Bo1 Aug 4

CASE DIGESTS ON BUSINESS ORGANIZATION 1
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Article 141 relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing to do with the liability of the partners to third persons; that each one of the industrial partners is liable to third persons for the debts of the firm; that if he has paid such debts out of his private property during the life of the partnership, when its affairs are settled he is entitled to credit for the amount so paid, and if it results that there is not enough property in the partnership to pay him, then the capitalist partners must pay him. In relation to this, the Supreme Court noted that partnerships under the Civil Code provides for a scenario where all partners are industrial partners (like when it is a partnership for the exercise of a profession). In such case, if it is permitted that industrial partners are not liable to third persons then such third persons would get practically nothing from such partnerships if the latter is indebted.
SECTION 3- OBLIGATIONS OF THE PARTNERS WITH REGARD TO THIRD PERSONS ARTICLE 1814
G.R. No. L-3704 December 12, 1907 LA COMPAIA MARITIMA, plaintiff-appellant, vs. FRANCISCO MUOZ, ET AL., defendants-appellees. FACTS: In 1905, Francisco Muoz, Emilio Muoz, and Rafael Naval formed an ordinary general mercantile partnership in accordance with the Code of Commerce. They named the partnership Francisco Muoz & Sons. Francisco was the capitalist partner while the other two were industrial partners. In the articles of partnership, it was agreed upon by the three that for profits, Francisco shall have a 3/4th share while the other two would have 1/8th each. For losses, only Francisco shall bear it. Later, the partnership was sued by La Compaia Martitama for collection of sum of money amounting to P26,828.30. The partnership lost the case and was ordered to make said payment; that in case the partnership cant pay the debt, all the partners should be liable for it. The ruling is in accordance with Article 127 of the Code of Commerce which states: All the members of the general copartnership, be they or be they not managing partners of the same, are liable personally and in solidum with all their property for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to make use thereof. Francisco now argues that the industrial partners should NOT be liable pursuant to Article 141 of the Code of Commerce which states: Losses shall be charged in the same proportion among the partners who have contributed capital, without including those who have not, unless by special agreement the latter have been constituted as participants therein. ISSUE: Whether or not the industrial partners are liable to third parties like La Compaia Martitama. HELD: Yes. The controlling law is Article 127. There is no injustice in imposing this liability upon the industrial partners. They have a voice in the management of the business, if no manager has been named in the articles; they share in the profits and as to third persons it is no more than right that they should share in the obligations. It is admitted that if in this case there had been a capitalist partner who had contributed only P100 he would be liable for this entire debt of P26,000.
G.R. No. L-3146
September 14, 1907
NICOLAS CO-PITCO, plaintiff-appellee, vs. PEDRO YULO, defendant-appellant.
FACTS: Florencio Yulo and Jaime Palacios were partners in the operation of a sugar estate in Victorias, Island of Negros, and had commercial dealings with a Chinaman named DySianco, who furnished them with money and goods, and used to buy their crop of sugar. In 1903, the defendant, Pedro Yulo, father of the said Florencio, took charge of the latter's interest in the abovementioned partnership, and he became a general partner with the said Jaime Palacios in the same business, and he continued as such partner until about the end of 1904, dealing with DySianco in the same manner as the old partnership had dealt with the latter. Pedro Yulo failed to the balance due of 1,638.40 pesos from the firm hence Dy-Sianco filed a case against Yulo. The lower court ordered the defendant to pay the entire amount with interest. ISSUE: W/N Pedro Yulo shall pay the entire amount for the partnership debt. (NO) HELD: Being a civil partnership, 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
APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL
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Probate court annulled the sale executed by the administratrix w/respect to the 60% interest of Goquiolay over the properties. Administratrix appealed. Decision was set aside, hence this petition. Issues: 1)Did the lower court err in holding that the widow succeeded her husband Tan Sin An in the sole management of the partnership upon Tans death? Yes 2)WON the consent of the other partners was necessary to perfectthe sale of the partnership properties to Sycip and Lee? No. Held: 1) Yes. While in the Articles of Co-Partnership and the power of attorney executed by Goquiolay conferred upon Tan the exclusive management of the business, such power premised as it is upon trust and confidence, was a mere personal right that terminated upon Tans 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. The heirs of the deceased, by never repudiating or refusing to be bound under the said provision in the articles became individual partners with Goquiolay upon Tans demise. This is sanctioned under Article 222 under the Code of Commerce. 2)No. Strangers dealing with a partnership have the right to assume,in the absence of restrictive clauses in the copartnership agreement that every general partner has power to bind the partnership specially those acting with ostensible authority. Also, inspite of the provision of Art 129 of the Code of Commerce to the effect that if the management of the general partnership has not been limited by special agreement to any of the members, all shall have the power to take part in the direction and management of the common business, and the members present shall come to an agreement for all contracts or obligations which may concern the association, such obligation is one imposed by law on the partners among themselves, that does not necessarily affect the validity of the acts of a partner while acting within the scope of the ordinary course of business of the partnership as regards third persons without notice. The latter may rightfully assume that th econtracting partner was duly authorized to contract for and in behalf of the firm and that he would not ordinarily act to the prejudice of his co-partners.Also, the records fail to disclose that Goquiolay made any opposition to the sale of the partnership realty to Sycip and Lee. On the contrary, it appears that he only interposed his objections after the deed of conveyance 2
Palacios, had left the country can not increase the liability of Pedro Yulo. The judgment of the court below is reversed and judgment is ordered in favor of the plaintiff and against the defendant, Pedro Yulo, for the sum of P819.20 pesos, Philippine Currency, with interest thereon at the rate of 6 per cent per annum from the 12th day of January, 1905, and the costs of the Court of First Instance. No costs will be allowed to either party in this court. So ordered. G.R. No. L-11840 December 10, 1963 ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-appellees. Facts: Tan Sin An and Goquiolay entered into a general commercial partnership under the partnership name Tan Sin An and Antonio Goquiolay for the purpose of dealing in real estate. The agreement lodged upon Tan Sin An the sole management of the partnership affairs. The lifetime of the partnership was fixed at ten years and the Articles of Copartnership stipulated that in the event of death of any of the partners before the expiration of the term, the partnership will not be dissolved but will be continued by the heirs or assigns of the deceased partner. The plaintiff partnership purchased 3 parcels of land which was mortgaged to La Urbana. Another 46 parcels of land were purchased by Tan Sin An in his individual capacity which he assumed payment of a mortgage debt for P35K. The downpayment and the amortization were advanced by Yutivo and Co. Tan Sin An died leaving his widow, Kong Chai Pin. The widow subsequently became the administratrix of the estate. Yutivo Sons and Sing Yee filed their claim in the intestate proceedings of Tan Sin An for advances, interest and taxes paid in amortizing and discharging their obligations to La Urbana. Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land. She then sold it to Sycip and Lee in consideration of P37K and of the vendees assuming payment of the claims filed by Yutivo Sons and Sing Yee. When Goquiolay learned about the sale to Sycip and Lee, he filed apetition in the intestate proceedings to set aside the order of the probate court approving the sale in so far as his interest over the parcels of land sold was concerned.
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was executed and approved by the probate court, and consequently, his opposition came too late to be effetive. PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code which provides: hq Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner. It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics "prohibits an agreement for the payment to the widow and heirs of a deceased lawyer of a percentage, either gross or net, of the fees received from the future business of the deceased lawyer's clients, both because the recipients of such division are not lawyers and because such payments will not represent service or responsibility on the part of the recipient. " Accordingly, neither the widow nor the heirs can be held liable for transactions entered into after the death of their lawyer-predecessor. There being no benefits accruing, there ran be no corresponding liability. Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased partners. The public relations value of the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession. An able lawyer without connections will have to make a name for himself starting from scratch. Another able lawyer, who can join an old firm, can initially ride on that old firm's reputation established by deceased partners.
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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.
G.R. No. L-22493 July 31, 1975 ISLAND SALES, INC., plaintiff-appellee, vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO, defendantappellant. FACTS: Defendants-appellants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc purchased a motor vehicle from plaintiffappellee Island Sales Inc. via their partnership firm, United Pioneers General Construction Company. United Pioneers was not able to pay Island Sales on the installment of the motor vehicle, hence, a case was pursued by herein plaintiff against the firm United Pioneers, and its five (5) partners above-mentioned were included in their capacity as general partners. For reasons not mentioned in the case, the complaint against partner Romulo B. Lumauig was dismissed upon motion of the plaintiff. The Court adjudged United Pioneers to pay Island Sales the remaining unpaid amortization with 12% interest. The trial court likewise sentenced the individual partners to pay Island Sales if the defendant company has no more leviable properties with which to satisfy the judgment against it. 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: WON 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. (NO!) RULING: WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs. HELD: 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.
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 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.
G.R. No. L-12164 May 22, 1959 BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants, vs. WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-appellees. FACTS: Petitioners-appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply. Their security guard was killed in the line of duty and his widow and children claimed compensation from herein respondents-appellees, Workmens Compensation Commission.
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ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall be solidarily liable for compensation. . . . .
The Commission granted the claim and ordered the petitioners to pay jointly and severally the claimants in lump sum. Appellants do not question the right of appellees to compensation nor the amount awarded. They only claim that, under the Workmen's Compensation Act, the compensation is divisible, hence the commission erred in ordering appellants to pay jointly and severally the amount awarded. PETITIONERS ARGUMENT: That there is nothing in the compensation Act which provides that the obligation of an employer arising from compensable injury or death of an employee should be solidary obligation, the same should have been specifically provided, and that, in absence of such clear provision, the responsibility of appellants should not be solidary but merely joint. ISSUE: What is the nature of the obligation of the employers to pay compensation to the heirs of their employee who died in line of duty, solidary or joint? (SOLIDARY!!) RULING: Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs against appellants. HELD: 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 (Arts. 1711 and 1712 of the new Civil Code) from which it could be gathered that their liability must be solidary. 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.
And section 2 of the Workmen's Compensation Act, as amended reads in part as follows: . . . The right to compensation as provided in this Act shall not be defeated or impaired on the ground that the death, injury or disease was due to the negligence of a fellow servant or employee, without prejudice to the right of the employer to proceed against the negligence party. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Separate Opinions
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere co-owners, their liability for the indemnity due their deceased employee would not be solidary but only pro rata (Arts. 485 and 1815, new Civil Code). The Workmen's Compensation Act does not change the nature of that liability either expressly or by intendment. To hold that it does, is to read into the Act something that is not there. For this Court, therefore, to declare that under the said Act the defendants herein are liable solidarily is to play the role of legislator.
ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death of or injuries to their laborers, workmen, mechanics or other employees, even though the event may have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in the course of the employment. . . . .
The injustice of the rule sought to be established in the majority opinion may readily be made obvious with an example. Suppose that one of two co-partners or coowners owns 99 percent of the business while his copartner or co-owners own only 1 percent. To hold that in such case the latter's liability may run up to 100 percent although his interest is only 1 percent would not only be illogical but also inequitable. For the foregoing reasons, I have no choice but to dissent. G.R. No. L-26937 October 5, 1927 5
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(2) Appellants admit, and it appears from the context of Exhibit A, that the defendant association formed by the defendants is a general partnership, as defined in article 126 of the Code Commerce. This partnership was registered in the mercantile register of the Province of Iloilo. The only anomaly noted in its organization is 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.
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. SEVERO EUGENIO LO, ET AL., defendants. SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants. FACTS: The appellants Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership under the name of "Tai Sing and Co.,". One of the partners, J. A. Say Lian Ping was appointed general manager of the partnership, with the powers specified in said articles of copartnership. As general manager, he executed a Power-of-Attorney in favor of A. Y. Kelam, authorizing him to act in his stead as manager and administrator of "Tai Sing & Co.,", for which the latter obtained several loans from plaintiff-appellee PNB, through the mortgage of the companys properties. Said loan was renewed several times until such time that the firm was not able to sustain payment of its obligation, hence a collection case was filed by PNB. The trial court ruled against the defendants, hence, this appeal. PETITIONERS ARGUMENT: The commercial credit in current account which "Tai Sing & Co. obtained from PNB 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. ISSUE: (1) WON the partnership as well as the partners should be liable to third-parties with regard to actions done by a third person authorized by the general manager of the firm. (YES) (2) WON the partnership formed was a general partnership. (YES) RULING: 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. HELD: (1) 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.
G.R. No. L-29182 October 24, 1928 LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) appellee, vs. JOSE S. Y. PENG, assignee, appellant. FACTS: Leoncia Vda. de Chan Diaco (Lao Liong Naw), owner of a grocery store (La Viuda de G. G. Chan Diaco), formed a partnership (Lao Liong Naw & Co.) with her relatives Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan Chan. San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted insolvency proceedings against Vda. de Chan Diaco, alleging that the latter was indebted to them. The court declared Vda. de Chan Diaco insolvent and ordered the sheriff to take possession of her property, consisting of some merchandise. Judge Simplicio del Rosario appointed Ricardo Summers, as referee, authorizing him to take further evidence. Summers recommended that Vda. de Chan Diaco deliver to Jose S. Y. Peng, assignee of SMB, PPC and RRSC, a certain sum of money, accounts receivable, and books of account. Judge del Rosario approved Summers recommendation and ordered the merchants Cua Ico, Chan Keep, and Simon A. Chan Bona to show cause why they should not return the merchandise allegedly delivered to them by Vda. de Chan Diaco, together with P5,000 in cash, allegedly received from Vda. de Chan Diaco by Ico. Attorney for Vda. de Chan Diaco filed a motion to dismiss the proceedings, alleging that it should have been brought against LLNC. Judge del Rosario suspended his previous order, appointing Summers as referee. Summers found that LLNC was only a fictitious 6
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a general partnership. HELD: Professor Jose A. Espiritu, as amicus curi, states: My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing the formation of a general partnership, especially if the other requisites are present and the requisite regarding registration of the articles of association in the Commercial Registry has been complied with, as in the present case. I do not believe that the adoption of a wrong name is a material fact to be taken into consideration in this case; first, because the mere fact that a person uses a name not his own does not prevent him from being bound in a contract or an obligation he voluntarily entered into; second, because such a requirement of the law is merely a formal and not necessarily an essential one to the existence of the partnership, and as long as the name adopted sufficiently identity the firm or partnership intended to use it, the acts and contracts done and entered into under such a name bind the firm to third persons; and third, because the failure of the partners herein to adopt the correct name prescribed by law cannot shield them from their personal liabilities, as neither law nor equity will permit them to utilize their own mistake in order to put the blame on third persons, and much less, on the firm creditors in order to avoid their personal possibility. The legal intention deducible from the acts of the parties controls in determining the existence of a partnership. If they intend to do a thing which in law constitutes a partnership, they are partners, although their purpose was to avoid the creation of such relation. Here, the intention of the persons making up Teck Seing & co., Ltd. was to establish a partnership which they erroneously denominated a limited partnership. If this was their purpose, all subterfuges resorted to in order to evade liability for possible losses, while assuming their enjoyment of the advantages to be derived from the relation, must be disregarded. The partners who have disguised their identity under a designation distinct from that of any of the members of the firm should be penalized, and not the creditors who presumably have dealt with the partnership in good faith. Articles 127 and 237 of the Code of Commerce make all the members of the general copartnership liable personally and in solidum with all their property for the results of the transactions made in the name and for the account of the partnership. Section 51 of the Insolvency Law, likewise, makes all the property of the partnership and also all the separate property of each of the partners liable. In other words, if a firm be insolvent, but one or more partners thereof are solvent, the creditors may proceed both against the firm and against the solvent 7
organization created for the purpose of deceiving the Bureau of Customs and enabling some of the partner-relatives to come to the Philippines under the status of merchants. Judge Francisco Zandueta, who temporarily replaced Judge del Rosario, disapproved Summers recommendation, affirmed the suspension of Judge del Rosarios previous order, dismissed the insolvency proceedings, ordered the return of all the properties of Vda. de Chan Diaco, and provided for leave of Peng to file a new petition for insolvency against LLNC. ISSUE: WON Vda. de Chan Diaco may be held liable for the debt allegedly contracted by LLNC. HELD: YES. LLNC has no visible assets. The partners, individually, must jointly and severally respond for its debts (Art. 127, Code of Commerce). As Vda. de Chan Diaco is one of the partners and admits that she is insolvent, there is no reason for the dismissal of the proceedings against her. 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).
ARTICLE 1815 LIABILITY FOR INCLUSION OF NAME IN FIRM NAME
G.R. No. 19892 September 6, 1923 TECK SEING AND CO., LTD., petitioner-appellee. SANTIAGO JO CHUNG, ET AL., partners, vs. PACIFIC COMMERCIAL COMPANY, ET AL., creditorsappellants. Facts: In an insolvency proceedings of petitionerestablishment, Sociedad Mercantil, Teck Seing &Co., Ltd., creditors Pacific Commercial and others filed a motion with the Court to declare the individual partners parties to the proceeding, for each to file an inventory, and for each to be adjudicated as insolvent debtors. ISSUE: Whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the name of all or any of the partners as prescribed by the Code of Commerce prevents the creation of
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affirmed with modification the trial courts decision, ordering Muasque and Galan to pay jointly CSHC and BDGP. ISSUE: WON (1) there was a partnership between Muasque and Galan, (2) TCCI was justified in disbursing money to Galan, and (3) Muasque and Galan are jointly and severally liable to CSHC and BDGP. HELD: YES. Muasque entered into a contract with TCCI, for the renovation of the latter's building, on behalf of the partnership of "Galan and Muasque," as evidenced by the first paragraph of the contract: This agreement made this 20th day of December in the year 1966 by Galan and Muasque hereinafter called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the owner do hereby for and in consideration agree on the following: ... . Likewise, when Muasque received the first check, he indorsed the same in favor of Galan. TCCI, therefore, had every right to presume that Muasque and Galan were true partners. If they were not partners, Muasque has only himself to blame for making the relationship appear otherwise, not only to TCCI but to their other creditors as well. The payments made to the partnership were, therefore, valid payments. In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled: Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the appellees also acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Since Muasque and Galan were partners when the debts were incurred, they, are also both liable to third persons who extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled: 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 Pan, 617). The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting apparently in its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 8
partner or partners, first exhausting the assets of the firm before seizing the property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916). We reach the conclusion that the contract of partnership found in the document hereinbefore quoted established a general partnership or, to be more exact, a partnership as this word is used in the Insolvency Law.
ARTICLE 1816
G.R. No. L-39780 November 11, 1985 ELMO MUASQUE, petitioner, vs. COURT OF APPEALS,CELESTINO GALAN, TROPICAL COMMERCIAL COMPANY and RAMON PONS, respondents. FACTS: Elmo Muasque entered into a contract, wherein Celestino Galan was casually named as Muasques partner, with Tropical Commercial Co., Inc., through its Cebu Branch Manager Ramon Pons, for remodeling a portion of TCCIs building. Galan received compensation for having introduced Muasque to TCCI. TCCI delivered the first check to Galan, who succeeded in getting Muasque's indorsement. Muasque, however, refused to indorse to Galan the second check, alleging misappropriation of the amount of the first check to the latters personal use. Pons succeeded in changing the payees name from Muasque to Galan and Associates, the registered name of the partnership between Muasque and Galan and under which name a permit to do construction business was issued. Muasque was placed in great financial difficulty in his construction business, subjecting him to demands from creditors to pay for construction materials. Muasque undertook the construction at his own expense and demanded that TCCI and Pons pay to him the sum given to Galan. Muasque filed a complaint for payment of sum of money and damages against Galan, TCCI, and Pons. Cebu Southern Hardware Company and Blue Diamond Glass Palace, which extended credit to and under which name a permit to do construction business was issued by the mayor of Cebu City, were allowed to intervene, both having legal interest in the matter in litigation. The trial court ordered Muasque and Galan to pay jointly and severally CSHC and BDGP and absolved TCCI and Pons from liability. The appellate court
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SANTIAGO SYJUCO INC VS CASTRO 175 SCRA 171 (1989) FACTS: The Lims loaned from Syjuco 80k, secured by two titles thereof. Lims defaulted despite numerous demands issued by Syjuco. Syjuco then attempted to extra-judicially foreclose the properties. Lims opposed the moved and the legal battle for 20 years began. Lims lawyers claimed that the mortgage was void, being usurious for stipulating interest of 23% on top of 11 % that they had been required to pay as "kickback." Also, 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. Judge Castro issued a restrining order to the foreclosure of the properties. Syjuco, embattled, opposed the same claiming that judge castro never acted on his motions! Issue: won the partnership can shield the Lims from extra judicial foreclosure n(no) Held:The legal fiction of a separate juridical personality and existence will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows from the undenied facts. It would violate all precepts of reason, ordinary experience and common sense to propose that a partnership, as commonly known to all the partners or of acts in which all of the latter, without exception, have taken part, where such matters or acts affect property claimed as its own by said partnership. 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. 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 9
391.) YES. While it is true that under Article 1816 of the Civil Code "All partners, including industrial ones, shall be liable prorate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and on the account of the partnership, under its signature and by a person authorized to act for the partner-ship. ...", this provision should be construed together with Article 1824, which provides that: "All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823. Articles 1822 and 1823 of the Civil Code provide: Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partner-ship or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. Art. 1823. The partnership is bound to make good: (1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (2) Where the partnership in the course of its business receives money or property of a third person and t he money or property so received is misapplied by any partner while it is in the custody of the partnership. The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity, which is the partnership, are solidarily liable. However. as between the partners Muasque and Galan, justice also dictates that Muasque be reimbursed by Galan for the payments made by the former representing the liability of their partnership to CSHC and BDGP, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muasque as a partner. ARTICLE 1819 EFFECTS OF CONVEYANCE OF REAL PROPERTIES BELONGING TO THE PARTNERSHIP
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Issue: won Lawa's issuance and statement justifies and proves that there was no more outstanding liabilities for Trillana. (NO) Held: The partneship was already dissolved and Lawa has no more authority to issue such sworn proof in behalf of the business. Seeing that the amounts stated in the vales acknowledged by the debtor were advanced to him in part payment of the price of certain qualities of tuba or liquor of the nipa palm which he had contracted to deliver at the distillery, and as long as he is able to comply with these stipulations within a reasonable time, the Trillana cannot be compelled to pay his debt in cash. The amounts stated in the vales were advanced under the condition that the same would be paid or satisfied with the value of the tuba received by the distillery; therefore, the decision of the court below, which moreover appears to have been acquiesced in by the Congco for the reason that it was undoubtedly so stipulated, is in accordance with the law. Thus, the non existence of the partnership in validates the statement of Lawa, but still Trillana shall pay by means of nipa liquior, concurring with the agreement of copartnership.
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). ARTICLE 1820 EXISTENCE OF PARTNERSHIP MUST BE PROVED Congco vs Trillana 13 Phil 194 (1909) Facts: Tin-Conngco and Ong Cueco were partners in a distillery business in Hagonoy, Bulacan. Their Manager Lawa advanced vales to their debtor Trillana prior to the dissolution of the partnership. Subsequent to the dissolution, Lawa was still issuing transaction receipts in effect thereby, and in one issuance, he absolved Trillana of debts incurred. Tin-Congco, heir to the after transactions on dissolution, filed a suit for collection of sum of money representing mechandize obtained by Trillana amounting to 4K plus interest totaling to 5,5K. The lower Court decided Trillana to pay an amount less than 3K in tuba or nipa liquior, thru custom of the place and as agreed thereupon. Tusay, (+)Tin-Congco's administrator, appealed with a bill of exception, averring that Trillana cannot pay in tuba because the debt was in form of vale, and that it was issued by their manager. He also prayed for a new trial for evidence adduced were not sufficient to justify the payments made because it was subscribed by a third person, manager Lawa. As a special defense, Trillana presented a document that was executed by Lawa, the manager absolving him of such libilities with the said partnership. Hence, the said vales are reputed as unpaid; and finally, that if the debt is payable in tuba, unless it is shown and it does not so appear that the Trillana refused to pay it in that manner or has failed to comply with his obligations, there is no reason to compel him to pay, therefore he should not be ordered to do so, much less to pay the costs.
ARTICLE 1825 PARTNER BY ESTOPPEL
G.R. No. L-7991. May 21, 1956 PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OF NEW YORK, Respondent. Facts: Alan W. Gorcey, Louis F. da Costa, Jr., William Kusik and Emma Badong Gavino formed a partnership named as STASIKINOCEY. STASIKINOCEY was denied registration before the Securities and Exchange Commission. Despite this, its partners thru another name CARDINAL RATTAN were still conducting their business in behalf of the STASIKINOCEY. Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account of P6,134.92 with The National City Bank of New York, a foreign banking association duly licensed to do business in 10
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better right than the seller.
the Philippines. Failing to pay pay its debt, they mortgaged some of its vehicles to the said bank in the name of STASIKINOCEY. The mortgages were registered in the Register of Deeds of Rizal. However, during the existence of the debt obligation, STASIKINOCEY sold the mortgaged vehicles to the petitioner, Paul MacDonald. Despite of the knowledge of the prior mortgages, the latter sold to one Benjamin Gonzales the vehicles. Upon knowing of the said sale, National Bank filed an action against Stasikinocey and its alleged partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its credit and to foreclose the corresponding chattel mortgage. The CFI sentenced the partners of STASIKINOCEY, Gonzales and MacDonald joint and severally liable to the National Bank. MacDonald and Gonzales appealed on certiorari before the Supreme Court. Issue: Whther or not an unregistered partnership can bind a third person in an obligation incurred against another person. YES Held: While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more persons attempt to create a partnership failing to comply with all the legal formalities, the law considers them as partners and the association is a partnership in so far as it is a favorable to third persons, by reason of the equitable principle of estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held that although the partnership with the firm name of Teck Seing and Co. Ltd., could not be regarded as a partnership de jure, yet with respect to third persons it will be considered a partnership with all the consequent obligations for the purpose of enforcing the rights of such third persons. Da Costa and Gorcey cannot deny that they are partners of the partnership Stasikinocey, because in all their transactions with the Respondent they represented themselves as such. Petitioner McDonald cannot disclaim knowledge of the partnership Stasikinocey because he dealt with said entity in purchasing two of the vehicles in question through Gorcey and Da Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly organized has been recognized as such in its dealings with certain persons, it shall be considered as partnership by estoppel and the persons dealing with it are estopped from denying its partnership existence. The sale of the vehicles in question being void as to Petitioner McDonald, the transfer from the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot have a
LIABILITY AS GENERAL PARTNERS OF PERSONS WHO ASSUME TO ACT AS A CORPORATION
G.R. No. 84197 July 28, 1989 PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents. G.R. No. 84157 July 28, 1989 JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents. Facts: Private respondent Jacob S. Lim was engaged in an airline business as owner-operator of Southern Air Lines as a single proprietor. Sometimes in 1965, he entered into a contract with the Japan Domestic Airlines (JDA) to purchase a necessary spare parts and aircrafts. The petitioner Pioneer Insurance & Surety Corp. (Pioneer) acted as the surety of Jacob Lim. It executed surety bond in favor of JDA. It appears that respondents Maglana and the Cervanteses contributed certain amount of money for the purchase of the aircraft and the spare parts. This is under the understanding that Lim was planning to establish another corporation to expand his airline business. In this regard, they executed indemnity agreements in favor of Pioneer. Under the agreement, in case of default, Maglana and the Cervanteses will be jointly liable with Lim. On the other hand, Lim executed a chattel mortgage of the aircraft and the spare parts in favor of Pioneer as security for its surety bond. Lim failed to pay the aircraft and the spare parts to JDA. In effect, Pioneer paid JDA. Pioneer thenceforth filed a foreclosure of chattel mortgage against Lim. Maglana and the Cervanteses filed a third-party complaint alleging that they are co-owners of the mortgaged properties. As result, Pioneer filed a foreclosure case against Lim, Maglana, and the Cervanteses. The Trial Court found Lim as the sole person to be liable with Pioneer. Jacob Lims main proposition is that: Due to the failure of 11
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contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied). It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the cross-claims of 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. ARTICLE 1827 PREFERENCE OF PARTNERSHIP CREDITOR IN PARTNERSHIP PROPERTY G.R. No. L-29182 October 24, 1928 LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) appellee, vs. JOSE S. Y. PENG, assignee, appellant. FACTS: Leoncia Vda. de Chan Diaco (Lao Liong Naw), owner of a grocery store (La Viuda de G. G. Chan Diaco), formed a partnership (Lao Liong Naw & Co.) with her relatives Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan Chan. San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted insolvency proceedings against Vda. de Chan Diaco, alleging that the latter was indebted to them. The court declared Vda. de Chan Diaco insolvent and ordered the sheriff to take possession of her property, 12
him, Maglana and the Cevanteses to incorporate (that is to register in the SEC), a a de facto partnership (with regard to third person) 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. This is in view of his protest that he should reimburse the share of Maglana and the Cervanteses for the intended corporation. Issue: Whether or not in view of the failure of the parties to incorporate, a de facto partnership was thus created with respect with their dealing with third persons. What is the liability of a general partner of persons who assume to act as a corporation? Held: NO. 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). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a corporation for the development of land for irrigation purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee for the associates in an action between them for an accounting, and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). 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
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EFFECTS OF CHANGES IN MEMBERSHIP OF A PARTNERSHIP
consisting of some merchandise. Judge Simplicio del Rosario appointed Ricardo Summers, as referee, authorizing him to take further evidence. Summers recommended that Vda. de Chan Diaco deliver to Jose S. Y. Peng, assignee of SMB, PPC and RRSC, a certain sum of money, accounts receivable, and books of account. Judge del Rosario approved Summers recommendation and ordered the merchants Cua Ico, Chan Keep, and Simon A. Chan Bona to show cause why they should not return the merchandise allegedly delivered to them by Vda. de Chan Diaco, together with P5,000 in cash, allegedly received from Vda. de Chan Diaco by Ico. Attorney for Vda. de Chan Diaco filed a motion to dismiss the proceedings, alleging that it should have been brought against LLNC. Judge del Rosario suspended his previous order, appointing Summers as referee. Summers found that LLNC was only a fictitious organization created for the purpose of deceiving the Bureau of Customs and enabling some of the partner-relatives to come to the Philippines under the status of merchants. Judge Francisco Zandueta, who temporarily replaced Judge del Rosario, disapproved Summers recommendation, affirmed the suspension of Judge del Rosarios previous order, dismissed the insolvency proceedings, ordered the return of all the properties of Vda. de Chan Diaco, and provided for leave of Peng to file a new petition for insolvency against LLNC. ISSUE: WON Vda. de Chan Diaco may be held liable for the debt allegedly contracted by LLNC. HELD: YES. LLNC has no visible assets. The partners, individually, must jointly and severally respond for its debts (Art. 127, Code of Commerce). As Vda. de Chan Diaco is one of the partners and admits that she is insolvent, there is no reason for the dismissal of the proceedings against her. 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).
G.R. No. 97212 June 30, 1993 BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents. Facts: Benjamin Yu was the former Assistant General Manager of Jade Mountain products Company Limited (Jade Mountain). This company initially established as a result of the partnership between Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang as limited partners. The company was enaged in the exploitation of marble deposits found on the land owned by a Cruz spouses. As the Assistant General Manager, Benjamin Yu received as his monthly salary theamount of P4,000.00. However, in reality, he only receives the half of it with the understanding with the original partners that the other half shall be paid unto him when the company had its expansion abroad. However, 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. The limited partners likewise sold their interests to the former. The new partners retained the name Jade Mountain Upon knowing of the incident, Benjamin Yu confronted Willy Co for his unpaid salary, but the latter said that in view of the fact that the original partners had already sold their interests to them, it is now dependent upon his discretion whether he should continue his employment or not. Also that the payment of the original partners obligations rests upon his discretion. As a result, Benjamin Yus position as Assistant General Manager was abolished by the new partners. Upon appeal to the NLRC on illegal dismissal case, the latter stated 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. Issue:
CHAPTER THREE- DISSOLUTION AND WINDING UP ARTICLE 1828
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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. 9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code. HENCEFORTH: [the] petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. G.R. No. L-10040 January 31, 1916 EUGENIA LICHAUCO, ET AL., plaintiffs-appellants, vs. FAUSTINO LICHAUCO, defendant-appellant. Facts: This action was brought by two of the partners of an enterprise of which the defendant was manager (gestor), to secure an accounting of its affairs, and the payment to the plaintiffs of their respective shares of capital and profits. A notarial instrument was executed in Manila, by the terms of which a partnership was duly organized for the purpose of carrying on a rice-cleaning business at Dagupan, and for the purchase and sale of palay and rice. The articles of association, which were not recorded in the mercantile registry, contain, among others, the following provisions: 2. The association will be named F. Lichauco Hermanos and will be domiciled in the center of its operations, that is, in the pueblo of Dagupan, Province of Pangasinan. 3. The association cannot be dissolved except by the consent and agreement of two-thirds of its partners and in the event of the death of any of the latter, the heirs of the deceased, if they be minors or otherwise incapacitated, shall be represented in the association by their legal representatives or if two-thirds of the surviving partners agree thereto, the participation of the deceased partner may be liquidated. The business thus organized was carried on until when it was found to be unprofitable and discontinued by the defendant manager (gestor); and thereafter, the machinery of the rice mil was dismantled by his orders, and offered for sale. No accounting ever was made to his associates by the defendant until this action was instituted , although it appears that, Mariano Limjap, one of the participants in the venture, demanded a rendition of accounts; and that Eugenia Lichauco, one of the plaintiffs in this action, made repeated unsuccessful demands for the return of her 14
Whether or not the change of partners in a partnership shall affect its obligations over the third person. Or, simply stated, whether or not the new partners shall be liable to the obligation incurred by the old partners with regard to third persons. Held: NO. The applicable law in this connection of which the NLRC seemed quite unaware is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows: Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership. The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that: [o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business enterprise owned by the preceeding 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. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters. 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
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the event the dissolution of the association was effected, not by any act of theirs, but by the express mandate of statutory law. It would be absurd and unreasonable to hold that such an association could never be dissolved and liquidated without the consent and agreement of two-thirds of its partners notwithstanding that it had lost all its capital, or had become bankrupt, or that the enterprise for which it had been organized had been concluded or utterly abandoned.
share of the capital invested in the enterprise. And yet it further appears that during all that time the defendant manager of the defunct enterprise had in his possession not less than P20,000, the cash balance on hand, over and above all claims of indebtedness after suspending operations in ; and that since that time he received or should have received substantial sums of money from the sale of the machinery of the dismantled mill. There is evidence in the record tending to show that the defendant informed some of his associates, a that the whole enterprise was bankrupt. Counsel for defendant says in his brief: It is our contention, and we believe it to be unanswerable, that the dissolution and liquidation, either in whole or in part, of the association is absolutely prohibited by paragraph 10 of the articles of association, except by and with the conformity and agreement of two-thirds of the partners, and that as a consequence thereof the court, without allegations or proof of compliance with that paragraph and without making the other partners parties to the action, had no power to decree a distribution either in whole or in part of the capital or assets of the association. It certainly cannot be seriously contended that part of the capital and assets of this association can be lawfully returned to and distributed between the plaintiffs who constitute one-fifth of the total number of partners, as required by paragraph 10 of the articles of association. It is elementary that no lawful liquidation and distribution of capital and assets of any company or association can ever take place except upon dissolution thereof. Lower court ruled in favor of plaintiffs. Issue :WON the trial court erred in rendering judgment against the defendant for any sum, without first decreeing a dissolution of the association and final liquidation of its assets in accordance with paragraph 10 of the articles of association, and because such judgment is not within the issues joined. Ruling: No. These contentions of counsels for the defendant take no account of the provisions of both the Civil and Commercial Codes for the dissolution and liquidation of the different classes of partnerships and mercantile associations upon the occurrence of certain contingencies not within the control of the partners. The provisions of paragraph 10 of the articles of partnership prohibiting the dissolution of the association under review, except by the consent and agreement of two-thirds of its partners, denied the right to a less number of the partners to effect a dissolution of the partnership through judicial intervention or otherwise; but in no wise limited or restricted the rights of the individual partners in
G.R. No. 109248 July 3, 1995 GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents. Facts: The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry and reconstituted with the SEC. The SEC records show that there were amendments to the articles of partnership, to change the firm [name] to BITO, MISA & LOZADA, [Joaquin L. Misa] respondent Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with petitioners Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners. Misa wrote petitioners for withdrawing and retiring from the firm of Bito, Misa and Lozada and trust that the accountants will be instructed to make the proper liquidation of his participation in the firm. Misa filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership,. SEC en banc held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. The Court of Appeals AFFIRMED in toto the SEC decision. Issue: WON CA has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
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had receivables and stocks worth P1,800,000.00. Alarillas share of the assets was P900,000.00 to pay for which Idos issued postdated checks. Alarilla was able to encash the first, second, and fourth checks, but the third check which is the subject of this case, was for insufficiency of funds. PETITIONER'S CONTENTION: The subject check was issued by petitioner to apply on account or for value, that is, as part of the consideration of a buy-out of said complainants interest in the partnership, and not merely as a commitment on petitioners part to return the investment share of complainant, along with any profit pertaining to said share, in the partnership. ISSUE: W/N the accused as a partner shall be held liable for estafa. (NO) HELD: There is sufficient basis for the assertion that the petitioner issued the subject check to evidence only complainants share or interest in the partnership, or at best, to show her commitment that when receivables are collected and goods are sold, she would give to private complainant the net amount due him representing his interest in the partnership. It did not involve a debt of or any account due and payable by the petitioner. Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one (the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private complainant admitted that there was no consideration whatsoever for the issuance of the check, whose funding was dependent on future sales of goods and receipts of payment of account receivables. Now, it could not be denied that though the parties petitioners and complainant had agreed to dissolve the partnership, such agreement did not automatically put an end to the partnership, since they still had to sell the goods on hand and collect the receivables from debtors. In short, they were still in the process of winding up the affairs of the partnership, when the check in question was issued. Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3) termination. These stages are distinguished, to wit: (1) Dissolution Defined Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business (Art. 1828). It is that point of time the partners cease to carry on the business together. [Citation omitted] 16
Ruling: No. A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership 4 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. WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
[G.R. No. 110782. September 25, 1998] IRMA IDOS, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents. FACTS: Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for violation of B.P. 22 is her erstwhile supplier and business partner, Eddie Alarilla. Alarilla supplied chemicals and rawhide to Idos for use in the latters business of manufacturing leather. In 1985, he joined Idos and formed with her a partnership under the style Tagumpay Manufacturing, with offices in Bulacan and Cebu City. In January, 1986 the parties agreed to terminate their partnership. Upon liquidation of the business the partnership
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deemed as having been drawn without consideration at the time of issue. WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. Additional: As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: (1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment. Absent the first element of the offense penalized under B.P. 22, which is the making, drawing and issuance of any check to apply on account or for value, petitioners issuance of the subject check was not an act contemplated in nor made punishable by said statute. ARTICLE 1829 G.R. No. 126334 November 23, 2001
(2) Winding Up Defined Winding up is the process of settling business affairs after dissolution. (NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets previously demandable; even new business if needed to wind up, as the contracting with a demolition company for the demolition of the garage used in a used car partnership.) (3) Termination Defined Termination is the point in time after all the partnership affairs have been wound up.[16] [Citation omitted] (Underscoring supplied.) These final stages in the life of a partnership are recognized under the Civil Code that explicitly declares that upon dissolution, the partnership is not terminated, to wit: Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (Underscoring supplied.) The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant remained as co-partners. The check was thus issued by the petitioner to complainant, as would a partner to another, and not as payment from a debtor to a creditor. The more tenable view, one in favor of the accused, is that the check was issued merely to evidence the complainants share in the partnership property, or to assure the latter that he would receive in time his due share therein. The alternative view that the check was in consideration of a buy out is but a theory, favorable to the complainant, but lacking support in the record; and must necessarily be discarded. For there is nothing on record which even slightly suggests that petitioner ever became interested in acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of the partnership, in order to come up with the amount necessary to satisfy the value of complainants interest in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are more inclined to the view that the subject check was issued merely to evidence complainants interest in the partnership. Thus, we are persuaded that the check was not intended to apply on account or for value; rather it should be
EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.
Facts: Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma. Nelma Fishing Industry. They decided to dissolve their partnership and executed an agreement of partition and distribution of the partnership properties among them, consequent to Jacinto Divinagracia's withdrawal from the partnership.1 Among the assets to be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the Philippine Islands and Prudential Bank. 17
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1986, prescribing four (4) years thereafter, prescription had not even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides:
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and liabilities of the partnership, and to render an accounting of the partnership's finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3 share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment thereof.2
The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary.
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for accounting, payment of shares, division of assets and damages.
Respondents filed an amended complaint,7 incorporating the additional prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds thereof. In due time, petitioner filed a manifestation and motion to dismiss,8 arguing that the trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the proper docket fees.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited provision states that the right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run. In the case at bar, no final accounting has been made, and that is precisely what respondents are seeking in their action before the trial court, since petitioner has failed or refused to render an accounting of the partnership's business and assets. Hence, the said action is not barred by prescription.
Petitioner contends that the trial court should have dismissed the complaint on the ground of prescription, arguing that respondents' action prescribed four (4) years after it accrued in 1986. T
Issue: WON respondent Judge acted without jurisdiction or with grave abuse of discretion in not dismissing the case on the ground of prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioner's motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding the trial court's orders. Precious time has been lost just to settle this preliminary issue, with petitioner resurrecting the very same arguments from the trial court all the way up to the Supreme Court. The litigation of the merits and substantial issues of this controversy is now long overdue and must proceed without further delay.
Ruling: No. The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.36 The partnership, although dissolved, continues to exist and its legal personality is retained, at which time it completes the winding up of its affairs, including the partitioning and distribution of the net partnership assets to the partners.37 For as long as the partnership exists, any of the partners may demand an accounting of the partnership's business. Prescription of the said right starts to run only upon the dissolution of the partnership when the final accounting is done.38
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit.
Contrary to petitioner's protestations that respondents' right to inquire into the business affairs of the partnership accrued in
G.R. No. L-24243 January 15, 1926 ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased Go-Lio, plaintiffappellant, vs. ENRIQUE ORTEGA GO-COTAY, defendant-appellant.
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period between 1906 an 1912, which in seven years make a total of P20,141.45. The assets of the partnership, as well as the value of its property, could not be determined when making the liquidation because there was no inventory and for this reason it was not possible to determine the capital of the partnership. The plaintiff, however, seems to be agreeable to considering the initial partnership capital as the capital at the time of the winding up of the business. August 3, 1918, defendant assumed complete responsibility for the business by objecting to the appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until that date his acts were those of a managing partner, binding against the partnership; but thereafter his acts were those of a receiver whose authority is contained in section 175 of the Code of Civil Procedure. A receiver has no right to carry on and conduct a business unless he is authorized or directed by the court to do some, and such authority is not derived from an order of appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not appear that the defendant as a receiver was authorized by the court to continue the business of the partnership in liquidation. This being so, he is personally liable for the losses that the business any have sustained. (34 Cyc., 296.) The partnership must not, therefore, be liable for the acts of the defendant in connection with the management of the business until August 3, 1918, the date when he ceased to be a member and manager in order to become receiver. As to the first semester of 1918, during which time the defendant had seen managing the business of the partnership as a member and manager, taking into account that the profits had been on the increase, said profits having reached the amount of P10,174.69 in the year 1917, it would not be an exaggeration to estimate that the profits for 1918 would have been at least the same as the profits of 1917; so that for the first half of 1918, the profit would be P5,087.34. One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the intestate estate of Go-Lio. In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided by the reversing the judgment appealed from, and sentencing the defendant to pay the plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent per annum from July 1, 1918, until fully paid, with costs. So ordered.
Crispin Oben for palintiff-appellant. Paredes, Buencamino and Yulo for defendant-appellant. VILLA-REAL, J.: FACTS: During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a society for the purchase and sale of articles of commerce, and for this purpose they opened a store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China. Vicenyte Go-Sengco died and his son Enrique Ortega Go-Cotay took charge of the businesses. Go-Lio died in China in October, 1916, leaving a widow and three children, one of whom came to the Philippines and filed a petition for the appointment of Ildefonso de la Rosa as administrator of the intestate estate of his deceased father, which petition was granted by the Court of First Instance of Nueva Ecija. Ildefonso de la Rosa, in his capacity as administrator of the intestate estate of the deceased Go-Lio, requested Enrique Go-Cotay to wind up the business and to deliver to him the portion corresponding to the deceased Go-Lio. Enrique Ortega GoCotay denied the petition, alleging that the business was his exclusively. In view of this denial, Ildefonso de la Rosa, as administratorm, on July 2, 1918, filed with the Court of First Instance of Nueva Ecija a complaint against Enrique Ortega Co-Cotay in which he prayed that the defendant be sentenced to deliver to the plaintiff one-half of all the property of the partnership formed by Go-lIo and Vicente Go-Sengco, with costs against the defendant, and that the said plaintiff be appointed receiver for the property of the said partnership. After trial and the parties having introduced all their evidence, the lower court, by order of December 13, 1924, disapproved the report of the commissioners Tantengco and Cua Poco, but approved, with slight modifications, the report of commissioner Cabo-Chan, holding that the result of the liquidation showed liabilities to the amount of P89,690.45 in view of which plaintiff had nothing to recover from defendant, as there was no profit to divide. RULING: From the evidence it appears that the partnership capital was P4,779.39, and the net profits until the year 1915 amounted to P5,551.40. Because some books of account had been destroyed by white ants (anay), the liquidation of the business of the partnership for the period from 1906 to 1912 could not be made. But knowing the net profit for the period between 1904 and 1905, which is P5,551.40, and findng the average of the profits for each of these years, which is P2,775.70; and knowing the net profit for the year 1913, which is P2,979, we can find the average between the net profit for 1905, namely, P2,979. Said average is the sum of P2,877.35, which may be considered as the average of the net annual profits for the
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among other things, that the partnership "Palma" and "San Isidro," formed by the agreement of February 1, 1919, between Serra, Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix and Dionisio Vidaurrazaga, should be dissolved upon the execution of this contract, and that the said partnership agreement should be totally cancelled and of no force and effect whatever. So it results that the "Hacienda Palma," with the entire railroad, the subject-matter of the contract of partnership between plaintiffs and defendant, became the property of Whitaker and Concepcion. Phil. C. Whitaker and Venancio Concepcion having failed to pay to the defendant a part of the purchase price, that is, P750,000, the vendor, the herein defendant, foreclosed the mortgage upon the saidhacienda, which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000, and the defendant put in possession thereof, including what was planted at the time, together with all the improvements made by Messrs. Phil. C. Whitaker and Venancio Concepcion. Since the defendant Salvador Serra failed to pay one-half of the amount expended by the plaintiffs upon the construction of the railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the plaintiffs instituted the present action praying: (1) That the deed of February 1, 1919, be declared valid and binding; (2) that after the execution of the said document the defendant improved economically so as to be able to pay the plaintiffs the amount owed, but that he refused to pay either in part or in whole the said amount notwithstanding the several demands made on him for the purpose; and (3) that the defendant be sentenced to pay plaintiffs the aforesaid sum of P113,046.46, with the stipulated interest at 10 per cent per annum beginning June 4, 1920, until full payment thereof, with the costs of the present action. Defendant set up three special defenses: (1) The novation of the contract by the substitution of the debtor with the conformity of the creditors; (2) the confusion of the rights of the creditor and debtor; and (3) the extinguishment of the contract, Exhibit A. ISSUES: 1. Whether there was a valid novation between the original debtor (Serra), new debtor (Whitaker and Luzuriaga) and the creditor(Mota and Vidaurrazaga, the old partners of Serra). (NONE, there was no valid novation!) 2. 20
G.R. No. L-22825 February 14, 1925 TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL.,plaintiffs-appellants, vs. SALVADOR SERRA, defendant-appellee. VILLAMOR, J.: 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 of P150,000, however, did not prove sufficient, as the expenses up to May 15, 1920, had reached the amount of P226,092.92, presented by the administrator and O.K.'d by the defendant. 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 the hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for the City of Manila, another deed of absolute sale of the said "Palma" Estate for the amount of P1,695,961.90, of which the vendor received at the time of executing the deed the amount of P945,861.90, and the balance was payable by installments in the form and manner stipulated in the contract. The purchasers guaranteed the unpaid balance of the purchase price by a first and special mortgage in favor of the vendor upon the hacienda and the central with all the improvements, buildings, machineries, and appurtenances then existing on the saidhacienda. Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one-half of the railroad line pertaining to the latter, executing therefor the document Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid the sum of P47,544.43 only. In the deed Exhibit 5, the plaintiffs and Concepcion and Whitaker agreed,
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be a partner in said line and, therefore, the plaintiffs had to take the vendees as their new partners. Plaintiffs had to come to an understanding with the new owners of the "Hacienda Palma" in connection with the railroad line "Palma-San Isidro-Nandong." But in all of this, there was nothing to show the express consent, the manifest and deliberate intention of the plaintiffs to exempt the defendant from his obligation and to transfer it to his successors in interest, Messrs. Phil. C. Whitaker and Venancio Concepcion. As has been said, in all contracts of novation consisting in the change of the debtor, the consent of the creditor is indispensable, pursuant to article 1205 of the Civil Code which reads as follows: Novation which consists in the substitution of a new debtor in the place of the original one may be made without the knowledge of the latter, but not without the consent of the creditor. Notwithstanding the doctrines above quoted, defendant's counsel calls our attention to the decision of the supreme court of Spain of June 16, 1908, wherein it was held that the provisions of article 1205 of Code do not mean nor require that the consent of the creditor to the change of a debtor must be given just at the time when the debtors agree on the substitution, because its evident object being the full protection of the rights of the creditor, it is sufficient if the latter manifests his consent in any form and at any time as long as the agreement among the debtors holds good. And defendant insists that the acts performed by the plaintiffs after the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion constitute evidence of the consent of the creditor. By comparing the facts of that case with the defenses of the case at bar, it will be seen that, whereas in the former case the creditor sued the new debtor, in the instant case the creditor sues the original debtor. The supreme court of Spain in that case held that the fact that the creditor sued the new debtor was proof incontrovertible of his assent to the substitution of the debtor. This would seem evident because the judicial demand made on the new debtor to comply with the obligation of the first debtor is the best proof that the creditor accepts the change of the debtor. His complaint is an authentic document where his consent is given to the change of the debtor. We are not holding that the creditor's consent must necessarily be given in the same instrument between the first and the new debtor. The consent of the creditor may be given subsequently, but in either case it must be expressly manifested. In the present case, however, the creditor makes judicial demand upon the first debtor for the fulfillment of his 21
Whether the obligation of Serra to pay the agreed amount (1/2 of the cost of constructing the railroad) to the old partners was extinguished because of the subsequent dissolution made by the partners. (NO, it was not extinguished by mere dissolution of the partnership.) RULING: Taking for granted that the defendant was under obligation to pay the plaintiffs one-half of the cost of the construction of the railroad line in question, by virtue of the contract of partnership Exhibit A, the decisive point here to determine is whether there was a novation of the contract by the substitution of the debtor with the consent of the creditor, as required by article 1205 of the Civil Code. If so, it is clear that the obligation of the defendant was, in accordance with article 1156 of the same code, extinguished. It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be substituted by new one, it implies on the part of the creditor a waiver of the right that he had before the novation which waiver must be express under the principle that renuntiatio non praesumitur, recognized by the law in declaring that a waiver of right may not be performed unless the will to waive is indisputably shown by him who holds the right. The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the defendant's obligation to the plaintiffs is of no avail, if the latter have not expressly consented to the substitution of the first debtor. Neither can the letter, Exhibit 6, on page 87 of the record be considered as proof of the consent of the plaintiffs to the substitution of the debtor, because that exhibit is a letter written by plaintiffs to Phil. C. Whitaker and Venancio Concepcion for the very reason that the defendant had told them (plaintiffs) that after the sale of the "Hacienda Palma" to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter from then on would bear the cost of the repairs and maintenance of the railroad line and of the construction of whatever addition thereto might be necessary. It was but natural that the plaintiffs should have done this. Defendant transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio Concepcion and made it known to the plaintiffs that the new owners would hold themselves liable for the cost of constructing the said railroad line. Plaintiffs could not prevent the defendant from selling to Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma" with the rights that he had over the railroad in question. The defendant ceased to
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obligation, evidently showing by this act that he does not give his consent to the substitution of the new debtor. We are of the opinion that the decision of the supreme court of Spain of June 16, 1908, cannot be successfully invoked in support of defendant's contention. Wherefore, we hold that in accordance with article 1205 of the Civil Code, in the instant case, there was no novation of the contract, by the change of the person of the debtor. Appellants assign also as a ground of their appeal the holding of the court that by the termination of the partnership, as shown by the document Exhibit 5, no legal rights can be derived therefrom. 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. 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.
G.R. No. L-12371
March 23, 1918
LEOPOLDO CRIADO, plaintiff-appellant, vs. GUTIERREZ HERMANOS, defendant-appellant.
Background: Leopoldo Criado filed a complaint against the firm of Gutierrez Hermanos for the recovery of a sum of money. Criado wanted to recover his share of the capital stock of the firm of Gutierrez Hermanos, since he began his connection therewith, on January 1, 1900, until his separation on December 31, 1911. Leopoldo Criado alleged that accounts presented by the defendant referring to his capital in that firm were based upon a false debit balance of P26,349.13 a balance which had been previously impeached by the affiant as well as the accounts from which said sum is sought to be derived. Wherefore he again assailed them in their totality on the grounds that some of the entries thereof were improper, other fraudulent, and still other false. Therefore Criados counsel moved that defendant be ordered to place immediately at the disposal of Commissioner Wicks all the books, accounts, bills, vouchers, and other documents that might be necessary, in order that said liquidation might be made by defendants counsel, by an order of September 2, 1915, the court ruled in conformity therewith, authorizing the firm of Gutierrez Hermanos to appoint another expert accountant who, together with the one already designated. After a rehearing of the case and an examination of George B. Wicks was made regarding the contents of the report that he submitted after studying for that purpose the books and other documents placed at his disposal by the defendant. In view of the result and the evidence adduced by the parties, and by the said commissioner's report duly supported by vouchers, the court rendered the judgment aforementioned, on September 11, 1916. Counsel for the firm of Gutierrez Hermanos assails in general the judgment appealed from because the trial court did not determine the issues raised in the first, second, third, fourth, sixth, seventh, eighth, ninth, and tenth causes of action, and in defendant's crosscomplaint. Second Cause of Action: Facts: In the second cause of action Criado demands the
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.) For all of the foregoing, the judgment appealed from is reversed, and we hold that the defendant Salvador Serra is indebted to the plaintiffs, the Testate Estate of Lazaro Mota, et al., in the amount of P113,046.46, and said defendant is hereby sentenced to pay the plaintiffs the said amount, together with the agreed interest at the rate of 10 per cent per annum from the date of the filing of the complaint. Without special pronouncement as to costs, it is so ordered.
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demand the sum that is the subject of his complaint in the second cause of action, it becomes necessary first too decide whether in fact the plaintiff is in estoppel and unable to oppose any valid objection against said liquidation and balance; inasmuch as, according to the inventory of the firm's business, made on December 31, 1903, which was signed by Leopoldo Criado, Miguel Gutierrez de Celis and Daniel Perez de Celis, plaintiff Criado's capital on that date was only P25,129.09 which were in force during the second period from January, 1904. From clause 7 of said contract, and according to said inventory of December 31, 1903, it appears that the firm's capital stock amounted to P1,605,497.30, of which the sum of P25,129.09 belonged to Leopoldo Criado. In an affidavit plaintiff stated that when he learned of the contents of the firm's books, he protested against the entries therein, but that the manager Guiterrez de Celis assured him that he would lose nothing by those entries made in connection with a serious matter then pending. Criado alleged that the reason why said false and erroneous entries were made in the firm's books by Gutierrez de Celis was to show the family of the deceased Miguel Alonso that the losses of the firm of Gutierrez Hermanos were due to his poor management of the firm's business Where there appears an entry which reads thus: P501,513.57, amount of the bills cancelled in the books in this date which should have been cancelled in previous years on account of difficulty in their collection, some of these bills being of such a nature that they should be charged to the account of the management as they are contrary to the provisions of the 5th and 10th clauses of the partnership contract . . . but, in view of the fact that the author of these irregularities is not living so that compliance with the contract may be demanded of him, we have distributed the losses equally among the three principal partners . . . and 5 per cent against each of the industrial partners, Leopoldo Criado's share of the losses being P25,080.68. Issue: WON the losses of the firm of Gutierrez Hermanos was duly deducted from the share of Criado. Ruling: No, without doubt this entry was made for the purpose of showing that Miguel Alonso, former manger of the partnership, was to blame for these losses. It is to be noted that, according to the contract that plaintiff Criado, as one of the industrial partners is not liable for the losses which the firm may have sustained according to the eighth 23
payment of P43,410.86, and alleges that, pursuant to a notarial instrument of March 29, 1900, he became a partner of the firm of Gutierrez Hermanos; and that said document stipulated that the partnership should last for four years from January 1, 1900, and, among other conditions, it contained the following: Second. Therefore the partnership is organized among the parties to this instrument, Don Placido Gutierrez de Celis, Don Miguel Gutierrez de Celis, Don Miguel Alonso y Gutierrez, Don Daniel Perez y Alberto, and Don Leopoldo Criado y Garcia, the first three as capitalist partners, and the last two as industrial partners. Eighth. All earnings or profits that may be obtained shall be distributed among the partners in the following proportion: 37 per cent shall go to Don Placido Gutierrez de Celis; 37 per cent to Don Miguel Gutierrez de Celis; 16 per cent to Don Miguel Alfonso y Gutierrez; 5 per cent, to Don Daniel Perez y Alberto; and 5 per cent to Don Leopoldo Criado y Garcia. In the same proportion above established for the profits the capitalist partners shall be liable for all losses or damages that may be sustained. Plaintiff also alleged that his capital was P56,796.25 in 1902 and, according to the balance had on December 31, 1903, the profits obtained amounted to P256,025.31, 5 per cent of which, or P12,801.26, belonged to him, although the manager Miguel Gutierrez de Celis, by means of false and erroneous entries in the books, succeeded in concealing such profits, thereby injuring him in said amount of P43,410.86. Plaintiff testified that as soon as he learned of such entries, he at once protested, but that said manager assured him that as soon as the probate proceedings concerning the estate of the decedent Miguel Alfonso should be determined said amount would be refunded although in spite of his efforts said promise has not been fulfilled. In its answer the defendant firm admitted that plaintiff Criado was an industrial partner entitled to 5 per cent of the profits, but denied all the other averments of the complaint. In special defense it alleged that on December 31, 1903, there was made a liquidation and balance of the business of the firm operations which were approved by all the partners with no protest made by the plaintiff before or after said liquidation, but contrary, he gave his assent thereto and without reserve whatsoever he executed a new partnership contract, inasmuch as the sum shown by said liquidation and balance of the business of the firm at the end of December, 1903, formed the basis of the capital mentioned in the articles of partnership executed before a notary on May 9, 1904. In order to determine whether plaintiff still has a right to
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Ten per cent to D. Leopoldo Criado Garcia. In the same proportion provided for the profits, the partners shall be liable for the losses that may be incurred. Sixteenth. In case the partnership business should incur such losses as to prevent a continuance of the business or to make a dissolution of the partnership advisable, same shall be liquidated, each capitalist partner bearing such loss in a pro rata proportion to the capital he represents, the expenses necessary for the prosecution of the business being chargeable to the firm as a whole. Notwithstanding these provisions the partners Don Placido and Don Miguel as principal capitalist partners may liquidate the partnership or alienate its rights whenever they deem proper so to do. By a notarial instrument of January 2, 1908, the life of the partnership was extended to another term of four years, upon the same bases and conditions (Exh. X, p. 100). Issue: WON Criado having a capital stock with the firm of Hermanos Gutierrez should be liable for the losses. Ruling: Yes, from the two preinstated clauses of the partnership contract it is deduced that the partners should be liable for all the losses incurred by the partnership in the proportion fixed in the 8th clause; but that, in case such losses should be of so great importance as to prevent a continuation of the partnership business, or to make advisable the dissolution of the partnership, then due action should be taken in conformity with the provisions of said clause 16, and the partners should be liable from the losses in a proportion pro rata to their share in the partnership assets. The firm of Hermanos Gutierrez shows a loss of P56,716.57. Consequently, there should be deducted from plaintiff's capital 10 per cent of this sum or P5,671.64 as his share of the loss.
clause of the notarial instrument of May 29, 1900. The allotment to the industrial partner Leopoldo Criado of the amount of P25,080.68 as losses suffered by the firm in its business during the years 1900 to 1903 was notoriously illegal, inasmuch as he, being merely an industrial partner, was not liable for any loss whatever. For the practical application and the fulfillment of the stipulations made by the partners, in the second and eighth clauses of said articles of partnership of March 29, 1900, it should be understood that, for the purpose of determining the profits that correspond to an industrial partner who shares in the profits from the different transactions carried on by the firm must be added together from which sum must be subtracted that of the losses sustained in its business, and in the difference which represents the net profits if these are greater than the losses the industrial partner shares, i. e., in the sum total of the profits. But if, on the contrary, the losses are greater and exceed the profits in said difference the industrial partner should not be liable, for this constitutes a real loss to the firm. Wherefore, according to the articles of partnership, it follows that, at the termination of the partnership in 1903, plaintiff's assets were P56,793.25, and his liabilities P1,054.56, there being in his favor consequently a balance of P55,738.69; but as in the instrument of May, 1904, he was credited with only P25,129.09, as capital brought into the new company, the plaintiff is entitled to demand that the firm of Gutierrez Hermanos pay him in the sum of P30,609.60. Fifth Cause of Action: Facts: According to the document presented by the defendant, which appears to be a copy of plaintiff's stock account, certified as authentic by the defendant's bookkeeper, the capital stock of the plaintiff Leopoldo Criado, prior to December 29, 1911, was P73,147.87, an amount which also appears in the document and tends to prove that on December 31, 1911, plaintiff's capital was the amount stated, before the annotation of the entries assailed as false and fraudulent by plaintiff. The eighth and sixteenth clauses of the articles of partnership executed in May, 1904, which ratified and approved the transactions of the firm of Gutierrez Hermanos from January of that year state the following: Eighth. The earnings or profits which may be obtained shall be distributed among the partners in the following proportion: Forty per cent to D. Placido Gutierrez de Celis; Forty per cent to D. Miguel Gutierrez de Celis; Ten per cent to D. Daniel Perez Albertos; and
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CASE DIGESTS ON BUSINESS ORGANIZATION 1

G.R. No. L-3146

September 14, 1907

NICOLAS CO-PITCO, plaintiff-appellee, vs. PEDRO YULO, defendant-appellant.

APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

CASE DIGESTS ON BUSINESS ORGANIZATION 1

APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

CASE DIGESTS ON BUSINESS ORGANIZATION 1

APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

CASE DIGESTS ON BUSINESS ORGANIZATION 1

APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

CASE DIGESTS ON BUSINESS ORGANIZATION 1

REYES, A., J., dissenting:

APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

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APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

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ARTICLE 1825 PARTNER BY ESTOPPEL

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CHAPTER THREE- DISSOLUTION AND WINDING UP ARTICLE 1828

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CASE DIGESTS ON BUSINESS ORGANIZATION 1

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CASE DIGESTS ON BUSINESS ORGANIZATION 1

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CASE DIGESTS ON BUSINESS ORGANIZATION 1

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CASE DIGESTS ON BUSINESS ORGANIZATION 1

G.R. No. L-12371

March 23, 1918

LEOPOLDO CRIADO, plaintiff-appellant, vs. GUTIERREZ HERMANOS, defendant-appellant.

APODERADO DAYO JACELA MARTINEZ MASONGSONG SUPNET VALLEJO VELOSO YSMAEL

CASE DIGESTS ON BUSINESS ORGANIZATION 1

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