ATP CASES 3

GOQUILAY V WASHINGTON SYCIP ET AL GR L-11840 JULY 26 1960

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
partnership had a capital of P30,000.00, P18,000.00 of which was contributed by Goquiolay and P12,000.00 by
Tan Sin An. The agreement lodge upon Tan Sin An the sole management of the partnership affairs, stipulating
that —III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic),
and Antonio C. Goquiolay as co-partner. IV. The affairs of co-partnership shall be managed exclusively by the
managing and partner (sic) or by his authorized agent, and it is expressly stipulated that the managing and
partner (sic) 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, and vest in such persons, firm or corporation full power and authority, as the agent of the co-
partnership and in his name, place and stead to do anything for it or on his behalf which he as such managing
and partner (sic) might do or cause to be done. V. 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.
(Article of Co-Partnership). The lifetime of the partnership was fixed at ten (10) years and also that —In the
event of the death of any of the partners at any time before the expiration of said term, the co-partnership shall
not be dissolved but will have to be continued and the deceased partner shall be represented by his heirs or
assigns in said co-partnership (Art. XII, Articles of Co-Partnership). However, the partnership could be
dissolved and its affairs liquidated at any time upon mutual agreement in writing of the partners (Art. XIII,
articles of Co-Partnership). Antonio Goquiolay executed a general power of attorney to this effect:

"Tan Sin An and Goquiolay" purchased the three (3) parcels of land, known as Lots Nos. 526, 441 and 521 of the
Cadastral Survey of Davao, subject-matter of the instant litigation, assuming the payment of a mortgage
obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de 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. The
downpayment and the amortization were advanced by Yutivo and Co., for the account of the purchasers. On
September 25, 1940, the two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay, jointly and severally,
the remaining balance of their unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual
interest, payable in 96 equal monthly installments. Tan Sin An died, leaving as surviving heirs his widow,
Kong Chai Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan.
Defendant Kong Chai Pin was appointed administratrix of the intestate estate of her deceased husband. In the
meantime, repeated demands for payment were made by the Banco Hipotecario on the partnership and on Tan
Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans
Hardware Co., paid the remaining balance of the mortgage debt, and the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the intestate
proceedings (died with no will) of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged
obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest
and taxes paid in amortizing and discharging their obligations to "La Urbana" and the "Banco Hipotecario".
Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the claims in her amended answer
and they were accordingly approved by the Court. On March 29, 1949, Kong Chai Pin filed a petition with the
probate court for authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the
purpose preliminary of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant to a court
order of April 2, 1949, the administratrix executed on April 4, 1949, a deed of sale 1 of the 49 parcels of land to
the defendants Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees' assuming
payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc. a deed of transfer
covering the said 49 parcels of land. Learning about the sale to Sycip and Lee, the surviving partner Antonio
Goquiolay filed, on or about July 25, 1949, a petition in the intestate proceedings seeking to set aside the order
of the probate court approving the sale in so far as his interest over the parcels of land sold was concerned. The
probate court annulled the sale executed by the administratrix with respect to the 60% interest of Antonio
Goquiolay over the properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later
certified the case to us.

The second amended complaint in the case at bar prays, among other things, for the annulment of the sale in
favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular Development
Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned. The answer averred
the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the
complaint was dismissed by the lower court in its decision dated October 30, 1956

ISSUES: (1) The lower court erred in holding that Kong Chai Pin had authority to sell the partnership
properties by virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in
order to pay the partnership indebtedness. (2) The lower court erred in holding that the consent of Antonio
Goquiolay was not necessary to consummate the sale of the partnership properties.

RULING: Upon the other hand, consonant with the articles of co-partnership providing for the continuation of
the firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. The validity of like clauses in partnership agreements is expressly sanctioned
under Article 222 of the Code of Commerce. Appellants argue, however, that since the "new" members' liability
in the partnership was limited merely to the value of the share or estate left by the deceased Tan Sin An, they
became no more than limited partners and, as such, were disqualified from the management of the business
under Article 148 of the Code of Commerce. Although ordinarily, this effect follows from the continuance of
the heirs in the partnership,3 it was not so with respect to the widow Kong Chai Pin, who, by her affirmative
actions, manifested her intent to be bound by the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the partnership properties and was admittedly
deriving income therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In fact, by
executing the deed of sale of the parcels of land in dispute in the name of the partnership, she was acting no
less than as a managing partner. Having thus preferred to act as such, she could be held liable for the
partnership debts and liabilities as a general partner, beyond what she might have derived only from the estate
of her deceased husband. By allowing her to retain control of the firm's property from 1942 to 1949, plaintiff
estopped himself to deny her legal representation of the partnership, with the power to bind it by the proper
contracts.

The question now arises as to whether or not the consent of the other partners was necessary to perfect the sale
of the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in the negative.
Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in the co-
partnership agreement, that every general partner has power to bind the partnership, specially those partners
acting with ostensible (apparent, implied) authority.

Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in effect,
threw the partnership into dissolution, which requires consent of all the partners. This view is untenable. That
the partnership was left without the real property it originally had will not work its dissolution, since the firm
was not organized to exploit these precise lots but to engage in buying and selling real estate, and "in general
real estate agency and brokerage business". Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An, leaves open the question of accounting and
contribution between the co-debtors, that should be ventilated separately.

RESOLUTION NOTES: We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership properties. Whether or not
she complied with this authority is a question between her and the appellant, and is not here involved. But the
authority was given, and she did have it when she made the questioned sale, because it has never revoked. It is
argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property,
and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889. What this
argument overlooks is that the widow was not a mere agent, because she had become a partner upon her
husband's death, as expressly provided by the articles of co-partnership. Even more, granting that by
succession to her husband, Tan Sin An, the widow only a became the limited partner, Goquiolay's authorization
to manage the partnership property was proof that he considered and recognized her has general partner, at least
since 1945. The reason is plain: Under the law (Article 148, last paragraph, Code of Commerce), appellant
could not empower the widow, if she were only a limited partner, to administer the properties of the firm,
even as a mere agent: By seeking authority to manage partnership property, Tan Sin An's widow showed that
she desired to be considered a general partner. By authorizing the widow to manage partnership property
(which a limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now
in estoppel to deny her position as a general partner, with authority to administer and alienate partnership
property. It must be remembered that the articles of co-partnership here involved expressly stipulated that: In
that event of the death of any of the partners at any time before the expiration of said term, the co-partnership
shall not be dissolved but will have to be continued and the deceased partner shall be represented by his heirs
or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership). The Articles did not provide that the
heirs of the deceased would be merely limited partner; on the contrary they expressly stipulated that in case of
death of either partner "the co-partnership ... will have to be continued" with the heirs or assigns. It certainly could
not be continued if it were to be converted from a general partnership into a limited partnership, since the
difference between the two kinds of associations is fundamental; and specially because the conversion into a
limited association would leave the heirs of the deceased partner without a share in the management. Hence,
the contractual stipulation does actually contemplate that the heirs would become general partners rather than
limited ones. Now, in determining what kind of partner the widow of partner Tan Sin An had elected to
become, strangers had to be guided by her conduct and actuations and those of appellant Goquiolay.
Knowing that by law a limited partner is barred from managing the partnership business or property, third
parties (like the purchasers) who found the widow possessing and managing the firm property with the
acquiescense (or at least without apparent opposition) of the surviving partners were perfectly justified in
assuming that she had become a general partner, and, therefore, in negotiating with her as such a partner,
having authority to act for, and in behalf of, the firm.

LITTON V HILL & CERON GR 45624 APRL 25 1939

FACTS: The plaintiff sold and delivered to Carlos Ceron, who is one of the managing partners of Hill & Ceron,
a certain number of mining claims. Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of
P720, and unable to collect this sum either from Hill & Ceron or from its surety Visayan Surety & Insurance
Corporation, Litton filed a complaint in the Court of First Instance of Manila against the said defendants for
the recovery of the said balance. The court, after trial, ordered Carlos Ceron personally to pay the amount
claimed and absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance
Corporation. On appeal to the Court of Appeals, the latter affirmed the decision of the court on May 29, 1937,
having reached the conclusion that Ceron did not intend to represent and did not act for the firm Hill & Ceron
in the transaction involved in this litigation.

ISSUE: Whether the act of Ceron bind the partnership

RULING: We reach the conclusion that the transaction made by Ceron with the plaintiff should be understood
in law as effected by Hill & Ceron and binding upon it. In the first place, it is an admitted fact by Robert Hill
when he testified at the trial 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, February 14, 1934, the partnership between Hill and Ceron was in existence. After this date,
or on February 19th, 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.

It follows from the sixth paragraph of the articles of partnership of Hill &n Ceron above quoted that the
management of the business of the partnership has been entrusted to both partners thereof, but we dissent
from the view of the Court of Appeals 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 inquires as to the agreements had between the partners. Its
knowledge, is enough that it is contracting with the partnership which is represented by one of the managing
partners.

RESOLUTIONS NOTES: The stipulation in the articles of partnership that any of the two managing partners
may contract and sign in the name of the partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in asking the other's consent before contracting for the
partnership. This obligation of course is not imposed upon a third person who contracts with the partnership.
Neither is it necessary for the third person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has a right to presume that the partner
with whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the partner
with whom he enters into the transaction is violating the articles of partnership but, on the contrary, is acting
in accordance therewith. Wherefore, unless the contrary is shown, namely, that one of the partners did not
consent to his copartner entering into a contract with a third person, and that the latter with knowledge thereof
entered into said contract, the aforesaid presumption with all its force and legal effects should be taken into
account.= (unless there is clear evidence to prove otherwise, it is assumed that when one partner in a business
makes a contract with an outsider (a third person), all the partners in the business agreed to it. This
assumption is strong and legally binding unless it can be proven that one of the partners didn't agree to the
contract and the outsider knew about this disagreement when they made the contract. So, unless you can
prove that someone in the partnership didn't agree, the assumption stands.) There is nothing in the case at bar
which destroys this presumption; the only thing appearing in he findings of fact of the Court of Appeals is that
the plaintiff "has failed to prove that Hill had consented to such contract".

In simpler terms, if one of the managing partners of a business clearly says they don't agree to a contract, but
the contract still happens and the other party (the third person) didn't know about the disagreement, the
contract is not automatically canceled. However, the partner who went against the will of the other partner is
still responsible for any losses or damages the business might suffer because of that contract. This rule applies
when the contract relates to the type of business the partnership is involved in and when the third person
acted in good faith, meaning they didn't know about the disagreement between the partners.

SINGSON V ISABELA SAWMILL GR L27343

FACTS: January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua
entered into a Contract of Partnership under the firm name "Isabela Sawmill". on February 3, 1956 the plaintiff
Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purchase price, the said partnership agreed to make arrangements with the
International Harvester Company at Bacolod City so that the latter would sell farm machinery to Oppen,
Esteban, Inc. with the understanding that the price was to be paid by the partnership. The defendants Leon
Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno executed a document entitled "Assignment of
Rights with Chattel Mortgage. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not
divide the assets and properties of the "Isabela Sawmill" between them, but they continued the business of said
partnership under the same firm name "Isabela Sawmill".

ISSUES: Whether the withdrawal of saldejeno dissolved the partnership and to what extent is her liability

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. However, on dissolution, the partnership is not terminated but continuous until
the winding up to the business. The remaining partners did not terminate the business of the partnership
"Isabela Sawmill". Instead of winding up the business of the partnership, they continued the business still in
the name of said partnership. It is expressly stipulated in the memorandum-agreement that the remaining
partners had constituted themselves as the partnership entity, the "Isabela Sawmill". There was no liquidation
of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued
doing the business of the partnership in the name of "Isabela Sawmill". They used the properties of said
partnership. The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno,
was correctly held liable by the trial court because she purchased at public auction the properties of the
partnership which were mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended
to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela
Sawmill" could be enforced against the properties of said partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership. The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on
the liquidation of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua
continue doing the business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement
with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees also acted in
good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno not
entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the partnership, the appellees would not have been misled into thinking that they were
still dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that technically
speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G.
Saldajeno. The partnership was not terminated and it continued doping business through the two remaining
partners.

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 appelees have a right to file the action to nullify the
chattel mortgage in question. The defendants-appellants have a right to be reimbursed whatever amounts they
shall pay the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-
agreement, Leon Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any
obligation of "Isabela Sawmill" to third persons.

GUY V GACOTT GR 206147 JANUARY 13, 2016

FACTS: March 3, 1997, Atty. Glenn Gacott (Gacott) from Palawan purchased two (2) brand new transreceivers
from Quantech Systems Corporation (QSC) in Manila through its employee Rey
Medestomas (Medestomas),amounting to a total of P18,000.00. On May 10, 1997, due to major defects, Gacott
personally returned the transreceivers to QSC and requested that they be replaced. Medestomas received the
returned transreceivers and promised to send him the replacement units within two (2) weeks from May 10,
1997. Time passed and Gacott did not receive the replacement units as promised. QSC informed him that there
were no available units and that it could not refund the purchased price. Despite several demands, both oral
and written, Gacott was never given a replacement or a refund. The demands caused Gacott to incur expenses
in the total amount of P40,936.44. Thus, Gacott filed a complaint for damages. the RTC found that the two (2)
transreceivers were defective and that QSC and Medestomas failed to replace the same or return Gacott's
money. The decision became final as QSC and Medestomas did not interpose an appeal. Gacott then secured a
Writ of Execution. To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to the
main office of the Department of Transportation and Communications, Land Transportation Office (DOTC-
LTO),Quezon City, and verified whether Medestomas, QSC and Guy had personal properties registered
therein. Upon learning that Guy had vehicles registered in his name, Gacott instructed the sheriff to proceed
with the attachment of one of the motor vehicles of Guy based on the certification issued by the DOTC-LTO.
On March 3, 2009, Sheriff Felizarte attached Guy's vehicle by virtue of the Notice of Attachment/Levy upon
Personalty served upon the record custodian of the DOTC-LTO of Mandaluyong City. A similar notice was
served to Guy through his housemaid at his residence. Thereafter, Guy filed his Motion to Lift Attachment
Upon Personalty, arguing that he was not a judgment debtor and, therefore, his vehicle could not be attached.

ISSUE: WHETHER GUY IS SOLIDARILY LIABLE WITH THE PARTNERSHIP FOR DAMAGES ARISING
FROM THE BREACH OF THE CONTRACT OF SALE WITH RESPONDENT GACOTT

RULING: LIABILIT OF GUY IS SUBSIDIARY. Although a partnership is based on delectus personae or mutual
agency, whereby any partner can generally represent the partnership in its business affairs, it is non
sequitur that a suit against the partnership is necessarily a suit impleading each and every partner . It must be
remembered that a partnership is a juridical entity that has a distinct and separate personality from the
persons composing it. In relation to the rules of civil procedure, it is elementary that a judgment of a court is
conclusive and binding only upon the parties and their successors-in-interest after the commencement of the
action in court. A decision rendered on a complaint in a civil action or proceeding does not bind or prejudice a
person not impleaded therein, for no person shall be adversely affected by the outcome of a civil action or
proceeding in which he is not a party. The principle that a person cannot be prejudiced by a ruling rendered in
an action or proceeding in which he has not been made a party conforms to the constitutional guarantee of due
process of law. Here, Guy was never made a party to the case. He did not have any participation in the entire
proceeding until his vehicle was levied upon and he suddenly became QSC's "co-defendant debtor" during the
judgment execution stage. It is a basic principle of law that money judgments are enforceable only against the
property incontrovertibly belonging to the judgment debtor. Indeed, the power of the court in executing
judgments extends only to properties unquestionably belonging to the judgment debtor alone. An execution
can be issued only against a party and not against one who did not have his day in court. The duty of the
sheriff is to levy the property of the judgment debtor not that of a third person. For, as the saying goes, one
man's goods shall not be sold for another man's debts. In the spirit of fair play, it is a better rule that a partner
must first be impleaded before he could be prejudiced by the judgment against the partnership. As will be
discussed later, a partner may raise several defenses during the trial to avoid or mitigate his obligation to the
partnership liability. Necessarily, before he could present evidence during the trial, he must first be impleaded
and informed of the case against him. It would be the height of injustice to rob an innocent partner of his hard-
earned personal belongings without giving him an opportunity to be heard. Without any showing that Guy
himself acted maliciously on behalf of the company, causing damage or injury to the complainant, then he and
his personal properties cannot be made directly and solely accountable for the liability of QSC, the judgment
debtor, because he was not a party to the case. Further, Article 1821 of the Civil Code does not state that there
is no need to implead a partner in order to be bound by the partnership liability. A careful reading of the
provision shows that notice to any partner, under certain circumstances, operates as notice to or knowledge to
the partnership only. Evidently, it does not provide for the reverse situation, or that notice to the partnership is
notice to the partners. Unless there is an unequivocal law which states that a partner is automatically charged
in a complaint against the partnership, the constitutional right to due process takes precedence and a partner
must first be impleaded before he can be considered as a judgment debtor. To rule otherwise would be a
dangerous precedent, harping in favor of the deprivation of property without ample notice and hearing, which
the Court certainly cannot countenance

This provision clearly states that, first, the partners' obligation with respect to the partnership liabilities is
subsidiary in nature. It provides that the partners shall only be liable with their property after all the
partnership assets have been exhausted. To say that one's liability is subsidiary means that it merely becomes
secondary and only arises if the one primarily liable fails to sufficiently satisfy the obligation. Resort to the
properties of a partner may be made only after efforts in exhausting partnership assets have failed or that such
partnership assets are insufficient to cover the entire obligation. The subsidiary nature of the partners' liability
with the partnership is one of the valid defenses against a premature execution of judgment directed to a
partner. In this case, had he been properly impleaded, Guy's liability would only arise after the properties of
QSC would have been exhausted. The records, however, miserably failed to show that the partnership's
properties were exhausted. Guy could only be held personally liable if properly impleaded and after all
partnership assets had been exhausted.
Second, Article 1816 provides that the partners' obligation to third persons with respect to the partnership
liability is pro rata or joint. Liability is joint when a debtor is liable only for the payment of only a proportionate
part of the debt. In contrast, a solidary liability makes a debtor liable for the payment of the entire debt. In the
same vein, Article 1207 does not presume solidary liability unless: 1) the obligation expressly so states; or 2)
the law or nature requires solidarity. With regard to partnerships, ordinarily, the liability of the partners is not
solidary. The joint liability of the partners is a defense that can be raised by a partner impleaded in a
complaint against the partnership. In essence, these provisions articulate that it is the act of a partner which
caused loss or injury to a third person that makes all other partners solidarity liable with the partnership
because of the words "any wrongful act or omission of any partner acting in the ordinary course of the business, "
"one partner acting within the scope of his apparent authority" and "misapplied by any partner while it is in the
custody of the partnership." The obligation is solidary because the law protects the third person, who in good
faith relied upon the authority of a partner, whether such authority is real or apparent. 40 In the case at bench, it
was not shown that Guy or the other partners did a wrongful act or misapplied the money or property he or
the partnership received from Gacott. A third person who transacted with said partnership can hold the
partners solidarity liable for the whole obligation if the case of the third person falls under Articles 1822 or
1823.41 Gacott's claim stemmed from the alleged defective transreceivers he bought from QSC, through the
latter's employee, Medestomas. It was for a breach of warranty in a contractual obligation entered into in the
name and for the account of QSC, not due to the acts of any of the partners. For said reason, it is the general
rule under Article 1816 that governs the joint liability of such breach, and not the exceptions under Articles
1822 to 1824. Thus, it was improper to hold Guy solidarity liable for the obligation of the partnership.
Finally, Section 21 of the Corporation Code, 42 as invoked by the RTC, cannot be applied to sustain Guy's
liability. The said provision states that a general partner shall be liable for all debts, liabilities and damages
incurred by an ostensible corporation. It must be read, however, in conjunction with Article 1816 of the Civil
Code, which governs the liabilities of partners against third persons. Accordingly, whether QSC was an
alleged ostensible corporation or a duly registered partnership, the liability of Guy, if any, would remain to be
joint and subsidiary because, as previously stated, all partners 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.

ISLAND SALES INC V UNITED PIONEERS GENERAL CONSTRUCTION CO GR L-22493 JULY 31 1975

FACTS: On April 22, 1961, the defendant company a general partnership duly registered under the laws of the
Philippines, purchased from the 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. Daniel A.
Guizona failed to file an answer and was consequently declared in default.

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B.
Lumauig is concerned. When the case was called for hearing, the defendants and their counsels failed to
appear notwithstanding the notices sent to them. The defendants Benjamin C. Daco and Noel C. Sim moved to
reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability
of each partner should not exceed one-fifth (1/5) of the obligations of the defendant company. But the trial
court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth (1/5) of the obligations of the defendant company. Hence, this
appeal.

ISSUE: The only issue for resolution is 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: Article 1816 of the Civil Code provides: "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 1698 and 1137 of the Civil Code, the partners are not liable each for the whole debt of the
partnership. The liability is pro rata and in this case 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.

VIUDA DE CHAN DIACO V PENG GR 29182 OCTOBER 24 1928

FACTS: It appears from the record that on June 13, 1925, the San Miguel Brewery, Porta Pueo & Co., and Ruiz
& Rementeria 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, 1925, 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. 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 to the assignee 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 Cua 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 former
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, Chan 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. After several hearings in which various witnesses were examined and
documents presented on behalf of both sides, the referee, on February 28, 1927, rendered a second report, in
which he found as facts that the alleged partnership between the insolvent and some of her relatives and
employees was only a fictitious organization created for the purpose of deceiving the Bureau of Customs and
enable some of the aforesaid relatives, who were mere coolies, to come to the Philippines under the status of
merchants. He, therefore, recommended that the motion of the insolvent to dismiss the proceedings against
her be denied.

ISSUE: EXTENT OF LIABILIT OF THE VDA.

RULING: As to the second and third assignments of error 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 and that, therefore, the partners individually must,
jointly and severally, respond for its debts (Code of Commerce, art. 127). As the appellee is one of the partners
and admits that she is insolvent, we can see no reason for the dismissal of the proceedings against her. It is
further to be noted that both the partnership and the separate partners thereof may be joined in the same
action, though the private property of the latter cannot be taken in payment of the partnership debts until the
common property of the concern is exhausted (Compañia Maritima vs. Muñoz, 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.

ORTEGA V CA GR 109248 JULY 3 1995

FACTS: The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the
Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July
1965 ...to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo,
Jr.,and Benjamin Bacorro, as junior partners. Appellee wants to get out of the partnership and wants the same
to be on dissolve (following process of dissolution). The partnership has ceased to be mutually satisfactory of
the working conditions of our employees including the assistant attorneys. All my efforts to ameliorate the
below subsistence level of the pay scale of our employees have been thwarted by the other partners. Not only
have they refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in
a loud voice in a manner that deprived them of their self-respect. Hearing officer: [P]etitioner's withdrawal
from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner
and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter
governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest. On
appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney
Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership
against his will.

ISSUE: Whether the partnership was dissolved; Whether the partnership is at will; Whether Misa dissolved the
partnership in good faith

RULING: A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa &
Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly
belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent
SEC on this matter. On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i. e.,that Attorney Misa did not act in bad faith. Public
respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It
would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of
animosity; certainly, not against their will. Indeed, for as long as the reason for withdrawal of a partner is not
contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon
the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.

NOTES: The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of
the partnership but that it can result in a liability for damages. In passing, neither would the presence of a
period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution
of any partnership by an act or will of a partner. Among partners, mutual agency arises and the doctrine
of delectus personae allows them to have the power,although not necessarily the right,to dissolve the partnership.
An unjustified dissolution by the partner can subject him to a possible action for damages. The dissolution of a
partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the
carrying on, as might be distinguished from the winding up of, the business. Upon its dissolution, the
partnership continues and its legal personality is retained until the complete winding up of its business
culminating in its termination. The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code; however, an agreement of the partners, like any other
contract, is binding among them and normally takes precedence to the extent applicable over the Code's
general provisions.

YU V NLRC GR 97212 JUNE 30 1993

FACTS: Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and
export business operated by a registered partnership with the firm name of "Jade Mountain Products
Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea
Bendal and Rhodora Bendal as general partners and Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens
of the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province,
under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. The partnership had its main
office in Makati, Metropolitan Manila. Benjamin Yu was hired by virtue of a Partnership Resolution dated 14
March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of
the partners that the balance would be paid when the firm shall have secured additional operating funds from
abroad. Benjamin Yu actually managed the operations and finances of the business; he had overall supervision
of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products. Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private
respondent Willy Co acquired the great bulk of the partnership interest. The partnership now constituted
solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they
moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz
spouses in February of 1988. The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned
out. On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private
respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the
business from the original partners and that it was for him to decide whether or not he was responsible for the
obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to
work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. On 21
December 1988, Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing
from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade
Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's
charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new
partnership.

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees. On appeal, the National Labor Relations Commission ("NLRC")
reversed the decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel
Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in
his original position as Assistant General Manager, and that there was no law requiring the new partnership to
absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the
new partnership which had simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the
original members of the preceding partnership, but these though impleaded had, apparently, not been served
with summons in the proceedings before the Labor Arbiter

ISSUES: (1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnership composed of Willy Co and Emmanuel Zapanta; and (2) if
indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights
under his employment contract as against the new partnership.

RULING: In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect
of the changes in the membership of the partnership was the dissolution of the old partnership which had
hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in
1987. In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of
the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what
happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership
interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned
such 82% interest, was enough to constitute a new partnership. The occurrence of events which precipitate the
legal consequence of dissolution of a partnership do not, however, automatically result in the termination of
the legal personality of the old partnership.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over the business enterprise owned by the
preceding partnership, and continued using the old name of Jade Mountain Products Company Limited,
without winding up the business affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most of them and opening a new business
enterprise. What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved,
one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held
that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party
creditor of the old partnership.
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain
which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of
the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to
priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to determine under which one or more of
the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with
sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840
above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his
employment with the previous partnership, against the new Jade Mountain.