CHAPTER 3 Dissolution and Winding Up
transferred to the partnership the use or enjoyment of the same; but the
Article 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. (n)
Article 1829. On dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed. (n)
Article 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the
agreement;
(b) By the express will of any partner, who must act in good faith, when no definite
term or particular is specified;
(c) By the express will of all the partners who have not assigned their interests or
suffered them to be charged for their separate debts, either before or after the
termination of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide in accordance with
such a power conferred by the agreement between the partners;
(2) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this article,
by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing, when
the partner who contributed it having reserved the ownership thereof, has only
partnership shall not be dissolved by the loss of the thing when it occurs after the
partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
Ortega vs. CA
FACTS:
On December 19, 1980, respondent Misa associated himself together, as senior
partner with petitioners Ortega, del Castillo, Jr., and Bacorro, as junior partners. On
Feb. 17, 1988, respondent Misa wrote a letter stating that he is withdrawing and
retiring from the firm and asking for a meeting with the petitioners to discuss the
mechanics of the liquidation. On June 30, 1988, petitioner filed a petition to the
Commision's Securities Investigation and Clearing Department for the formal
dissolution and liquidation of the partnership. On March 31, 1989, the hearing
officer rendered a decision ruling that the withdrawal of the petitioner has not
dissolved the partnership. On appeal, the SEC en banc reversed the decision and
was affirmed by the Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the Court of Appeals has erred in holding that the partnership is a
partnership at will and whether or not the Court of Appeals has erred in holding that
the withdrawal of private respondent dissolved the partnership regardless of his
good or bad faith
HELD:
No. The SC upheld the ruling of the CA regarding the nature of the partnership.
The SC further stated that a partnership that does not fix its term is a partnership at
will. The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.
ROJAS VS. MAGLANA
FACTS: Maglana and Rojas executed their Articles of Co-partnership called
Eastcoast Development Enterpises which had an indefinite term of existence and
was registered with the SEC and had a Timber License. One of the EDEs
purposes was to apply or secure timber and/or private forest lands and to operate,
develop and promote such forests rights and concessions. M shall manage the
business affairs while R shall be the logging superintendent. All profits and losses
shall be divided share and share alike between them.
Later on, the two availed the services of Pahamotang as industrial partner and
executed another articles of co-partnership with the latter. The purpose of this
second partnership was to hold and secure renewal of timber license and the term
of which was fixed to 30 years.
Still later on, the three executed a conditional sale of interest in the partnership
wherein M and R shall purchase the interest, share and participation in the
partnership of P. It was also agreed that after payment of such including amount of
loan secured by P in favor of the partnership, the two shall become owners of all
equipment contributed by P. After this, the two continued the partnership without
any written agreement or reconstitution of their articles of partnership.
Subsequently, R entered into a management contract with CMS Estate Inc. M
wrote him re: his contribution to the capital investments as well as his duties as
logging superintendent. R replied that he will not be able to comply with both. M
then told R that the latters share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute. R took funds from the
partnership more than his contribution. M notified R that he dissolved the
partnership. R filed an action against M for the recovery of properties and
accounting of the partnership and damages.
CFI: the partnership of M and R is after P retired is one of de facto and at will; the
sharing of profits and losses is on the basis of actual contributions; there is no
evidence these properties were acquired by the partnership funds thus it should not
belong to it; neither is entitled to damages; the letter of M in effect dissolved the
partnership; sale of forest concession is valid and binding and should be
considered as Ms contribution; R must pay or turn over to the partnership the
profits he received from CMS and pay his personal account to the partnership; M
must be paid 85k which he shouldve received but was not paid to him and must be
considered as his contribution.
ISSUE: what is the nature of the partnership and legal relationship of M-R after P
retired from the second partnership? May M unilaterally dissolve the partnership?
SC: There was no intention to dissolve the first partnership upon the constitution of
the second as everything else was the same except for the fact that they took in an
industrial partner: they pursued the same purposes, the capital contributions call for
the same amounts, all subsequent renewals of Timber License were secured in
favor of the first partnership, all businesses were carried out under the registered
articles.
M and R agreed to purchase the interest, share and participation of P and after,
they became owners of the equipment contributed by P. Both considered
themselves as partners as per their letters. It is not a partnership de facto or at will
as it was existing and duly registered. The letter of M dissolving the partnership is
in effect a notice of withdrawal and may be done by expressly withdrawing even
before expiration of the period with or without justifiable cause. As to the liquidation
of the partnership it shall be divided share and share alike after an accounting
has been made.
R is not entitled to any profits as he failed to give the amount he had undertaken to
contribute thus, had become a debtor of the partnership.
M cannot be liable for damages as R abandoned the partnership thru his acts and
also took funds in an amount more than his contribution.
MARJORIE TOCAO and WILLIAM T. BELO vs. CA and NENITA A. ANAY
FACTS:
William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three
agreed to form a joint venture for the sale of cooking wares. Belo was to contribute
P2.5 million; Tocao also contributed some cash and she shall also act as president
and general manager; and Anay shall be in charge of marketing. Belo and Tocao
specifically asked Anay because of her experience and connections as a marketer.
They agreed further that Anay shall receive the following:
10% share of annual net profits
6% overriding commission for weekly sales
30% of sales Anay will make herself
2% share for her demo services
They operated under the name Geminesse Enterprise, this name was however
registered as a sole proprietorship with the Bureau of Domestic Trade under Tocao.
The joint venture agreement was not reduced to writing because Anay trusted
Belos assurances.
The venture succeeded under Anays marketing prowess.
But then the relationship between Anay and Tocao soured. One day, Tocao advised
one of the branch managers that Anay was no longer a part of the company. Anay
then demanded that the company be audited and her shares be given to her.
ISSUE:
Whether or not there is a partnership.
HELD:
Yes, even though it was not reduced to writing, for a partnership can be instituted
in any form. The fact that it was registered as a sole proprietorship is of no moment
for such registration was only for the companys trade name.
Anay was not even an employee because when they ventured into the agreement,
they explicitly agreed to profit sharing this is even though Anay was receiving
commissions because this is only incidental to her efforts as a head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as damages or share in the profits
realized from the appropriation of the partnership business and goodwill. An
innocent partner thus possesses pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time
he was wrongfully expelled.
An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the doctrine of delectus
personaeallows the partners to have the power, although not necessarily
the right to dissolve the partnership.
Tocaos unilateral exclusion of Anay from the partnership is shown by her memo to
the Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao
effected her own withdrawal from the partnership and considered herself as having
ceased to be associated with the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated thereby; it continues until the
winding up of the business.
Motion for Reconsideration filed by Tocao and Belo decided by the SC on
September 20, 2001.
Belo is not a partner. Anay was not able to prove that Belo in fact received profits
from the company. Belo merely acted as a guarantor. His participation in the
business meetings was not as a partner but as a guarantor. He in fact had only
limited partnership. Tocao also testified that Belo received nothing from the profits.
The Supreme Court also noted that the partnership was yet to be registered in the
Securities and Exchange Commission. As such, it was understandable that Belo,
who was after all petitioner Tocaos good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal or official
capacity.
DELUAO v. CASTEEL
DELUAO v. CASTEEL
G.R. No. L-21906; December 24, 1968
Ponente: J. Castro
FACTS:
In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of
swampy land, 178.76 hectares, in the then sitio of Malalag, municipality of Padada,
Davao for 3 consecutive times because the Bureau of Fisheries did not act upon
his previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat
poised upon his position by the other applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding his
occupation thereof by constructing dikes and cultivating marketable fishes. But
lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed a protest. Consequently, two
administrative cases ensued involving the area in question.
However, despite the finding made in the investigation of the above administrative
cases, the Director of Fisheries nevertheless rejected Casteel's application on
October 25, 1949, required him to remove all the improvements which he had
introduced on the land, and ordered that the land be leased through public auction
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the second part, executed a contract
denominated a "contract of service". On the same date the above contract was
entered into, Inocencia Deluao executed a special power of attorney in favor of
Jesus Donesa
On November 29, 1949 the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated
his claim over the same area in the two administrative cases and asked for
reinvestigation of the application of Nicanor Casteel over the subject fishpond.
The Secretary of Agriculture and Natural Resources rendered a decision ordering
Casteel to be reinstated in the area and that he shall pay for the improvement
made thereupon.
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado),
Jesus Donesa, from the premises.
ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution
of the partnership between him and Deluao
HELD:
Yes, the reinstatement of Casteel dissolved his partnership with Deluao.
The Supreme Court ruled that the arrangement under the so-called "contract of
service" continued until the decision both dated Sept. 15, 1950 were issued by the
Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B.
This development, by itself, brought about the dissolution of the partnership. Since
the partnership had for its object the division into two equal parts of the fishpond
between the appellees and the appellant after it shall have been awarded to the
latter, and therefore it envisaged the unauthorized transfer of one half thereof to
parties other than the applicant Casteel, it was dissolved by the approval of his
application and the award to him of the fishpond.
The approval was an event which made it unlawful for the members to carry it on in
partnership. Moreover, subsequent events likewise reveal the intent of both parties
to terminate the partnership because each refused to share the fishpond with the
other.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO. L-11840,
December 10, 1963
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 Co-partnership 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. But
the partnership could be dissolved upon mutual agreement in writing of the
partners. Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff
partnership purchased 3 parcels of land which was mortgaged to La Urbana as
payment of P25,000. 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. A
downpayment and the amortization were advanced by Yutivo and Co. The two
obligations were consolidated in an instrument executed by the partnership and
Tan Sin An, whereby the entire 49 lots were mortgaged in favor of Banco
HipotecarioTan Sin An died leaving his widow, Kong Chai Pin and four minor
children. The widow subsequently became the administratrix of the estate.
Repeated demands were made by Banco Hipotecario on the partnership and on
Tan Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the
remaining balance of the mortgage debt, the mortgage was cancelled 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 and Banco Hipotecario. 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. Later, Sycip and Lee executed in favor of
Insular Development a deed of transfer covering the 49 parcels of land.When
Goquiolay learned about the sale to Sycip and Lee, he filed a petition 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. Probate court
annulled the sale executed by the administratrix w/ respect to the 60% interest of
Goquiolay over the properties Administratrix appealed.The decision of probate
court was set aside for failure to include the indispensable parties. New pleadings
were filed. The second amended complaint prays for the annulment of the sale in
favor of Sycip and Lee and their subsequent conveyance to Insular Development.
The complaint was dismissed by the lower court hence this appeal.
ISSUE/S: Whether or not a widow or substitute become also a general partner or
only a limited partner. Whether or not 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 Whether or not the consent of the other partners was necessary
to perfect the sale of the partnership properties to Sycip and Lee?

HELD:
Kong Chai Pin became a mere general partner. By seeking authority to manage
partnership property, Tan Sin Ans widow showed that she desired to be considered
a general partner. By authorizing the widow to manage partnership property (which
a limited partner could not be authorized to do), Goqulay recognized her as such
partner, and is now in estoppel to deny her position as a general partner, with
authority to administer and alienate partnership property. The articles did not
provide that the heirs of the deceased would be merely limited partners; on the
contrary, they expressly stipulated that in case of death of either partner, the co
partnership will have to be continued with the heirs or assignees. It certainly could
not be continued if it were to be converted from a general partnership into a limited
partnership since the difference between the two kinds of associations is
fundamental, and specially because the conversion into a limited association would
leave the heirs of the deceased partner without a share in the management.
Hence, the contractual stipulation actually contemplated that the heirs would
become general partners rather than limited ones.
Ng Cho Cio v. Ng Diong
G.R. No. L-14832 January 28, 1961
NG CHO CIO ET AL., plaintiffs-appellants,
vs.NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian
King and Ng Due King to recover their three-fourths (3/4) pro-indiviso share on
seven (7) parcels of land situated in the City of Iloilo which were sold by Ng Diong
as manager of the commercial firm NG CHIN BENG HERMANOS in favor of C.N.
Hodges. The latter had sold four of those parcels of land to Jose C. Tayengco and
the other three parcels to Julian Go, and for that reason these two were included as
party defendants. As the original plaintiffs sold their rights, title and interest in said
partnership to Ng Be Chuat and Ng Feng Tuan, the latter two were allowed to
intervene as plaintiffs. Since Jose C. Tayengco had mortgaged three of the lands
which he purchased from C. N. Hodges in favor of the Bank of the Philippine
Islands, the complaint was amended so as to include the Bank also as party
defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon
his heirs were order to substitute him parties defendants. Defendants C. N.
Hodges, Ng Diong and Jose C. Tayengco answered the complaint separately
setting up certain special defenses and counterclaims. In substance, they refuted
the allegations set forth in the complaint and prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by the
pleadings thus simplifying the trial of the case while at the same time they
introduced additional evidence in amplification of the fact stipulated, Thereupon,
the trial court, after a thorough evaluation of the evidence, rendered decision
dismissing the complaint with costs. Plaintiffs interposed the present appeal on
purely questions of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng
Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King
entered into a contract of general co-partnership under the name NG CHIN BENG
HERMANOS. The partnership was to exist for a period of 10 years from May 23,
1925 and Ng Diong was named as managing partner. On May 10, 1935, the
articles of co-partnership were amended by extending its life to 16 years more to be
counted from May 23, 1925, or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan and
Investment Board a loan in the amount of P30,000.00, and to guarantee its
payment it executed in its favor a mortgage on Lots Nos. 236-B, 317-A, 233 and
540 of the cadastral survey of Iloilo. On the same date, the partnership also
obtained from the same entity another loan in the amount of P50,000.00 to secure
which it also executed in its favor a mortgage on Lots Nos. 386, 829 and 237 of the
same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its
creditors in, Special Proceedings No. 2419 of the Court of First Instance of Iloilo
wherein one Crispino Melocoton was elected as assignee. As a consequence, on
June 21, 1939, the titles to the seven parcels of land abovementioned were issued
in his name as assignee. In due time, the creditors filed their claims in said
proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to
P139,704.81, and the partners of the firm, acting thru counsel, entered into a
composition agreement whereby it was agreed that said creditors would receive
20% of the amount of their claims in full payment thereof. Prior to this agreement,
however, defendant Julian Go had already acquired the rights of 24 of the creditors
of the insolvent whose total claims amounted to P139,323.10. Said composition
agreement was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded
the National Loan and Investment Board assigned its rights and interests in the
loans obtained from it by the partnership in the aggregate amount of P80,000.00 in
favor of C.N. Hodges, together with the right and interest in the mortgage executed
to secure the loans. Since said loans became due and no payment was
forthcoming, Hodges asked permission from the insolvency court to file a complaint
against the assignee to foreclose he mortgage executed to secure the same in a
separate proceeding, and permission having been granted, Hodges filed a
complaint for that purpose on May 13, 1941. In his complaint, Hodges prayed that
the assignee be ordered to pay him the sum of P75,622.90, with interest at 8% per
annum thereon from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of
costs and charges. Meanwhile, war broke out and nothing appears to have been
done in the insolvency proceedings. The court records were destroyed. However,
they were reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired
most of the claims of the creditors, filed a petition with the insolvency court praying
at the insolvency proceedings be closed or terminated cause the composition
agreement the creditors had submitted relative to the settlement of the claims had
already been approved on October 10, 1940. And on October 6, 1946, the court,
acting favorably on the petition, ordered, closure of the proceedings directing the
assignee to turn and reconvey all the properties of the partnership back to the latter
as required by law. In accordance with this order of the court, the assignee
executed a deed of reconveyance of the properties to the partnership on April 2,
1946 and by virtue thereof, the register of deeds cancelled the titles issued in the
name of the assignee and issued new ones in lieu thereof in the name of the
partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges
which was the subject of the foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise necessary funds to pay the
other obligations of the partnership, it was deemed proper and wise by Ng Diong,
who continued to be the manager of the partnership, to sell all its properties
mortgaged to Hodges in order that the excess may be applied to the Payment of
said other obligations, and to that effect Ng Diong executed on April 2, 1946 a deed
of sale thereof in favor of Hodges for the sum of P124,580.00. Out of this price; the
sum of P103,883.34 was applied to the payment of the debt of the partnership to
Hodges and the balance was paid to the other creditors of the partnership. On the
same date, Hodges executed another contract giving the partnership the right to
repurchase Lots Nos. 237, 386 and 829 in installments for the sum of P26,000.00
within three years with interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in
he amount of P24,864.62 under the composition agreement, nor did it have any
money to repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the
partnership, transferred the right of the latter to repurchase the same from Hodges
to Julian Go in full payment of the partnership's indebtedness to him. And having
Julian Go exercised the option January 6, 1948, Hodges executed a deed of sale of
the properties in his favor, and pursuant thereto the register of deeds issued new
titles' in his name covering said lots. On May 29, 1948, Hodges executed another
deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540 for the sum of
P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco
mortgaged said lots, together with three other lots of his, to the Bank of the
Philippine Islands to secure a loan of P126,000.00 to be used in the construction of
a commercial building on said lots.
Appellants make in their brief six assignments of errors, which, reduced to bare
essentials, may be boiled down to the following points: (1) the sale made by Ng
Diong in behalf of the partnership NG CHIN BENG HERMANOS of the seven lots
belonging to it in favor of C. N. Hodges on April 2, 1946 is null and void because at
that time said parcels were still in the custody of the assignee of the insolvency
proceedings, or in custodia legis, and, hence, the same is null and void; (2) said
sale is also null and void "because of the disparity, irrationality and
unreasonableness between the consideration and the real value of the properties
when sold"; and (3) the lower court erred in not finding that the two deeds of
mortgage executed by he partnership in favor of the National Loan and Investment
Board which were later assigned to C. N. Hodges can no longer be enforced
because the action to foreclose the same has already prescribed.
Anent the first issue, it would be well to state the following facts by way of
clarification: It should be recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the representatives of the latter, submitted to
the court taking cognizance of the insolvency proceedings a composition
agreement whereby it was agreed that said creditors would receive 20% of the
amount of their claims in full payment thereof. This agreement was approved on
October 10, 1940 which, in contemplation of law, has the effect of putting an end to
the insolvency proceedings. However, no further step was taken thereon because
of the outbreak of the war. Later, the record of the case was reconstituted and the
parties on August 15, 1945 filed a petition with the court praying for the dismissal
and closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an
order declaring the proceedings terminated and ordering the assignee to return and
reconvey the properties the partnership. The actual reconveyance was done by a
assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency
ended on said date. Since then partnership became, restored to its status quo. It
again reacquired its personality as such with Ng Diong as its general manager.
From that date on its properties ceased to be in custodia legis. Such being the
case, it is obvious that when Ng Diong as manager of the partnership sold the
seven parcels of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale
acknowledged before a notary public on April 6, 1946, the properties were already
was at liberty to do what it may deem convenient and proper to protect its interest.
And acting accordingly, Ng Diong made the sale in the exercise of the power
granted to him by the partnership in its articles of co-partnership. We do not,
therefore, find anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the
question may be fixed: Who shall wind up it business affairs? May its manager still
execute the sale of its properties to C. N. Hodges as was done by Ng Diong? The
answer to this question cannot but be in the affirmative because Ng Diong was still
the managing partner of the partnership and he had the necessary authority to
liquidate its affairs under its articles of co-partnership. And considering that war
had intervened and the affairs of the partnership were placed under receivership up
to October 6, 1945, we are of the opinion that Ng Diong could still exercise his
power as liquidator when he executed the sale in question in favor of C. N. Hodges.
This is sanctioned by Article 228 of the Code of Commerce which was the law in
force at the time.1
With regard to the second issue, it is contended that the trial court should have
declared the sale of the lots made to C. N. Hodges null and void "because of the
disparity, irrationality and unreasonableness between the consideration and real
value of the properties when sold." In stressing his point, counsel contends that the
lands in question, which are located in a commercial section of the City of Iloilo,
were frittered away only for a "pittance of P124,580.00" when, borrowing his words
they could have been sold like hot cakes to any resident of the city of regular
financial standing upon proper approaches and representations, because at that
time those properties were fairly worth one-half of a million pesos."
This claim may be true, but the same is unsupported. Appellants have failed to
introduce any evidence to show that they could have secured better offers for the
properties if given a chance to do so and that they advance now is a mere
speculation or conjecture which had no place in our judicial system. Since every
claim must be substantiated by sufficient evidence, and this appellants have failed
to do, their pretense cannot be entertained.
Neither can we give any value to the claim that the action for the foreclosure of the
mortgage executed by the partnership in favor of C. N. Hodges has already
prescribed not only because the same is immaterial but because it is an issue that
appellants are raising for the first time in this appeal. Such issue has never been
raised in their pleadings, nor in the trial court. Verily, this claim has no merit.
With regard to the appeal taken by the heirs of defendant Ng Diong whose main
claim is that the trial court failed to adjudicate to the partnership the properties
which were bought by Julian Go from C. N. Hodges, suffice it to say that the same
could not be done, firstly, because no such claim was made by them in their
pleadings in the trial court, and, secondly, because the evidence shows that said
properties were bought by Julian Go by virtue of the option given to him by the
partnership for a valuable consideration in full payment of the credits assigned to
him by a good number of creditors of said partnership. There is no evidence that he
promised to reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against
appellants.
Ng Cho Cio v. Ng Diong
G.R. No. L-14832 January 28, 1961
NG CHO CIO ET AL., plaintiffs-appellants,
vs.NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian
King and Ng Due King to recover their three-fourths (3/4) pro-indiviso share on
seven (7) parcels of land situated in the City of Iloilo which were sold by Ng Diong
as manager of the commercial firm NG CHIN BENG HERMANOS in favor of C.N.
Hodges. The latter had sold four of those parcels of land to Jose C. Tayengco and
the other three parcels to Julian Go, and for that reason these two were included as
party defendants. As the original plaintiffs sold their rights, title and interest in said
partnership to Ng Be Chuat and Ng Feng Tuan, the latter two were allowed to
intervene as plaintiffs. Since Jose C. Tayengco had mortgaged three of the lands
which he purchased from C. N. Hodges in favor of the Bank of the Philippine
Islands, the complaint was amended so as to include the Bank also as party
defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon
his heirs were order to substitute him parties defendants. Defendants C. N.
Hodges, Ng Diong and Jose C. Tayengco answered the complaint separately
setting up certain special defenses and counterclaims. In substance, they refuted
the allegations set forth in the complaint and prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by the
pleadings thus simplifying the trial of the case while at the same time they
introduced additional evidence in amplification of the fact stipulated, Thereupon,
the trial court, after a thorough evaluation of the evidence, rendered decision
dismissing the complaint with costs. Plaintiffs interposed the present appeal on
purely questions of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng
Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King
entered into a contract of general co-partnership under the name NG CHIN BENG
HERMANOS. The partnership was to exist for a period of 10 years from May 23,
1925 and Ng Diong was named as managing partner. On May 10, 1935, the
articles of co-partnership were amended by extending its life to 16 years more to be
counted from May 23, 1925, or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan and
Investment Board a loan in the amount of P30,000.00, and to guarantee its
payment it executed in its favor a mortgage on Lots Nos. 236-B, 317-A, 233 and
540 of the cadastral survey of Iloilo. On the same date, the partnership also
obtained from the same entity another loan in the amount of P50,000.00 to secure
which it also executed in its favor a mortgage on Lots Nos. 386, 829 and 237 of the
same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its
creditors in, Special Proceedings No. 2419 of the Court of First Instance of Iloilo
wherein one Crispino Melocoton was elected as assignee. As a consequence, on
June 21, 1939, the titles to the seven parcels of land abovementioned were issued
in his name as assignee. In due time, the creditors filed their claims in said
proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to
P139,704.81, and the partners of the firm, acting thru counsel, entered into a
composition agreement whereby it was agreed that said creditors would receive
20% of the amount of their claims in full payment thereof. Prior to this agreement,
however, defendant Julian Go had already acquired the rights of 24 of the creditors
of the insolvent whose total claims amounted to P139,323.10. Said composition
agreement was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded
the National Loan and Investment Board assigned its rights and interests in the
loans obtained from it by the partnership in the aggregate amount of P80,000.00 in
favor of C.N. Hodges, together with the right and interest in the mortgage executed
to secure the loans. Since said loans became due and no payment was
forthcoming, Hodges asked permission from the insolvency court to file a complaint
against the assignee to foreclose he mortgage executed to secure the same in a
separate proceeding, and permission having been granted, Hodges filed a
complaint for that purpose on May 13, 1941. In his complaint, Hodges prayed that
the assignee be ordered to pay him the sum of P75,622.90, with interest at 8% per
annum thereon from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of
costs and charges. Meanwhile, war broke out and nothing appears to have been
done in the insolvency proceedings. The court records were destroyed. However,
they were reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired
most of the claims of the creditors, filed a petition with the insolvency court praying
at the insolvency proceedings be closed or terminated cause the composition
agreement the creditors had submitted relative to the settlement of the claims had
already been approved on October 10, 1940. And on October 6, 1946, the court,
acting favorably on the petition, ordered, closure of the proceedings directing the
assignee to turn and reconvey all the properties of the partnership back to the latter
as required by law. In accordance with this order of the court, the assignee
executed a deed of reconveyance of the properties to the partnership on April 2,
1946 and by virtue thereof, the register of deeds cancelled the titles issued in the
name of the assignee and issued new ones in lieu thereof in the name of the
partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges
which was the subject of the foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise necessary funds to pay the
other obligations of the partnership, it was deemed proper and wise by Ng Diong,
who continued to be the manager of the partnership, to sell all its properties
mortgaged to Hodges in order that the excess may be applied to the Payment of
said other obligations, and to that effect Ng Diong executed on April 2, 1946 a deed
of sale thereof in favor of Hodges for the sum of P124,580.00. Out of this price; the
sum of P103,883.34 was applied to the payment of the debt of the partnership to
Hodges and the balance was paid to the other creditors of the partnership. On the
same date, Hodges executed another contract giving the partnership the right to
repurchase Lots Nos. 237, 386 and 829 in installments for the sum of P26,000.00
within three years with interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in
he amount of P24,864.62 under the composition agreement, nor did it have any
money to repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the
partnership, transferred the right of the latter to repurchase the same from Hodges
to Julian Go in full payment of the partnership's indebtedness to him. And having
Julian Go exercised the option January 6, 1948, Hodges executed a deed of sale of
the properties in his favor, and pursuant thereto the register of deeds issued new
titles' in his name covering said lots. On May 29, 1948, Hodges executed another
deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540 for the sum of
P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco
mortgaged said lots, together with three other lots of his, to the Bank of the
Philippine Islands to secure a loan of P126,000.00 to be used in the construction of
a commercial building on said lots.
Appellants make in their brief six assignments of errors, which, reduced to bare
essentials, may be boiled down to the following points: (1) the sale made by Ng
Diong in behalf of the partnership NG CHIN BENG HERMANOS of the seven lots
belonging to it in favor of C. N. Hodges on April 2, 1946 is null and void because at
that time said parcels were still in the custody of the assignee of the insolvency
proceedings, or in custodia legis, and, hence, the same is null and void; (2) said
sale is also null and void "because of the disparity, irrationality and
unreasonableness between the consideration and the real value of the properties
when sold"; and (3) the lower court erred in not finding that the two deeds of
mortgage executed by he partnership in favor of the National Loan and Investment
Board which were later assigned to C. N. Hodges can no longer be enforced
because the action to foreclose the same has already prescribed.
Anent the first issue, it would be well to state the following facts by way of
clarification: It should be recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the representatives of the latter, submitted to
the court taking cognizance of the insolvency proceedings a composition
agreement whereby it was agreed that said creditors would receive 20% of the
amount of their claims in full payment thereof. This agreement was approved on
October 10, 1940 which, in contemplation of law, has the effect of putting an end to
the insolvency proceedings. However, no further step was taken thereon because
of the outbreak of the war. Later, the record of the case was reconstituted and the
parties on August 15, 1945 filed a petition with the court praying for the dismissal
and closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an
order declaring the proceedings terminated and ordering the assignee to return and
reconvey the properties the partnership. The actual reconveyance was done by a
assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency
ended on said date. Since then partnership became, restored to its status quo. It
again reacquired its personality as such with Ng Diong as its general manager.
From that date on its properties ceased to be in custodia legis. Such being the
case, it is obvious that when Ng Diong as manager of the partnership sold the
seven parcels of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale
acknowledged before a notary public on April 6, 1946, the properties were already
was at liberty to do what it may deem convenient and proper to protect its interest.
And acting accordingly, Ng Diong made the sale in the exercise of the power
granted to him by the partnership in its articles of co-partnership. We do not,
therefore, find anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the
question may be fixed: Who shall wind up it business affairs? May its manager still
execute the sale of its properties to C. N. Hodges as was done by Ng Diong? The
answer to this question cannot but be in the affirmative because Ng Diong was still
the managing partner of the partnership and he had the necessary authority to
liquidate its affairs under its articles of co-partnership. And considering that war
had intervened and the affairs of the partnership were placed under receivership up
to October 6, 1945, we are of the opinion that Ng Diong could still exercise his
power as liquidator when he executed the sale in question in favor of C. N. Hodges.
This is sanctioned by Article 228 of the Code of Commerce which was the law in
force at the time. 1
With regard to the second issue, it is contended that the trial court should have
declared the sale of the lots made to C. N. Hodges null and void "because of the
disparity, irrationality and unreasonableness between the consideration and real
value of the properties when sold." In stressing his point, counsel contends that the
lands in question, which are located in a commercial section of the City of Iloilo,
were frittered away only for a "pittance of P124,580.00" when, borrowing his words
they could have been sold like hot cakes to any resident of the city of regular
financial standing upon proper approaches and representations, because at that
time those properties were fairly worth one-half of a million pesos."
This claim may be true, but the same is unsupported. Appellants have failed to
introduce any evidence to show that they could have secured better offers for the
properties if given a chance to do so and that they advance now is a mere
speculation or conjecture which had no place in our judicial system. Since every
claim must be substantiated by sufficient evidence, and this appellants have failed
to do, their pretense cannot be entertained.
Neither can we give any value to the claim that the action for the foreclosure of the
mortgage executed by the partnership in favor of C. N. Hodges has already
prescribed not only because the same is immaterial but because it is an issue that
appellants are raising for the first time in this appeal. Such issue has never been
raised in their pleadings, nor in the trial court. Verily, this claim has no merit.
With regard to the appeal taken by the heirs of defendant Ng Diong whose main
claim is that the trial court failed to adjudicate to the partnership the properties
which were bought by Julian Go from C. N. Hodges, suffice it to say that the same
could not be done, firstly, because no such claim was made by them in their
pleadings in the trial court, and, secondly, because the evidence shows that said
properties were bought by Julian Go by virtue of the option given to him by the
partnership for a valuable consideration in full payment of the credits assigned to
him by a good number of creditors of said partnership. There is no evidence that he
promised to reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against
appellants.
Article 1831. On application by or for a partner the court shall decree a dissolution
whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be
of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the
partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the partnership
business that it is not reasonably practicable to carry on the business in partnership
with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under article 1813 or
1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued. (n)
Lichauco v. Lichauco
Facts:
In 1901, F. Lichauco Hermanos partnership was formed. It was provided,
among others, in the partnership agreement that Faustino Lichauco will be
the managing partner; and that the firm cannot be dissolved except upon
the 2/3 vote of all the partners.
In 1904, the firm wasnt performing well and was unprofitable and so its
machineries were dismantled. In 1905, Eugenia and one other partner
demanded Faustino to make an accounting of the firms assets but
Faustino refused to do so.
Belatedly in 1912, Eugenia et al filed a civil suit against Faustino to compel
the latter to perform an accounting.
Faustino, in his defense, argued that the firm was not dissolved pursuant to
the partnership agreement there being no 2/3 vote from all the members
(Faustino et al are only 1/5 of the firm).
ISSUE: Whether or not Eugenia et al can demand an accounting.
RULE: Yes.
The firm was already dissolved in 1904 when its machineries were dismantled
this was a sign that the firm abandoned and concluded the purpose for it was
formed (rice cleaning business). Upon said dissolution, it was the duty of Faustino
to liquidate the assets and inform his partners.
The provision which requires a 2/3 votes of all the partners to dissolve the firm
cannot be given effect because the same denied the right of a less number of
partners to effect the dissolution especially where the firm has already sustained
huge losses.
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.
Goquiolay v. Sycip(108 Phil 947)
Syllabus:
1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL RIGHT;
TERMINATION UPON MANAGER-PARTNERS DEATH. The right of exclusive
management conferred upon Tan Sin An, being premised upon trust and
confidence, was a mere personal right that terminated upon Tans demise.
2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT
DECEASED PARTNER; MANAGERIAL RIGHT; PROPRIETARY INTEREST.
The provision in the Articles of Co-Partnership stating that "in the event of death of
any one of the partners within the 10-year term of the partnership, the deceased
partner shall be represented by his heirs", could not have referred to the
managerial right given to Tan Sin An; more appropriately, it relates to the
succession in the proprietary interest of each partner.
3. ID.; ID.; EFFECT OF HEIRS FAILURE TO REPUDIATE; HEIRS BECOME 7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED PARTNER BUT
INDIVIDUAL PARTNERS; MINORITY OF HEIRS. Consonant with the articles of MAY WAIVE IT AND BECOME AS GENERAL PARTNER. Although the heir of a
co-partnership providing for the continuation of the firm notwithstanding the death partner ordinarily becomes a limited partner for his own protection, yet the heir may
of one of the partners, the heirs of the deceased, by never repudiating or refusing disregard it and instead elect to become a collective or general partner, with all the
to be bound under the said provision in the articles, became individual partners rights and obligations of one. This choice pertains exclusively to the heir, and does
with Antonio Goquiolay upon Tans demise. Minority of the heirs is not a bar to the not require the assent of the surviving partner.
application of that clause in the articles of co-partnership. Heirs liability in the
partnership being limited to the value of their importance, they become no more 8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH
than limited partners, when they manifest their intent to be bound as general PROPERTY. A third person has the right to presume that a general partner
partners. dealing with partnership property has the requisite authority from his co-partners.

4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL PARTNERS 9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN
UNNECESSARY; STRANGERS DEALING WITH PARTNERSHIPS; POWER TO CONSIDERED WITHIN THE ORDINARY POWERS OF A GENERAL PARTNER.
BIND PARTNERSHIP. As to whether or not the consent of the other partners Where the express and avowed purpose of the partnership is to buy and sell
was necessary to perfect the sale of the partnership properties, the Court believes real estate (as in the present case), the immovables thus acquired by the firm form
that it is not. Strangers dealing with a partnership have the right to assume, in the part of its stock-in-trade, and the sale thereof is in pursuance of partnership
absence of restrictive clauses in the co- partnership agreement, that every general purposes, hence within the ordinary powers of the partner.
partner has power to bind the partnership.
10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION ON
5. ID.; ID.; ESTOPPEL. By allowing defendant Kong Chai Pin to retain control of GROUND OF FRAUD; NO INADEQUACY OF PRICE; CASE AT BAR.
the partnership properties from 1942 to 1949, plaintiff Goquiolay estopped himself Appellants claim that the price was inadequate, relies on the testimony of a realtor,
from denying her (Kong Chai Pins) legal representation of the partnership, with the who in 1955, six years after the sale in the question, asserted that the land was by
power to bind it by proper contracts. then worth double the price for which it was sold. But taking into account the
continued rise of real estate values since liberation, and the fact that the sale in
6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF question was practically a forced sale because the partnership has no other means
MANAGING PARTNER AUTHORIZED BY OTHER PARTNER TO MANAGE to pay the legitimate debts, this evidence certainly does not show such "gross
PARTNERSHIP. By authorizing the widow of the managing partner to manage inadequacy" as to justify the rescission of the sale.
partnership property (which a limited partner could not be authorized to do), the
other general partner recognized her as a general partner, and is now in estoppel 11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD. The
to deny her position as a general partner, with authority to administer and alienate Supreme court has ruled that relationship alone is not a badge of fraud (Oria Hnos.
partnership property. v. McMicking, 21 Phil., 243; Hermandad de Smo. Nombre de Jesus v. Sanchez, 40
Official Gazette 1685).
12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD TO
OBTAIN CONSENT. Fraud used to obtain a partys consent to a contract (deceit
or dolus in contrahendo) is different from fraud of creditors that gives rise to a
rescission of contract.
13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER MEANS TO
OBTAIN REPARATION, NECESSARY. The action for rescission is subsidiary; it
can not be instituted except when the party suffering damage has no other legal
means to obtain reparation for the same. hence, if there is no allegation or
evidence that the plaintiff can not obtain reparation from the widow and heirs of the
deceased partner, the suit to rescind the sale in question s not maintainable, even if
the fraud charged actually did exist.
Facts:
Goquiolay and Tan Sin An were partners, engage in realestate business, who
owned 3 parcels of land.
Tan Sin An purchased 46 parcels of land. Both the partnership and Tan Sin An
alone executed mortgages in favo r of the same company, La Urbanidad Sociedad
Mutua deConstruccion. For the partnership, it was P25,000 while for Tan Sin An, it
was P35,000.
The two mortgage obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result, Tan Sin An, inhis individual capacity, and
the partnership bound themselvesto pay jointly and severally within a period of 8
yrs.
On 1942, Tan Sin An died, his widow, Kong Chai Pin was madeAdministratrix of his
estates in 1944. In 1949, she executed asale of these lands. This was executed
in her dual capacity as
Administratrix of her husbands estates and as partner
in lieu of her husband. She sold these to respondents WashingtonSycip and Betty
Lee.
DEFENSE: Goquiolay insists that Kong Chai Pin never became more than
alimited partner, incapacitated by law to manage the affairs of partnership;
that the testimony of Kongs witnesses belie that she took over the
administration of the partnership property; and that, in any event, the sale
should be set aside because it was executed with the intent to defraud
Goquiolay of his share in the properties sold.
Issue: W/N Tan Sin Ans widow, Kong Chai Pin, became partner when her
husband died, allowing her to validly sell the property that belongs to the
partnership?
Rule: Yes.
The heir ordinarilybecomes a limited partner for his own protection, because
hewould normally prefer to avoid any liability in excess of the value of the estate
inherited so as not to jeopardize his personal assets, however, he may also elect to
become general partner instead.
The Articles did not provide that the heirs of the deceasedwould be merely
limited partners; on the contrary, theyexpressly stipulated that in case of death of
either partner "theco-partnership ... will have to be continued " with the heirs or
assigns.
Also, Goquiolay is estopped from saying that Kong Chai Pin is not ageneral partner
because he granted her the authority to manage the partnership properties.
In addition to this authority, the Court had yet again stressed the fact that he had 7
years between the death of his partner and the sale made by his partners widow to
take up the management of the properties himself, which he clearly failed to do.
Soncuya v. de Luna

Soncuya v. de Luna G.R. No. L-45464, April 28, 1939, Villa-Real, J.
Facts:
Petitioner filed a complaint against respondent for damages as a result of the
fraudulent administration of the partnership, Centro Escolar de Senoritas of which
petitioner and the deceased Avelino Librada were members. For the purpose of
adjudicating to plaintiff damages which he alleges to have suffered as a partner, it
is necessary that a liquidation of the business be made that the end profits and
losses maybe known and the causes of the latter and the responsibility of the
defendant as well as the damages in which each partner may have suffered,
maybe determined.
Issue: Whether the petitioner is entitled to damages.
Ruling:
According to the Supreme Court the complaint is not sufficient to constitute a cause
of action on the part of the plaintiff as member of the partnership to collect
damages from defendant as managing partner thereof, without previous liquidation.
Thus, for a partner to be able to claim from another partner who manages the
general co-partnership, allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said partnership is necessary.
Article 1832. Except so far as may be necessary to wind up partnership affairs or
to complete transactions begun but not then finished, dissolution terminates all
authority of any partner to act for the partnership:
(1) With respect to the partners,
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases
where article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
Article 1833. Where the dissolution is caused by the act, death or insolvency of a
partner, each partner is liable to his co-partners for his share of any liability created
by any partner acting for the partnership as if the partnership had not been
dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the
partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner acting
for the partnership had knowledge or notice of the death or insolvency.
Article 1834. After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article: (1) By any act appropriate for winding
up partnership affairs or completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken
place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the
partnership prior to dissolution, and, having no knowledge or notice of dissolution,
the fact of dissolution had not been advertised in a newspaper of general
circulation in the place (or in each place if more than one) at which the partnership
business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of
partnership assets alone when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation
of the partnership could not be said to have been in any degree due to his
connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the
business, unless the act is appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except by a
transaction with one who -
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and, having no
knowledge or notice of his want of authority, the fact of his want of authority has not
been advertised in the manner provided for advertising the fact of dissolution in the
first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article 1825 of any person who
after dissolution represents himself or consents to another representing him as a
partner in a partnership engaged in carrying on business. (n)
Article 1835. The dissolution of the partnership does not of itself discharge the
existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the
partnership by an agreement to that effect between himself, the partnership
creditor and the person or partnership continuing the business; and such
agreement may be inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership continuing the
business.
The individual property of a deceased partner shall be liable for all obligations of
the partnership incurred while he was a partner, but subject to the prior payment of
his separate debts. (n)
Article 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving partner,
not insolvent, has the right to wind up the partnership affairs, provided, however,
that any partner, his legal representative or his assignee, upon cause shown, may
obtain winding up by the court. (n)
CLARIDADES V MERCADER AND FERNANDEZ (1966)
Concepcion
Doctrine: As plaintiffs complaint merely seeks the liquidation of his partnership with
the defendants, it is to be considered a personal action which may be brought in
the place of residence of either the plaintiff or the defendant. The fact that the
plaintiff prayed for the sale of the assets of the partnership, did not change the
nature or character of action, such sale being merely a necessary incident of the
liquidation of the partnership, which should precede and/or is part of its process of
dissolution.
Plaintiff-Appellant: Dr. Simeon S. Claridades
Defendants-Appellees: Vicente Mercader and Perfecto Fernandez
Intervenors: Guillermo Reyes, Armando Asuncion, Alfredo Zulueta, Yap Leding
Facts: Claridades brought the present action against Mercader and Fernandez for
the dissolution of a partnership allegedly existing between them and an accounting
of the operation of the partnership, particularly a fishpond located in Sta. Cruz,
Marinduque, which was the main asset of the partnership, from September 1954,
as well as to recover moral and exemplary damages, in addition to attorney's fees
and costs. On the other hand, defendants admit the existence of the partnership
and that it had been so far unproductive, averring further that there is an impending
auction sale of said fishpond due to delinquency in the payment of taxes owing to
lack of funds and plaintiff's failure to contribute what is due from him.
Subsequently, Reyes was allowed to intervene for the purpose of recovering a sum
of money allegedly due him for services rendered as foreman of said fishpond, plus
damages. Later, Asuncion succeeded in intervening as the alleged assignee of the
interest of Mercader in said partnership and fishpond. Thereafter, the lower court
appointed a receiver of the fishpond. Upon the other hand, Alfredo Zulueta and his
wife Yap Leding sought permission to intervene, still later, alleging that they are the
owners of said fishpond, having bought of it from Regencia, who, in turn, had
acquired it from Asuncion, who had purchased the fishpond from defendant
Mercader, and the other half having been assigned to him directly by Asuncion.
Despite plaintiff's opposition thereto, said permission was granted in an order dated
Feb. 8, 1962, which, likewise gave the Zuluetas ten days within which to file such
pleading as they may deem necessary for the protection of their rights. On Feb. 12,
1962, the Zuluetas filed a motion to dismiss upon the ground that the complaint
states no cause of action; that venue has been improperly laid; and that plaintiff
complaint is moot and academic. Acting upon the motion, on March 2, 1962, the
lower court granted the same upon the ground of improper venue ratiocinating that
that the subject matter of this case is the possession of said fishpond, because
plaintiff prays in the complaint that the assets of the partnership, including said
fishpond be sold, that the proceeds of the sale be applied to the payment of the
debts of the partnership, and that the residue be distributed equally among the
partners and since the fishpond is located in Marinduque, the complaint should
have been lodged there.
Issue: WON the present action should have been instituted, not in the CFI of
Bulacan, but in that of Marinduque, where the disputed fishpond is located
Held/Ratio: No, the present action was correctly instituted in the CFI of Bulacan.
Plaintiff's complaint merely seeks the liquidation of his partnership with defendants
Fernandez and Mercader. This is obviously a personal action, which may be
brought in the place of residence of either the plaintiff or the defendants. Since
plaintiff is a resident of Bulacan, he had the right to bring the action in the court of
first instance of that province. What is more, although defendants Fernandez and
Mercader reside in Marinduque, they did not object to the venue. In other words,
they waived whatever rights they had, if any, to question it. The fact that plaintiff
prays for the sale of the assets of the partnership, including the fishpond in
question, did not change the nature or character of action, such sale being merely
a necessary incident of the liquidation of the partnership, which should precede
and/or is part of its process of dissolution. Neither plaintiff's complaint nor the
answer filed by defendants Fernandez and Mercader questioned the title to said
property or the possession thereof. The situation was not changed materially by the
Intervention either of Asuncion or of the Zuluetas, for, as alleged successors to the
interest Mercader in the fishpond, they, at best, stepped into his shoes.
LOTA vs TOLENTINO
On April 6, 1949, counsel for plaintiff filed a motion praying that deceased
defendant be substituted by his heirs, Marta Sadiasa and Efigenia, Resurreccion
and Mercedes, all surnamed Tolentino, as parties defendant in this case. To said
motion counsel for defendant interposed an opposition upon the following grounds:
I. That the nature of the action for accounting and liquidation of the partnership filed
by plaintiff since March 3, 1937, is purely personal in character and, upon the death
of the defendant on November 22, 1939, the claim was already extinguished. II.
Assuming that the action for accounting and liquidation of the partnership is not
purely personal in character and that such claim is not yet extinguished, the case
should now be dismissed in view of the failure of the plaintiff to prosecute his action
for an unreasonable length of time. III. Assuming further that the plaintiff's claim
was not yet extinguished upon the death of the defendant on November 22, 1939,
the rights, if any, sought to be enforced by the plaintiff in the complaint have already
been lost by claches.
The question before the Court therefore is whether the motion for substitution
should be granted and the case allowed to go to trial on the merits, or whether the
defendant's opposition should be sustained and the case dismissed. The following
factual background appears of record:
On March 3, 1937, plaintiff filed an action against defendant to order the latter (a) to
render an accounting of his management of their partnership, and (b) to deliver the
plaintiff whatever share he may have in the assets of the partnership after the
liquidation has been approved by the Court.
The partnership above-mentioned was entered into by and between plaintiff and
defendant in the year 1918, whereby they agreed to engage in general business in
the municipality of Alabat, province of Batangas, both to divide the profits and
losses share alike, and defendant to be manager of the partnership. Plaintiff
alleges that from 1918 until 1928 defendant had rendered an annual accounting,
but has refused to do so from 1929 to 1937, hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer, alleging that defendant was the
industrial partner in said partnership; that he rendered a yearly accounting and
liquidation thereof from 1918 to 1932, and that in the latter year, 1932, the
partnership was dissolved and defendant delivered all its properties and assets to
the plaintiff. Hence, defendant prays for the dismissal of plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939, he was substituted by the
administrator of his estate, Solomon Lota.
On December 8, 1939, defendant's counsel made a suggestion upon the record
that defendant died on November 26, 1939. On January 9, 1940, the Court gave
plaintiff 30 days to amend the complaint by substituting for the deceased defendant
the administrator of his estate or his legal representative.
On January 28, 1941, the Court ordered the dismissal of the case for lack of
prosecution. This order was reconsidered and set aside upon a showing by plaintiff
that on March 28, 1941, he had filed a petition for the issuance of letters of
administration to deceased defendant's surviving spouse, Marta Sadiasa, for the
purpose of substituting her for the deceased defendant, said petition being Special
Proceedings No. 3859 of this Court entitled "Intestate Estate of the late Benigno
Tolentino, Solomon Lota, petitioner." This special proceedings was, however,
dismissed for failure of the administratrix to file a bond and to take her oath.
It will thus be seen that from defendant's death on November 26, 1939, to the
present, or almost ten years, no administrator or legal representative had been
actually substituted to take the place of said defendant. It was only on April 6, 1949,
that plaintiff made another try to substitute said deceased by filing his motion,
referred to in the first paragraph of this resolution, praying that defendant's heirs be
substituted for him as parties defendant.
The following considerations stand in the way of plaintiff's motion for substitution:
1. It being undisputed that defendant was the manager of the partnership formed
by and between him and the plaintiff, and that said defendant died on November
26, 1939, during the pendency of the present for accounting and liquidation against
defendant, the said action should have been discontinued as it could no longer be
maintained against deceased defendant. Under these circumstances, the remedy
and duty of the plaintiff are as set out in the following ruling of the Supreme Court in
Po Yeng Cheo vs. Lim Ka Yam, (44 Phil. 172, 178):
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affairs devolves upon the surviving member, or
members of the firm, not upon the legal representative of the deceased partner.
(Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744). And the same rule must be equally applicable to a civil partnership clothed
with the form of the commercial association (ART. 1670, Civil Code; Lichauco vs.
Lichauco, 33 Phil., 350).
If, as it appears of record, plaintiff died prior to defendant's death, the duty to
liquidate devolved upon the legal representative of the plaintiff because it was the
latter who sought to establish a claim against the defendant.
2. If after such liquidation, there should be found money or property due the
partnership from the deceased defendant, a claim therefor should be filed against
the latter's estate in administration. Again, this is the procedure marked out in the
case just cited:
Upon the death of Lim Ka Yam it therefore become the duty of his surviving
associates to take the proper steps to settle the affairs of the firms, and any claim
against him, or his estate, for a sum of money due to the partnership by reason of
any misappropriation of its funds by him or damages resulting from his wrongful
acts as a manager, should be prosecuted against his estate in administration in the
manner pointed out in sections 686 to 701, inclusive, of the Code of Civil
Procedure. Moreover, when it appears, as here, that the property pertaining to
Kwong Cheong Tay, like the shares in the Ya sieng Chyip Konski and Manila
Electric Railroad and Light Company, are in the possession of the deceased
partner, the proper step for the surviving associates to take would be to make
application to the court having charge of the administration to require the
administration to surrender such property. (Po Yeng Cheo vs. Lim Ka Yam, supra.)
This procedure was not also followed in the case at bar because plaintiff, or his
legal representative, did not procure the appointment and qualification of an
administrator of the estate of deceased defendant, altho he had already filed a
petition looking towards such administration. This plaintiff was under a duty to do if
he considered himself a creditor with a legitimate claim enforceable against the
estate of deceased defendant.
3. What plaintiff, or his legal representative, insisted on doing in the present case is
to continue and press his action for accounting and liquidation against the heirs of
deceased defendant, a procedure which, as above stated, runs counter to that set
out in the Po Yeng Cheo vs. Lim Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he only filed a petition for the
appointment of an administrator for the estate of deceased defendant, but did not
see to it that administrator filed a bond and qualify as such. Hence, the said petition
for administration was dismissed.
4. Also, conceding, without admitting, that the present action for accounting would
lie against defendant, it is this Court's opinion that such a duty to account died with
the defendant, was extinguished upon his death, and was not shifted upon his
heirs. The heirs of the defendant have never been partners in the partnership
formed by and between plaintiff and defendant, and said heirs are hardly in a
position and hardly called upon to effect an accounting of said partnership.
5. Finally, it will be recalled that the partnership in question was organized in 1918
and dissolved in 1932. The action for accounting was commenced on March 3,
1937. And the present motion for substitution was filed on April 6, 1949, only. Trial
on the merits at this late date might prove futile and fruitless if no partnership
property is found in the possession of defendant's heirs, let alone the allegation of
said defendant in his answer to the complaint back in 1937 that he had already
delivered all the properties and assets of the partnership to the plaintiff. If the
principle of laches is ever to be applied, it should be applied to this case.
Wherefore, the plaintiff's action for substitution is denied and defendant's prayer for
the dismissal for this case against the plaintiff.
The present appellant is Solomon Lota, in his capacity as administrator of the
estate of Urbano Lota, original plaintiff, who died in l938. The decisive question that
arises is whether or not, after the death of the defendant Benigno Tolentino on
November 22, 1939, plaintiff's action for accounting and liquidation of the
partnership formed in l918 between Urbano Lota and Benigno Tolentino, of which
the latter was the industrial and managing partner, may be continued against the
heirs of Benigno Tolentino. This question was decided adversely to the appellant by
the lower court and, in our opinion, correctly. The applicable authority is the case of
Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172, in which the following
pronouncements were made:
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affairs devolves upon the surviving member, or
members, of the firm, not upon the legal representatives of the deceased partner.
(Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744.) And the same rule must be equally applicable to a civil partnership clothed
with the form of a commercial association (art. 1670, Civil Code: Lichauco vs.
Licahuco, 33 Phil., 350). Upon the death of Lim Ka Yam it therefore become the
duty of his surviving associates to take the proper steps to settle the affairs of the
firm, and any claim against him, or his state, for a sum of money due to the
partnership by reason of any misappropriation of its funds by him, or for damages
resulting from his wrongful acts as manager, should be prosecuted against his
estate in administration in the manner pointed out in sections 686 to 701, inclusive,
of the Code of Civil Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip
Konski and Manila Electric Railroad and Light Company, are in the possession of
the partner, the proper step for the surviving associates to take would be to make
application to the court having charge of the administration to require the
administrator to surrender such property.
But in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and the
court, abandoning entirely the effort to obtain an accounting, gave judgment
against the administrator upon the supposed liability of his intestate to respond for
the plaintiffs proportionate share of the capital and assets. But of course the action
was not maintenable in this aspect after the death of the defendant; and the motion
to discontinue the action against the administrator should have been granted. (pp.
178-179.)
Another ground equally decisive against the appellant correctly advanced by
the lower court in dismissing the present action for accounting, is lack of
prosecution on the part of the appellant. It may be fittingly recalled that the action
for accounting and liquidation was filed on March 3, l937. No sooner had the
defendant Benigno Tolentino died on November 22, l939, than said fact was made
record by his attorney. On January 9, 1940, the lower court gave the plaintiff (who
had then died and was substituted on September 28, 1939, by the administrator of
his estate, Solomon Lota), 30 days to amend the complaint by substituting the
administrator or legal representative of the deceased defendant Benigno Tolentino.
On January 28, 1941, the lower court dismissed the case for lack of prosecution on
the part of the plaintiff, but the order of dismissal was reconsidered, upon a
showing by the plaintiff that on March 28, 1941, an administration proceeding for
the estate of Benigno Tolentino was instituted by the plaintiff. On August 8, 1941
the lower court issued, at the instance of the plaintiff, letters of administration to
Tolentino's surviving spouse, Marta Sadiasa, who however failed to qualify.
Accordingly, the court dismissed the administration proceeding on January 3, 1949,
for lack of interest. It was only as late as April 6, l949, that the plaintiff filed the
motion to substitute, not even the legal representative of Benigno Tolentino but his
heirs.
If the plaintiff was genuinely interested in substituting the proper party, assuming
that plaintiff's action may still be pursued after Tolentino's death, he should have
taken timely measures to have the administratrix appointed on August 8, 1941,
qualify or, in case of her failure or refusal, to procure the appointment of another
administrator; because the plaintiff could have availed himself of section 6, Rule 80,
of the Rules of Court, providing that "letters of administration may be granted to any
qualified applicant, though it appears that there are other competent persons
having better right to the administration, if such persons fail to appear when notified
and claim the issuance of letters to themselves." Certainly, inaction for almost eight
years (after the issuance of letters of administration) on the part of the appellant,
sufficiently implies indifference to or desistance from its suit.
The theory of the appellant is that the heirs may properly be substituted for the
deceased Benigno Tolentino, because they are in possession of property allegedly
belonging to the partnership in question, and the appellant seeks the recovery
thereof. Apart from the fact that said allegation seems to refer to cause of action
foreign to the claim for accounting and liquidation against Tolentino, and should
have been made in proper pleading to duly admitted by the lower court, the filing of
appellant's motion for substitution more than twelve years after the institution of the
complaint came too late and already called for the prosecution. It is immaterial that,
before the appealed resolution was issued by the lower court, the appellant
attempted to have the deceased defendant had not yet been properly substituted.
The resolution herein complained of will therefore be as it is hereby affirmed, with
costs against the appellant. So ordered.
MAXIMO GUIDOTE v. ROMANA BORJA (administratrix of the estate of Narciso
Santos)
1928 / Ostrand

FACTS
Maximo Guidote and Narciso Santos formed in 1918 a partnership business under
the name of Taller Sinukuan, in which Santos was the capitalist partner and
Guidote was the industrial partner. Santos died in 1920. Guidote failed to liquidate
the affairs of the partnership and to render an account thereof to Borja, the
administratrix of Santos estate.
Guidote brought an action against Borja to recover a sum of money
[9k~], a part of which was alleged to be the net profits from the business due
Guidote, and the rest of the sum consisting of advances allegedly made by
Guidote. Borja admitted the partnerships existence and prayed that Guidote
be ordered to render an accounting and to pay the estate 25k as net profits,
credits, and property pertaining to Santos.
Guidote called several witnesses and introduced a so-called
accounting and a mass of documentary evidence, which was so hopelessly and
inextricably confused that the court could not consider it of much probative value.
The court dismissed Guidotes complaint and absolved Borja. Guidote was
ordered to render a full and complete accounting, verified by vouchers, of the
partnership business.
Guidote rendered an account prepared by one Tomas Alfonso, a
public accountant. Numerous objections were presented by Borja. The court
disapproved the account and ordered that Borja submit an accounting from
the date of the commencement of the partnership up to the time the business was
closed.
Borja presented an account and liquidation prepared by a public
accountant, Santiago A. Lindaya, showing a balance of P29k~ in Borjas
[Santos estate] favor. At the hearing, Borja introduced the public accountant Jose
Turiano Santiago to testify as to the results of an audit made by him of the
partnership accounts. Santiago testified that he had prepared a separate
accounting or liquidation similar in results to that prepared by Lindaya, but with a
few differences in the sums total. [Computation: Santos is a creditor of the Taller
Sinukuan in the sum of P26k. Guidote is a debtor to the Taller Sinukuan in the sum
of P20k.]
In order to contradict the conclusions of the two public accountants,
Guidote presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as
witnesses. The trial court judge said that the testimonies of these witnesses
are unreliable.
Tomas Alfonso is the same public accountant who filed the liquidation
Exhibit O on behalf of Guidote, in relation to the partnership business,
which liquidation was disapproved by this court in a decision. The
judge did not believe Alfonsos proposition that Guidote, a mere
industrial partner, notwithstanding his having received 21k on the
various jobs and contracts of the business had actually expended and
paid out 63k, of 44k in excess of the gross receipts of the business. It
materially contradicts Guidotes allegations to the effect that the
advances that he [Guidote] made amounted only to 2k.
Pio Gaudier is the same bookkeeper who prepared three entirely
separate and distinct liquidation for the same partnership business,
and the court found that the testimony given by him at the last hearing
is confusing, contradictory and unreliable.
Other witnesses were given scant considerationChua Chak can
neither read nor write English, Spanish, or Tagalog; Claro Reyes was
forced to admit that a certain exhibit was not the original.
The court gave credence to the conclusions reached by the public
accountants presented by Borja. Guidote was ordered to pay P26k to Borja,
with legal interest, plus costs.
ISSUE & HOLDING
WON the trial court is correct in ordering Guidote to pay P26k to Borja. YES
RATIO
There may be some merit in Guidotes contention that the dismissal of his
complaint was premature. The better practice would been to let the complaint stand
until the result of the liquidation of the partnership affairs was known. But under the
circumstances, no harm was done by the dismissal of Guidotes complaint.
GUIDOTES ARGUMENT
Since Santos, up to the time of his death, generally took care of the partnerships
payments and collections, his legal representatives were under the obligation to
render accounts of the operations, notwithstanding the fact that Guidote was in
charge of the business subsequent to the death of Santos.
GUIDOTES ARGUMENT IS UNAVAILING
Wahl v. Donaldson Sim & Co.
The death of one of the partners dissolves the partnership, but that the liquidation
of its affairs is by law entrusted, not to the executors of the deceased partner, but to
the surviving partners or the liquidators appointed by them.
The rule for the conduct of a surviving partner
In equity, surviving partners are treated as trustees of the representatives of the
deceased partner, with regard to the interest of the deceased partner in the firm. As
a consequence of this trusteeship, surviving partners are held in their dealings with
the firm assets and the representatives of the deceased to that nicety of dealing
and that strictness of accountability required of and incident to the position of one
occupying a confidential relation. It is the duty of surviving partners to render an
account of the performance of their trust to the personal representatives of the
deceased partner, and to pay over to them the share of such deceased member in
the surplus of firm property, whether it consists of real or personal assets.
Guidote failed to observe this rule, and he is not in position to complain if his
testimony and that of his witnesses is discredited.
The appealed judgment is AFFIRMED.
Article 1837. When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all persons
claiming through them in respect of their interests in the partnership, unless
otherwise agreed, may have the partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash the net amount owing to the
respective partners. But if dissolution is caused by expulsion of a partner, bona fide
under the partnership agreement and if the expelled partner is discharged from all
partnership liabilities, either by payment or agreement under the second paragraph
of article 1835, he shall receive in cash only the net amount due him from the
partnership.
When dissolution is caused in contravention of the partnership agreement the
rights of the partners shall be as follows: (1) Each partner who has not caused
dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others,
may do so, during the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the payment by bond
approved by the court, or pay any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1 (b) of this article, and in
like manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph,
No. 2, all the rights of a partner under the first paragraph, subject to liability for
damages in the second paragraph, No. 1 (b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article,
the right as against his co- partners and all claiming through them in respect of
their interests in the partnership, to have the value of his interest in the partnership,
less any damage caused to his co-partners by the dissolution, ascertained and
paid to him in cash, or the payment secured by a bond approved by the court, and
to be released from all existing liabilities of the partnership; but in ascertaining the
value of the partner's interest the value of the good-will of the business shall not be
considered. (n)
Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC
and Joaquin Misa
G.R. No. 109248 July 3, 1995
Vitug, J.
Facts:
Ortega, then a senior partner in the law firm Bito, Misa, and Lozada
withdrew in said firm.
He filed with SEC a petition for dissolution and liquidation of partnership.
SEC en banc ruled that withdrawal of Misa from the firm had dissolved the
partnership. Reason: since it is partnership at will, the law firm could be
dissolved by any partner at anytime, such as by withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will.
Issue: 1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will; 2. WON the withdrawal of Misa dissolved the
partnership regardless of his good or bad faith;
Held: 1. Yes. The partnership agreement of the firm provides that [t]he partnership
shall continue so long as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the surviving partners.
2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will (e.g. by way of withdrawal of a partner). He must, however,
act in good faith, not that the attendance of bad faith can prevent the dissolution of
the partnership but that it can result in a liability for damages
Article 1838. Where a partnership contract is rescinded on the ground of the fraud
or misrepresentation of one of the parties thereto, the party entitled to rescind is,
without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership and for any capital or
advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of
the creditors of the partnership for any payments made by him in respect of the
partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership. (n)
Article 1839. In settling accounts between the partners after dissolution, the
following rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are: (a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2. (2) The liabilities of the partnership shall rank in order of
payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits, (c) Those owing to
partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this
article to the satisfaction of the liabilities. (4) The partners shall contribute, as
provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court
shall have the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights
of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims
against his separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
Article 1840. In the following cases creditors of the dissolved partnership are also
creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner assigns)
his rights in partnership property to two or more of the partners, or to one or more
of the partners and one or more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner, who
continues the business without liquidation of partnership affairs, either alone or with
others;
(3) When any partner retires or dies and the business of the dissolved partnership
is continued as set forth in Nos. 1 and 2 of this article, with the consent of the
retired partners or the representative of the deceased partner, but without any
assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who
continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining partners
continue the business under the provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business
either alone or with others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the dissolved partnership, as
against the separate creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner against the person or
partnership continuing the business, on account of the retired or deceased
partner's interest in the dissolved partnership or on account of any consideration
promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set aside any
assignment on the ground of fraud.
The use by the person or partnership continuing the business of the partnership
name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the deceased partner
liable for any debts contracted by such person or partnership. (n)
BERNARDO vs PASCUAL
4. PARTNERSHIP IN LUMBER CONCESSIONS; LIABILITY OF PARTNER WHO
ACQUIRES INTERESTS OF CO-PARTNERS. A partner in a lumber concession
who acquires the interests of his co-partners becomes the sole concessionaire and
becomes liable to all creditors of the partnership (Art. 1840, New Civil Code).
DECISION
GUTIERREZ DAVID, J.:
This is a petition to review on certiorari a decision of the Workmens Compensation
Commission, awarding compensation to the widow and children of the deceased
Pedro Pascual who met death as a result of an accident while felling a tree in
petitioners lumber concession.
The record shows that on March 9, 1955, the deceased Pedro Pascual was,
together with Rogelio Bacane and Martin Quinto, in the woods at Corona, San
Miguel, Bulacan. Bacane and Quinto, both loggers admittedly in the employ of
herein petitioner, were cutting timber, while fifty meters away from them the
deceased was felling a tree which he had started hewing three days before. When
Bacane and Quinto heard the sound of the falling tree and following the practice
among loggers they shouted to Pascual to find out if he was alright. As the latter
did not answer, they rushed to where he was and there found him prostrate on the
ground with blood trickling from his mouth. Shortly thereafter, he died from a
fractured skull and his companions took his body home in petitioners truck.
On March 31, 1955, the widow of the deceased on behalf of herself and their
children filed a claim for compensation with the Workmens Compensation
Commission. Originally filed against the Bernardo Sawmill, the claim was on
February 6, 1956 amended to include herein petitioner Lino P. Bernardo, the timber
concessionaire and owner and operator of the sawmill, as party Respondent. In his
answer, the latter denied that he was a timber concessionaire before October 13,
1955, or that he had an employer-employee relationship with the deceased. He
also objected to the claim on the ground of prescription. The referee assigned to
hear the case having denied the claim, the claimants petitioned for review. On
August 27, 1957, the reviewing commissioner reversed the referees decision and
ordered Lino P. Bernardo to pay claimants P3,120.00 as compensation, to
reimburse them P200.00 for burial expenses and to pay to the Workmens
Compensation Fund P32.00 as fees. Reconsideration of this award having been
denied, Lino P. Bernardo brought the present petition for certiorari.
Petitioner first charges that the respondent Commission abused its discretion in
reversing the decision of the referee and finding that the deceased was his
employee. Petitioner, however has failed to substantiate the charge. On the other
hand, Rogelio Bacane and Martin Quinto, whose employment with the petitioner
was never denied and who were present and were working together with the
deceased at the time the latter met his death, testified at the hearing of the case
that the said deceased was their co-laborer in the lumber concession of petitioner
Lino P. Bernardo. Indeed, the respondent Commission, expressly found that their
testimonies "clearly point to the existence of an employer-employee relation
between the respondent (herein petitioner) and the deceased." It also appears that
the deceased, Bacane and Quinto used to receive their wages from Emilio
Bautista, petitioners "katiwala." As a matter of fact, the widow of the deceased
received from said Bautista the wages corresponding to services last rendered by
her husband. Petitioner claims that Bautista was a forest guard of the Government
and was not his employee. This claim, however, loses its force when we consider
the fact that forest guards hired by lumber concessionaire, though appointed by the
Department of Agriculture and Natural Resources (under Forestry Order No. 11),
are still deemed employees of the concessionaires. (See Martha Lumber Mill v.
Lagradante, Et Al., 99 Phil., 434; 52 Off. Gaz. [9] 4230.)
In disclaiming employer-employee relationship with the deceased, petitioner has
made the rather reckless accusation that the said deceased was a "lumber
smuggler" who had been stealing timber from the concession area. No explanation,
however, was given why the deceased at the time of his death was felling a tree in
broad daylight and in the presence of petitioners two loggers. In this connection,
we might add that the finding of the respondent Commission that the deceased was
petitioners employee at the time of his death is a finding of fact and there being no
sufficient showing that the same is unsupported by substantial evidence, the same
should be deemed final and conclusive upon this Court. (Madrigal Shipping Co. v.
Del Rosario, Et Al., G. R. No. L-13130, October 31, 1959; NLU v. Sta. Ana, 101
Phil., 297; 54 Off. Gaz. [6] 1817; see also PAL v. PAL Employees Association G. R.
No. L-8197, October 31, 1958; Donato v. Phil. Marine Officers Association, G. R.
No. L-12506, May 18, 1958; 15c and Up Employees Association v. Dept. and
Bazaar Free Workers Union, G. R. No. L-9168, October 18, 1956; NLU v.
Dinglasan, 98 Phil., 649; 52 Off. Gaz. (4) 1933; Batangas Transportation Co. v.
Rivera and WCC, supra, p.175.)
Petitioner also argues that the claim was made out of time and therefore already
barred because it was filed only on February 6, 1956. It will be recalled that
claimants filed their original claim on March 31, 1955 against the Bernardo Sawmill,
and on February 6, 1956, amended it to include petitioner Lino P. Bernardo as
party respondent, it appearing that he was the owner and operator of the sawmill. It
will thus be seen that in amending the claim, claimants merely specified the real
party in interest in accordance with the rule that every action must be prosecuted in
the name of such party in interest (Section 2, Rule 3, Rules of Court). Since the
amendment did not state a new cause of action but merely made more determinate
the real party respondent, it evidently relates back to the date of the original
complaint or claim, which was admittedly filed within the 3-month period from the
death of the employee as fixed by section 24, of the Workmens Compensation Act.
With respect to petitioners claim that he became a lumber concessionaire only on
October 13, 1955, since it to say that prior to that date, he was a partner to several
persons owning the concession in San Miguel, Bulacan, and subsequent thereto,
he acquired the interest of his partners and became the sole concessionaire. Under
those circumstances he became liable to the creditors of the partnership. (Art.
1840, new Civil Code.)
Wherefore, the decision of the Workmens Compensation Commission sought to be
reviewed is affirmed, with costs.
Benjamin Yu vs. National Labor Relations Commission (NLRC)
FACTS:
Petitioner Yu was hired as the Assistant General Manager of Jade Mountain
Products Company Limited primarily responsible for the overall operations of
marble quarrying and export business of said partnership. He was hired by a virtue
of a Partnership Resolution in 1985 with a monthly salary of P4,000.00. Initially he
received only half of his stipulated monthly salary and was promised by the
partners that the balance would be paid upon securing additional operating funds
from abroad. However, in 1988 without his knowledge the general partners as well
as one of the limited partners sold and transferred their interest to Willy Co and
Emmanuel Zapanta. Thus the new major partners decided to transfer the firms
main office but opted to continue the operation of the old partnership under its old
firm name and with all its employees and workers except for the petitioner. Upon
knowing of the changes in the partnership, petitioner went to the new main office to
meet the new partners and demand the payment of his unpaid salaries, but the
latter refused to pay him and instead informed him that since he bought the
business from the original partners, it was for him to decide whether or not he was
responsible for the obligations of the old partnership including petitioners unpaid
salaries. Hence, petitioner was dismissed from said partnership.
ISSUES:
[if !supportLists]1. [endif]Whether the partnership which had hired the petitioner
as Asst. General Manager had been extinguished and replaced by a new
partnership composed of Willy Co and Emmanuel Zapanta.
[if !supportLists]2. [endif]Whether petitioner could assert his rights under his
employment contract as against the new partnership
HELD:
[if !supportLists]1. [endif]Yes. The legal effect of the changes in the membership
of the partnership was the dissolution of the old partnership which had hired the
petitioner in 1984 and the emergence of the new firm composed of Willy Co and
Emmanuel Zapanta in 1988. This is based on the following provisions:
Art. 1828. The dissolution of partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as a
distinguished from the winding up of the business.
Art. 1830. Dissolution is caused:
1. without violation of the agreement between the partners;
b. by the express will of any partner, who must act in good faith, when no
definite term or particular undertaking is specified.
2. in contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of
this article, by the express will of any partner at any time;
However, the legal consequence of dissolution of a partnership do not
automatically result in the termination of the legal personality of the old partnership
as according to Art. 1829, on dissolution of the partnership is not terminated, but
continues until the winding up of the partnership affairs is completed. The new
partnership simply continued the operations of the old partnership under its old firm
name without winding up the business affairs of the old partnership.
2. Yes. Under Art. 1840, creditors of the old partnership are also creditors of the
new partnership which continued the business of former without liquidation of the
partnership affairs. Thus, creditor of the old Jade Mountain, such as the petitioner
is entitled to enforce his claim for unpaid salaries, as well as other claims relating to
his employment with the old partnership against the new Jade Mountain.
LAGUNA TRANSPORTATION CO., INC. VS SSS
DOCTRINE: where a corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and transferred to the
corporation for the purpose of continuing its business, in payment for which
corporate capital stock was issued, such corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor
FACTS:
Sometime in 1949 the Binan Transportation Co sold part of the lines and
equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Dominador Vera Cruz. After this sale, the vendees formed an unregistered
partnership under the name of Laguna Transportation Company which continued to
operate the lines and equipment bought from Binan Transpo Company.
The original partners with an additional two members, organized a corporation
known as the Laguna Transportation Company, Inc which was registered with the
SEC. the petitioner corporation filed this case praying that an order be issued by
the court declaring that it is not bound to register as a member of respondent SSS
and that they are not obliged to pay the latter the contributions required under the
Social Security Act. It is worthy to note that the corporation continued the same
transportation business of the unregistered partnership. The corporation was
claiming exemption from coverage for it only started its business on June 20, 1956
but Nov. 11 1957 the SSS notified it that it was within the coverage of the Social
Security Act.
ISSUE:
WON the plaintiff is within the coverage of the Social Security Act already? YES.
HELD:
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. Coverage in the System shall be compulsory
upon all employees between the ages of sixteen and sixty years, inclusive, if they
have been for at least six months in the service of an employer who is a member of
the System. Provided, That the Commission may not compel any employer to
become a member of the System unless he shall have been in operation for at
least two years . . . . (Italics supplied.).
The partnership Laguna Transportation Company commenced its business as a
common carrier in 1949. When it filed to be formed as a corporation, it only added
the word Inc to indicate that it was now duly incorporated under existing laws.
Since it continued the same business like the unregistered partnership, there was
only a change in form.
where a corporation was formed by, and consisted of members of a partnership
whose business and property was conveyed and transferred to the corporation for
the purpose of continuing its business, in payment for which corporate capital stock
was issued, such corporation is presumed to have assumed partnership debts, and
is prima facie liable therefor. The reason for the rule is that the members of the
partnership may be said to have simply put on a new coat, or taken on a corporate
cloak, and the corporation is a mere continuation of the partnership. Hence, there
was really no need to exempt them for it has been operating already for more than
six years by continuing with the business of the partnership.
Article 1841. When any partner retires or dies, and the business is continued
under any of the conditions set forth in the preceding article, or in article 1837,
second paragraph, No. 2, without any settlement of accounts as between him or his
estate and the person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or partnership may
have the value of his interest at the date of dissolution ascertained, and shall
receive as an ordinary creditor an amount equal to the value of his interest in the
dissolved partnership with interest, or, at his option or at the option of his legal
representative, in lieu of interest, the profits attributable to the use of his right in the
property of the dissolved partnership; provided that the creditors of the dissolved
partnership as against the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under this article, as
provided article 1840, third paragraph. (n)
Article 1842. The right to an account of his interest shall accrue to any partner, or single proprietorship solely owned and operated by himself alone.
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 TC ruled in favor of Respondent Leung Yiu.

the absence of any agreement to the contrary. (n)

IAC affirmed.

Dan Fue Leung v. IAC and Leung Yiu (1989)

o Both TC and IAC found that the Leung Yiu is a partner of the petitioner in the
setting up and operations of the
Gutierrez, Jr., J.

panciteria and the Leung Yiu invested in the business as a partner. Petitioner
Leung Yui is claiming his share in the business of Dan Fue, saying he is a partner
Dan Fue:
of the business. Dan Fue says he is not, and even if he is, he is prescribed from
claiming his share.
o The complaint avers that Leung Yiu extended 'financial assistance' to him at the
time of the establishment of the Panciteria. And in return, Leung Yiu will receive a
Sun Wah Panciteria, a restaurant, was established in Manila. It was
share in the profits of the restaurant.
registered as a single proprietorship and its licenses and permits were issued to
Dan Fue Leung as the sole proprietor.
o The same complaint did not claim that Leung Yiu is a partner of the business. It
was, therefore, an error for the TC and IAC to interpret 'financial assistance' to
Respondent Leung Yiu claims that Sun Wah Panciteria was actually
mean the contribution of capital by a partner to a partnership
a partnership and that he was one of the partners having contributed P4,000 to its
initial establishment.
Issue/Held: W/n there was a partnership between them --- YES

o Evidenced by receipt wherein the Dan Fue acknowledged acceptance of the

Ratio:
P4,000.o Witnesses So Sia and Antonio Ah Heng corroborated the testimony of
Leung Yiu to the effect that they were Leung Yiu alleged that when the Panciteria was established, he
gave P4,000 with the understanding that he would be entitled to 22% of the annual
both present when the receipt was signed by Dan Fue.o Leung Yiu received from
profit .
Dan Fue P12,000 covered by Fues Equitable Banking Check from the profits of the
This makes them partners in the establishment of Sun Wah
operation of the restaurant.Dan Fue denies receipt of P4,000 from Laung Yiu.
Panciteria because NCC 1767 provides that "By the contract of partnership two or
more persons bind themselves to contribute money, property or industry to a
o Says he did not receive any contribution at the time he started the Panciteria.o
common fund, with the intention of dividing the profits among themselves". Given
He used his savings from his salaries as capital in establishing the Panciteria.o He
its ordinary meaning, financial assistance is the giving out of money to another
presented various government licenses and permits showing the Sun Wah
without the expectation of any returns.
Panciteria was and still is a
 It connotes an ex gratia dole out in favor of someone driven Prescription begins to run only upon the dissolution of the partnership when
into a state of destitution. the final accounting is done.

But this circumstance under which the P4,000 was given to The resolution of the IAC ordering the payment of Dan Fues obligation shows that
the Dan Fue does not apply (bec Leung Yiu is entitled to 22%) Dan Fue raises it continues until fully paid. The question now arises as to whether or not the
prescription. He argues: IAC erred in not resolving the issue of prescription in his payment of a share of profits shall continue into the future with no fixed ending
favor. SC disagrees. date.

The alleged receipt is dated October 1, 1955 and the complaint was Considering the facts of this case, the Court may decree a
filed only on July 13, 1978 or after 22 years. From October 1, 1955 to July 13, dissolution of the partnership under Article 1831 of the Civil Code which, in part,
1978, no written demands were ever made by Leung Yiu. provides:

His argument is based on NCC 1144 (which says that the ffg actions Art. 1831. On application by or for a partner the court shall decree a
must be brought within 10 yrs: upon written contract, obligation created by law, dissolution whenever:
upon judgment) in relation to NCC 1155 (prescription is interrupted when they are
filed before the court, written extra judicial demand by creditor, & written (3) A partner has been guilty of such conduct as tends to affect prejudicially the

acknowledgment of debt by debtor) They are partners in Sun Wah Panciteria. carrying on of the business;

The requisites of a partnership are (4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters
Two or more persons bind themselves to contribute money, property, or industry to
a common fund; and relating to the partnership business that it is not reasonably practicable to carry on
the business in partnership with him;
Intention on the part of the partners to divide the profits among themselves have
been established. (6) Other circumstances render a dissolution equitable.

If excellent relations exist among the partners and all the partners SC orders a liquidation and winding up of partnership affairs, return of capital, and
are more interested in seeing the firm grow rather than get immediate returns, a other incidents of dissolution because the continuation of the partnership has
deferment of sharing in the profits is perfectly plausible. become inequitable.

It would be incorrect to state that if a partner does not assert his Petition dismissed.
rights anytime within 10 years from the start of operations, such rights are
Sison v. Helen McQuaid
irretrievably lost. NCC 1806, 1807, and 1809 show that the right to demand an
December 29, 1953
accounting exists as long as the partnership exists.
Principle: Liquidation shall happen before a partner may claim his share of one particular transaction instead of all the transactions had. Hence, the need for a
profit from the partnership. general liquidation before a member of a partnership may claim a specific sum as
his share of the profits.
Facts:
G.R. No. L-17526 June 30, 1962
Plaintiff brought an action in the CFI against defendant. Defendant borrowed from
him money (P 2,210) to enable her to pay her obligations and to add to her capital GREGORIO MAGDUSA, ET AL., petitioners,
in her lumber business. She could not pay so she proposed to take plaintiff as a vs.
partner in her business, plaintiff to contribute the P 2,210 due him from defendant. GERUNDIO ALBARAN, ET AL., respondents.

Before the last World War, the partnership sold 230,000board ft. of lumbe rto the Appellant and appellees, together with various other persons, had verbally formed

US Army for P 13,800.00. Defendant refused to deliver of it (P 6,900.00) to a partnership de facto, for the sale of general merchandise to which appellant

plaintiff despite his repeated demands. Plaintiff filed an action to compel defendant contributed P2,000 as capital, and the others contributed their labor, under the

to pay him his half of the profit from the partnership. condition that out of the net profits of the business, 25% would be added to the
original capital, and the remaining 75% would be divided among the members in

The case was dismissed upon the ground of prescription. proportion to the length of service of each. Sometime in 1953 and 1954, the
appellees expressed their desire to withdraw from the partnership, and appellant

Issue: Whether or not plaintiff is entitled to the sum he claims thereupon made a computation to determine the value of the partners' shares to
that date. The results of the computation were embodied in the document drawn in

Held:NO. Order of dismissal was affirmed, but on the ground that the complaint the handwriting of appellant. Appellees thereafter made demands upon appellant

states no cause of action. for payment, but appellant having refused, they filed the initial complaint in the
court below. Appellant defended by denying any partnership with appellees, whom

Ratio: It is not clear from the complaint just when the cause of action accrued. Thus he claimed to be mere employees of his.

the dismissal of the case is erroneous. However order should be retained on the
The Court of First Instance of Bohol dismissed the complaint on the ground that the
ground that the complaint has no cause of action. Plaintiff seeks to recover from
other were indispensable parties but had not been impleaded. Upon appeal, the
defendant one-half of the purchase price of lumber sold by the partnership to the
Court of Appeals reversed the decision, ruling that it is not an action for a
United States Army. But his complaint does not show why he should be entitled to
dissolution of a partnership and winding up of its affairs or liquidation of its assets
the sum he claims. It does not allege that there has been a liquidation of the
in which the interest of other partners who are not brought into the case may be
partnership business and the said sum has been found to be due him as his share
affected. The action of the plaintiffs is one for the recovery of a sum of money with
of the profits. The proceeds from the sale of a certain amount of lumber cannot be
Gregorio Magdusa as the principal defendant. The partnership, with Gregorio
considered profits until costs and expenses have been deducted. Moreover, the
Magdusa as managing partner, was brought into the case as an alternative
profits of the business cannot be determined by taking into account the result of
defendant only.
Issue: Whether or not appellees' action can be entertained, because in the
distribution of all or part of a partnership's assets, all the partners have no interest
and are indispensable parties without whose intervention no decree of distribution
can be validly entered.
Held:
It cannot be entertained. A partner's share cannot be returned without first
dissolving and liquidating the partnership, for the return is dependent on the
discharge of the creditors, whose claims enjoy preference over those of the
partners; and it is self-evident that all members of the partnership are interested in
his assets and business, and are entitled to be heard in the matter of the firm's
liquidation and the distribution of its property. The liquidation drawn by appellant is
not signed by the other members of the partnership besides appellees and
appellant; it does not appear that they have approved, authorized, or ratified the
same, and, therefore, it is not binding upon them. At the very least, they are entitled
to be heard upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is
first had, the capital shares of the appellees, as retiring partners, cannot be repaid,
for the firm's outside creditors have preference over the assets of the enterprise,
and the firm's property can not be diminished to their prejudice. Finally, the
appellant cannot be held liable in his personal capacity for the payment of partners'
shares for he does not hold them except as manager of, or trustee for, the
partnership. It is the latter that must refund their shares to the retiring partners.
Since not all the members of the partnership have been impleaded, no judgment
for refund can be rendered.
Lim Tanhu vs. Ramolete
66 SCRA 425
FACTS:
Private respondent Tan Put alleged that she is the widow of Tee Hoon Lim Po
Chuan, who was a partner and practically the owner who has controlling interest of
Glory Commercial Company and a Chinese Citizen until his death. Defendant
Antonio Lim Tanhu and Alfonso Leonardo Ng Sua were partners in name but they
were mere employees of Po Chuan and were naturalized Filipino Citizens. Tan Put
filed complaint against spouses-petitoner Lim Tanhu and Dy Ochay including their
son Tech Chuan and the other spouses-petitoner Ng Sua and Co Oyo including
also their son Eng Chong Leonardo, that through fraud and machination took
actual and active management of the partnership and that she alleged entitlement
to share not only in the capital and profits of the partnership but also in the other
assets, both real and personal, acquired by the partnership with funds of the latter
during its lifetime."
According to the petitioners, Ang Siok Tin is the legitimate wife, still living, and with
whom Tee Hoon had four legitimate children, a twin born in 1942, and two others
born in 1949 and 1965, all presently residing in Hong Kong. Tee Hoon died in 1966
and as a result of which the partnership was dissolved and what corresponded to
him were all given to his legitimate wife and children.
Tan Put prior of her alleged marriage with Tee Hoon on 1949, was engaged in the
drugstore business; that not long after her marriage, upon the suggestion of the
latter sold her drugstore for P125,000.00 which amount she gave to her husband
as investment in Glory Commercial Co. sometime in 1950; that after the investment
of the above-stated amount in the partnership its business flourished and it
embarked in the import business and also engaged in the wholesale and retail
trade of cement and GI sheets and under huge profits.
Defendants interpose that Tan Put knew and was are that she was merely the
common-law wife of Tee Hoon. Tan Put and Tee Hoon were childless but the
former had a foster child, Antonio Nunez.
ISSUE: Whether Tan Put, as she alleged being married with Tee Hoon, can claim
from the company of the latters share.

HELD:
Under Article 55 of the Civil Code, the declaration of the contracting parties that
they take each other as husband and wife "shall be set forth in an instrument"
signed by the parties as well as by their witnesses and the person solemnizing the
marriage. Accordingly, the primary evidence of a marriage must be an authentic
copy of the marriage contract. While a marriage may also be proved by other
competent evidence, the absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who allegedly solemnized a
marriage is not admissible evidence of such marriage unless proof of loss of the
contract or of any other satisfactory reason for its non-production is first presented
to the court. In the case at bar, the purported certification issued by a Mons. Jose
M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore,
competent evidence, there being absolutely no showing as to unavailability of the
marriage contract and, indeed, as to the authenticity of the signature of said
certifier, the jurat allegedly signed by a second assistant provincial fiscal not being
authorized by law, since it is not part of the functions of his office. Besides,
inasmuch as the bishop did not testify, the same is hearsay.
An agreement with Tee Hoon was shown and signed by Tan Put that she received
P40,000 for her subsistence when they terminated their relationship of common-law
marriage and promised not to interfere with each others affairs since they are
incompatible and not in the position to keep living together permanently. Hence,
this document not only proves that her relation was that of a common-law wife but
had also settled property interests in the payment of P40,000.
IN VIEW OF ALL THE FOREGOING, the petition is granted.
BONNEVIE vs HERNANDEZ
This is an action for the recovery of the sum of P115,312.50, with interests, as
plaintiffs' alleged share in the profits of a partnership.
It appears that prior to January, 1947, plaintiffs with other associates formed a
syndicate or secret partnership for the purpose of acquiring the plants, franchises
and other properties of the Manila Electric Co. hereinafter called the Meralco
in the provinces of Camarines Sur, Albay, and Sorsogon, with the idea of continuing
that company's business in that region. No formal articles were drawn for it was the
purpose of the members to incorporate once the deal had been consummated. But
in the meantime they elected Pedro Serranzana and David Serrano general
manager and secretary-treasurer, respectively, of the partnership.
Negotiation for the purchase was commenced, but as it made no headway,
defendant was taken in as a member of the partnership so that he could push the
deal through, and to that end he was given the necessary power of attorney. Using
partnership funds, defendant was able to buy the Meralco properties for P122,000,
paying P40,000 upon the signing of the deed of sale and agreeing to pay the
balance in two equal installments, that is, P41,000 on or before July 31, 1947, and
another P41,000 on or before January 31, 1948, with interest at 6 per cent per
annum and with a penalty clause which reads:
(6) That in case the VENDEE fails to make the payment or payments of the
balance due or any part thereof as herein provided, this contract shall, at the option
of the VENDOR, be annuled and, in such an event, all payments made by the
VENDEE to the VENDOR by virtue of this contract shall be forfeited and retained
by the VENDOR in full satisfaction as the liquidated damages sustained by said
VENDOR; and the said VENDOR shall have the right to forthwith reenter and take
possession of the premises, properties and rights which are the subject-matter of
this contract.
Although defendant was the one named vendee in the deed of sale, there is no
question that the transaction was in penalty made for the partnership so that the
latter assumed control of the business the day following the sale.
About the latter half of the following month the members of the partnership
proceeded with the formation of the proposed corporation, apportioning among
themselves its shares of stock in proportion to their respective contributions to the
capital of the partnership and their individual efforts in bringing about the
acquisition of the Meralco properties. But before the incorporation papers could be
perfected, several partners, not satisfied with the way matters were being run and
fearful that the venture might prove a failure because the business was not going
well and there was a possibility of their being assessed more than their original
investments when the time came to meet the two installments of the unpaid
purchase price due the Meralco, expressed their desire to withdraw from the
partnership and get back the money they had invested therein. In accordance with
this wish, one of them, Judge Jaime Reyes, in a meeting held on April 10, 1947, to
consider various matters connected with the business, presented a resolution to
the effect that those partners who did not want to remain in the association should
be allowed to withdraw and get back their contributions. The resolution was
approved, with the herein plaintiffs voting affirmatively, and on that same day
plaintiffs and Judge Reyes withdrew from the partnership, and, as admitted by both
parties, the partnership was then dissolved. In accordance with the terms of the
resolution, the withdrawing partners were, on the following day, reimbursed their
respective contributions to the partnership fund.
Following the dissolution of the partnership, the members who preferred to remain
in the business went ahead with the formation of the corporation, taking in new
associates as stockholders. And defendant, on his part, in fulfillment of his trust,
made a formal assignment of the Meralco properties to the treasurer of the
corporation, giving them a book value of P365,000, in return for which the
corporation issued, to the various subscribers to its capital stock, shares of stock of
the total face value of P225,000 and assumed the obligation of paying what was
still due the Meralco on the purchase price. The new corporation was named "Bicol
Electric Company."
Though business was losing during the first year, that is, in 1947, the corporation,
thanks to a loan obtained from the RFC later prospered and made money. Then
trouble began for one of its big stockholders, the defendant herein.
Two years from their withdrawal from the partnership, when the corporate business
was already in a prosperous condition, plaintiffs brought the present suit against
Jaime Hernandez, claiming a share in the profit the latter is supposed to have
made from the assignment of the Meralco properties to the corporation, estimated
by plaintiffs to be P225,000 and their share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of the assignment in
question and alleges that in any event plaintiffs, after their withdrawal from the
partnership, ceased to have any further interest in the subsequent transactions of
the remaining members.
After trial the lower court found that the partnership had not realized any profit out
of the assignment of the Meralco properties to the corporation and that, even
supposing that profit had really been made, defendant would not be the one to
answer to plaintiffs for their share thereof, because he did not receive the
consideration for the assignment, which according to the court, consisted of the
subscriptions of various persons to the capital stock of the corporation. The court
therefore dismissed the complaint with costs against the plaintiffs. From this
decision plaintiffs appealed. The case comes within our jurisdiction because of the
amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have been realized from the assignment of
the Meralco properties to the new corporation, the Bicol Electric Company, is more
apparent than real. It is true that the value set for those properties in the deed of
assignment was P365,000 when the acquisition price was only P122,000. But one
should not jump to the conclusion that a profit, consisting of the difference between
the two sums was really made out of the transaction, for the assignment was not
made for cash but in payment for subscriptions to shares of stock in the assignee,
and while those shares had a total face value of P225,000, this is not necessarily
their real worth. Needless to say, the real value of the shares of stock of a
corporation depends upon the value of its assets over and above its liabilities. It
does not appear that the Bicol Electric Company had any assets other than those
acquired from the Meralco, and according to the evidence the company, aside from
owing the Meralco, P82,000 was, in the language of the court below, actually "in
the red."
In the second place, assuming that the assignment actually brought profit to the
partnership, it is hard to see how defendant could be made to answer for plaintiffs'
alleged share thereof. As stated in the decision below, defendant did not receive
the consideration for the assignment for, as already stated, the assignment was
made in payment for subscriptions of various persons to the capital stock of the
new corporation. Plaintiffs, in order to give color of legality to their claim against
defendant, maintain that the latter should be held liable for damages caused to
them, consisting of the loss of their share of the profits, due to defendant's failure
properly to perform his duty as a liquidator of the dissolved partnership, this on the
theory that as managing partner of the partnership, it was defendant's duty to
liquidate its affairs upon its dissolutions. But it does not appear that plaintiffs have
ever asked for a liquidation, and as will presently be explained no liquidation was
called for because when plaintiffs withdrew from the partnership the understanding
was that after they had been reimbursed their investment, they were no longer to
have any further interest in the partnership or its assets and liabilities. Moreover,
the stipulation of facts made at the hearing does not bear out the claim that
defendant was the managing partner of the partnership, for if there appears that
the partnership had its general manager in the person of Pedro Serranzana, who
upon the formation of the new corporation also became its vice-president and
general manager.
As a general rule, when a partner retires from the firm, he is entitled to the payment
of what may be due him after a liquidation. But certainly no liquidation is necessary
where there is already a settlement or an agreement as to what the retiring partner
shall receive. In the instant case, it appears that a settlement was agreed upon on
the very day the partnership was dissolved. For when plaintiffs and Judge Jaime
Reyes withdrew from the partnership on that day they did so as agreed to by all the
partners, subject to the only condition that they were to be repaid their contributions
or investments within three days from said date. And this condition was fulfilled
when on the following day they were reimbursed the respective amounts due them
pursuant to the agreement.
There is evidence that the partnership was at that time operating its business at a
loss and that the partnership did not have necessary funds to meet its obligation to
Meralco for the balance of the purchase price. And in that connection it should be
recalled that nonpayment of that obligation would result in the partnership losing its
entire investment because of the penalty clause in the deed of sale. Because of
these circumstances there is every reason to believe that plaintiffs together with
Judge Jaime Reyes, withdrew from the partnership for fear that they might lose
their entire investment should they choose to remain in the partnership which then
faced the danger of losing its entire assets. As testified to by Judge Reyes, one of
the withdrawing partners, it was clearly understood that upon their withdrawal and
return to them of their investment they would have nothing more to do with the
association. It must, therefore, have been the intention or understanding of the
parties that the withdrawing partners were relinquishing all their rights and interest
in the partnership upon the return to them of their investment. That Judge Reyes
did not join the plaintiffs in this action is a clear indication that such was really the
understanding. Judge Reyes has testified that when he was invited to join in the
present claim he refused because he did not want to be a "sin verguenza." And,
indeed, if the agreement was that the withdrawing partners were still to have
participation in the subsequent transactions of the partnership so that they would
have a share not only in the profits but also in the losses, it is not likely that their
investment would have been returned to them.
It is, therefore, our conclusion that the acceptance by the withdrawing partners,
including the plaintiffs, of their investment in the instant case was understood and
intended by all the parties as a final settlement of whatever rights or claim the
withdrawing partners might have in the dissolved partnership. Such being the case
they are now precluded from claiming any share in the alleged profits, should there
be any, at the time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against defendant to be without
legal basis so that the judgment of dismissal rendered by the court below should
be, as it is hereby, affirmed, with costs against the appellants.
ORNUM v. LASALA
1. In 1908 Pedro Lasala, father of the respondents, andEmerenciano Ornum
formed a partnership
2. Lasala as capitalist while Ornum will be the industrial partner
3. Lasala delivered the sum of P1,000 to Ornum who will conducta business at his
place of residence in Romblon.
4. In 1912, when the assets of the partnership consisted ofoutstanding accounts
and old stock of merchandise,Emerenciano Ornum, following the wishes of his
wife, asked forthe dissolution of the Lasala, Emerenciano
5. Ornum looked for some one who could take his place and hesuggested the
names of the petitioners who accordinglybecame the new partners.
6. Upon joining the business, the petitioners, contributed P505.54as their capital
7. the new partnership Pedro Lasala had a capital of P1,000,appraised value of the
assets of the former partnership, plusthe said P505.54 invested by the petitioners
who, as industrialpartners, were to run the business in Romblon.
8. After the death of Pedro Lasala, his children (the respondents)succeeded to all
his rights and interest in the partnership
.9. The partners never knew each other personally
.10. No formal partnership agreement was ever executed.
11. The petitioners, as managing partners, were receivedone-half of the net gains,
and the other half was to be dividedbetween them and the Lasala group in
proportion to the capitalput in by each group.
12. During the course divided, but the partners were given theelection, as
evidenced by the statements of accounts referredto in the decision of the Court of
Appeals, to invest theirrespective shares in such profits as additional capital.
13. The petitioners accordingly let a greater part of theirprofits as additional
investment in the partnership.
14. After twenty years the business had grown to such anextent that is total value,
including profits, amounted toP44,618.67.
15. Statements of accounts were periodically prepared by thepetitioners and sent
to the respondents who invariably did notmake any objection thereto.
16. Before the last statement of accounts was made, therespondents had received
P5,387.29 by way of profits.
17. The last and final statement of accounts, dated May 27,1932, and prepared by
the petitioners after the respondentshad announced their desire to dissolve the
partnership,
18. Pursuant to the request contained in this letter, thepetitioners remitted and paid
to the respondents the totalamount corresponding to them under the above-
quotedstatement of accounts which, however, was not signed by thelatter.
19. Thereafter the complaint in this case was filed by therespondents, praying for
an accounting and final liquidation ofthe assets of the partnership.
20. The Court of First Instance of Manila held that the lastand final statement of
accounts prepared by the petitioners wastacitly approved and accepted by the
respondents who, byvirtue of the above-quoted letter of Father Mariano Lasala,
losttheir right to a further accounting from the moment theyreceived and accepted
their shares as itemized in saidstatement
.21. This judgment was reversed by the Court of Appealsprincipally on the ground
that as the final statement of accountsremains unsigned by the respondents, the
same standsdisapproved.
22. The decision appealed by the petitioners
ISSUES:(1) WoN the accounting stated in the letter including the last andfinal
statement of account was tacitly accepted by the petitioners as the final liquidation
and accounting of the assets of the partnership?(2) Are there really mistakes and
misrepresentations made in the statement of accounts made?
Petitioners contention:
To support a plea of a stated account so as t oconclude the parties in relation to all
dealings between them, the accounting must be shown to have been final. (1 Cyc.
366.) All the first nine statements which the defendants sent the plaintiffs
werepartial settlements, while the last, although intended to be final, has not been
signed.
HELD FOR ISSUE NO. 1: YES. SC stated that the last and final statement of
accounts hereinabove quoted, had been approved bythe respondents.
This approval resulted, by virtue of the letter of Father MarianoLasala of July 19,
1932, quoted in part in the appealed decisionfrom the failure of the respondents to
object to the statementand from their promise to sign the same as soon as
theyreceived their shares as shown in said statement.
After such shares had been paid by the petitioners andaccepted by the
respondents without any reservation, theapproval of the statement of accounts was
virtually confirmedand its signing thereby became a mere formality to be
compliedwith by the respondents exclusively. Their refusal to sign, afterreceiving
their shares, amounted to a waiver to that formality infavor of the petitioners who
has already performed theirobligation.
Article 1844. Two or more persons desiring to form a limited partnership shall: (1)
Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;

This approval precludes any right on the part of therespondents to a further

(c) The location of the principal place of business;
liquidation, unless the latter can showthat there was fraud, deceit, error or mistake
in said approval.(Pastor ,vs .Nicasio, 6 Phil., 152; Aldecoa & Co.,vs. Warner,
(d) The name and place of residence of each member, general and limited partners
Barnes & Co., 16 Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.)The Court of
being respectively designated;
Appeals did not make any findings that there wasfraud, and on the matter of error
or mistake it merely said (e) The term for which the partnership is to exist;

HELD FOR ISSUE NO. 2: the pronouncement that the evidencetends to prove that ( f ) The amount of cash and a description of and the agreed value of the other
there were mistakes in the petitioners' statementsof accounts, without specifying property contributed by each limited partner;
the mistakes, merely intimates assuspicion and is not such a positive and
unmistakable finding of factas to justify a revision, especially because the Court of (g) The additional contributions, if any, to be made by each limited partner and the
Appeals hasrelied on the bare allegations of the parties, Moreover, as times at which or events on the happening of which they shall be made;
thepetitioners did not appeal from the decision of the Court abandonedsuch
allegation in the Court of Appeals. no justifiable reason (fraud, deceit, error or (h) The time, if agreed upon, when the contribution of each limited partner is to be
mistake) has beenpositively and unmistakably found by the Court of Appeals soas returned;
to warrant the liquidations sought by the respondents. In justice to the petitioners. It
(i) The share of the profits or the other compensation by way of income which each
should be borne in mind that this case has been pending fornearly nine years and
limited partner shall receive by reason of his contribution;
that, if another accounting is ordered, acostly action or proceeding may arise which
may not bedisposed of within a similar period, it is not improbable that theintended
( j) The right, if given, of a limited partner to substitute an assignee as contributor in
relief may in fact be the respondents' funeral.
his place, and the terms and conditions of the substitution;

CHAPTER 4 Limited Partnership (n)

(k) The right, if given, of the partners to admit additional limited partners;

Article 1843. A limited partnership is one formed by two or more persons under the
(l) The right, if given, of one or more of the limited partners to priority over other
provisions of the following article, having as members one or more general
limited partners, as to contributions or as to compensation by way of income, and
partners and one or more limited partners. The limited partners as such shall not
the nature of such priority;
be bound by the obligations of the partnership.
(m) The right, if given, of the remaining general partner or partners to continue the The contract created was not a limited partnership but a general
business on the death, retirement, civil interdiction, insanity or insolvency of a partnership even if Ltd. was used in the firms name to avoid liability for
general partner; and possible losses.
The general rule is, that those who seek to avail themselves of the
(n) The right, if given, of a limited partner to demand and receive property other protection of laws permitting the creation of limited partnerships must show
than cash in return for his contribution. a substantially full compliance with such laws. A limited partnership that
has NOT complied with the law of its creation is not considered a limited
(2) File for record the certificate in the Office of the Securities and Exchange
partnership at all, but a GENERAL partnership in which all the members
Commission.
are liable.
To establish a limited partnership there must be, at least, one general
A limited partnership is formed if there has been substantial compliance in good
partner and the name of the least one of the general partners must appear
faith with the foregoing requirements.
in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.) But
NEITHER of these requirements have been fulfilled.
Jo Chung Cang vs Pacific Commercial Co., 45 phil. 142
Article 125 of the Code of Commerce provides that the articles of general
copartnership must estate the names, surnames, and domiciles of the
Facts:
partners; the firm name; the names, and surnames of the partners to
Following the presentation of an application to be adjudged an insolvent by
whom the management of the firm and the use of its signature is
the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific
instrusted; the capital; the duration of the copartnership; and the amounts
Commercial Company, Piol & Company, Riu Hermanos, and W. H.
which, in a proper case, are to be given to each managing partner annually
Anderson & Company, filed a motion in which the Court was prayed to
for his private expenses, while the succeeding article of the Code provides
enter an order: "(A) Declaring the individual partners as described in
that the general copartnership must transact business under the name of
paragraph 5 parties to this proceeding; (B) to require each of said partners
all its members, of several of them, or of one only. Turning to the document
to file an inventory of his property in the manner required by section 51 of
before us, it will be noted that all of the requirements of the Code have
Act No. 1956; and (C) that each of said partners be adjudicated insolvent
been met, with the sole EXCEPTION of that relating to the composition of
debtors in this proceeding."
the firm name.
The trial judge first granted the motion, but, subsequently, on opposition
What is said in Article 126 of the Code of Commerce relating to the general
being renewed, denied it. It is from this last order that an appeal was taken
copartnership transacting business under the name of all its members or of
in accordance with section 82 of the Insolvency Law.
several of them or of one only, is wisely included in our commercial law for
the protection of the creditors than of the partners themselves.
Issue: WON the partnership contract created a limited partnership.
The one object of the act is manifestly to protect the public against
imposition and fraud, prohibiting persons from concealing their identity by
Ruling:
doing business under an assumed name, making it unlawful to use other
No.
 than their real names in transacting business without a public record of
who they are.
On the question of 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 a general partnership,
Professor Jose A. Espiritu, as amicus curi, states:
motion presented by the creditors, in conformity with the provisions of the
Insolvency Law.
Article 1845. The contributions of a limited partner may be cash or property, but
not services.

If they intend to do a thing which in law constitutes a partnership, they are

Article 1846. The surname of a limited partner shall not appear in the partnership
partners, although their purpose was to avoid the creation of such relation. Here,
name unless:
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
(1) It is also the surname of a general partner, or
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
(2) Prior to the time when the limited partner became such, the business has been
relation, must be disregarded. The partners who have disguised their identity under
carried on under a name in which his surname appeared.
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 A limited partner whose surname appears in a partnership name contrary to the
good faith. provisions of the first paragraph is liable as a general partner to partnership
Articles 127 and 237 of the Code of Commerce make all the members of creditors who extend credit to the partnership without actual knowledge that he is
the general copartnership liable personally and in solidum with all their not a general
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, partner.
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 Article 1847. If the certificate contains a false statement, one who suffers loss by
or more partners thereof are solvent, the creditors may proceed both reliance on such statement may hold liable any party to the certificate who knew
against the firm and against the solvent partner or partners, first exhausting the statement to be false:
the assets of the firm before seizing the property of the partners.
The court reach the conclusion that the contract of partnership found in the (1) At the time he signed the certificate, or

document hereinbefore quoted established a general partnership or, to be

(2) Subsequently, but within a sufficient time before the statement was relied upon
more exact, a partnership as this word is used in the Insolvency Law.
to enable him to cancel or amend the certificate, or to file a petition for its
Wherefore, the order appealed from is reversed, and the record shall be
cancellation or amendment as provided in article 1865.
returned to the court of origin for further proceedings pursuant to the
Article 1848. A limited partner shall not become liable as a general partner unless,
in addition to the exercise of his rights and powers as a limited partner, he takes
part in the control of the business.
Article 1849. After the formation of a lifted partnership, additional limited partners
may be admitted upon filing an amendment to the original certificate in accordance
with the requirements of article 1865.
Article 1850. A general partner shall have all the rights and powers and be subject
to all the restrictions and liabilities of a partner in a partnership without limited
partners. However, without the written consent or ratification of the specific act by
all the limited partners, a general partner or all of the general partners have no
authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary business of
the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership
property, for other than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in the
certificate;
(7) Continue the business with partnership property on the death, retirement,
insanity, civil interdiction or insolvency of a general partner, unless the right so to do
is given in the certificate.
Article 1851. A limited partner shall have the same rights as a general partner to:
(1) Have the partnership books kept at the principal place of business of the
partnership, and at a reasonable hour to
inspect and copy any of them;
(2) Have on demand true and full information of all things affecting the partnership,
and a formal account of partnership affairs whenever circumstances render it just
and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the profits or other
compensation by way of income, and to the return of his contribution as provided in
articles 1856 and 1857.
Article 1852. Without prejudice to the provisions of article 1848, a person who has
contributed to the capital of a business conducted by a person or partnership
erroneously believing that he has become a limited partner in a limited partnership,
is not, by reason of his exercise of the rights of a limited partner, a general partner
with the person or in the partnership carrying on the business, or bound by the
obligations of such person or partnership, provided that on ascertaining the mistake
he promptly renounces his interest in the profits of the business, or other
compensation by way of income.
Article 1853. A person may be a general partner and a limited partner in the same
partnership at the same time, provided that this fact shall be stated in the certificate
provided for in article 1844.
A person who is a general, and also at the same time a limited partner, shall have
all the rights and powers and be subject to all the restrictions of a general partner;
except that, in respect to his contribution, he shall have the rights against the other
members which he would have had if he were not also a general partner.
Article 1854. A limited partner also may loan money to and transact other business
with the partnership, and, unless he is also a general partner, receive on account of
resulting claims against the partnership, with general creditors, a pro rata share of
the assets. No limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security any partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance, or
release from liability if at the time the assets of the partnership are not sufficient to
discharge partnership liabilities to persons not claiming as general or limited
partners.
The receiving of collateral security, or payment, conveyance, or release in violation
of the foregoing provisions is a fraud on the creditors of the partnership.
Article 1855. Where there are several limited partners the members may agree
that one or more of the limited partners shall have a priority over other limited
partners as to the return of their contributions, as to their compensation by way of
income, or as to any other matter. If such an agreement is made it shall be stated in
the certificate, and in the absence of such a statement all the limited partners shall
stand upon equal footing.
Article 1856. A limited partner may receive from the partnership the share of the
profits or the compensation by way of income stipulated for in the certificate;
provided, that after such payment is made, whether from property of the
partnership or that of a general partner, the partnership assets are in excess of all
liabilities of the partnership except liabilities to limited partners on account of their
contributions and to general partners.
Article 1857. A limited partner shall not receive from a general partner or out of
partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to
limited partners on account of their contributions, have been paid or there remains
property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the contribution may be
rightfully demanded under the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the withdrawal or
reduction.
Subject to the provisions of the first paragraph, a limited partner may rightfully
demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has arrived, or
(3) After he has six months' notice in writing to all other members, if no time is
specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership.
In the absence of any statement in the certificate to the contrary or the consent of
all members, a limited partner, irrespective of the nature of his contribution, has
only the right to demand and receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its affairs wound up
when:
(1) He rightfully but unsuccessfully demands the return of his contribution, or
(2) The other liabilities of the partnership have not been paid, or the partnership
property is insufficient for their payment as required by the first paragraph, No. 1,
and the limited partner would otherwise be entitled to the return of his contribution.
Article 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated in
the certificate as having been made,
and
(2) For any unpaid contribution which he agreed in the certificate to make in the
future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which was
not contributed or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account of his
contribution.
The liabilities of a limited partner as set forth in this article can be waived or
compromised only by the consent of all members; but a waiver or compromise shall
not affect the right of a creditor of a partnership who extended credit or whose
claim arose after the filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the
capital of his contribution, he is nevertheless liable to the partnership for any sum,
not in excess of such return with interest, necessary to discharge its liabilities to all
creditors who extended credit or whose claims arose before such return.
Article 1859. A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited
partner who has died or has assigned his interest in a
partnership.
An assignee, who does not become a substituted limited partner, has no right to
require any information or account of the partnership transactions or to inspect the
partnership books; he is only entitled to receive the share of the profits or other
compensation by way of income, or the return of his contribution, to which his
assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the
members consent thereto or if the assignor, being thereunto empowered by the
certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is
appropriately amended in accordance with article 1865.
The substituted limited partner has all the rights and powers, and is subject to all
the restrictions and liabilities of his assignor, except those liabilities of which he was
ignorant at the time he became a limited partner and which could not be
ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the assignor
from liability to the partnership under articles 1847 and 1858.
Article 1860. The retirement, death, insolvency, insanity or civil interdiction of a
general partner dissolves the partnership, unless the business is continued by the
remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
Lowe v. Arizona Power & Light Co.
This is an appeal from a judgment of the court sitting without a jury against the
defendants upon a partnership obligation. The defendant Lowe, a limited partner,
and defendant Preston, a general partner, bring the appeal. We are called upon to
determine whether the facts indicate a valid revocation of a limited partnership
agreement such that would subject the limited partner (Lowe) to general
partnership liability. We are further called upon to determine whether there was a
valid withdrawal by one of the general partners (Preston) from the partnership.
The facts necessary for a determination of the matter on appeal are as follows. A
'Certificate of Formation of Limited Partnership' was signed 30 November 1961,
and filed of record in the Maricopa County Recorder's Office 22 December 1961
(29--102 and 29--302 A.R.S.). The certificate designated the limited partner as
Fred C. Lowe, and William W. Preston and Joseph Blomquist as general partners.
The name of the firm was Blomquist Electric Company. The certificate provided
that:
'In the event of the death, incapacity or withdrawal of either of the general partners,
the partnership shall be continued with the remaining general partner and the
limited partner.'
Some time prior to 3 September 1963 the plaintiff, Arizona Power and Light
Company, Inc., dba Electrical Distributing Company, extended credit upon an open
account to Blomquist Electric. By then the general partner Preston had withdrawn
from the partnership, and Blomquist, desiring to bring suit on behalf of the
partnership against a debtor, went with Lowe to Blomquist's attorney. At that time a
'certificate of partnership' was prepared and signed which read as follows:
'CERTIFICATE OF PARTNERSHIP
'KNOW ALL MEN BY THESE PRESENTS:
'That we, JOSEPH C. BLOMQUIST and FRED C. LOWE, hereby certify that we
have formed a partnership, under the firm name and style of BLOMQUIST
ELECTRIC, for the purpose of conducting, operating and carrying on a general
business as electrical contractors.
'Said establishment and business is situated at 3215 North Fifty-third Drive,
Phoenix 31, Arizona, and at such other places as we may hereafter agree upon;
that both of the undersigned are residents of the County of Maricopa, State of
Arizona, and that the undersigned are the only members of said partnership.
This certificate was also filed of record in the Maricopa County Recorder's Office on
3 September 1963. The testimony is sufficient to indicate that the plaintiff was not
aware of the filing of this certificate at the time credit was extended to Blomquist
Electric. Suit was brought by plaintiff in March of 1965 alleging $9,739.40 due and
owing. Defendant Lowe answered denying the general partnership, asserting a
limited partnership and denying the amount owing. Blomquist and Preston also
answered, denying a general partnership and alleging that the limited partnership
was indebted for a sum, the correct amount of which was unknown, but that
$1,416.43, at least, was usurious interest charged by the plaintiff.
'A Not since final demand was made, there were payments during the course of
business, but this amount is still due and owing.'
Defendant presented invoices which showed the amount of interest claimed by
plaintiff and this is the only testimony before the court below or before this Court
which would indicate what amount, if any, was due from the partnership, limited or
otherwise, to the plaintiff.
The testimony is also ample from which the court could find that Mr. Preston left the
partnership approximately six months after the business was started or early in
1962 and before plaintiff extended credit to the partnership.
The question before this Court is whether the 'certificate of partnership' filed 3
September 1963 supersedes the prior certificate of limited partnership and subjects
the prior limited partner, Mr. Lowe, to the obligations of the partnership as a general
partner. We feel that it does. In the instant case there was, by virtue of the
'Certificate of Formation of Limited Partnership' filed in December, 1961, a valid,
preexisting limited partnership. After the filing of the certificate of limited
partnership the general partner Preston left the business. The testimony of Mr.
Lowe was as follows:
'Q When did he (Preston) leave the business?
'A Well, it was just a few months, I think not more than six months as I remember,
after it was originally started.'
The certificate of limited partnership was not amended as required by 29--324, 29--
325 A.R.S. [1] Nothing in the 'certificate of partnership' filed 3 September 1963
indicates that Lowe was a limited partner. Had the certificate filed 3 September
1963 been a mere compliance with 29--102 A.R.S. concerning fictitious names and
so stated, we might agree with appellants and the California case which stated:
'Respondent correctly urges that there was ample evidence to justify the court's
finding that respondent was never held out as a general partner, and that the
execution of the certificate of fictitious name could not serve as a matter of law to
change respondent's status.
Such is not the case at bar. The certificate filed 3 September 1963 indicated a
partnership. True, it does not specify a general[5 Ariz.App. 388]
partnership, but neither does it refer back to the certificate of limited partnership or
indicate an amendment to that certificate or indicate a new limited partnership.
Although our statute 29--328, subsec. A, A.R.S. states that, 'The rule that statutes
in derogation of the common law are to be strictly construed shall have no
application to this article' (29--328, subsec. A, A.R.S.), still limited partnerships,
being unknown at common law and being creatures of statute, to obtain the
protection as a limited partner the partners must comply with the statutory
requirement regulating formation and continuance of the limited partnership or be
held liable as general partners. Lowe, by not complying with the provisions of the
Arizona limited partnership statute, cannot now claim its protection.
The limited partnership became a general partnership consisting of Blomquist and
Lowe as of 3 September 1963. The obligations incurred by the general partnership
after that date would be the obligation of Blomquist and Lowe. As to the obligations
incurred by the partnership prior to 3 September 1963, the certificate of limited
partnership being effective and there being no active participation by Lowe which
would subject him to liability as a general partner (29--307 A.R.S.) or evidence that
Mr. Lowe had acted contrary to the certificate of limited partnership prior to that
time, Mr. Lowe would not be liable to the plaintiff for the debts incurred prior to the
filing of the certificate of partnership 3 September 1963. Mr. Preston, still a general
partner under the certificate of limited partnership previously filed, would be liable
along with Mr. Blomquist for debts incurred prior to 3 September 1963.
The matter will have to be remanded to the Superior Court for a determination of
which portion of the bill was incurred prior to 3 September 1963, and that which
was incurred thereafter and the judgment as to Preston and Lowe to be determined
in part on this finding of fact.
Reversed and remanded.
Article 1861. On the death of a limited partner his executor or administrator shall
have all the rights of a limited partner for the purpose of setting his estate, and such
power as the deceased had to constitute his assignee a substituted limited partner.
The estate of a deceased limited partner shall be liable for all his liabilities as a
limited partner.
Article 1862. On due application to a court of competent jurisdiction by any creditor
of a limited partner, the court may charge the interest of the indebted limited
partner with payment of the unsatisfied amount of such claim, and may appoint a
receiver, and make all other orders, directions and inquiries which the
circumstances of the case may require.
The interest may be redeemed with the separate property of any general partner,
but may not be redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of
others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his statutory
exemption.
Article 1863. In settling accounts after dissolution the liabilities of the partnership
shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except those to
limited partners on account of their contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions; (4)
Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement, limited
partners share in the partnership assets in respect to their claims for capital, and in
respect to their claims for profits or for compensation by way of income on their
contribution respectively, in proportion to the respective amounts of such claims.
Article 1864. The certificate shall be cancelled when the partnership is dissolved
or all limited partners cease to be such. A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or character
of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to
civil interdiction and the business is continued under article 1860;
(6) There is a change in the character of the business of the partnership; (7) There
is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the dissolution of
the partnership or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a
contribution, no time having been specified in the certificate, or
(10) The members desire to make a change in any other statement in the certificate
in order that it shall accurately represent the agreement among them.
Article 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of article 1844 as far as necessary to set forth
clearly the change in the certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting a
limited partner or adding a limited or general partner shall be signed also by the
member to be substituted or added, and when a limited partner is to be substituted,
the amendment shall also be signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by all members.
A person desiring the cancellation or amendment of a certificate, if any person
designated in the first and second paragraphs as a person who must execute the
writing refuses to do so, may petition the court to order a cancellation or
amendment thereof.
If the court finds that the petitioner has a right to have the writing executed by a
person who refuses to do so, it shall order the Office of the Securities and
Exchange Commission where the certificate is recorded, to record the cancellation
or amendment of the certificate; and when the certificate is to be amended, the
court shall also cause to be filed for record in said office a certified copy of its
decree setting forth the amendment.
A certificate is amended or cancelled when there is filed for record in the Office of
the Securities and Exchange Commission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the first or second paragraph, or
(2) A certified copy of the order of the court in accordance with the provisions of the
fourth paragraph;
(3) After the certificate is duly amended in accordance with this article, the
amended certified shall thereafter be for all purposes the certificate provided for in
this Chapter.
Article 1866. A contributor, unless he is a general partner, is not a proper party to
proceedings by or against a partnership, except where the object is to enforce a
limited partner's right against or liability to the partnership.
Article 1867. A limited partnership formed under the law prior to the effectivity of
this Code, may become a limited partnership under this Chapter by complying with
the provisions of article 1844, provided the certificate sets forth:
(1) The amount of the original contribution of each limited partner, and the time
when the contribution was made; and
(2) That the property of the partnership exceeds the amount sufficient to discharge
its liabilities to persons not claiming as general or limited partners by an amount
greater than the sum of the contributions of its limited partners.
A limited partnership formed under the law prior to the effectivity of this Code, until
or unless it becomes a limited partnership under this Chapter, shall continue to be
governed by the provisions of the old law.