RIGHTS AND OBLIGATIONS OF PARTNERSHIPS AND
PARTNERS
DIGEST-Antonia Torres vs Court of Appeals
Business Organization – Partnership, Agency, Trust – Sharing
of Loss in a Partnership – Industrial Partner
In 1969, sisters Antonia Torres and Emeteria Baring entered
into a joint venture agreement with Manuel Torres. Under the
agreement, the sisters agreed to execute a deed of sale in
favor Manuel over a parcel of land, the sisters received no
cash payment from Manuel but the promise of profits (60%
for the sisters and 40% for Manuel) – said parcel of land is to
be developed as a subdivision.
Manuel then had the title of the land transferred in his name
and he subsequently mortgaged the property. He used the
proceeds from the mortgage to start building roads, curbs and
gutters. Manuel also contracted an engineering firm for the
building of housing units. But due to adverse claims in the
land, prospective buyers were scared off and the subdivision
project eventually failed.
The sisters then filed a civil case against Manuel for damages
equivalent to 60% of the value of the property, which
according to the sisters, is what’s due them as per the
contract.
The lower court ruled in favor of Manuel and the Court of
Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where
they argued that there is no partnership between them and
Manuel because the joint venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered
into with Manuel is a partnership agreement whereby they
agreed to contribute property (their land) which was to be
developed as a subdivision. While on the other hand, though
Manuel did not contribute capital, he is an industrial partner
for his contribution for general expenses and other costs.
Furthermore, the income from the said project would be
divided according to the stipulated percentage (60-40).
Clearly, the contract manifested the intention of the parties
to form a partnership. Further still, the sisters cannot invoke
their right to the 60% value of the property and at the same
time deny the same contract which entitles them to it.
At any rate, the failure of the partnership cannot be blamed
on the sisters, nor can it be blamed to Manuel (the sisters on
their appeal did not show evidence as to Manuel’s fault in the
failure of the partnership). The sisters must then bear their
loss (which is 60%). Manuel does not bear the loss of the
other 40% because as an industrial partner he is exempt from
losses.
FT-[G.R. No. 149844. October 13, 2004]
MIGUEL CUENCO, Substituted by MARIETTA C.
CUYEGKENG, petitioner, vs. CONCEPCION CUENCO Vda.
DE MANGUERRA, respondent.
DECISION
Inasmuch as the facts indubitably and eloquently show an
implied trust in favor of respondent, the Court of Appeals did
not err in affirming the Decision of the Regional Trial Court
ordering petitioner to convey the subject property to her.
That Decision satisfied the demands of justice and prevented
unjust enrichment.
The Case
Before us is a Petition for Review[1] under Rule 45 of the
Rules of Court, challenging the August 22, 2001 Decision[2]
of the Court of Appeals (CA) in CA-GR CV No. 54852. The
assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED.[3]
On the other hand, the Regional Trial Court (RTC) Decision
affirmed by the CA disposed as follows:
WHEREFORE, considering that this action is essentially one
for reconveyance or enforcement of a trust, judgment is
hereby rendered ordering the substituted defendant Marietta
Cuenco Cuyegkeng to reconvey or transfer, in a duly
registrable public instrument, Lot No 903-A-6 under TCT No.
113781 of the Registry of Deeds of Cebu City, of the Banilad
Estate with an area of 834 square meters, in favor of plaintiff
Concepcion Cuenco Vda. De Manguerra; or should the
substituted defendant, for one reason or another, fail to
execute the necessary instrument once the decision becomes
final, the Clerk of Court of this Court (RTC) is hereby
instructed, in accordance with the Rules of Court, to prepare
and execute the appropriate and requisite conveyance and
instrument in favor of herein plaintiff which, in either case,
shall be registered with the Office of the Register of Deeds of
Cebu City.
Without costs in this instance.[4]
The Facts
The facts were summarized by the appellate court as follows:
On September 19, 1970, the [respondent] filed the initiatory
complaint herein for specific performance against her uncle
[Petitioner] Miguel Cuenco which averred, inter alia that her
father, the late Don Mariano Jesus Cuenco (who became
Senator) and said [petitioner] formed the Cuenco and Cuenco
Law Offices; that on or around August 4, 1931, the Cuenco
and Cuenco Law Offices served as lawyers in two (2) cases
entitled Valeriano Solon versus Zoilo Solon (Civil Case 9037)
and Valeriano Solon versus Apolonia Solon (Civil Case 9040)
involving a dispute among relatives over ownership of lot 903
of the Banilad Estate which is near the Cebu Provincial
Capitol; that records of said cases indicate the name of the
[petitioner] alone as counsel of record, but in truth and in
fact, the real lawyer behind the success of said cases was the
influential Don Mariano Jesus Cuenco; that after winning said
cases, the awardees of Lot 903 subdivided said lot into three
(3) parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuencos
attorneys fees
Lot 903-B: 5,000 [square meters]: Miguel Cuencos attorneys
fees
Lot 903-C: 54,000 [square meters]: Solons retention
That at the time of distribution of said three (3) lots in Cebu,
Mariano Jesus Cuenco was actively practicing law in Manila,
and so he entrusted his share (Lot 903-A) to his brother law
partner (the [petitioner]); that on September 10, 1938, the
[petitioner] was able to obtain in his own name a title for Lot
903-A (Transfer Certificate of Title [TCT] RT-6999 [T-
21108]); that he was under the obligation to hold the title in
trust for his brother Marianos children by first marriage; that
sometime in 1947, the Cuenco family was anticipating
Marianos second marriage, and so on February 1, 1947, they
partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to
903-A-6) to correspond to the six (6) children of Marianos
first marriage (Teresita, Manuel, Lourdes, Carmen, Consuelo,
and Concepcion); that the [petitioner] did not object nor
oppose the partition plan; that on June 4, 1947, the
[petitioner] executed four (4) deeds of donation in favor of
Marianos four (4) children: Teresita, Manuel, Lourdes, and
Carmen, pursuant to the partition plan (per notary documents
183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary
Public Candido Vasquez); that on June 24, 1947, the
[petitioner] executed the fifth deed of donation in favor of
Marianos fifth child Consuelo (per notary document 214, Book
III, Series 1947 of Cebu City Notary Public Candido Vasquez)
(Exhibits 2 to 5); that said five (5) deeds of donation left out
Marianos sixth child Concepcion who later became the
[respondent] in this case; that in 1949, [respondent]
occupied and fenced a portion of Lot 903-A-6 for taxation
purposes (Exhibit F, Exhibit 6); that she also paid the taxes
thereon (Exhibit G); that her father died on February 25,
1964 with a Last Will and Testament; that the pertinent
portion of her fathers Last Will and Testament bequeaths the
lot.
near the Cebu provincial capitol, which were my attorneys
fees from my clients, Victoria Rallos and Zoilo Solon,
1
respectively have already long been disposed of, and
distributed by me, through my brother, Miguel, to all my said
children in the first marriage;
That on June 3, 1966, the [petitioner] wrote a letter
petitioning the Register of Deeds of Cebu to transfer Lot 903-
A-6 to his name on the ground that Lot 903-A-6 is a portion
of Lot 903-A; that on April 6, 1967, the [respondent]
requested the Register of Deeds to annotate an affidavit of
adverse claim against the [petitioners] TCT RT-6999 (T-
21108) which covers Lot 903-A; that on June 3, 1967, the
Register of Deeds issued TCT 35275 covering Lot 903-A-6 in
the name of the [petitioner] but carrying the earlier
annotation of adverse claim; that in 1969, the [petitioner]
tore down the wire fence which the [respondent] constructed
on Lot 903-A-6 which compelled the latter to institute the
instant complaint dated August 20, 1970 on September 19,
1970.
On December 5, 1970, the answer with counterclaim dated
December 3, 1970 of [petitioner] Miguel Cuenco was filed
where he alleged that he was the absolute owner of Lot 903-
A-6; that this lot was a portion of Lot 903-A which in turn was
part of Lot 903 which was the subject matter of litigation;
that he was alone in defending the cases involving Lot 903
without the participation of his brother Mariano Cuenco; that
he donated five (5) of the six (6) portions of Lot 903-A to the
five (5) children of his brother Mariano out of gratitude for
the love and care they exhibited to him (Miguel) during the
time of his long sickness; that he did not give or donate any
portion of the lot to the [respondent] because she never
visited him nor took care of him during his long sickness; that
he became critically ill on February 11, 1946 and was confined
at the Singians Clinic in Manila and then transferred to Cebu
where he nearly died in 1946; that his wife Fara Remia
Ledesma Cuenco had an operation on January 1951 and was
confined at the University of Santo Tomas Hospital and John
Hopkins Hospital in the United States; that two of his children
died at the University of Santo Tomas Hospital in 1951 and
1952; and that his wife was blind for many months due to
malignant hypertension but [respondent] never remembered
her nor did she commiserate with him and his wife in their
long period of sorrow.
[Petitioner] Miguel Cuenco took the witness stand as early as
September 13, 1974. His self-conducted direct examination
lasted until 1985, the last one on November 22, 1985.
Unfortunately, he died[5] before he was able to submit
himself for cross-examination and so his testimony had to be
stricken off the record. His only surviving daughter, Marietta
Cuyegkeng, stood as the substitute [petitioner] in this case.
She testified that she purchased Lot 903-A-6 (the property
subject matter of this case) from her late father sometime in
1990 and constructed a house thereon in the same year; that
she became aware of this case because her late father used
to commute to Cebu City to attend to this case; and that Lot
903-A-6 is in her name per Transfer Certificate of Title
#113781 of the Registry of Deeds for Cebu.[6]
Ruling of the Court of Appeals
The CA found respondents action not barred by res judicata,
because there was no identity of causes of action between the
Petition for cancellation of adverse claim in L.R.C. Records
5988 and the Complaint for specific performance to resolve
the issue of ownership in Civil Case No. R-11891.
The appellate court further found no reason to disturb the
findings of the trial court that respondent has the legal right
of ownership over lot 903-A-6. The CA ruled that the subject
land is part of the attorneys fees of Don Mariano Cuenco,
predecessor-in-interest of [Respondent] Concepcion Cuenco
vda. de Manguerra and [petitioner] merely holds such
property in trust for [her], his title there[to] notwithstanding.
Finally, the CA held that the right of action of respondent has
not yet prescribed as she was in possession of the lot in
dispute and the prescriptive period to file the case
commences to run only from the time she acquired
knowledge of an adverse claim over [her] possession.
Hence, this Petition.[7]
The Issues
In her Memorandum, petitioner raises the following issues for
our consideration:
I. On question of law, the Court of Appeals failed to consider
facts of substance and significance which, if considered, will
show that the preponderance of evidence is in favor of the
petitioner.
II. On question of law, the Court of Appeals failed to
appreciate the proposition that, contrary to the position taken
by the trial court, no constructive or implied trust exists
between the parties, and neither is the action one for
reconveyance based upon a constructive or implied trust.
III. On question of law, the Court of Appeals erred in not
finding that even where implied trust is admitted to exist the
respondents action for relief is barred by laches and
prescription.
IV. On question of law, the trial court and the appellate court
erred in expunging from the records the testimony of Miguel
Cuenco.[8]
This Courts Ruling
The Petition has no merit.
Second Issue:
Implied Trust
Petitioner then contends that no constructive or implied trust
exists between the parties.
A trust is a legal relationship between one having an equitable
ownership in a property and another having legal title to
it.[15]
Trust relations between parties may either be express or
implied.[16] Express trusts are created by the direct and
positive acts of the parties, indicated through some writing,
deed, will, or words evidencing an intention to create a
trust.[17] On the other hand, implied trusts are those that,
without being express, are deducible from the nature of the
transaction as matters of intent[;] or which are superinduced
on the transaction by operation of law as a matter of equity,
independently of the particular intention of the parties.
Implied trusts may either be resulting or constructive trusts,
both coming into being by operation of law.[18]
Resulting trusts are presumed to have been contemplated by
the parties and are based on the equitable doctrine that
valuable consideration, not legal title, determines the
equitable title or interest.[19] These trusts arise from the
nature of or the circumstances involved in a transaction,[20]
whereby legal title becomes vested in one person, who is
obligated in equity to hold that title for the benefit of another.
Constructive trusts are created by the construction of equity
in order to satisfy the demands of justice and prevent unjust
enrichment. They arise contrary to intention against one who,
by fraud, duress or abuse of confidence, obtains or holds the
legal right to property which he ought not, in equity and good
conscience, to hold.[21]
A review of the records shows that indeed there is an implied
trust between the parties.
Although Lot 903-A was titled in Miguels name, the
circumstances surrounding the acquisition and the
subsequent partial dispositions of this property eloquently
speak of the intent that the equitable or beneficial ownership
of the property should belong to Mariano and his heirs.
First, Lot 903-A was one half of the one-hectare portion of Lot
903 given as attorneys fees by a client of the law firm of
Partners Miguel and Mariano Cuenco. It constituted the latters
2
share in the attorneys fees and thus equitably belonged to
him, as correctly found by the CA. That Lot 903-A had been
titled in the name of Miguel gave rise to an implied trust
between him and Mariano, specifically, the former holds the
property in trust for the latter. In the present case, it is of no
moment that the implied trust arose from the circumstance -
- a share in the attorneys fees -- that does not categorically
fall under Articles 1448 to 1456 of the Civil Code. The cases
of implied trust enumerated therein does not exclude others
established by the general law of trust.[22]
Second, from the time it was titled in his name in 1938,[23]
Lot 903-A remained undivided and untouched[24] by Miguel.
Only on February 3, 1947, did Lourdes Cuenco,[25] upon the
instruction of Mariano, have it surveyed and subdivided into
six almost equal portions -- 903-A-1 to 903-A-6. Each portion
was specifically allocated to each of the six children of
Mariano with his first wife.[26]
Third, Miguel readily surrendered his Certificate of Title[27]
and interposed no objection[28] to the subdivision and the
allocation of the property to Marianos six children, including
Concepcion.
Fourth, Marianos children, including Concepcion,[29] were
the ones who shouldered the expenses incurred for the
subdivision of the property.
Fifth, after the subdivision of the property, Marianos children
-- including Concepcion[30] -- took possession of their
respective portions thereof.
Sixth, the legal titles to five portions of the property were
transferred via a gratuitous deed of conveyance to Marianos
five children, following the allocations specified in the
subdivision plan prepared for Lourdes Cuenco.[31]
With respect to Lot 903-A-6 in particular, the existence of
Concepcions equitable ownership thereof is bolstered, not
just by the above circumstances, but also by the fact that
respondent fenced the portion allocated to her and planted
trees thereon.[32]
More significantly, she also paid real property taxes on Lot
903-A-6 yearly, from 1956 until 1969[33] -- the year when
she was dispossessed of the property. Although tax
declarations or realty tax payments of property are not
conclusive evidence of ownership, nevertheless, they are
good indicia of possession in the concept of owner, for no one
in his right mind would be paying taxes for a property that is
not in his actual or at least constructive possession.[34] Such
realty tax payments constitute proof that the holder has a
claim of title over the property.
Tellingly, Miguel started paying real property taxes on Lot
903-A-6 only on April 4, 1964,[35] after the death of
Mariano.[36] This fact shows that it was only in that year that
he was emboldened to claim the property as his own and to
stop recognizing Marianos, and subsequently Concepcions,
ownership rights over it. It was only by then that the one who
could have easily refuted his claim had already been silenced
by death. Such a situation cannot be permitted to arise, as
will be explained below.
WHEREFORE, the Petition is DENIED, and the assailed
Decision AFFIRMED. Costs against petitioner.
MIGUEL CUENCO V. VDA DE MANGUERRA
GR 149844, OCTOBER 13, 2004
When a client employs the services of a law firm, he doesn’t
employ the services of the lawyer who is assigned to
personally handle the case. Rather, he employs the entire law
firm. Being a partner to the law firm, the partners are entitled
to their respective share in the attorney’s fees from the firm’s
clients.
OBLIGATIONS OF PARTNERSHIPS & PARTNER TO 3RD
PARTY
FT-G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner, vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL
COMMERCIAL COMPANY and RAMON PONS,
respondents.
GUTTIERREZ, JR., J.:
In this petition for certiorari, the petitioner seeks to annul and
set added the decision of the Court of Appeals affirming the
existence of a partnership between petitioner and one of the
respondents, Celestino Galan and holding both of them liable
to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the
liabilities of the partnership.
Petitioner Elmo Muñasque filed a complaint for payment of
sum of money and damages against respondents Celestino
Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons
for remodelling a portion of its building without exchanging
or expecting any consideration from Galan although the latter
was casually named as partner in the contract; that by virtue
of his having introduced the petitioner to the employing
company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or
commission; that Tropical, under the terms of the contract,
agreed to give petitioner the amount of P7,000.00 soon after
the construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the construction to
make a total sum of P25,000.00; that on January 9, 1967,
Tropical and/or Pons delivered a check for P7,000.00 not to
the plaintiff but to a stranger to the contract, Galan, who
succeeded in getting petitioner's indorsement on the same
check persuading the latter that the same be deposited in a
joint account; that on January 26, 1967 when the second
check for P6,000.00 was due, petitioner refused to indorse
said cheek presented to him by Galan but through later
manipulations, respondent Pons succeeded in changing the
payee's name from Elmo Muñasque to Galan and Associates,
thus enabling Galan to cash the same at the Cebu Branch of
the Philippine Commercial and Industrial Bank (PCIB) placing
the petitioner in great financial difficulty in his construction
business and subjecting him to demands of creditors to pay'
for construction materials, the payment of which should have
been made from the P13,000.00 received by Galan; that
petitioner undertook the construction at his own expense
completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by respondents
Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between
the petitioner and respondent company.
The respondents answered the complaint by denying some
and admitting some of the material averments and setting up
counterclaims.
During the pre-trial conference, the petitioners and
respondents agreed that the issues to be resolved are:
(1) Whether or not there existed a partners between
Celestino Galan and Elmo Muñasque; and
(2) Whether or not there existed a justifiable cause
on the part of respondent Tropical to disburse money
to respondent Galan.
The business firms Cebu Southern Hardware Company and
Blue Diamond Glass Palace were allowed to intervene, both
having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive
portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
3
 (1) ordering plaintiff Muñasque and defendant Galan
to pay jointly and severally the intervenors Cebu and
Southern Hardware Company and Blue Diamond
Glass Palace the amount of P6,229.34 and
P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial
Company and Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and
its proprietor, Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order
amending its judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan
to pay jointly and severally the intervenors Cebu
Southern Hardware Company and Blue Diamond
Glass Palace the amount of P6,229.34 and
P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay
Intervenor Cebu Southern Hardware Company and
Tan Siu jointly and severally interest at 12% per
annum of the sum of P6,229.34 until the amount is
fully paid;
(3) ordering plaintiff and defendant Galan to pay
P500.00 representing attorney's fees jointly and
severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical Commercial
Company and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the
trial court with the sole modification that the liability imposed
in the dispositive part of the decision on the credit of Cebu
Southern Hardware and Blue Diamond Glass Palace was
changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in
behalf of the partnership of "Galan and Muñasque" as
Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch
building. A total amount of P25,000.00 was to be paid under
the contract for the entire services of the Contractor. The
terms of payment were as follows: thirty percent (30%) of
the whole amount upon the signing of the contract and the
balance thereof divided into three equal installments at the
lute of Six Thousand Pesos (P6,000.00) every fifteen (15)
working days.
The first payment made by respondent Tropical was in the
form of a check for P7,000.00 in the name of the
petitioner.Petitioner, however, indorsed the check in favor of
respondent Galan to enable the latter to deposit it in the bank
and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the
P7,000.00 for his personal use so that when the second check
in the amount of P6,000.00 came and Galan asked the
petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan
informed the Cebu branch of Tropical that there was
a"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check
from Muñasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and
petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled
Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction
continued through his sole efforts. He stated that he borrowed
some P12,000.00 from his friend, Mr. Espina and although
the expenses had reached the amount of P29,000.00 because
of the failure of Galan to pay what was partly due the laborers
and partly due for the materials, the construction work was
finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of
P6,000.00,were subsequently given to the petitioner alone
with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment
of sum of money and damages against the
respondents,seeking to recover the following: the amounts
covered by the first and second checks which fell into the
hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary
damages, and attorney's fees.
Both the trial and appellate courts not only absolved
respondents Tropical and its Cebu Manager, Pons, from any
liability but they also held the petitioner together with
respondent Galan, hable to the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the
credit which the intervenors extended to the partnership of
petitioner and Galan
In this petition the legal questions raised by the petitioner are
as follows: (1) Whether or not the appellate court erred in
holding that a partnership existed between petitioner and
respondent Galan. (2) Assuming that there was such a
partnership, whether or not the court erred in not finding
Galan guilty of malversing the P13,000.00 covered by the first
and second checks and therefore, accountable to the
petitioner for the said amount; and (3) Whether or not the
court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan
was "good payment, "
Petitioner contends that the appellate court erred in holding
that he and respondent Galan were partners, the truth being
that Galan was a sham and a perfidious partner who
misappropriated the amount of P13,000.00 due to the
petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the
payment made by Tropical to Galan was "good" payment
when the same gave occasion for the latter to misappropriate
the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-
tract with Tropical for the renovation of the latter's building
on behalf of the partnership of "Galan and Muñasque." This is
readily seen in the first paragraph of the contract where it
states:
This agreement made this 20th day of December in
the year 1966 by Galan and Muñasque hereinafter
called the Contractor, and Tropical Commercial Co.,
Inc., hereinafter called the owner do hereby for and
in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-
ship organized by the two men was not a genuine one. If
there was a falling out or misunderstanding between the
partners, such does not convert the partnership into a sham
organization.
Likewise, when Muñasque received the first payment of
Tropical in the amount of P7,000.00 with a check made out
in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume
that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to
blame for making the relationship appear otherwise, not only
to Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.
4
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we
ruled:
Although it may be presumed that Margarita G.
Saldajeno had acted in good faith, the appellees also
acted in good faith in extending credit to the
partnership. Where one of two innocent persons
must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
No error was committed by the appellate court in holding that
the payment made by Tropical to Galan was a good payment
which binds both Galan and the petitioner. Since the two were
partners when the debts were incurred, they, are also both
liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et
al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual
partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle,112 Pan,
617).
The presumption is sufficient to permit third persons
to hold the firm liable on transactions entered into
by one of members of the firm acting apparently in
its behalf and within the scope of his authority. (Le
Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed
grave abuse of discretion in not holding Galan liable for the
amounts which he "malversed" to the prejudice of the
petitioner. He adds that although this was not one of the
issues agreed upon by the parties during the pretrial, he,
nevertheless, alleged the same in his amended complaint
which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for
the purpose of impleading Ramon Pons in his personal
capacity. Although the petitioner made allegations as to the
alleged malversations of Galan, these were the same
allegations in his original complaint. The malversation by one
partner was not an issue actually raised in the amended
complaint but the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation
of the issues during the pre-trial because he himself agreed
to the same. In Permanent Concrete Products, Inc. v.
Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the
issues contained in the trial court's order issued on
the very day the pre-trial conference was held. Such
an order controls the subsequent course of the
action, unless modified before trial to prevent
manifest injustice.In the case at bar, modification of
the pre-trial order was never sought at the instance
of any party.
Petitioner could have asked at least for a modification of the
issues if he really wanted to include the determination of
Galan's personal liability to their partnership but he chose not
to do so, as he vehemently denied the existence of the
partnership. At any rate, the issue raised in this petition is the
contention of Muñasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We
note that the petitioner is not solely burdened by the
obligations of their illstarred partnership. The records show
that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor
of Eden Hardware which extended credit to the partnership
aside from the P2, 000. 00 he already paid to Universal
Lumber.
We, however, take exception to the ruling of the appellate
court that the trial court's ordering petitioner and Galan to
pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the
liability of partners under the law to third persons for
contracts executed inconnection with partnership business is
only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All
partners, including industrial ones, shall be liable prorate with
all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into
the name and fm the account cd the partnership, under its
signature and by a person authorized to act for the partner-
ship. ...". this provision should be construed together with
Article 1824 which provides that: "All partners are liable
solidarily with the partnership for everything chargeable to
the partnership under Articles 1822 and 1823." In short, while
the liability of the partners are merely joint in transactions
entered into by the partnership, a third person who
transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third
person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission
of any partner acting in the ordinary course of the
business of the partner-ship or with the authority of
his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any
penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or
omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a
third person and misapplies it; and
(2) Where the partnership in the course of its
business receives money or property of a third
person and t he money or property so received is
misapplied by any partner while it is in the custody
of the partnership.
The obligation is solidary, because the law protects him, who
in good faith relied upon the authority of a partner, whether
such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty,
as well as the legal entity which is the partnership, are
solidarily liable.
In the case at bar the respondent Tropical had every reason
to believe that a partnership existed between the petitioner
and Galan and no fault or error can be imputed against it for
making payments to "Galan and Associates" and delivering
the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of
the partnership with which it was dealing. This is even more
true in the cases of Cebu Southern Hardware and Blue
Diamond Glass Palace who supplied materials on credit to the
partnership. Thus, it is but fair that the consequences of any
wrongful act committed by any of the partners therein should
be answered solidarily by all the partners and the partnership
as a whole
However. as between the partners Muñasque and
Galan,justice also dictates that Muñasque be reimbursed by
Galan for the payments made by the former representing the
liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his
dealings with Muñasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED
with the MODIFICATION that the liability of petitioner and
respondent Galan to intervenors Blue Diamond Glass and
Cebu Southern Hardware is declared to be joint and solidary.
Petitioner may recover from respondent Galan any amount
that he pays, in his capacity as a partner, to the above
intervenors,
DIGEST-MUÑASQUE v. CA
G.R. No. L-39780; November 11, 1985
Ponente: J. Gutierrez. Jr
FACTS:
5

Elmo Muñasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan,
Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons,
alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons
for remodeling a portion of its building without exchanging or
expecting any consideration from Galan although the latter
was casually named as partner in the contract; that by virtue
of his having introduced the petitioner to the employing
company (Tropical), Galan would receive some kind of
compensation in the form of some percentages or
commission.
Tropical agreed to give petitioner the amount of P7,000.00
soon after the construction began and thereafter the amount
of P6,000.00 every fifteen (15) days during the construction
to make a total sum of P25,000.00.
On January 9, 1967, Tropical and/or Pons delivered a check
for P7,000.00 not to the plaintiff but to a stranger to the
contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the
same be deposited in a joint account.
On January 26, 1967, when the second check for P6,000.00
was due, petitioner refused to indorse said check presented
to him by Galan but through later manipulations, respondent
Pons succeeded in changing the payee's name to Galan and
Associates, thus enabling Galan to cash the same at the Cebu
Branch of the Philippine Commercial and Industrial Bank
(PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of
creditors to pay for construction materials, the payment of
which should have been made from the P13,000.00 received
by Galan.
Due to the unauthorized disbursement by respondents
Tropical and Pons of the sum of P13,000.00 to Galan,
petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between
the petitioner and respondent company.
ISSUE:
Whether there was a breach of trust when Tropical disbursed
the money to Galan instead of Muñasque
HELD:
No, there was no breach of trust when Tropical disbursed the
money to Galan instead of Muñasque.
The Supreme Court held that there is nothing in the records
to indicate that the partnership organized by the two men was
not a genuine one. A falling out or misunderstanding between
the partners does not convert the partnership into a sham
organization.
In the case at bar the respondent Tropical had every reason
to believe that a partnership existed between the petitioner
and Galan and no fault or error can be imputed against it for
making payments to "Galan and Associates" and delivering
the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of
the partnership with which it was dealing.
FT-G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY, ET. AL defendants. BENJAMIN C. DACO,
defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C.
Daco from the decision of the Court of First Instance of
Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads:
WHEREFORE, the Court sentences defendant United
Pioneer General Construction Company to pay
plaintiff the sum of P7,119.07 with interest at the
rate of 12% per annum until it is fully paid, plus
attorney's fees which the Court fixes in the sum of
Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A.
Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the
understanding that the judgment against these
individual defendants shall be enforced only if the
defendant company has no more leviable properties
with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general
partnership duly registered under the laws of the Philippines,
purchased from the plaintiff a motor vehicle on the
installment basis and for this purpose executed a promissory
note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or
before May 22, 1961 and the subsequent installments on the
22nd day of every month thereafter, until fully paid, with the
condition that failure to pay any of said installments as they
fall due would render the whole unpaid balance immediately
due and demandable.
Having failed to receive the installment due on July 22, 1961,
the plaintiff sued the defendant company for the unpaid
balance amounting to P7,119.07. Benjamin C. Daco, Daniel
A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in their capacity as
general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default. 1
Subsequently, on motion of the plaintiff, the complaint was
dismissed insofar as the defendant Romulo B. Lumauig is
concerned. 2
When the case was called for hearing, the defendants and
their counsels failed to appear notwithstanding the notices
sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte 3 , after which the
trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to
reconsider the decision claiming that since there are five (5)
general partners, the joint and subsidiary liability of each
partner should not exceed one-fifth ( 1/ 5 ) of the obligations
of the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit
the liability of the defendants Daco and Sim to only one-fifth
( 1/ 5 ) of the obligations of the defendant company. 4 Hence,
this appeal.
The only issue for resolution is whether or not the dismissal
of the complaint to favor one of the general partners of a
partnership increases the joint and subsidiary liability of each
of the remaining partners for the obligations of the
partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones,
shall be liable pro rata with all their property and
after all the partnership assets have been
exhausted, for the contracts which may be entered
into in the name and for the account of the
partnership, under its signature and by a person
authorized to act for the partnership. However, any
partner may enter into a separate obligation to
perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in
the operation of a sugar estate in Negros. It was,
therefore, a civil partnership as distinguished from a
mercantile partnership. Being a civil partnership, by
the express provisions of articles l698 and 1137 of
6
 the Civil Code, the partners are not liable each for
the whole debt of the partnership. The liability is pro
rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that
the other partner, Jaime Palacios, had left the
country cannot increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when
the promissory note in question was executed for and in
behalf of the partnership. Since the liability of the partners is
pro rata, the liability of the appellant Benjamin C. Daco shall
be limited to only one-fifth ( 1/ 5 ) of the obligations of the
defendant company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general
partner in the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned Lumauig's
individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby
AFFIRMED, without pronouncement as to costs.
DIGEST-Island Sales vs United Pioneers General
Construction Company et al
Business Organization – Partnership, Agency, Trust – Liability
of Partners – Pro-rata – Condonation
United Pioneers General Construction Company is a general
partnership formed by Benjamin Daco, Daniel Guizona, Noel
Sim, Augusto Palisoc and Romulo Lumauig. In 1961, United
Pioneers purchased by installment a motor vehicle from
Island Sales, Inc. United Pioneers defaulted in its payment
hence it was sued and the 5 partners were impleaded as co-
defendants.
Upon motion of Island Sales, Lumauig was removed as a
defendant.
United Pioneers lost the civil case and the trial court rendered
judgment ordering United Pioneers to pay the outstanding
balance plus interest and costs. It further decreed that the
remaining 4 co-defendants shall pay Island Sales in case
United Pioneers’ property will not be enough to satisfy its
indebtedness to Island Sales.
ISSUE: What is the extent of the liability of the partners
considering that one partner was removed as a co-defendant
on motion of Island Sales?
HELD: Their liability is pro-rata pursuant to Article 1816 of
the Civil Code. But is should be noted that since there were 5
partners when the purchase was made in behalf of the
partnership, the liability of each partner should be 1/5th (of
the company’s obligation) each. The fact that the complaint
against Lumauig was dismissed, upon motion of the Island
Sales, does not unmake Lumauig as a general partner in the
company. In so moving to dismiss the complaint, Island Sales
merely condoned Lumauig’s individual liability to them.
FT-G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES,
INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who
agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their own
to a “common fund.” Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being
partner, they are all liable for debts incurred by or on behalf
of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that
contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong
Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the
appealed decision, the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court
(RTC) ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary
attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the
following amounts, subject to the modifications as hereinafter
made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the
trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of
the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said
Agreement;
b. 12% interest per annum counted from date of plaintiff’s
invoices and computed on their respective amounts as
follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for
P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for
P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney’s fees, plus P8,500.00
representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for
storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of
auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the
principal obligation or for the unpaid price of nets and floats
in the amount of P532,045.00 and P68,000.00, respectively,
or for the total amount P600,045.00, this Court noted that
these items were attached to guarantee any judgment that
may be rendered in favor of the plaintiff but, upon agreement
of the parties, and, to avoid further deterioration of the nets
during the pendency of this case, it was ordered sold at public
auction for not less than P900,000.00 for which the plaintiff
was the sole and winning bidder. The proceeds of the sale
paid for by plaintiff was deposited in court. In effect, the
amount of P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to
secure in this case with the ownership and possession of the
nets and floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction sale. It has
also been noted that ownership of the nets [was] retained by
the plaintiff until full payment [was] made as stipulated in the
invoices; hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this Court earlier
ordered the attachment bond filed by plaintiff to guaranty
damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as
its bond in favor of defendants.
7
From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will have
to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed
above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not
put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets
and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and floats and
for the reimbursement of the P900,000.00 deposited by it
with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of “Ocean Quest Fishing Corporation,” Antonio
Chua and Peter Yao entered into a Contract dated February
7, 1990, for the purchase of fishing nets of various sizes from
the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however
was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and
the floats; hence, private respondents filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought
against the three in their capacities as general partners, on
the allegation that “Ocean Quest Fishing Corporation” was a
nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission. 5 On September 20,
1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at
the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a
Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession.
Peter Yao filed an Answer, after which he was deemed to have
waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed
an Answer with Counterclaim and Crossclaim and moved for
the lifting of the Writ of Attachment. 6The trial court
maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction.
Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of
P900,000. 7
On November 18, 1992, the trial court rendered its Decision,
ruling that Philippine Fishing Gear Industries was entitled to
the Writ of Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and
Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by
the three 9 in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72,
for (a) a declaration of nullity of commercial documents; (b)
a reformation of contracts; (c) a declaration of ownership of
fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have
the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be applied
as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at
a higher price than P5,750,000.00 whatever will be the
excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio
Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than
P5,750,000.00 whatever the deficiency shall be shouldered
and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was
silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of the
profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already
stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a
partner of Chua and Yao in a fishing business and may thus
be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. The
appellate court ruled:
The evidence establishes that all the defendants including
herein appellant Lim Tong Lim undertook a partnership for a
specific undertaking, that is for commercial fishing . . . .
Obviously, the ultimate undertaking of the defendants was to
divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership,
two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to
reverse the assailed Decision on the following grounds:
I
THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT
A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II
SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE
WAS ACTING FOR OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING,
THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
III
THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM’S GOODS.
In determining whether petitioner may be held liable for the
fishing nets and floats from respondent, the Court must
resolve this key issue: whether by their acts, Lim, Chua and
Yao could be deemed to have entered into a partnership.
This Court’s Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership and Petitioner’s Liability
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA
finding that a partnership existed between him, Peter Yao and
8
Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims
any direct participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua and Yao only,
and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a
lessor, not a partner, of Chua and Yao, for the “Contract of
Lease ” dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership
— the fishing boat F/B Lourdes. The lease was for six months,
with a monthly rental of P37,500 plus 25 percent of the gross
catch of the boat.
We are not persuaded by the arguments of petitioner. The
facts as found by the two lower courts clearly showed that
there existed a partnership among Chua, Yao and him,
pursuant to Article 1767 of the Civil Code which provides:
Art. 1767 — By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves.
Specifically, both lower courts ruled that a partnership among
the three existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while Antonio
Chua was already Yao’s partner;
(2) That after convening for a few times, Lim, Chua, and Yao
verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother
of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation,
which executed a Deed of Sale over these two (2) boats in
favor of Petitioner Lim Tong Lim only to serve as security for
the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-
equipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;
(6) That because of the “unavailability of funds,” Jesus Lim
again extended a loan to the partnership in the amount of P1
million secured by a check, because of which, Yao and Chua
entrusted the ownership papers of two other boats, Chua’s FB
Lady Anne Mel and Yao’s FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of “Ocean Quest Fishing Corporation,”
their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in
the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and
(e) damages.
(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms
of which are already enumerated above.
From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was
petitioner’s brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell
under the term “common fund” under Article 1767. The
contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only
to the purchase of the boat, but also to that of the nets and
the floats. The fishing nets and the floats, both essential to
fishing, were obviously acquired in furtherance of their
business. It would have been inconceivable for Lim to involve
himself so much in buying the boat but not in the acquisition
of the aforesaid equipment, without which the business could
not have proceeded.
Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be
divided among them.
We stress that under Rule 45, a petition for review like the
present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding
on this Court, absent any cogent proof that the present action
is embraced by one of the exceptions to the rule. 16 In
assailing the factual findings of the two lower courts,
petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate court’s sole basis for
assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered
into only to end the dispute among them, but not to
adjudicate their preexisting rights and obligations. His
arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties
prior to its execution.
A proper adjudication of claimants’ rights mandates that
courts must review and thoroughly appraise all relevant facts.
Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that
the lower courts have decided on the basis of one piece of
document alone, petitioner fails to appreciate that the CA and
the RTC delved into the history of the document and explored
all the possible consequential combinations in harmony with
law, logic and fairness. Verily, the two lower courts’ factual
findings mentioned above nullified petitioner’s argument that
the existence of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioner’s argument that he was
merely the lessor of the boats to Chua and Yao, not a partner
in the fishing venture. His argument allegedly finds support
in the Contract of Lease and the registration papers showing
that he was the owner of the boats, including F/B
Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court
to believe that he consented to the sale of his own boats to
pay a debt of Chua and Yao, with the excess of the proceeds
to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved
that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a
business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the
upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among
the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset
of the partnership. It is not uncommon to register the
properties acquired from a loan in the name of the person the
lender trusts, who in this case is the petitioner himself. After
all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur,
9
if the relationship among the three of them was merely that
of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by
estoppel, liability can be imputed only to Chua and Yao, and
not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume
to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to use as
a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation
as such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from denying
its corporate existence. “The reason behind this doctrine is
obvious — an unincorporated association has no personality
and would be incompetent to act and appropriate for itself the
power and attributes of a corporation as provided by law; it
cannot create agents or confer authority on another to act in
its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their
own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all
the right and subject to all the liabilities of a principal, a
person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance,
an unincorporated association, which represented itself to be
a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in
good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract
it entered into and by virtue of which it received advantages
and benefits.
On the other hand, a third party who, knowing an association
to be unincorporated, nonetheless treated it as a corporation
and received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing
Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held
jointly 18 liable with Chua and Yao. Petitioner contests such
liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name
does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he
cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets
found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions
the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim,
Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as contracting
parties in representation of it. Clearly, under the law on
estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are
held liable as general partners.
Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom
he previously had an existing relationship, he is deemed to
be part of said association and is covered by the scope of the
doctrine of corporation by estoppel. We reiterate the ruling of
the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more
deeply schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing aside
as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon the
merits. Lawsuits, unlike duels, are not to be won by a rapier’s
thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue: Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was
improperly issued against the nets. We agree with the Court
of Appeals that this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset of the
partnership and that it was placed in the name of petitioner,
only to assure payment of the debt he and his partners owed.
The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought
and used in the fishing venture they agreed upon. Hence, the
issuance of the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent
Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
DIGEST- Lim Tong Lim vs Philippine Fishing Gear
Industries, Inc.
Business Organization – Partnership, Agency, Trust –
Corporation by Estoppel
It was established that Lim Tong Lim requested Peter Yao to
engage in commercial fishing with him and one Antonio Chua.
The three agreed to purchase two fishing boats but since they
do not have the money they borrowed from one Jesus Lim
(brother of Lim Tong Lim). They again borrowed money and
they agreed to purchase fishing nets and other fishing
equipments. Now, Yao and Chua represented themselves as
acting in behalf of “Ocean Quest Fishing Corporation” (OQFC)
they contracted with Philippine Fishing Gear Industries (PFGI)
for the purchase of fishing nets amounting to more than
P500k.
They were however unable to pay PFGI and so they were sued
in their own names because apparently OQFC is a non-
existent corporation. Chua admitted liability and asked for
some time to pay. Yao waived his rights. Lim Tong Lim
however argued that he’s not liable because he was not aware
that Chua and Yao represented themselves as a corporation;
that the two acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it
is clear that Chua, Yao and Lim had decided to engage in a
fishing business, which they started by buying boats worth
P3.35 million, financed by a loan secured from Jesus Lim. In
their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale
of the boats, and to divide equally among them the excess or
10
loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term “common
fund” under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like credit
or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed
a partnership.
Lim Tong Lim cannot argue that the principle of corporation
by estoppels can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the
nets found in his boats, the boat which has earlier been
proven to be an asset of the partnership. Lim, Chua and Yao
decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as
general partners.
DIGEST-SANTIAGO SYJUCO, INC. VS CASTRO
Facts:
The private respondents, Eugenio Lim, et al., borrowed
from petitioner Santiago Syjuco, Inc., the sum of
P800,000.00. The loan was given on the security of a first
mortgage on property registered in the names of said
borrowers as owners in common under Transfer Certificates
of Title Numbered 75413 and 75415 of the Registry of Deeds
of Manila. Thereafter, additional loans on the same security
were obtained by the private respondents from Syjuco, so
that as of May 8, 1967, the aggregate of the loans stood at
P2,460,000.00, exclusive of interest, and the security had
been augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by the private
respondents under two titles: TCT Nos. 75416 and 75418 of
the Manila Registry.
The private respondents failed to pay it despite demands
therefore; that Syjuco consequently caused extra-judicial
proceedings for the foreclosure of the mortgage to be
commenced by the Sheriff of Manila; and that the latter
scheduled the auction sale of the mortgaged property on
December 27, 1968. The attempt to foreclose triggered off a
legal battle that has dragged on for more than twenty years
now, fought through five (5) cases in the trial courts, two (2)
in the Court of Appeals, and three (3) more in the Supreme
Court.
One of the complaints filed by the private respondents
was filed not in their individual names, but in the name of a
partnership of which they themselves were the only partners:
"Heirs of Hugo Lim." The complaint advocated the theory that
the mortgage which they, together with their mother, had
individually constituted (and thereafter amended during the
period from 1964 to 1967) over lands standing in their names
in the Property Registry as owners pro indiviso, in fact no
longer belonged to them at that time, having been earlier
deeded over by them to the partnership, "Heirs of Hugo Lim,"
more precisely, on March 30, 1959, hence, said mortgage was
void because executed by them without authority from the
partnership. Syjuco filed an instant petition for certiorari,
prohibition and mandamus. It prays in its petition that the
default judgment rendered against it by Judge Castro be
annulled on the ground of, among others, estoppel, res
judicata, and Article 1819 of the Civil Code.
Issue:
Whether or not the private respondents are estopped to
avoid the aforementioned mortgage.
Held:
Yes. The Supreme Court ruled that the respondent
partnership was inescapably chargeable with knowledge of
the mortgage executed by all the partners thereof, its silence
and failure to impugn said mortgage within a reasonable time,
let alone a space of more than 17 years, brought into play the
doctrine of estoppel to preclude any attempt to avoid the
mortgage as allegedly unauthorized. Equally or even more
preclusive of the respondent partnership’s claim to the
mortgaged property is the last paragraph of Art. 1819 of the
Civil Code, which contemplates a situation similar to the case
at bar. It states that ‘where the title to real property is in the
names of all the partners, a conveyance executed by the
entire partners pass all their rights in such property.
Consequently, those members' acts, declarations and
omissions cannot be deemed to be simply the individual acts
of said members, but in fact and in law, those of the
partnership. Finally, the Supreme Court emphasizes that the
right of the private respondents to assert the existence of the
partnership could have been stressed at the time they
instituted their first action, considering that the actions
involved property supposedly belonging to it, and therefore,
the partnership was the real party in interest. What was done
by them was to split their cause of action in violation of the
well-known rule that only one suit may be instituted for a
single cause of action.
FT-G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY, respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for
the reversal of the Decision1 dated March 13, 1996 of the
former Fifth Division2 of the Court of Appeals in CA-G.R. CV
No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed
decision is hereby set aside, and the complaint
dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984,
Matilde Abubo, the common-law spouse of the decedent,
joined by their children Teresita, Nena, Clarita, Carlos,
Corazon and Elpidio, collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint,3
docketed as Civil Case No. 1983-R in the Regional Trial Court
of Baguio City was for accounting, liquidation and winding up
of the alleged partnership formed after World War II between
Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint4 impleading private
11
respondent herein BENGUET LUMBER COMPANY, as
represented by Tan Eng Lay. The amended complaint was
admitted by the trial court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the
second World War, Tan Eng Kee and Tan Eng Lay, pooling
their resources and industry together, entered into a
partnership engaged in the business of selling lumber and
hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed
until Tan Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the
alleged partners. However, they claimed that in 1981, Tan
Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and
the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7
rendered judgment6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment
is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture
which is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan
Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership
called Benguet Lumber and as such should share in
the profits and/or losses of the business venture or
particular partnership;
c) Declaring that the assets of Benguet Lumber are
the same assets turned over to Benguet Lumber Co.
Inc. and as such the heirs or legal representatives of
the deceased Tan Eng Kee have a legal right to share
in said assets;
d) Declaring that all the rights and obligations of Tan
Eng Kee as joint adventurer and/or as partner in a
particular partnership have descended to the
plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the
President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all
the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to
preserve and/or administer the assets of Benguet
Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to
submit the name of any person they want to be
appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one
who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for
lack of proof except the expenses in filing the instant
case.
h) Dismissing the counter-claim of the defendant for
lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals
which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners' motion
for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal
Case No. 78856 against Tan Eng Lay and Wilborn Tan for the
use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by
the defendants before the trial court, consisting of payrolls
indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the
signatures of Tan Eng Kee. They also filed Criminal Cases Nos.
78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo,
Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual.
On March 20, 1999, the Municipal Trial Court of Baguio City,
Branch 1, wherein the charges were filed, rendered
judgment9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS
NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C)
THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
THERE WAS NO AGREEMENT AS TO PROFITS AND
LOSSES; AND (E) THERE WAS NO TIME FIXED FOR
THE DURATION OF THE PARTNERSHIP (PAGE 13,
DECISION).
II THE HONORABLE COURT OF APPEALS ERRED IN
RELYING SOLELY ON THE SELF-SERVING
TESTIMONY OF RESPONDENT TAN ENG LAY THAT
BENGUET LUMBER WAS A SOLE PROPRIETORSHIP
AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.
III THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE FOLLOWING FACTS WHICH
WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A
PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE
COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND
TAN ENG LAY WERE ALL LIVING AT THE
BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG
KEE WERE COMMANDING THE EMPLOYEES
OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG
LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY
WERE THE ONES DETERMINING THE PRICES
OF STOCKS TO BE SOLD TO THE PUBLIC;
AND
e. THAT TAN ENG LAY AND TAN ENG KEE
WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
IV THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG
KEE: ELPIDIO TAN AND VERONICA CHOI,
TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW
WHEN THE ESTABLISHMENT KNOWN IN BAGUIO
CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).
V THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE THE PRESENT
CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH
THE EXECUTION OF A PUBLIC INSTRUMENT
12
 CREATING A PARTNERSHIP SHOULD HAVE BEEN
MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17,
DECISION).
As a premise, we reiterate the oft-repeated rule that findings
of facts of the Court of Appeals will not be disturbed on appeal
if such are supported by the evidence.10 Our jurisdiction, it
must be emphasized, does not include review of factual
issues. Thus:
Filing of petition with Supreme Court. — A party
desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of
law which must be distinctly set forth.11 [emphasis
supplied]
Admitted exceptions have been recognized, though, and
when present, may compel us to analyze the evidentiary basis
on which the lower court rendered judgment. Review of
factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals
and the trial court are contradictory;
(2) when the findings are grounded entirely on
speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals
from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the
appreciation of facts;
(5) when the appellate court, in making its findings,
goes beyond the issues of the case, and such
findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is
premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain
relevant facts which, if properly considered, will
justify a different conclusion;
(8) when the findings of fact are themselves
conflicting;
(9) when the findings of fact are conclusions without
citation of the specific evidence on which they are
based; and
(10) when the findings of fact of the Court of Appeals
are premised on the absence of evidence but such
findings are contradicted by the evidence on
record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the
issue because while the plaintiffs mentioned only the
existence of a partnership, the Court in turn went
beyond that by justifying the existence of a joint
venture.
When mention is made of a joint venture, it would
presuppose parity of standing between the parties,
equal proprietary interest and the exercise by the
parties equally of the conduct of the business, thus:
xxx xxx xxx
We have the admission that the father of the
plaintiffs was not a partner of the Benguet Lumber
before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the
war, the entire stocks of the pre-war Benguet
Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of
capital to start a lumber and hardware business, Lay
and Kee pooled the proceeds of their individual
businesses earned from buying and selling military
supplies, so that the common fund would be enough
to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually
established the Benguet Lumber in Baguio City, was
even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber
was eventually established. That the father of the
plaintiffs and Lay were partners, is obvious from the
fact that: (1) they conducted the affairs of the
business during Kee's lifetime, jointly, (2) they were
the ones giving orders to the employees, (3) they
were the ones preparing orders from the suppliers,
(4) their families stayed together at the Benguet
Lumber compound, and (5) all their children were
employed in the business in different capacities.
xxx xxx xxx
It is obvious that there was no partnership
whatsoever. Except for a firm name, there was no
firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed
for the duration of the partnership. There was even
no attempt to submit an accounting corresponding
to the period after the war until Kee's death in 1984.
It had no business book, no written account nor any
memorandum for that matter and no license
mentioning the existence of a partnership [citation
omitted].
Also, the exhibits support the establishment of only
a proprietorship. The certification dated March 4,
1971, Exhibit "2", mentioned co-defendant Lay as
the only registered owner of the Benguet Lumber
and Hardware. His application for registration,
effective 1954, in fact mentioned that his business
started in 1945 until 1985 (thereafter, the
incorporation). The deceased, Kee, on the other
hand, was merely an employee of the Benguet
Lumber Company, on the basis of his SSS coverage
effective 1958, Exhibit "3". In the Payrolls, Exhibits
"4" to "4-U", inclusive, for the years 1982 to 1983,
Kee was similarly listed only as an employee;
precisely, he was on the payroll listing. In the
Termination Notice, Exhibit "5", Lay was mentioned
also as the proprietor.
xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC,
that a partner [sic] may be constituted in any form,
but when an immovable is constituted, the execution
of a public instrument becomes necessary. This is
equally true if the capitalization exceeds P3,000.00,
in which case a public instrument is also necessary,
and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can
easily assume that the business establishment,
which from the language of the appellees, prospered
(pars. 5 & 9, Complaint), definitely exceeded
P3,000.00, in addition to the accumulation of real
properties and to the fact that it is now a compound.
The execution of a public instrument, on the other
hand, was never established by the appellees.
And then in 1981, the business was incorporated and
the incorporators were only Lay and the members of
his family. There is no proof either that the capital
assets of the partnership, assuming them to be in
existence, were maliciously assigned or transferred
by Lay, supposedly to the corporation and since then
have been treated as a part of the latter's capital
assets, contrary to the allegations in pars. 6, 7 and
8 of the complaint.
13
 These are not evidences supporting the existence of
a partnership:
1) That Kee was living in a bunk house just across
the lumber store, and then in a room in the bunk
house in Trinidad, but within the compound of the
lumber establishment, as testified to by Tandoc; 2)
that both Lay and Kee were seated on a table and
were "commanding people" as testified to by the
son, Elpidio Tan; 3) that both were supervising the
laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee
that the proceeds of the 80 pieces of the G.I. sheets
were added to the business.
Partnership presupposes the following elements
[citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or
where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the capacity
of the parties to execute the contract; 3) money
property or industry contribution; 4) community of
funds and interest, mentioning equality of the
partners or one having a proportionate share in the
benefits; and 5) intention to divide the profits, being
the true test of the partnership. The intention to join
in the business venture for the purpose of obtaining
profits thereafter to be divided, must be established.
We cannot see these elements from the testimonial
evidence of the appellees.
As can be seen, the appellate court disputed and differed from
the trial court which had adjudged that TAN ENG KEE and TAN
ENG LAY had allegedly entered into a joint venture. In this
connection, we have held that whether a partnership exists is
a factual matter; consequently, since the appeal is brought to
us under Rule 45, we cannot entertain inquiries relative to the
correctness of the assessment of the evidence by the court a
quo.13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must
examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan
Eng Lay were partners in Benguet Lumber. A contract of
partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.
Two or more persons may also form a partnership
for the exercise of a profession.14
Thus, in order to constitute a partnership, it must be
established that (1) two or more persons bound
themselves to contribute money, property, or
industry to a common fund, and (2) they intend to
divide the profits among themselves.15 The
agreement need not be formally reduced into
writing, since statute allows the oral constitution of
a partnership, save in two instances: (1) when
immovable property or real rights are contributed,16
and (2) when the partnership has a capital of three
thousand pesos or more.17 In both cases, a public
instrument is required.18 An inventory to be signed
by the parties and attached to the public instrument
is also indispensable to the validity of the
partnership whenever immovable property is
contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay
had entered into a joint venture, which it said is akin to a
particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar
to our joint accounts) is a sort of informal
partnership, with no firm name and no legal
personality. In a joint account, the participating
merchants can transact business under their own
name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is
limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may
continue for a number of years; a partnership
generally relates to a continuing business of various
transactions of a certain kind.21
A joint venture "presupposes generally a parity of standing
between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or
property contributed, and where each party exercises equal
rights in the conduct of the business."22 Nonetheless, in
Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation,
et. al.,23 we expressed the view that a joint venture may be
likened to a particular partnership, thus:
The legal concept of a joint venture is of common
law origin. It has no precise legal definition, but it
has been generally understood to mean an
organization formed for some temporary purpose.
(Gates v. Megargel, 266 Fed. 811 [1920]) It is
hardly distinguishable from the partnership, since
their elements are similar — community of interest
in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176
F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
288 P.2d. 12 289 P.2d. 242 [1955]). The main
distinction cited by most opinions in common law
jurisdiction is that the partnership contemplates a
general business with some degree of continuity,
while the joint venture is formed for the execution of
a single transaction, and is thus of a temporary
nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE
2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely accurate in
this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a
particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a
joint venture is a form of partnership and should
thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction
between these two business forms, and has held
that although a corporation cannot enter into a
partnership contract, it may however engage in a
joint venture with others. (At p. 12, Tuazon v.
Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract
of partnership itself, or the articles of partnership but there is
none. The alleged partnership, though, was never formally
organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly
formed sometime in 1945, although the contrary may well be
argued that nothing prevented the parties from complying
with the provisions of the New Civil Code when it took effect
on August 30, 1950. But all that is in the past. The net effect,
however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence.
A review of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The evidence
presented by petitioners falls short of the quantum of proof
required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away.
Only he, aside from Tan Eng Lay, could have expounded on
the precise nature of the business relationship between them.
In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing
a partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay. It should
be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to be
considered. None of petitioners' witnesses could suitably
account for the beginnings of Benguet Lumber Company,
except perhaps for Dionisio Peralta whose deceased wife was
related to Matilde Abubo.25 He stated that when he met Tan
Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly
owned by both brothers.26 Tan Eng Lay, however, denied
14
knowledge of this meeting or of the conversation between
Peralta and his brother.27 Tan Eng Lay consistently testified
that he had his business and his brother had his, that it was
only later on that his said brother, Tan Eng Kee, came to work
for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the
forty years the partnership was allegedly in existence, Tan
Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and
losses.29 Each has the right to demand an accounting as long
as the partnership exists.30 We have allowed a scenario
wherein "[i]f excellent relations exist among the partners at
the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly
plausible."31 But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible. A
person is presumed to take ordinary care of his concerns.32
As we explained in another case:
In the first place, plaintiff did not furnish the
supposed P20,000.00 capital. In the second place,
she did not furnish any help or intervention in the
management of the theatre. In the third place, it
does not appear that she has even demanded from
defendant any accounting of the expenses and
earnings of the business. Were she really a partner,
her first concern should have been to find out how
the business was progressing, whether the expenses
were legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to any of
the acts that a partner should have done; all that
she did was to receive her share of P3,000.00 a
month, which cannot be interpreted in any manner
than a payment for the use of the premises which
she had leased from the owners. Clearly, plaintiff
had always acted in accordance with the original
letter of defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered this offer
as the real contract between them.33 [emphasis
supplied]
A demand for periodic accounting is evidence of a
partnership.34 During his lifetime, Tan Eng Kee appeared
never to have made any such demand for accounting from his
brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private
respondents, consisting of payrolls purporting to show that
Tan Eng Kee was an ordinary employee of Benguet Lumber,
as it was then called. The authenticity of these documents
was questioned by petitioners, to the extent that they filed
criminal charges against Tan Eng Lay and his wife and
children. As aforesaid, the criminal cases were dismissed for
insufficiency of evidence. Exhibits "4" to "4-U" in fact shows
that Tan Eng Kee received sums as wages of an employee. In
connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by Article 1825, persons who
are not partners as to each other are not partners as
to third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made
by the use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or
interest in any property which the returns are
derived;
(4) The receipt by a person of a share of the profits
of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall
be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the
amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
In the light of the aforequoted legal provision, we conclude
that Tan Eng Kee was only an employee, not a partner. Even
if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share
in the profits of the enterprise. Petitioners failed to show how
much their father, Tan Eng Kee, received, if any, as his share
in the profits of Benguet Lumber Company for any particular
period. Hence, they failed to prove that Tan Eng Kee and Tan
Eng Lay intended to divide the profits of the business between
themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe
the alleged existence of a partnership from this set of
circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the
employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both
placed orders to the suppliers of the Benguet Lumber
Company. They also point out that the families of the brothers
Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber
Company compound, a privilege not extended to its ordinary
employees.
However, private respondent counters that:
Petitioners seem to have missed the point in
asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber
for the following reasons:
(i) even a mere supervisor in a company, factory or
store gives orders and directions to his subordinates.
So long, therefore, that an employee's position is
higher in rank, it is not unusual that he orders
around those lower in rank.
(ii) even a messenger or other trusted employee,
over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of
Benguet Lumber. Furthermore, even a partner does
not necessarily have to perform this particular task.
It is, thus, not an indication that Tan Eng Kee was a
partner.
(iii) although Tan Eng Kee, together with his family,
lived in the lumber compound and this privilege was
not accorded to other employees, the undisputed
fact remains that Tan Eng Kee is the brother of Tan
Eng Lay. Naturally, close personal relations existed
between them. Whatever privileges Tan Eng Lay
gave his brother, and which were not given the other
employees, only proves the kindness and generosity
of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was
quarreling with Tan Eng Lay in connection with the
pricing of stocks, this does not adequately prove the
existence of a partnership relation between them.
Even highly confidential employees and the owners
of a company sometimes argue with respect to
certain matters which, in no way indicates that they
are partners as to each other.35
15
In the instant case, we find private respondent's arguments
to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may
be such as to support a finding of the existence of the parties'
intent.36 Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive indicia
of a partnership. They only tend to show that Tan Eng Kee
was involved in the operations of Benguet Lumber, but in
what capacity is unclear. We cannot discount the likelihood
that as a member of the family, he occupied a niche above
the rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his residence
in the Benguet Lumber Company compound. He would have
moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It
may even be that among his duties is to place orders with
suppliers. Again, the circumstances proffered by petitioners
do not provide a logical nexus to the conclusion desired; these
are not inconsistent with the powers and duties of a manager,
even in a business organized and run as informally as
Benguet Lumber Company.
There being no partnership, it follows that there is no
dissolution, winding up or liquidation to speak of. Hence, the
petition must fail.
WHEREFORE, the petition is hereby denied, and the
appealed decision of the Court of Appeals is hereby
AFFIRMED in toto. No pronouncement as to costs.
DIGEST-HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740,
G.R. No. 126881, October 3, 2000
FACTS:
After the second World War, Tan EngKee and Tan Eng Lay,
pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and
hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed
until Tan EngKee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the
alleged partners. However, they claimed that in 1981, Tan
Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan EngKee and his heirs of
their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and
the equal division of the net assets of Benguet Lumber. The
RTC ruled in favor of petitioners, declaring that Benguet
Lumber is a joint venture which is akin to a particular
partnership. The Court of Appeals rendered the assailed
decision reversing the judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay
are joint adventurers and/or partners in a business venture
and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business
venture or particular partnership
RULING:
There was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads
submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the
duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the
war until Kee's death in 1984. It had no business book, no
written account nor any memorandum for that matter and no
license mentioning the existence of a partnership. Also, the
trial court determined that Tan EngKee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a
particular partnership. A particular partnership is
distinguished from a joint adventure, to wit:(a) A joint
adventure (an American concept similar to our joint accounts)
is a sort of informal partnership, with no firm name and no
legal personality. In a joint account, the participating
merchants can transact business under their own name, and
can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a
successful termination maycontinue for a number of years; a
partnership generally relates to a continuing business of
various transactions of a certain kind. A joint venture
"presupposes generally a parity of standing between the joint
co-ventures or partners, in which each party has an equal
proprietary interest in the capital or property contributed, and
where each party exercises equal rights in the conduct of the
business. The evidence presented by petitioners falls short of
the quantum of proof required to establish a partnership. In
the absence of evidence, we cannot accept as an established
fact that Tan EngKee allegedly contributed his resources to a
common fund for the purpose of establishing a partnership.
Besides, it is indeed odd, if not unnatural, that despite the
forty years the partnership was allegedly in existence, Tan
EngKee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses
.Each has the right to demand an accounting as long as the
partnership exists. A demand for periodic accounting is
evidence of a partnership. During his lifetime, Tan EngKee
appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay. We conclude that
Tan EngKee was only an employee, not a partner since they
did not present and offer evidence that would show that Tan
EngKee received amounts of money allegedly representing
his share in the profits of the enterprise. There being no
partnership, it follows that there is no dissolution, winding up
or liquidation to speak of.
DIGEST-VILLAREAL V. RAMIREZ
Facts:
In 1984, Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000for the operation of a
restaurant and catering business. Respondent Ramirez joined
as a partner in the business with the capital contribution of
P250,000. In 1987, Jesus Jose withdrew from the partnership
and within the same time, Villareal and Carmelito Jose,
petitioners closed the business without prior knowledge of
respondents In March 1987, respondents wrote a letter to
petitioners stating that they were no longer interested in
continuing the partnership and that they were accepting the
latter’s offer to return their capital contribution. This was left
unheeded by the petitioners, and by reason of which
respondents filed a complaint in the RTC.RTC ruled that the
parties had voluntarily entered into a partnership, which could
be dissolved at any time, and this dissolution was showed by
the fact that petitioners stopped operating the restaurant. On
appeal, CA upheld RTC’s decision that the partnership was
dissolved and it added that respondents had no right to
demand the return of their capital contribution. However
since petitioners did not give the proper accounting for the
liquidation of the partnership, the CA took it upon itself to
compute their liabilities and the amount that is proper to the
respondent. The computation of which was:(capital of the
partnership – outstanding obligation) / remaining partners
=amount due to private respondent
Issue: W/N petitioners are liable to respondents for the
latter’s share in the partnership?
Ruling:
No. Respondents have no right to demand from petitioner the
return of their equity share. As found by the court petitioners
did not personally hold its equity or assets. “The partnership
has a juridical personality separate and distinct from that of
each of the partners.” Since the capital was contributed to the
partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners. However, before
the partners can be paid their shares, the creditors of the
partnership must first be compensated. Therefore, the exact
amount of refund equivalent to respondents’ one-third share
in the partnership cannot be determined until all the
partnership assets will have been liquidated and all
partnership creditors have been paid. CA’s computation of the
amount to be refunded to respondents as their share was thus
erroneous.
16