (Heirs of decedents) won, the assailed decision is hereby fully affirmed . Costs against
the petitioner.
Principle:
The said contract of partnership while it may be considered as valid and lawful, between the signatories
thereto, the respondent Dr. Abong and his "partner" or agent, Simplicio Panganiban, nowhere in that said
agreement did the decedents or their heirs in interests take any participation or manifested their
conformity to the said covenant. Thus, even if we consider this contract as valid and enforceable between
them, it cannot bind the non-signatories thereto, like the deceased fishermen.
Facts:
Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanita Monteroyo and Wilfredo Monteroyo and
Demetrio Escoreal, all decent were members of a fishing outfit, the "IWAG" or more popularly called the
"ALEX", owned by petitioner herein, Dr. Agustino R. Abong.
On May 15, 1966, this fishing outfit set out to sea somewhat off the coast of Northern Negros. The
decedents were among the 70 crew members who were loaded on two big bancas, 8 small fishing boats
locally known as "lawagan" and one towing motorboat. While they were, thus, fishing, typhoon "IRMA"
passed along their way, scattering the boats and blowing them far out into the open sea. The tragedy
netted eight (8) dead while some sixty (60) men survived the disaster.1
As a consequence of the incident seven (7) notices and claims for death compensation were filed with the
Bacolod Sub-Regional Office (or Regional Office No. VII) of the Department of Labor by herein private
respondents wherein the same was granted.
On March 23, 1970, Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of the Workmen
Compensation Commission rendered a decision affirming the earlier decision of the referee.
On April 17, 1970, petitioner sought the review of the decision of Associate (Medical) Commission
Castelo-Sotto by the respondent Workmen's Compensation Commission sitting en banc, but the latter
however affirmed the decision with the modification that the 50% additional compensation earlier imposed
as penalty was eliminated, in its resolution of July 7, 1970.9
Dissatisfied with the verdict, petitioner came to this Court for reversal of the adverse decision against him.
Issue/s:
Who is the statutory employer of the decedents and who should be liable for their death compensation
Ruling:
Petition denied. Petitioner is the statutory employer of the decedents and is liable for their death
compensation.
The proposition, on the other hand, of the respondent's counsel, that Dr. Abong was not the employer of
the decedents, simply because of an alleged partnership agreement, executed on March 23, 1962,
between the respondent, Dr. Agustino R. Abong, as "Financier" and Simplicio Panganiban, as his "Team
leader", is intended certainly as a very clever device designed primarily to exempt the employer from
answering any liability under the provisions of the Workmen's Compensation Act, as amended.
The said contract of partnership while it may be considered as valid and lawful, between the signatories
thereto, the respondent Dr. Abong and his "partner" or agent, Simplicio Panganiban, nowhere in that said
agreement did the decedents or their heirs in interests take any participation or manifested their
conformity to the said covenant. Thus, even if we consider this contract as valid and enforceable between
them, it cannot bind the non-signatories thereto, like the deceased fishermen.
There existed an employer-employee relationship between the petitioner and the decedents. As pointed
out by the Commission's findings, the fundamental bases showing that petitioner, Dr. Agustino R. Abong,
is the employer, are present, namely, the selection and engagement of the employee; the payment of
wages; the power of dismissal and the employer's power to control the employees' conduct. These
powers were lodged in petitioner Abong, thru his agent, Simplicio Panganiban, whom he alleges to be his
"partner". On this score alone, the petitioner for review must fail. It is well-settled that employer-employee
relationship involves findings of fact which are conclusive and binding and not subject to review by this
Court.
5. Arbes v. Polistico, 53 Phil 489
PRELIMINARIES
Who is the plaintiff: ADRIANO ARBES, et al
Who is the defendant: VICENTE POLISTICO et al
Nature of the Action filed in the SC? Action for the liquidation of the funds and property of Turnuhan
Polistico and Co.
What is the case all about in Summary? Appellants contend that being found by the trial court as an
unlawful partnership and that being adjudged to turn over partnership profits to charitable institutions, it
follows that the charitable institution be made as party defendant to the case.
What is the Case filed in the original court? Liquidation of partnership funds and property.
Article 1666 Civil Code. 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.
Court a quos ruling and brief reason why? 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.
Who won? Who is liable? Dispositive Portion. The judgment appealed from, being in accordance with
law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, the
defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the
court, and provided, further, that the defendants shall deposit this sum of money and other documents
evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may
distribute them among the members of said association, upon being duly identified in the manner that it
may deem proper. So ordered.
Principle:
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 for the 2nd time. In the 1st one, the 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.
The court appointed the Commissioner of Insular Auditor's Office, to examine all the books, documents,
and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence. Commissioner's report
showed a balance of P24,607.80 cash on hand. Despite the defendant's objection to the report, the trial
court rendered judgment holding said association is unlawful. And sentenced defendants jointly and
severally to return the amount and documents to the plaintiffs and members of the association.
The Appellant alleged that the association being unlawful, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a party defendant. Referring
to article 1666 of the Civil Code, which provides: “A partnership must have a lawful object, and must be
established for the common benefit of the partners. When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default
of such, to those of the province.”
Issue/s: May a charitable institution be a party defendant based on the provisions of Art. 1666?
Ruling: The Supreme Court ruled that no charitable institution is a necessary party in the present case of
determination of the rights of the parties. The action which may arise from said article, in the case of
unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of
the administration of said partnership, and it is not necessary for the said parties to base their action to
the existence of the partnership, but on the fact that of having contributed some money to the partnership
capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof,
those of the province are not necessary parties in this case.
The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business in which it was engaged, because for the
purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract,
which is to annul and without legal existence by reason of its unlawful object; and it is self evident that
what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that
when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.The profits are so applied, and not the
contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no
reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the
circumstances of the two cases being entirely different.
Art. 1807. Every partner must account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the consent of the other partners from any
transaction connected with the formation, conduct, or liquidation of the partnership or
from any use by him of its property.
The Court made reference to Manresa which propounded the relevant logic that members of an unlawful
partnership should not be able to recover profits since in the eyes of the law, the partnership had not
come into existence and that no judicial action may flow from the contract.
6. Campos Rueda & Co. v. Pacific Commercial Co., 44 Phil 916
PRELIMINARIES
Principle:
Facts:
This case involves the application by the petitioner for a judicial decree adjudging itself insolvent.
The limited partnership of Campos Rueda & Co. was, and is, indebted to Pacific Commercial Co., the
Asiatic Petroleum Co. and the International Banking Corporation in various sums amounting to not less
than Php1000.00, payable in the Philippines, which were not paid more than thirty days prior to the date
of their filing of the application for involuntary insolvency.
The lower court denied the petition because it was not proven, nor alleged, that the members of the
aforesaid firm were insolvent at the time of the application was filed; and that as said partners are
personally and solidarily liable for the consequences of the transaction of partnership, it cannot be
adjudged insolvent so long as the partners are not alleged and proven to be insolvent.
From this judgment, the petitioners appeal to the Supreme Court.
Issue/s:Whether or not a limited partnership, such as the petitioner, which has failed to pay its
obligations with three creditors for more than thirty days, may be held to have committed an act of
insolvency, and thereby be adjudged insolvent against its will.
Ruling:YES
In the Philippines, a limited partnership duly organized in accordance with law has a personality distinct
from that of its members. If it commits an act of bankruptcy, such as that of failing for more than 30 days
to pay debts amounting to PhP1000.000 or more, it may be adjudged insolvent on the petition of three of
its creditors although its members may not be insolvent. Under our Insolvency Law, one of the acts of
bankruptcy upon which an adjudication of involuntary insolvency is predicated is the failure of a
partnership to pay its obligations with three creditors for a period of more than 30 days.
On the contrary, some courts of the United States have held that a partnership may not be adjudged
insolvent in an involuntary insolvency proceeding unless all of its members are insolvent, while others
have maintained a contrary view. Nevertheless, it must be borne in mind that under American common
law, partnerships have no juridical personality independent from that of its members.
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than 30 days
to pay its obligations to the herein respondents, the partnership has the right to a judicial decree declaring
the involuntary insolvency of said partnership.
7. CIR v. Suter, 27 SCRA 15

PRELIMINARIES
COMMISSIONER OF INTERNAL REVENUE

WILLIAM J. SUTER and THE COURT OF TAX APPEALS
Nature of the Action filed in the SC?

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the Court of
Tax Appeals which rendered a decision, on 11 November 1965, reversing that of the Commissioner of
Internal Revenue.
What is the case all about in Summary?

The case involves the Commissioner of Internal Revenue theorizing that the marriage of a general partner
and limited partner, and their subsequent acquisition of the interests of the remaining partner in the
partnership dissolved the limited partnership and consequently, the income tax return of respondent
should include his and his wife’s individual incomes and that of the limited partnership.

The original complaint filed by Suter was a protest against the CIR’s assessment of income tax
deficiency.
The Commission of Internal Revenue assessed the consolidated income of the firm and the individual
incomes of the partners-spouses and determined a deficiency income tax in the amount of Php 2,678.06
and Php 4,567.00 for 1955.

Commissioner of Internal Revenue consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against
respondent Suter.

Commissioner of Internal Revenue, in an assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency
income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Unable to secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after trial,
rendered a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.

WILLIAM J. SUTER won the case. The difference in tax rates between the income of the limited
partnership being consolidated with, and when split from the income of the spouses, is not a justification
for requiring consolidation; the revenue code, as it presently stands, does not authorize it, and even bars
it by requiring the limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
Principle:
● A husband and a wife may not enter into a contract of general copartnership, because under the
Civil Code, which applies in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from entering into universal
partnerships. It follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership.
● It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partner.
Facts:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by herein respondent
William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partner and
was registered with SEC. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00
to the partnership.
The firm engaged, among other activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement machines, their parts and accessories.
In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife.
In 1959, Commissioner of Internal Revenue consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax
against respondent Suter.
The Court of Tax Appeals reversed the decision of the CIR.
Hence, the petition.
Issue/s:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J.
Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson,
of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.
Ruling:
(a) The limited partnership is not a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its customers prior to appellee's
marriage, and had been filing its own income tax returns as such independent entity. The change in its
membership, brought about by the marriage of the partners and their subsequent acquisition of all interest
therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code,
requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and
thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the
partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In
fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the
latter on its income, but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership
(b) The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947), a
universal partnership requires either that the object of the association be all the present property of the
partners, as contributed by them to the common fund, or else "all that the partners may acquire by their
industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
partner.
It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to
enter by Article 1677 of the Civil Code of 1889. Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
8. Dauden-Hernandez v. de los Angeles, 27 SCRA 1276
PRELIMINARIES
Who is the plaintiff: Marlene Dauden-Hernaez
Who is the defendant: Hollywood Far East Productions, Inc., and its President and General Manager,
Ramon Valenzuela
Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City (Branch
IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages, denying
reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and unappealable.

Complaint to recover balance due to petitioner for her services as leading actress.
Breach of contract

Court of First Instance of Quezon City (Branch IV)

CFI dismissed the complaint. It found that the "claim of plaintiff was not evidenced by any written document, either
public or private", and the complaint "was defective on its face" and is either invalid or unenforceable for violating
Articles 1356 and 1358 of the Civil Code.

Petitioner won. The case is remanded to the CFI.
WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the court
of origin for further proceedings not at variance with this decision.
Principle:
Obligations and contracts; Civil Code’s contractual system follows that ‘of the Spanish Civil Code of 1889
and of the “Ordenamiento de Alcala".—The court below abuse its discretion in ruling that a contract for personal
services involving more than P500.00 was either invalid or unenforceable under the last paragraph of Article 1358
of the Civil Code of the Philippines. In the matter of formalities, the contractual system of the Civil Code still
follows that of the Spanish Civil Code of 1889 and of the “Ordenamiento de Alcala” (Law 1, Title I, Book X, of the
Novisima Recopilacion) of upholding the spirit and intent of the parties over formalities: since, in general, contracts
are valid and binding from their perfection regardless of form, whether they be oral or written. This is plain from
Articles 1315 and 1356 of the present Civil Code.
Same; Where the contract in the case at bar does not come under the exceptions in Article 1356 of the Civil
Code.—The contract sued upon by petitioner herein does not come under the exceptions in Article 1356 of the Civil
Code. It is true that it appears included in Article 1358, last clause, providing that “all other contracts where the
amount involved exceeds five hundred pesos must appear in writing, even a private one.” But Article 1358 nowhere
provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the
contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action
or suit despite the absence of writing.
Facts:
Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against private
respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon
Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as
leading actress in two motion pictures produced by the company, and to recover damages.
Upon motion of defendants, the complaint was dismissed. The CFI found that the "claim of plaintiff was not
evidenced by any written document, either public or private", and the complaint "was defective on its face" and
is either invalid or unenforceable for violating Articles 1356 and 1358 of the Civil Code.
Issue:
Whether or not the lower court erred in ruling that a contract for personal services involving more than
P500.00 was either invalid or unenforceable under the last paragraph of Article 1358 of the Civil Code of the
Philippines.
Ruling:
Yes, the lower correct is incorrect in holding that a contract for personal services involving more than P500.00
was either invalid or unenforceable under the last paragraph of Article 1358 of the Civil Code.
In the matter of formalities, in general, contracts are valid and binding from their perfection regardless of form
whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code.
To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:
However, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable....
It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter
partes of a contract that possesses the three validating elements of consent, subject matter, and causa, Article
1356 of the Code establishes only two exceptions, to wit:
(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make
them valid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of
immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the
donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than
P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay
interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements
contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code.
(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those
covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being
provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in court.
Here, the contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts
where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But
Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or
unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the absence of writing.
It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were
grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same
could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because
it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the
law should require that the contract be in writing, as it does in Article 1358. The law must further prescribe
that without the writing the contract is not valid or not enforceable by action.
9. Sancho v. Lizarraga, 55 Phil 601
PRELIMINARIES
Who is the plaintiff?: Maximiliano Sancho
Who is the defendant: Severiano Lizarraga

A case for rescission of the partnership.
The defendant failed to pay the amount in which he was bound to contribute.

The Court of First Instance of Manila.

Rescission was improper but the partnership was dissolved. The defendant failed to pay the amount he
was bound to contribute and the plaintiff demanded the partnership dissolved.

and vouchers within the period of thirty days from receipt of notice of said judgment, without costs.
Principle: Article 1124 of the Civil Code cannot apply in cases of partnerships as it refers to resolution of
contracts in general unlike Article 1681 and 1682 which focuses on partnerships in particular. It is a well
known principle that special provisions prevail over general provisions.
Facts:
The defendant failed to pay the amount he was bound to contribute in the partnership and as such
brought an action for the rescission of a partnership contract between himself and the defendant, entered
into on October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with
interest at 12 per cent per annum form October 15, 1920, with costs, and any other just and equitable
remedy against said defendant.
The defendant on the other hand asks for the dissolution of the partnership and payment to him as its
manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with
interest, one-half of said amount to be charged to the plaintiff. He also prays for any other just and
equitable remedy.
and vouchers within the period of thirty days from receipt of notice of said judgment, without costs.
Issue/s: Whether or not rescission can be applied.
Ruling: No. Rescission cannot be applied. Owing to the defendant's failure to pay to the partnership the
whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest
and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article 1124 of the Code.
This article cannot be applied to the case in question, because it refers to the resolution of obligations in
general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it
is a well known principle that special provisions prevail over general provisions.
10. Pang Lim v. Lo Seng, 42 Phil 282
PRELIMINARIES
Principle:
Facts:
Lo Seng and Pang Lim were partners in the business of running a distillery,known as "El Progreso” The
land on which said distillery is located was to the firm of Lo Seng and Co.for the term of three years.
Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented
by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years.
Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position
of sole owner Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a
notary public a deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the
entire distillery plant. But this document was never recorded in the registry of property.
Thereafter, Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to
yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez
in the court of the justice of the peace of Paombong to recover possession of the premises.
Plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely,
first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and incompatible. Every competent person is by law
bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regards any contract previously
entered into by himself
Issue/s: WON Pang Lim, having been a participant in the contract of lease now in question, is in a
position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful
detainer by him.
Ruling: No.
While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and
when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's
interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise of a
purchaser of the estate, to destroy an interest derived from himself, and for which he has received full
value.
Ratio: The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed
in the circumstance that prior to the acquisition of this property Pang Lim had been partner
with Lo Seng and Benito Galvez an employee.
Both therefore had been in relations of confidence with Lo Seng and in that position had acquired
knowledge of the possibilities of the property and possibly an experience which would have enabled
them, in case they had acquired possession, to exploit the distillery with profit.
It would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim,
after profiting by the sale of his interest in a business, worthless without the lease, could intervene as
purchaser of the property and confiscate for his own benefit the property which he had sold for a valuable
consideration to Lo Seng.
Above all other persons in business relations, partners are required to exhibit towards each other the
highest degree of good faith.
In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in
fact,the confidential agent of the other.
If one partner obtains in his own name and for his own benefit the renewal of lease on property used by
the firm, to commence at a date subsequent to the expiration of the firm's lease, the partner obtaining the
renewal is held to be a constructive trustee of the firm as to such lease.
As Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted either by Pang
Lim or Benito Galvez. Having lawful possession asagainst one cotenant, he is entitled to retain it against
both
11. Catalan v. Gatchalian, 105 Phil 1270 (1959)
PRELIMINARIES
Principle:
Facts:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the
improvements thereon to secure a credit from the latter.
The partnership failed to pay the obligation. The properties were sold to Dr. Marave at a public auction.
Catalan redeemed the property and he contends that title should be cancelled and a new one must be
issued in his name.
Issue/s:Did Catalan’s redemption of the properties make him the absolute owner of the lands?
Ruling:No.
Under Article 1807 of the New Civil Code, every partner becomes a trustee for his copartner with regard
to any benefits or profits derived from his act as a partner.
Consequently, when Catalan redeemed the properties in question, he became a trustee and held the
same in trust for his copartner Gatchalian, subject to his right to demand from the latter his contribution to
the amount of redemption.
12. Island Sales, Inc. v. United Pioneers, 65 SCRA 554
PRELIMINARIES
Who is the plaintiff: Island Sales, Inc.
Who is the defendant: United Pioneers Company, et. al.
The nature of the action is for collection of sum of money.

The appellant in this case argued that their liabilities as partners in a partnership of 5 should not exceed
⅕ notwithstanding the dismissal of the complaint against one of their partners.

Collection of unpaid payment
Failure to pay the balance of the purchase price of the motor vehicle as evidenced by a promissory note
executed by the partnership in favor of the plaintiff.

Court of First Instance of Manila, Branch 16.
WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to
pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus
attorney's fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the understanding that the judgment against these
individual defendants shall be enforced only if the defendant company has no more leviable
properties with which to satisfy the judgment against it.
Plaintiff won the case. While the Supreme Court AFFIRMED the appealed decision of the lower court.
Principle:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may be entered into in the name and
for the account of the partnership, under its signature and by a person authorized to act for the
The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the
plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving
to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.
Facts:
Defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc are partners in United Pioneers General Construction Company.
The partnership and the partners were impleaded as defendants in the case filed by plaintiff for the
collection of unpaid balance after the partnership failed to pay the remaining of the purchase price of the
motor vehicle that the latter bought from the plaintiff on an installment (for 12 months) basis as evidenced
by a promissory note executed by the partnership in favor of the plaintiff.
However, after a motion of the plaintiff, the complaint against one of the partners, Romulo B. Lumauig,
was dismissed and thus excluding him from the judgment rendered by the Court of First Instance of
Manila, Branch 16, in Civil Case No. 50682.
Unconvinced, the defendants filed a motion for reconsideration claiming that since there are five (5)
15
general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( / ) of the
obligations of the defendant company.
But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability
15
of the defendants Daco and Sim to only one-fifth ( / ) of the obligations of the defendant company.
Unsatisfied, defendants then sought the wisdom of the Supreme Court through and appeal to the
Decision rendered by the Court of First Instance of Manila, Branch 16, in Civil Case No. 50682.
Issue/s:
Whether or not the dismissal of the complaint to favor one of the general partners of a partnership
increases the joint and subsidiary liability of each of the remaining partners for the obligations of the
partnership.
Ruling:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may be entered into in the name and
for the account of the partnership, under its signature and by a person authorized to act for the
In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/5 ) of the obligations of the defendant
company.
The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the
plaintiff, does not unmake the said Lumauig as a general partner in the defendant company .
In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability
to the plaintiff.
13. Yu vs. National Labor Relations Commission, 224 SCRA 75
PRELIMINARIES
Who is the plaintiff: Benjamin Yu
Who is the defendant: NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU
SHIAN JENG and CHEN HO-FU
Nature of the Action filed in the SC? What is the case all about in Summary? Certiorari
What is the Case filed in the original court? Complaint of illegal dismissal and recovery of unpaid
salaries
From which court Originated? Labor Arbiter/NLRC
Court a quos ruling and brief reason why? In due time, Labor Arbiter Nieves Vivar-De Castro
rendered a decision holding that petitioner had been illegally dismissed
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor
Arbiter.
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.
Who won? Who is liable? Dispositive Portion. WHEREFORE, for all the foregoing, the Petition for
Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their
Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is
hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private
respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu
Principle:
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 Chin 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. 1 The partnership had its main office in Makati, Metropolitan Manila.
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 1988.2 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.3
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.4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
illegally dismissed.
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter
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.
Issue/s:
(1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta. YES.
(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. YES as to the claims.
Ruling:
(1) The Court agrees with the result reached by the NLRC, that is, that the legal effect of the changes
in the membership of the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in

good faith, when no definite term or particular
undertaking is specified;
xxx xxx xxx
(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;
xxx xxx xxx
(Emphasis supplied)
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 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.
What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding partnership
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 :
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
(2) 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 take 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
14. Testate Estate of Mota vs. Serra, 47 Phil. 464 [1926]
PRELIMINARIES
Who is the plaintiff: TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL.
Who is the defendant: SALVADOR SERRA
Principle:
The dissolution of a firm does not relieve any of its members from liability for existing obligations,
although it does save them from new obligations to which they have not expressly or impliedly assented,
and any of them may be discharged from old obligations by novation of other form of release. It is often
said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (30
Cyc., page 659.)
Facts:
On February 1, 1919, plaintiffs and defendant entered into a contract of partnership for the construction
and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to the place known as
"Nandong."
The Original capital stipulated was P150,000. It was covenanted that the parties should pay this amount
in equal parts and the plaintiffs were entrusted with the administration of the partnership. The agreed
capital ofP150,000, however, did not prove sufficient, as the expenses up to May 15, 1920, had reached
the amount ofP226,092.92.
On January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C.
Whitaker,and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as
"Palma" with its running business, as well as all the improvements, machineries and buildings, real and
personal properties,rights, choses in action and interests, including the sugar plantation of the harvest
year of 1920 to 1921,covering all the property of the vendor. Before the delivery to the purchasers of
thehaciendathus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of January 29,
1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the
one-half of the railroad line pertaining to the latter. The price of this sale was P237,722.15, excluding any
amount which the defendant might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion
and Phil. C.Whitaker paid the sum of P47,544.43 only.
Plaintiffs and Concepcion and Whitaker agreed, among other things, that the partnership "Palma" and
"San Isidro," formed by the agreement of February 1, 1919, betweenSerra, Lazaro Mota, now deceased,
and Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix andDionisio Vidaurrazaga, should
be dissolved upon the execution of this contract, and that the said partnership agreement should be
totally cancelled and of no force and effect whatever.
So it results that the "Hacienda Palma," with the entire railroad, the subject-matter of the
contract of partnership between plaintiffs and defendant, became the property of Whitaker and
Concepcion.
Phil. C.Whitaker and Venancio Concepcion having failed to pay to the defendant a part of the purchase
price, that is,P750,000, the vendor, the herein defendant, foreclosed the mortgage upon the said
hacienda, which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000,
and the defendant put in possession thereof, including what was planted at the time, together with all the
improvements made byMessrs. Phil. C. Whitaker and Venancio Concepcion.
Plaintiffs and Phil. C. Whitaker and Venancio Concepcion, by common consent, decided to dissolve the
partnership between the "Hacienda Palma" and "Hacienda San Isidro," thus cancelling the
contract of partnership of February 1, 1919.
Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any right
arising out of that contract of partnership, which has been annulled, such as the right to claim now a part
of the cost of the construction of the railroad line stipulated in that contract
Issue/s: WON the dissolution of the partnership discharge the existing liabilities of the partners.
Ruling:No.
Defendant's contention signifies that any person, who has contracted a valid obligation with a partnership,
is exempt from complying with his obligation by the mere fact of the dissolution of the partnership.
Defendant's Contention is untenable.
The dissolution of a partnership must not be understood in the absolute and strict sense so that at the
termination of the object for which it was created the partnership is extinguished, pending the winding up
of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as
existing until the juridical relations arising out of the contract are dissolved. A partnership cannot be
considered as extinguished until all the obligations pertaining to it are fulfilled. (11 Manresa, page 312.)
The dissolution of a firm does not relieve any of its members from liability for existing obligations, although
it does save them from new obligations to which they have not expressly or impliedly assented, and any
of them may be discharged from old obligations by novation of other form of release. It is often said that a
partnership continues, even after dissolution, for the purpose of winding up its affairs. (30 Cyc., page
659.)
15. Lota vs. Tolentino, 90 Phil. 829
PRELIMINARIES
Who is the plaintiff: URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator
of the Estate of Urbano Lota)
Who is the defendant: BENIGNO TOLENTINO
This is an appeal from a resolution of the Court of First Instance of Batangas of May 4, 1949, worded
in full as follows: jgc:chanrobles.com.ph
"On April 6, 1949, counsel for plaintiff filed a motion praying that deceased defendant be substituted
by his heirs, Marta Sadiasa and Efigenia, Resurreccion and Mercedes, all surnamed Tolentino, as
parties defendant in this case. To said motion counsel for defendant interposed an opposition upon the
following grounds: chanrob1es virtual 1aw library
‘I. That the nature of the action for accounting and liquidation of the partnership filed by plaintiff since
March 3, 1937, is purely personal in character and, upon the death of the defendant on November 22,
1939, the claim was already extinguished. II. Assuming that the action for accounting and liquidation
of the partnership is not purely personal in character and that such claim is not yet extinguished, the
case should now be dismissed in view of the failure of the plaintiff to prosecute his action for an
unreasonable length of time. III. Assuming further that the plaintiff’s claim was not yet extinguished
upon the death of the defendant on November 22, 1939, the rights, if any, sought to be enforced by
the plaintiff in the complaint have already been lost by laches.’
On March 3, 1937, plaintiff filed an action against defendant to order the latter (a) to render an
accounting of his management of their partnership, and (b) to deliver to plaintiff whatever share he
may have in the assets of the partnership after the liquidation has been approved by the Court.
The theory of the appellant is that the heirs may properly be substituted for the deceased Benigno
Tolentino, because they are in possession of property allegedly belonging to the partnership in
question, and the appellant seeks the recovery thereof. Apart from the fact that said allegation seems
to refer to a cause of action foreign to the claim for accounting and liquidation against
Tolentino, and should have been made in a proper pleading to be duly admitted by the lower court,
the filing of appellant’s motion for substitution more than twelve years after the institution of the
complaint came too late and already called for the application of the rule requiring dismissal for lack of
prosecution.

It was decided adversely to the appellant by the lower court.
Defendant-Appellee won the case. Costs against the Plaintiff-appellant. "Wherefore, the plaintiff’s
action for substitution is denied and defendant’s prayer for the dismissal of this case granted, with
costs against the plaintiff." cra
Principle: It is well settled that when a member of mercantile partnership dies, the duty of liquidating
its affairs devolves upon the surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner.
Facts:
"On March 3, 1937, plaintiff filed an action against defendant to order the latter (a) to render an
accounting of his management of their partnership, and (b) to deliver to plaintiff whatever share he
may have in the assets of the partnership after the liquidation has been approved by the Court.
"The partnership above-mentioned was entered into by and between plaintiff and defendant in the
year 1918, whereby they agreed to engage in general business in the municipality of Alabat, province
of Batangas, both to divide the profits and losses share and share alike, and defendant to be manager
of the partnership.
Plaintiff alleges that from 1918 until 1928 defendant had rendered an annual accounting, but had
refused to do so from 1929 to 1937, hence, plaintiff’s complaint.
"To plaintiff’s complaint, defendant filed answer, alleging that defendant was the industrial partner in
said partnership; that he rendered a yearly accounting and liquidation thereof from 1918 to 1932, and
that in the latter year, 1932, the partnership was dissolved and defendant delivered all its properties
and assets to the plaintiff.
Hence, defendant prays for the dismissal of plaintiff’s complaint.
"The plaintiff died in 1938, and on September 23, 1939, he was substituted by the administrator of his
estate, Solomon Lota.
"On December 8, 1939, defendant’s counsel made a suggestion upon the record that defendant died
on November 26, 1939.
On January 9, 1940, the Court gave plaintiff 30 days to amend the complaint by substituting for the
deceased defendant the administrator of his estate or his legal representative.
"On January 28, 1941, the Court ordered the dismissal of the case for lack of prosecution. This order
was reconsidered and set aside upon a showing by plaintiff that on March 28, 1941, he had filed a
petition for the issuance of letters of administration to deceased defendants’ surviving spouse, Marta
Sadiasa, for the purpose of substituting her for the deceased defendant , said petition being Special
Proceedings No. 3859 of this Court entitled ’Intestate Estate of the late Benigno Tolentino, Solomon
Lota, Petitioner.’ This special proceedings was, however, dismissed for failure of the administratrix to
file a bond and to take her oath.
"It will thus be seen that from defendant’s death on November 26, 1939, to the present, or almost ten
years, no administrator or legal representative has been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another try to substitute said deceased by
filing his motion, referred to in the first paragraph of this resolution, praying that defendant’s heirs be
substituted for him as parties defendant.
Issue/s:
whether or not, after the death of the defendant Benigno Tolentino on November 22, 1939, plaintiff’s
action for accounting and liquidation of the partnership formed in 1918 between Urbano Lota and
Benigno Tolentino, of which the latter was the industrial and managing partner, may be continued
against the heirs of Benigno Tolentino.
Ruling: NO
The applicable authority is the case of Po Yeng Cheo v. Lim Ka Yam, 44 Phil. 172, in which the following
pronouncements were made:jgc:chanrobles.com.ph
"It is well settled that when a member of a mercantile partnership dies, the duty of liquidating its
affairs devolves upon the surviving member, or members, of the firm, not upon the legal
representatives of the deceases partner. (Wahl v. Donaldson Sim & Co., 5 Phil., 11; Sugo and
Shibata v. Green, 6 Phil., 744.) And the same rule must be equally applicable to a civil partnership
clothed with the form of a commercial association (art. 1670, Civil Code: Lichauco v. Lichauco, 33
Phil., 350).
Another ground — equally decisive against the appellant — correctly advanced by the lower court in
dismissing the present action for accounting, is lack of prosecution on the part of the appellant. It may
fittingly be recalled that the action for accounting and liquidation was filed on March 3, 1937. No sooner
had the defendant Benigno Tolentino died on November 22, 1939, than said fact was made of record by
his attorney.
On January 9, 1940, the lower court gave the plaintiff (who had then died and was substituted on
September 28, 1939, by the administrator of his estate, Solomon Lota), 30 days to amend the complaint
by substituting the administrator or legal representative of the deceased defendant Benigno Tolentino.
On January 28, 1941, the lower court dismissed the case for lack of prosecution on the part of the
plaintiff, but the order of dismissal was reconsidered, upon a showing by the plaintiff that on March 28,
1941, an administration proceeding for the estate of Benigno Tolentino was instituted by the plaintiff. On
August 8, 1941, the lower court issued, at the instance of the plaintiff, letters of administration to
Tolentino’s surviving spouse, Marta Sadiasa, who however failed to qualify.
Accordingly, the court dismissed the administration proceeding on January 3, 1949, for lack of interest. It
was only as late as April 6, 1949, that the plaintiff filed the motion to substitute, not even the legal
representative of Benigno Tolentino, but his heirs.
If the plaintiff was genuinely interested in substituting the proper party, assuming that plaintiff’s action may
still be pursued after Tolentino’s death, he should have taken timely measures to have the administratrix
appointed on August 8, 1941, qualify or, in case of her failure or refusal, to procure the appointment of
another administrator; because the plaintiff could have availed himself of section 6, Rule 80, of the Rules
of Court, providing that "letters of administration may be granted to any qualified applicant, though it
appears that there are other competent persons having better right to the administration, if such persons
fail to appear when notified and claim the issuance of letters to themselves." Certainly, inaction for almost
eight years (after the issuance of letters of administration) on the part of the appellant, sufficiently implies
indifference to or desistance from its suit.
16. Goquiolay vs. Sycip, 108 Phil. 947
PRELIMINARIES
Principle:
Facts:
Issue/s:
Ruling:
17. Goquiolay vs. Sycip, 9 SCRA 663, Resolution of Motion for

Reconsideration
PRELIMINARIES
ANTONIO C. GOQUIOLAY, ET AL

WASHINGTON Z. SYCIP, ET AL.,
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.

Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land to
Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the aforesaid debts of Tan
Sin An and the partnership.

Probate Court

Probate Court - dismissed by the lower court in its decision dated October 30, 1956 as the amount
involved is more than P200,000.00.
RTC - dismissed the complaint.
CA - finding no reversible error in the appealed judgment, affirmed the same, with costs against appellant
Antonio Goquiolay.

Liable - Plaintiff-Appellant Antonio Goquiolay.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs
against appellant Antonio Goquiolay.
Motion for consideration in the CA
PREMISES CONSIDERED, the motion for reconsideration is denied.
Principle:
Facts:
Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in real state.
The agreement lodge upon Tan Sin An the sole management of the partnership affairs, stipulating that
the co-partnership shall be composed of said Tan Sin An as sole managing and partner and Antonio C.
Goquiolay as co-partner.
The affairs of co-partnership shall be managed exclusively by the managing and partner or by his
authorized agent, and it is expressly stipulated that the managing and partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards compensation as he may deem proper.
The co-partner shall have no voice or participation in the management of the affairs of the co-partnership;
but he may examine its accounts once every six (6) months at any time during ordinary business hours,
and in accordance with the provisions of the Code of Commerce.
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. However, the partnership could be dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners.
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased three (3) parcels of land
payable to "La Urbana Sociedad Mutua de Construccion 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.
Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor children.
Chai Pin was appointed administratrix of the intestate estate of her deceased husband.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations
of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An.
Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land to
Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the aforesaid debts of Tan
Sin An and the partnership.
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.
After hearing, the complaint was dismissed by the lower court.
Hence, this appeal.
Issue/s:
WON Kong Chai Pin became the managing partner of the partnership upon the death of her husband,
Tan Sin An, by virtue of the articles of Partnership executed between Tan Sin An and Antonio Goquiolay,
and the general power of attorney granted by Antonio Goquiolay.
Ruling:
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, can not 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.
While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the power of
attorney executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive management of the
business, such power, premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tan's demise. The provision in the articles stating that "in the event of death of any one
of the partners within the 10-year term of the partnership, the deceased partner shall be represented by
his heirs", could not have referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner.
The covenant that Antonio Goquiolay shall have no voice or participation in the management of the
partnership, being a limitation upon his right as a general partner, must be held coextensive only with
Tan's right to manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce.
18. Ng Cho Cio vs. Ng Diong, 1 SCRA 275
PRELIMINARIES
NG CHO CIO ET AL.

NG DIONG, C. N. HODGES, ET AL

Recovery of parcels of land
Apeal from Judgement

Court of First Instance of Iloilo
Principle:
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 copartnership under the name Ng Chin Beng
Hermanos.
The partnership was to exist for a period of 10 years and Ng Diong was the managing partner. The
articles of co-partnership were amended by extending its life to 16 years more.
The partnership obtained from the National Loan and Investment Board loans and to guarantee its
payment it executed in its favor a mortgage on lots of the cadastral survey of Iloilo.
The partnership was declared insolvent upon petition of its creditors and Crispino Melocoton was
elected as assignee.
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 the
aggregate amount of P80, 000.00 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 granted, Hodges filed a
complaint for that purpose.
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.
In order to pay the indebtedness to C.N. Hodges and raise necessary funds to pay the other
obligations of the partnership, Ng Diong, who continued to be the manager of the partnership, sell
all its properties mortgaged to Hodges in order that the excess may be applied to the payment of
said other obligations.
As a result Ng Diong executed on April 2, 1946 a deed of sale thereof in favor of Hodges and the
price 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.
Issue/s:
Whether or not the manager may still execute the sale of its properties to C. N. Hodges as was
done by Ng Diong.
Ruling:
Yes, because Ng Diong was still the managing partner of the partnership and he had the
necessary authority to liquidate its affairs under its articles of co-partnership. And considering
that war had intervened and the affairs of the partnership were placed under receivership up to
October 6, 1945, 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.
19. Lichauco vs. Lichauco, 33 Phil. 350
PRELIMINARIES
Who is the plaintiff: EUGENIA LICHAUCO, ET AL.
Who is the defendant: FAUSTINO LICHAUCO
Nature of the Action filed in the SC? What is the case all about in Summary? The case is about an
action brought by two of the partners of an enterprise of which the defendant was manager (gestor), to
secure an accounting of its affairs, and the payment to the plaintiffs of their respective shares of capital
and profits.
What is the Case filed in the original court? An action to account to his associates or to turn over to
them the amount due them on a proper accounting.
What is the cause of action? If Based on law, cite the legal basis of the claim. Article 243 of the
Code of Commerce
From which court Originated? Trial Court
Who won? Who is liable? Dispositive Portion. FAUSTINO LICHAUCO (Defendant) is liable.
Twenty days hereafter let judgment be entered reversing the judgment of the lower court, without special
condemnation of the costs in this instance, and directing the return of the record to the trial court, wherein
judgment will be entered in accordance herewith, and ten days thereafter let the record be remanded in
confirmity therewith. So ordered.
Principle:
Facts: In October 1901, 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 partnership contained provisions stating that the partnership name will be F. Lichauco
Hermanos, that the association cannot be dissolved except by the consent and agreement of two-thirds of
its partners and that the management and direction of the association shall be in charged of Don Faustino
Lichauco y Santos.
The partnership proved to be unprofitable and was discontinued in 1904. hereafter, 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 even though several demands
were made before.
The trial court ruled for the plaintiffs thereby ordering defendant to account to his associates or to turn
over to them the amount due them on a proper accounting.
Defendant avers that before an accounting be made, there must be a decree for the dissolution of the
association and final liquidation of its assets in accordance with paragraph 10 of the articles of
association requiring the conformity of 2/3 of the partners and that the plaintiffs constitute one-fifth of the
total number of partners only.
Issue/s: 1) Was there a partnership dissolution despite a provision in the articles of partnership
expressly providing that dissolution is affected by the conformity and agreement of two-thirds of the
partners? YES.
2) Is the defendant-partner bound to render an accounting to his partners? YES.
Ruling:
1) Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which partnership
(sociedades) 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 copartnerships shall furthermore be totally dissolved for the following reasons:
(1) The death of one of the general partners if the articles of copartnership do not contain an express
agreement that the heirs of deceased partner are to continue in the copartnership, or an agreement to the
effect that said copartnership 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 (gestor) 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.
2) 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 participacion" (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 copartnerships, 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.
20. Soncuya vs. De Luna, 67 Phil. 646
PRELIMINARIES
Who is the plaintiff: JOSUE SONCUYA
Who is the defendant: CARMEN DE LUNA
This is an Appeal from a judgment of the Court of First Instance of Manila .

An action for the recovery of a sum of money


The Court of First Instance of Manila dismissed the complaint (granting the motion to dismiss
filed by the defendant).

The Defendant won.
Principle:
For a partner to be able to claim from another partner who manages the general
copartnership, damages allegedly suffered by him by reason of the fraudulent administration
of the latter, a previous liquidation of said partnership is necessary.
Facts:
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of
Manila and amended complaint against Carmen de Luna in her own name and as co-
administratrix of the intestate estate, of Librada Avelino, in which, upon the facts therein
alleged, he prayed that defendant be sentenced to pay him the sum of P700,432 as damages
and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer

based on the following grounds: (1) That the complaint does not contain facts sufficient to
constitute a cause of action; and (2) that the complaint is ambiguous, unintelligible and
vague.
Trial on the demurrer having been held and the parties heard, the court found the same well-
founded and sustained it, ordering the plaintiff to amend his complaint within a period of ten
days from receipt of notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended complaint, the
attorney for the defendant, Carmen de Luna, filed a motion praying that the amended
complaint be dismissed with costs against the plaintiff. Said motion was granted by The
Court of First Instance of Manila which ordered the dismissal of the aforesaid amended
complaint, with costs against the plaintiff.
Issue/s:
1.) Whether or not the complaint does not contain facts sufficient to constitute a cause of
action; and
2.) Whether or not the complaint is ambiguous, unintelligible and vague.
Ruling:
1.) Facts alleged in the complaint do not constitute a cause of action.
2.) The court deemed it not necessary to discuss the remaining question of whether or
not the complaint is ambiguous, unintelligible and vague.
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 he 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. Consequently, there is no reason or cause for plaintiff to
institute the action for damages which he claims from the managing partner Carmen
de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
21. Singsong vs. Isabela Sawmill, 88 SCRA 623
PRELIMINARIES
Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber
Yard, and Oppen, Esteban, Inc.
Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay,
Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidenta
An appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental
Recovery of the payment of balance owed to the various creditors of the partnership and nullity of the
assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno and her
former partners Leon Garibay and Timoteo Tubungbanua.

Court of First Instance of Negros Occidental Branch I
Judgment was rendered in favor of the plaintiffs and against the defendants.

Plaintiffs WON, Defendants Liable
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and
Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as
to costs.
Principle:
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
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”.
In 1956, 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 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.
The International Harvester Company has been paid a total of P19, 211.11, leaving an unpaid balance of
P1, 288.89.
Margarita Saldejeno withdrew from the partnership.
In 1958, a case was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the
Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua.
Thus, the defendants entered into a "Memorandum Agreement with the Saldajenos. The defendants
executed a document entitled "Assignment of Rights with Chattel Mortgage.
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 notices that he would sell at public
auction certain trucks, tractors, machinery, office equipment and other things that were involved in the
case filed.
The Provincial Sheriff then executed a Certificate of Sale in favor of the defendant Margarita G.
Saldajeno, as a result of the sale conducted by him for the enforcement of the judgment rendered said
civil case.
Margarita G. Saldajeno then 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.
Now, plaintiff Manuel Singsong, who is just one of the various creditors of Isabela Sawmill, proved by his
own testimony that he sold on credit to the defendant "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved
that the partnership owes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid
for.
Manuel Singson, as creditors of the defendant partnership, is now claiming the payment of said balance
and also asking for the nullity of the assignment of right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua.
Issue/s:
Whether or not Isabela Sawmill ceased to be a partnership in view of Margarita Saldajena’s withdrawal
and that creditors could no longer demand a payment.
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 partnership 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.
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.
The contention of the appellant that the appellees cannot bring an action to annul the chattel mortgage of
the properties of the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of
Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract,
may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would positively result to him from the contract in
which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favor of Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua.
Hence, said apellees have a right to file the action to nullify the chattel mortgage in question.
22. Po Yeng Cheo vs. Lim Ka Yan, 44 Phil. 172
PRELIMINARIES
PO YENG CHEO
LIM KA YAM
Appeal from a judgment of the Court of First Instance in Manila.
Complaint to recover partnership properties and assets.
Failure to submit any formal liquidation of the business.
Court of First Instance in Manila.
In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo,
to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty thousand
pesos (P60,000), constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, plus the
plaintiff's proportional interest in shares of the Yut Siong Chyip Konski and Manila Electric Railroad and
Light Company, estimated at P11,000, together with the costs. From this judgment the defendant
appealed.
LIM KA YAM – won

PO YENG CHEO – liable
The judgment must be reversed, and the defendant will be absolved from the complaint; but it will be
understood that this order is without prejudice to any proceeding which may be undertaken by the proper
person or persons in interest to settle the affairs of Kwong Cheong Tay and in connection therewith to
recover from the administrator of Lim Ka Yam the shares in the two concerns mentioned above. No
special pronouncement will be made as to costs of either. So ordered.
Principle:
When a member of a partnership dies, the duty of liquidating its affairs devolves upon the surviving
member or members of the firm, not upon the legal representative of the deceased partner (except when
such partner was the last surviving partner).
One partner to recover of the manager the plaintiff's aliquot part of the proceeds of the business, then
long since closed; but in that case the affairs of the defunct concern had been actually liquidate by the
manager to the extent that he had apparently converted all its properties into money and had pocketed
the same--which was admitted;--and nothing remained to be done except to compel him to pay over the
money to the persons in interest.
Under these circumstances it is impossible to sustain a judgment in favor of the plaintiff for his aliquot part
of the par value of said shares, which would be equivalent to allowing one of several co-owners to
recover from another, without process of division, a part of an undivided property.
Facts:
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po Yeng Cheo
inherited the interest left by Po Gui Yao in a business conducted in Manila under the style of Kwong
Cheong Tay.
This business had been in existence in Manila for many years prior to 1903, as a mercantile partnership,
with a capitalization of P160,000, engaged in the import and export trade; and after the death of Po Gui
Yao the following seven persons were interested therein as partners in the amounts set opposite their
respective names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee
Kom Chuen, P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000.
The manager of Kwong Cheong Tay, for many years prior of its complete cessation from business in
1910, was Lim Ka Yam, the original defendant herein.
Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were ten shares
of a total par value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski and
certain shares to the among of P1,000 in the Manila Electric Railroad and Light Company, of Manila.
In the year 1910, Kwong Cheong Tay ceased to do business, owing principally to the fact that the plaintiff
ceased at that time to transmit merchandise from Hongkong, where he then resided.
Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of the business,
though repeated demands to that effect have been made upon him by the plaintiff.
The trial judge rendered judgment in favor of Po Yeng Cheo to recover of Lim Yock Tock, as administrator
of Lim Ka Yam, P60,000, constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, plus
the plaintiff's proportional interest in shares of the Yut Siong Chyip Konski and Manila Electric Railroad
and Light Company, estimated at P11,000, together with the costs.
Hence, this petition.
Issue/s:
Whether the award given to Po Yeng Cheo constituting his interest to the extent of his share of the capital
of Kwong Cheong Tay was proper – No.
Ruling:
It was erroneous in any event to give judgment in favor of the plaintiff to the extent of his share of the
capital of Kwong Cheong Tay.
The managing partner of a mercantile enterprise is not a debtor to the shareholders for the capital
embarked by them in the business; and he can only be made liable for the capital when, upon liquidation
of the business, there are found to be assets in his hands applicable to capital account.
The only property pertaining to Kwong Cheong Tay at the time this action was brought consisted of
shares in the two concerns already mentioned of the total par value of P11,000. Of course, if these shares
had been sold and converted into money, the proceeds, if not needed to pay debts, would have been
distributable among the various persons in interest, that is, among the various shareholders, in their
respective proportions. But under the circumstances revealed in this case, it was erroneous to give
judgment in favor of the plaintiff for his aliquot part of the par value of said shares. It is elementary that
one partner, suing alone, cannot recover of the managing partner the value of such partner's individual
interest; and a liquidation of the business is an essential prerequisite.
It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court permitted one partner to recover of the
manager the plaintiff's aliquot part of the proceeds of the business, then long since closed; but in that
case the affairs of the defunct concern had been actually liquidate by the manager to the extent that he
had apparently converted all its properties into money and had pocketed the same--which was admitted;--
and nothing remained to be done except to compel him to pay over the money to the persons in interest.
In the present case, the shares referred to--constituting the only assets of Kwong Cheong Tay--have not
been converted into ready money and doubtless still remain in the name of Kwong Cheong Tay as owner.
Under these circumstances it is impossible to sustain a judgment in favor of the plaintiff for his aliquot part
of the par value of said shares, which would be equivalent to allowing one of several co-owners to recover
from another, without process of division, a part of an undivided property.
In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of
liquidating its affair devolves upon the surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. And the same rule must be equally applicable to a civil
partnership clothed with the form of a commercial association.
Upon the death of Lim Ka Yam it therefore became the duty of his surviving associates to take the proper
steps to settle the affairs of the firm, and any claim against him, or his estate, for a sum of money due to
the partnership by reason of any misappropriation of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski
and the Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the
proper step for the surviving associates to take would be to make application to the court having charge to
the administration to require the administrator to surrender such property.
23. Laguna Transportation Co., Inc. vs. Social Security System, 107
Phil. 833
PRELIMINARIES
Who is the plaintiff:LAGUNA TRANSPORTATION CO., INC
Who is the defendant:SOCIAL SECURITY SYSTEM
Petitioner appealed directly to the SC, raising purely questions of law.
What is the Case filed in the original court? Petition praying that an order be issued by the court
declaring that it is not bound to register as a member of respondent Social Security System and,
therefore, not obliged to pay to the latter the contributions required under the Social Security Act.
What is the cause of action? If Based on law, cite the legal basis of the claim. SEC. 9 Compulsory
Coverage. — Coverage in the System shall be compulsory upon all employees between the ages of
sixteen and sixty years, inclusive, if they have been for at least six months in the service of an
employer who is a member of the System. Provided, That the Commission may not compel any
employer to become a member of the System unless he shall have been in operation for at least two
years . . . . (Italics supplied.).
From which court Originated? Court of First Instance of Laguna
Court a quos ruling and brief reason why?On the basis of the foregoing stipulation of facts, the
court, on August 15, 1958, rendered a decision the dispositive part of which reads:
Wherefore, the Court is of the opinion and so declares that the petitioner was an employer engaged
in business as common carrier which had been in operation for at least two years prior to the
enactment of Republic Act No. 1161, as amended by Republic Act 1792 and by virtue thereof, it was
subject to compulsory coverage under said law. . . .
Who won? Who is liable? Dispositive Portion. Finally, the weight of authority supports the view that
where a corporation was formed by, and consisted of members of a partnership whose business and
property was conveyed and transferred to the corporation for the purpose of continuing its business, in
payment for which corporate capital stock was issued, such corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor. (Stowell vs. Garden City News Corps., 57 P. 2d 12;
Chicago Smelting & Refining Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp.
692.) The reason for the rule is that the members of the partnership may be said to have simply put on a
new coat, or taken on a corporate cloak, and the corporation is a mere continuation of the partnership. (8
Fletcher Cyclopedia Corporations [Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed, with costs
against petitioner-appellant. So ordered.
Principle: A corporation once formed is conferred a juridical personality separate and district from the
persons composing it, it is but a legal fiction introduced for purposes of convenience and to subserve the
ends of justice. The concept cannot be extended to a point beyond its reasons and policy, and when
invoked in support of an end subversive of this policy, will be disregarded by the courts.
Facts:
In 1949, the Biñan Transportation Co., a corporation duly registered with the Securities and Exchange
Commission, sold part of the lines and equipment it operates to Gonzalo Mercado, Artemio Mercado,
Florentino Mata and Dominador Vera Cruz.
That after the sale, the said vendees formed an unregistered partnership under the name of Laguna
Transportation Company which continued to operate the lines and equipment bought from the Biñan
Transportation Company, in addition to new lines which it was able to secure from the Public Service
Commission.
The original partners forming the Laguna Transportation Company, with the addition of two new
members, organized a corporation known as the Laguna Transportation Company, Inc., which was
registered with the Securities and Exchange Commission on June 20, 1956, and which corporation is the
plaintiff now in this case.
The corporation continued the same transportation business of the unregistered partnership.
Respondent SSS served a notice to petitioner corporation requiring it to register as member of the
System and to remit the premiums due from all the employees of the petitioner and the contribution of the
latter to the System beginning the month of September, 1957.
On November 14, 1957, plaintiff through counsel sent a letter to the Social Security System
contesting the claim of the System that plaintiff was covered.
The lower court, resolved the case in favor of SSS stating petitioner was an employer engaged in
business as common carrier which had been in operation for at least two years prior to the enactment of
Republic Act No. 1161, as amended by Republic Act 1792 and by virtue thereof, it was subject to
compulsory coverage under said law.
Issue/s:
1. Whether or not the lower court erred in holding that it is an employer engaged in business as
a common carrier which had been in operation for at least 2 years prior to the enactment of
the Social Security Act and, therefore, subject to compulsory coverage thereunder.
Ruling:
1. No,. It is not disputed that the Laguna Transportation Company, an unregistered partnership
composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera
Cruz, commenced the operation of its business as a common carrier on April 1, 1949. These
4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the
partnership into a corporate entity, by registering its articles of incorporation with the
Securities and Exchange Commission on June 20, 1956. The firm name "Laguna
Transportation Company" was not altered, except with the addition of the word "Inc." to
indicate that petitioner was duly incorporated under existing laws. The corporation continued
the same transportation business of the unregistered partnership, using the same lines and
equipment. There was, in effect, only a change in the form of the organization of the entity
engaged in the business of transportation of passengers. Hence, said entity as an employer
engaged in business, was already in operation for at least 3 years prior to the enactment of
the Social Security Act on June 18, 1954 and for at least two years prior to the passage of the
amendatory act on June 21, 1957. Petitioner argues that, since it was registered as a
corporation with the Securities and Exchange Commission only on June 20, 1956, it must be
considered to have been in operation only on said date. While it is true that a corporation
once formed is conferred a juridical personality separate and district from the persons
composing it, it is but a legal fiction introduced for purposes of convenience and to subserve
the ends of justice. The concept cannot be extended to a point beyond its reasons and policy,
and when invoked in support of an end subversive of this policy, will be disregarded by the
courts. (13 Am. Jur. 160.)
To adopt petitioner's argument would defeat, rather than promote, the ends for which the
Social Security Act was enacted. An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then claim exemption from
contribution to the System as required, on the theory that, as a new entity, it has not been in
operation for a period of at least 2 years. the door to fraudulent circumvention of the statute
would, thereby, be opened.
Moreover, petitioner admitted that as an employer engaged in the business of a common

carrier, its operation commenced on April 1, 1949 while it was a partnership and continued by
the corporation upon its formation on June 20, 1956. Unlike in the conveyance made by the
Biñan Transportation Company to the partners Gonzalo Mercado, Artemio Mercado,
Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the
pleadings or in the stipulation of facts that the lines and equipment of the unregistered
partnership had been sold and transferred to the corporation, petitioner herein. This omission,
to our mind, clearly indicates that there was, in fact, no transfer of interest, but a mere change
in the form of the organization of the employer engaged in the transportation business, i.e.,
from an unregistered partnership to that of a corporation. As a rule, courts will look to the
substance and not to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172 Fed. 310;
Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs. Willits, et al.,
44 Phil., 634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)
24. Magdusa vs. Albaran, 5 SCRA 511

- GREGORIO MAGDUSA, ET AL.

- GERUNDIO ALBARAN, ET AL.
- Appeal from a decision of the Court of Appeals (G.R. No. 24248-R) reversing a judgment of the
Court of First Instance of Bohol.

- Recovery of a sum of money / Demand for the payment of shares
- The main argument of appellant (Magdusa) is that the appellees' (Albaran/s and Bebero) 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.

- Court of First Instance of Bohol

- 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, as states in the Civil 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.

- Magdusa won. The costs against appellees.
- IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is reversed and the action
ordered dismissed, without prejudice to a proper proceeding for the dissolution and liquidation of
the common enterprise. Costs against appellees.
Principle:
- 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 its assets and business, and are entitled to be heard in
the matter of the firm's liquidation and the distribution of its property.
- Unless a proper accounting and liquidation of the partnership affairs is first had, the capital
shares of the retiring partners cannot be repaid, for the firm's outside creditors have preference
over the assets of the enterprise (Civil Code, Art. 1839), and the firm's property cannot be
diminished to their prejudice.
- A remaining partner 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
who must refund their shares to the retiring partners.
Facts:
In the herein case, the appellant and appellees, together with 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.
Meanwhile, 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.
However, 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 a document, drawn in the handwriting of
appellant. Appellees made demands upon appellant for payment, but appellant refused, they filed
the initial complaint in the court below. Appellant defended by denying any partnership with
appellees, whom he claimed to be mere employees of his.
The Court of First Instance of Bohol refused to give credence to the document of the computation,
and dismissed the complaint on the ground that the others were indispensable parties but had not
been impleaded. Gregorio Magdusa then petitioned for a review of the decision, and was given it due
course.
Upon appeal, the Court of Appeals reversed the decision stating that this is not an action for a
dissolution of a partnership and winding up of its affairs or liquidation of its assets in which the
interest of other partners who are not brought into the case may be affected.
The action of the plaintiffs is one for the recovery of a sum of money with Gregorio Magdusa as the
principal defendant.
The partnership, with Gregorio Magdusa as managing partner, was brought into the case as an
alternative defendant only.
Issue:
Whether or not the partners share can be returned without first dissolving or liquidating the
partnership.
Ruling:
No. As stated in the case of Po Yeng Cheo vs. Lim Ka Yam, a partner's share cannot be returned
without first dissolving and liquidating the partnership, for the return is dependent on the discharge
of the creditors, whose claims enjoy preference over those of the partners; and it is self-evident that
all members of the partnership are interested in his assets and business, and are entitled to be heard
in the matter of the firm's liquidation and the distribution of its property.
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, as states in the Civil 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.
Thus, the decision of the Court of Appeals was reversed and the action filed by the appellant was
ordered dismissed such without prejudice to a proper proceeding for the dissolution and liquidation
of the common enterprise.
25. Lim Tanhu vs. Remolete, 66 SCRA 425
PRELIMINARIES
Who is the plaintiff: Tan Put
Who is the defendant: Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo
Nature of the Action filed in the SC? What is the case all about in Summary? Petition for certiorari
What is the Case filed in the original court? an action for accounting of properties and money totalling
Who won? Who is liable? Dispositive Portion. Defendant .IN VIEW OF ALL THE FOREGOING, the
petition is granted. All proceedings held in respondent court in its Civil Case No. 12328 subsequent to the
order of dismissal of October 21, 1974 are hereby annulled and set aside, particularly the ex-parte
proceedings against petitioners and the decision on December 20, 1974. Respondent court is hereby
ordered to enter an order extending the effects of its order of dismissal of the action dated October 21,
1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently enjoined from taking any further action in said civil case gave and
except as herein indicated. Costs against private respondent.
Principle:
No specific amounts or properties may be adjudicated to the heir or legal representative of the deceased
partner without the liquidation being first terminated.
Facts:
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.
Accordingly, 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, they
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.
Tan alleged in her complaint that after the death of Tee Hoon Lim Po Chuan, his partners, without
liquidation, continued the business of Glory Commercial Company, by purportedly organizing a
corporation known as the Glory Commercial Company, Incorporated with paid up capital in the sum of
P125, 000.00, which money and other assets are actually the assets of the defunct Glory Commercial
Company partnership.
Sometime in the month of November, 1967, Antonio Lim Tanhu, by means of fraud deceit and
misrepresentations did then and there, induce and convince the plaintiff to execute a quitclaim of all her
rights and interests, in the assets of the partnership of Glory Commercial Company.
Tanhu and the other partners who had earlier promised to liquidate the properties and assets of Glory
Commercial Company in favor among others of Tan refused to do so and until the middle of the year
1970 when the latter formally demanded from the defendants the accounting of real and personal
properties of the Glory Commercial Company, they still refused and stated that they would not give the
share of the plaintiff.
Issue/s: Whether or not Tan has a right over the liquidated properties of the partnership.
Ruling:
No, Tan has no right over the liquidated properties of the partnership.
The Supreme Court held that there is no alternative but to hold that 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.
Moreover, the Supreme Court said that the lower courts committed an error by awarding 1/3 of the
partnership properties to Tan because there has been no liquidation proceedings yet. And if there has not
yet been any liquidation of the partnership, the only right plaintiff could have would be to what might result
after much liquidation to belong to the deceased partner (her alleged husband) and before this is finished,
it is impossible to determine, what rights or interest, if any the deceased had.
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.
26. Bonnevie vs. Hernandez, GR No. L-5837, May 31, 1954
PRELIMINARIES
Who is the plaintiff: CRISTOBAL BONNEVIE, ET AL
Who is the defendant: JAIME HERNANDEZ
Nature of the Action filed in the SC? What is the case all about in Summary? This is an action for
the recovery of the sum of money.
What is the Case filed in the original court? an action for the recovery of the sum of mooney.
From which court Originated? The herein defendant
Court a quos ruling and brief reason why? After trial the lower court found that the partnership had
not realized any profit out of the assignment of the Meralco properties to the corporation and that,
even supposing that profit had really been made, defendant would not be the one to answer to
plaintiffs for their share thereof, because he did not receive the consideration for the assignment,
which according to the court, consisted of the subscriptions of various persons to the capital stock of
the corporation. The court therefore dismissed the complaint with costs against the plaintiffs.
Principle:
Facts:
Prior to January, 1947, plaintiffs with other associates formed a syndicate or secret partnership for the
purpose of acquiring the plants, franchises and other properties of the Manila Electric Co. (Meralco) in
the provinces of Camarines Sur, Albay, and Sorsogon, with the idea of continuing that company's
business in that region.
No formal articles were drawn for it was the purpose of the members to incorporate once the deal had
been consummated.
Negotiation for the purchase was commenced, but as it made no headway, defendant Jamie
Hernandez was taken in as a member of the partnership so that he could push the deal through, and
to that end he was given the necessary power of attorney.
Using partnership funds, defendant was able to buy the Meralco properties. Although defendant was
the one named vendee in the deed of sale, there is no question that the transaction was in penalty
made for the partnership so that the latter assumed control of the business the day following the sale.
About the latter half of the following month, the members of the partnership proceeded with the
formation of the proposed corporation, apportioning among themselves its shares of stock in
proportion to their respective contributions to the capital of the partnership and their individual efforts
in bringing about the acquisition of the Meralco properties.
But before the incorporation papers could be perfected, several partners, not satisfied with the way
matters were being run and fearful that the venture might prove a failure because the business was
not going well expressed their desire to withdraw from the partnership and get back the money they
had invested therein.
A resolution was approved, with the herein plaintiffs voting affirmatively, and on that same day
plaintiffs and Judge Reyes withdrew from the partnership, and, as admitted by both parties, the
partnership was then dissolved. In accordance with the terms of the resolution, the withdrawing
partners were, on the following day, reimbursed their respective contributions to the partnership fund.
Following the dissolution of the partnership, the members who preferred to remain in the business
went ahead with the formation of the corporation, taking in new associates as stockholders.
And defendant, on his part, in fulfillment of his trust, made a formal assignment of the Meralco
properties to the treasurer of the corporation, giving them a book value of P365, 000, in return for
which the corporation issued, to the various subscribers to its capital stock, shares of stock of the total
face value of P225, 000 and assumed the obligation of paying what was still due the Meralco on the
purchase price.
The new corporation was named "Bicol Electric Company."
Two years from their withdrawal from the partnership, when the corporate business was already in a
prosperous condition, plaintiffs brought the present suit against Jaime Hernandez, claiming a share in
the profit the latter is supposed to have made from the assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225, 000 and their share of it to be P115, 312.50.
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.
Issue/s:
1. Whether or not the partnership had realized profit out of the Meralco properties made by
the defendant corporation.
2. If there was indeed a profit, whether or not the plaintiffs are entitled for their share of
such profit.
Ruling:
As to the first issue, the Supreme Court held that no, the profit alleged to have been realized
from the assignment of the Meralco properties to the new corporation, the Bicol Electric
Company, is more apparent than real. 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. But one
should not jump to the conclusion that a profit, consisting of 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. Needless to say, the real
value of the shares of stock of a corporation depends upon the value of its assets over and
above its liabilities. It does not appear that the Bicol Electric Company had any assets other
than those acquired from the Meralco, and according to the evidence the company, aside from
owing the Meralco, P82,000 was, in the language of the court below, actually "in the red."
On the second issue, the Supreme Court ruled that assuming that the assignment actually
brought profit to the partnership, it is hard to see how defendant could be made to answer for
plaintiffs' alleged share thereof.
As a general rule, when a partner retires from the firm, he is entitled to the payment of what may be
due him after a liquidation. But certainly no liquidation is necessary where there is already a
settlement or an agreement as to what the retiring partner shall receive.
In the instant case, it appears that a settlement was agreed upon on the very day the partnership was
dissolved. For when plaintiffs and Judge Jaime Reyes withdrew from the partnership on that day they
did so as agreed to by all the partners, subject to the only condition that they were to be repaid their
contributions or investments within three days from said date. And this condition was fulfilled when on
the following day they were reimbursed the respective amounts due them pursuant to the agreement.
As testified to by Judge Reyes, one of the withdrawing partners, it was clearly understood that upon
their withdrawal and return to them of their investment they would have nothing more to do with the
association.
It must, therefore, have been the intention or understanding of the parties that the withdrawing
partners were relinquishing all their rights and interest in the partnership upon the return to them of
their investment. That Judge Reyes did not join the plaintiffs in this action is a clear indication that
such was really the understanding. Judge Reyes has testified that when he was invited to join in the
present claim he refused because he did not want to be a "sin verguenza."
And, indeed, if the agreement was that the withdrawing partners were still to have participation in the
subsequent transactions of the partnership so that they would have a share not only in the profits but
also in the losses, it is not likely that their investment would have been returned to them.
It is, therefore, our conclusion that the acceptance by the withdrawing partners, including the
plaintiffs, of their investment in the instant case was understood and intended by all the parties as a
final settlement of whatever rights or claim the withdrawing partners might have in the dissolved
partnership.
Such being the case they are now precluded from claiming any share in the alleged profits, should
there be any, at the time of the dissolution.

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Obligations of Partners; Property Rights of Partners

CASES ASSIGNEE STATUS

1. Sancho v. Lizarraga, 55 Abela ●

2. Uy vs Puzon, 79 SCRA Abrasaldo ●

3. Moran, Jr. vs. CA, 133 Aleria ●

4. Lozana vs. Depakakibo, Aparri ●

5. Pang Lim vs. Lo Seng, GR Atup ●

6. Evangelista & Co. vs. Abad Banggat ●

7. Ramnani vs. CA, 196 Basilisco ●

8. Fue Leung vs. IAC, 169 Basman ●

9. Sison vs. H. Mc Quaid, 94 Bontuyan ●

10. Ornum vs. Lasala, 74 Phil Bullina ●

11. Liwanag vs. CA, GR No. Busque ●

12. US vs. Clarin, 7 Phil 504 Caban ●

13. Martinez vs. Ong Pong Co, Cabello ●

14. Pabalan vs. Velez, GR No. Cajegas ●

15. Teague vs. Martin, GR No. Caniga ●

16. Litton vs. Hill & Ceron, et. Castres ●

17. Bachrach vs. La Catapang ●

18. Catalan vs. Gatchalian, Ching ●

19. Pioneer Insurance vs. CA, Cuizon ●

20. Soncuya vs De Luna, GR Dapitan ●

21. Agustin vs Inocencio, GR Daud ●

22. Clemente vs. Galvan, GR Dela Cruz ●

23. Leyte-Samar-Sales and K. Demafiles ●

24. Phil. National Bank vs. Lo, Diana ●

25. Island Sales, Inc. vs United Directo ●

26. Compania Maritima vs. Echegorin ●

27. Dietrich vs. Freeman, 18 Elorde ●

28. Santiago Syjuco, Inc. vs. Fernandez ●

29. Liwanag and Reyes vs. Galvez ●

30. Pioneer Insurance & Gonzales, Cyril ●

31. Viuda de Chan vs. Pen, 53 Gonzales, Jashera ●

CASES ASSIGNEE STATUS

1. Yulo v. Yang Chiao Seng, Guelos ●

2. Tuazon v. Bolanos, 95 Phil Guinto ●

3. Villareal vs. Ramirez, 406 Hao ●

4. Abong v. WCC, 54 SCRA Jayme ●

5. Arbes v. Polistico, 53 Phil Josol ●

6. Campos Rueda & Co. v. Lagarto ●

7. CIR v. Suter, 27 SCRA 152 Libarios ●

9. Sancho v. Lizarraga, 55 Malabute ●

10. Pang Lim v. Lo Seng, 42 Manalac ●

11. Catalan v. Gatchalian, 105 Marzan ●

12. Island Sales, Inc. v. United Muana ●

13. Yu vs. National Labor Rapisura ●

14. Testate Estate of Mota vs. Sagulo ●

15. Lota vs. Tolentino, 90 Phil. Said ●

16. Goquiolay vs. Sycip, 108 Serrano ●

17. Goquiolay vs. Sycip, 9 Torrevillas ●

18. Ng Cho Cio vs. Ng Diong, Valles ●

19. Lichauco vs. Lichauco, 33 Yu ●

20. Soncuya vs. De Luna, 67 Zambrano ●

21. Singsong vs. Isabela Abela ●

22. Po Yeng Cheo vs. Lim Ka Abrasaldo ●

23. Laguna Transportation Co., Aleria ●

24. Magdusa vs. Albaran, 5 Aparri ●

25. Lim Tanhu vs. Remolete, Atup ●

26. Bonnevie vs. Hernandez, Banggat ●

1.Sancho v. Lizarraga, 55 Phil 601

Who is the defendant:

Appeal from the decision of the Court of First Instance of Manila