PNB v.

Lo
Villamor, J.

Parties:
Philippine National Bank, plaintiff-appellee,
Severo Eugenio Lo, et al. defendants
Severio Eugenio Lo, Ng Khey Ling and Yep Seng, appellants

Facts:
● 1916 – Severo Eugenio Lo and Ng Khey Ling together with J.A. Say Lian Ping, Ko Tiao Hun, On Yem Ke
Lam and Co Sieng Peng formed a commercial partnership under the name of “Tai Sing Co.,” with a capital of
P40,000 contributed by said partners.
● Articles of Copartnership states that:
o Partnership was to last for 5 years from after the date of its organization
o Purpose: to do business in the City of Iloilo or in any other part of the Philippines the partners might
desire; purchase and sale of merchandise, goods, and native, as well as Chinese and Japanese products
o J.A. Say Lian Ping was appointed general manager
● A. Say Lian Ping executed a power of attorney in favor of A. Y. Kelam, authorizing him to act in his
stead as manager and administrator of “Tai Sing & Co.” and to obtain a loan of P8,000 in current account from
PNB.
● Kelam mortgaged certain personal property of the partnership.
● The credit was renewed several times and Kelam, as attorney-in-fact of “Tai Sing & Co., executed a
chattel mortgage in favor of PNB as security as security for a loan P20,000.
● This mortgage was again renewed and Kelam as attorney-in-fact of “Tai Sing & Co.” executed another
chattel mortgage for the said sum of P20,000.
● 1920 – Yap Seng, Severo Lo, Kelam and Ng Khey Ling, the latter represented by M. Pineda Tayenko,
executed a power of attorney in favor of Sy Tit.
● By virtue of the power of attorney, Sy Tit representing “Tai Sing & Co.” obtained a credit of P20,000
from PNB in 1921 and executed a chattel mortgage on certain personal property belonging to the partnership.
● Defendants had been using this commercial credit in a current account with the plaintiff bank from
1918 – 1922 and as of December 31, 1924 the debit balance of this account P 20, 239.
● PNB claims in the complaint this amount and an interest of P16, 518.74.
● Eugenio Lo’s defense:
o “Tai Sing & Co.” was not a general partnership.
o Commercial credit in current account which Tai Sing & Co. obtained from PNB had not been authorized
by the board nor was the person who subscribed said contract authorized under the articles of copartnership
● Trial Court: in favor of PNB

ISSUE:
Whether or not “Tai Sing & Co.” is a general partnership in that the appellants can be held liable to pay PNB
HELD: Yes. “Tai Sing & Co.” is a general partnership
RATIO:
● Appellants admit and it appears from the articles of copartnership that “Tai Sing & Co.” is a general
partnership and it was registered in the mercantile register of Iloilo.
● The fact that the partners opt to use “Tai Sing & Co.” as the firm name does not affect the liability of
the general partners to third parties under Article127 of the Code of Commerce. Jurisprudence states that:
o The object of article 126 of the Code of Commerce in requiring a general partnership to transact
business under the name of all its members, of several of them, or of one only, is to protect the public from
imposition and fraud
o It is for the protection of the creditors rather than of the partners themselves.
o The law must be unlawful and unenforceable only as between the partners and at the instance of the
violating party, but not in the sense of depriving innocent parties of their rights who may have dealt with the
offenders in ignorance of the latter having violated the law.
o Contracts entered into by commercial associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or not they complied with the agreement. Therefore,
the defendants cannot invoke in their defense the anomaly in the firm name which they themselves adopted.
● As to the alleged death of the manager, Say Lian Ping before Kelam executed the contracts of
mortgage with PNB, this would not affect the liability of the partnership
o Kelam was a partner who contracted in the name of the partnership and the other partners did not
object
o Lo, Khey Ling, and Yap Seng appointed Sy Tit as manager, and he obtained from PNB the credit in
current account
● Trial Court correctly held defendants to be jointly and severally liable to PNB
● This is in accordance with Article 127 of the Code of Commerce “all the members of a general
partnership, be they managing partners thereof or not, shall be personally and solidarily liable with all their
property, for the results of the transactions made in the name and for the account of the partnership, under
the signature of the latter, and by a person authorized to use it.”

ISLAND SALES, INC., vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL G.R. No. L-22493
July 31, 1975 general partnership, Condonation

OCTOBER 6, 2017

FACTS:

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 equal monthly installments of P786.63, the first installment payable on or before
May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid,
with the condition that failure to pay any of said installments as they fall due would render the whole unpaid
balance immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the
unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the
defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default.

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B.
Lumauig is concerned.
When the case was called for hearing, the defendants and their counsels failed to appear. Consequently, the
trial court authorized the plaintiff to present its evidence ex-parte.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there
are five general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 )
of the obligations of the defendant company.

The trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the defendant company.

ISSUE:

Is the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners for the obligations of the partnership.

RULING:

Condonation by creditor or share in partnership debt of one partner does not increase pro-rata liability of
other partner.

In the instant case, there were five 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.

The appealed decision as thus clarified was AFFIRMED.

LA COMPAÑIA MARITIMA, plaintiff-appellant,

vs.

FRANCISCO MUÑOZ, ET AL., defendants-appellees.

*digest taken from net but modified it

FACTS:

In 1905, Francisco Muñoz, Emilio Muñoz, and Rafael Naval formed an ordinary general mercantile partnership
in accordance with the Code of Commerce. They named the partnership “Francisco Muñoz & Sons”.

Francisco was the capitalist partner while the other two were industrial partners. In the articles of partnership,
it was agreed upon by the three that for profits, Francisco shall have a 3/4th share while the other two would
have 1/8th each. For losses, only Francisco shall bear it.

Later, the partnership was sued by La Compañia Martitama for collection of sum of money amounting to
P26,828.30.

The partnership lost the case and was ordered to make said payment; that in case the partnership can’t pay
the debt, all the partners should be liable for it.

The ruling is in accordance with Article 127 of the Code of Commerce which states:

All the members of the general copartnership, be they or be they not managing partners of the same, are
liable personally and in solidum with all their property for the results of the transactions made in the name and
for the account of the partnership, under the signature of the latter, and by a person authorized to make use
thereof. (emphasis supplied)

Francisco (the capitalist partner) now argues that the industrial partners should NOT be liable pursuant to
Article 141 of the Code of Commerce which states:

Losses shall be charged in the same proportion among the partners who have contributed capital, without
including those who have not, unless by special agreement the latter have been constituted as participants
therein. (emphasis supplied)

ISSUE: Whether or not the industrial partners are liable to third parties like La Compañia Martitama?

HELD: Yes. The controlling law is Article 127 which states that:

All the members of the general copartnership, be they or be they not managing partners of the same, are
liable personally and in solidum with all their property for the results of the transactions made in the name and
for the account of the partnership, under the signature of the latter, and by a person authorized to make use
thereof.
It cannot have been intended that, in such a partnership as the one in question, where there were two
industrial and only one capitalist partner, the industrial partners should have no voice in the management of
the business when the articles of partnership were silent on that subject; that when the manager appointed
mismanages the business the industrial partners should have no right to appoint a comanager; that they
should have no right to examine the books; that they might use the firm name in their private business; or
that they have no voice in the liquidation of the business after dissolution. To give a person who contributed
no more than, say, P500, these rights and to take them away from a person who contributed his services,
worth, perhaps, infinitely more than P500, would be discriminate unfairly against industrial partners.

Industrial partners have a voice in the management of the business, if no manager has been named in the
articles; they share in the profits and as to third persons it is no more than right that they should share in the
obligations. It is admitted that if in this case there had been a capitalist partner who had contributed only P100
he would be liable for this entire debt of P26,000.

Article 141 which states that:

ART. 141. Losses shall be charged in the same proportion among the partners who have contributed capital,
without including those who have not, unless by special agreement the latter have been constituted as
participants therein.

relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing
to do with the liability of the partners to third persons; that each one of the industrial partners is liable to third
persons for the debts of the firm; that if he has paid such debts out of his private property during the life of
the partnership, when its affairs are settled he is entitled to credit for the amount so paid, and if it results that
there is not enough property in the partnership to pay him, then the capitalist partners must pay him.

In relation to this, the Supreme Court noted that partnerships under the Civil Code provides for a scenario
where all partners are industrial partners (like when it is a partnership for the exercise of a profession). In
such case, if it is permitted that industrial partners are not liable to third persons then such third persons
would get practically nothing from such partnerships if the latter is indebted.

The stipulation that all the industrial partners and some of the capital partners would be exempted from
liability in so far as third persons are concerned, is null and void. (Paras)
Liability refers to responsibility towards third persons and losses refers to responsibility as among the partners.
(Paras)

DIETRICH V. FREEMAN AND WHITCOMB

1911; Justice Trent

Digest by Christian Jay Millena

Topic: Joint Accounts

Quick Facts: Plaintiff sued to collect from the partners of Manila Steam Laundry. The trial court held the
defendants jointly and severally liable. The Court reversed holding that the business was a partnership of
cuentas en participacion and the liability of the partners is pro-rata based on their interest in the business.

FACTS:

Plaintiff Dietrich was employed by defendants Freeman, and Whitcomb as owners and operators of Manila
Steam Laundry (Whitcomb obtained his interest in the business from Pierce who sold his interests to him). He
filed the action to collect from defendants the balance due to him for the services he performed.

The trial court held Freeman and Whitcomb jointly and severally liable to Dietrich.

Whitcomb appealed the decision insisting that he should not be held jointly and severally liable with Freeman.
(Note: Freeman was the managing partner of the laundry and Whitcomb barely had a hand on the operations
of the business).

To avoid liability it appears that the theory of Whitcomb here is two layered. First, that the partnership was a
commercial partnership. Second that it is a partnership of cuentas en participacion.

ISSUE:

WON Whitcomb is liable to Freeman.YES

What is the nature of liability? Pro rata based on his interest in the business.
RATIO:

In determining the liability of Freeman, the Court first identified the nature of the business.

Art 17 and 119 of the Code of Commerce then applicable, provide the requirements for the constitution of a
commercial partnership (i.e. recording of the business agreements in the commercial registry.) The
requirements were not complied with. The Court therefore held that no formal partnership was entered into
between Freeman and Whitcomb. As such, the Civil Code and not the Code of Commerce must govern in
determining the liability of the partners.

Insisting that he is not liable, Whitcomb posits that the association was one of cuentas en participation. A
partnership of cuentas en participacion is constituted in such a manner that its existence was only known to
those who had an interest in the same, there being no mutual agreement between the partners, and without a
corporate name indicating to the public in some way that there were other people besides the one who
ostensibly managed and conducted the business. under the provisions of article 242 of the Code of Commerce,
those who contract with the person in whose name the business of such a partnership was conducted shall
have only the right of action against such person and not against other persons interested

However, a partnership of cuentas en participacion does not have a corporate name. Here, the business is
known as Manila Steam Laundry and Dietrich was employed by Manila steam Laundry and not Freeman alone.

Since the artners were doing business under this name, and since it is not a commercial partnership, Articles
1698 and 1137 of the Civil Code should govern and the partners are not liable individually for the entire
amount due the plaintiff. The liability is pro rata and in this case the appellant is responsible to the plaintiff for
only one-half of the debt.

DISPOSITIVE:

Judgment modified. Whitcomb liable only to half the balance due plaintiff.

Partnership

(Art. 1819)

Santiago Syjuco, Inc. vs. Castro

Facts:

• Eugenio Lim, along with his brothers, all hereinafter collectively called the Lims, borrowed from petitioner
Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of 800,000.00. The loan was given on the security of
a first mortgage on property registered in the names of said borrowers as owners in common.Thereafter,
additional loans on the same security were obtained by the Lims from Syjuco, so that the aggregate of the
loans stood at 2,460,000.00, exclusive of interest.

• When the obligation matured, the Lims failed to pay it despite demands therefor and consequently,
Syjuco caused extra-judicialproceedings for the foreclosure of the mortgage.

• The attempt to foreclose triggered off a legal battle that has dragged on for 20 years, through 5 cases in
the courts.

• DEFENSE: The respondents advocated the theory that the mortgage,which they had individually
constituted, in fact no longer belonged to them,having been earlier deeded over by them to the partnership,
“Heirs of Hugo Lim”, making the said mortgage void because it was executed by them without authority from
the partnership.

Issue: W/N the Lim’s are estop from to asserting the existence of the partnership?

Held: Yes. The court holds that the respondent partnership was inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, and therefore its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than 17 years, brought into play thedoctrine of estoppel to
preclude any attempt to avoid the mortgage as allegedly unauthorized.

Also, Art. 1819 states that, “where the title to real property is in the names of all the partners, a conveyance
executed by all the partners passes all their rights in such property.” Consequently, those members' acts,
declarations and omissions cannot be deemed to be simply the individual acts of said members, but infact and
in law, those of the partnership.

Liwanag and Reyes vs. Workmen's Compensation Commission, 105 phil. 741, 1959 Facts:

Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply, a commercial
guard who while in line of duty, was killed. His widow Ciriaca Vda. de Balderama and minor children Genara,
Carlos and Leogardo, all surnamed Balderama, in due time filed a claim for compensation with the Workmen's
Compensation Commission, which was granted in an award.

In appealing the case to this Tribunal, appellants do not question the right of appellees to compensation nor
the amount awarded. They only claim that, under the Workmen's Compensation Act, the compensation is
divisible, hence the commission erred in ordering appellants to pay jointly and severally the amount awarded.
They argue that there is nothing in the compensation Act which provides that the obligation of an employer
arising from compensable injury or death of an employee should be solidary obligation, the same should have
been specifically provided, and that, in absence of such clear provision, the responsibility of appellants should
not be solidary but merely joint. Issue: Are the co-partners liable solidarily or jointly? Ruling:
Solidarily liable

Although the Workmen's Compensation Act does not contain any provision expressly declaring solidary
obligation of business partners like the herein appellants, there are other provisions of law from which it could
be gathered that their liability must be solidary. Arts. 1711 and 1712 of the new Civil Code provide: ART. 1711.
Owners of enterprises and other employers are obliged to pay compensation for the death of or injuries to
their laborers, workmen, mechanics or other employees, even though the event may have been purely
accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in the course of
the employment. . . . ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter
and the employer shall be solidarily liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads in part as follows

. . . The right to compensation as provided in this Act shall not be defeated or impaired on the ground that the
death, injury or disease was due to the negligence of a fellow servant or employee, without prejudice to the
right of the employer to proceed against the negligence party.

The provisions of the new Civil Code above quoted taken together with those of Section 2 of the Workmen's
Compensation Act, reasonably indicate that in compensation cases, the liability of business partners, like
appellants, should be solidary; otherwise, the right of the employee may be defeated, or at least crippled. If
the responsibility of appellants were to be merely joint and solidary, and one of them happens to be insolvent,
the amount awarded to the appellees would only be partially satisfied, which is evidently contrary to the intent
and purposes of the Act.

Moreover, Art. 1207 of the new Civil Code provides: . . . . There is solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full protection to the employee, reason demands
that the nature of the obligation of the employers to pay compensation to the heirs of their employee who
died in line of duty, should be solidary; otherwise, the purpose of the law could not be attained.

MACDONALD vs. NATIONA CITY BANK OF NEW YORK

L-7991 | may 21, 1956 | Paras | Pet for Review by Certiorari

Petitioners: Paul MacDonald et al.

Respondent: National City Bank of New York

Quick Summary:

Facts: Stasikinocey is a partnership formed by da Costa, Gorcey, Kusik and Gavino. It was denied registration
by the SEC due to a confusion between the partnership and Cardinal Rattan. Cardinal Rattan is the business
name or style used by Stasikinocey. Da Costa and Gorcey are the general partners of Cardinal Rattan.
Moreover, Da Costa is the managing partner of Cardinal Rattan. Stasikinocey had an overdaft account with
Nationa City Bank, which was later converted into an ordinary loan due the partnership’s failure in paying its
obligation. The ordinary loan was secured by a chattel mortgage over 3 vehicles. During the subsistence of the
loan, the vehicles were sold to MacDonald and later on, MacDonald sold 2 of the 3 vehicles to Gonzales. The
bank brought an action for recovery of its credit and foreclosure of the chattel mortgage upon learning of
these transactions.

Held: While an unregistered commercial partnership has no juridical personality, nevertheless, where two or
more persons attempt to create a partnership failing to comply with all the legal formalities, the law considers
them as partners and the association is a partnership in so far as it is a favorable to third persons, by reason
of the equitable principle of estoppel. Where a partnership not duly organized has been recognized as such in
its dealings with certain persons, it shall be considered as “partnership by estoppel” and the persons dealing
with it are estopped from denying its partnership existence.

Facts:

Stasikinocey is a partnership formed by Alan Gorcey, Louis Da Costa Jr., William Kusik and Emma Badong
Gavino.

It was denied registration in the SEC due to the confusion between this partnership and the business Cardinal
Rattan, which is treated as a co-partnership where Gorcey and Da Costa are the general partners. It appears
that Cardinal Rattan is merely the business name or style used by the partnership, Stasikinocey.

Prior to June 3, 1949 - Stasikinocey had an overdraft account with the National City Bank of New York, a
foreign banking association duly licensed to do business in the Philippines.

June 3, 1949 - said overdraft account has a P6,134.92 balance. Due to the failure of Stasikinocey to make the
required payment, said balance was converted into an ordinary loan for which a promissory joint note, non-
negotiable was executed on the same day by Da Costa for and in the name of Cardinal Rattan, himself and
Gorcey.
June 7, 1949 - said promissory note was secured by a chattel mortgage executed by Da Costa, general partner
for and in the name of Stasikinocey. Said mortgage was constituted over the following:

Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with plate No. T-7333 (1949)

Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and with plate No. 10372

Fargo Pick-Up FKI-16, with motor No. T-112800032, Serial No. 8869225 and with plate No. T-7222 (1949)

The mortgage deed was duly registered with the Office of the Register of Deeds Pasig, Rizal. It has the
following stipulations:

mortgagor shall not sell or otherwise dispose of the said chattels without the mortgagee’s written consent

mortgagee may foreclose the mortgage at any time, after breach of any condition thereof, the mortgagor
waiving the 30- day notice of foreclosure

June 7, 1949 - Gorcey and Da Costa executed an agreement purporting to convey and transfer all their rights,
title and participation in Stasikinocey to Shaeffer, allegedly in consideration of the cancellation of an
indebtedness of P25,000 owed by them and Stasikinocey to the latter. Said agreement is said to be in violation
of the Bulk Sales Law.

June 24, 1949 - during the subsistence of the loan and chattel mortgage, Stasikinocey,, through Gorcey and
Da Costa transferred to MacDonald the Fargo truck and Plymouth sedan

June 28, 1949 - Shaeffer sold the Fargo pick-up to MacDonald

July 19, 1944 [what the case stated but I guess it should be 1949] - Paul MacDonald sold the Fargo truck and
Plymouth sedan to Benjamin Gonzales

When the National City Bank learned of these transactions, it filed an action against Stasikinocey, Da Costa,
Gorcey, MacDonald and Gonzales to recover its credit and to foreclose the chattel mortgage.

CFI: annulled the sale of the vehicles to Gonzales; ordered Da Costa and Gorcey to pay the Bank jointly and
severally P6,132.92 with legal interest; ordered Gonzales to deliver the vehicles to the Bank for sale at public
auction if Da Costa and Gorcey fails to pay; ordered Da Costa, Gorcey and MacDonald to pay the Bank jointly
and severally any deficiency that remains unpaid should the proceeds of the auction sale be insufficient

MacDonald and Gonzales appealed to the CA.

CA: modified the CFI decision by ruling that MacDonald is not jointly and severally liable with Gorcey and Da
Costa to pay any deficiency

Issue:

WON the partnership, Stasikinocey is estopped from asserting that it does not have juridical personality since it
is an unregistered commercial partnership [YES]

Ratio:
While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more
persons attempt to create a partnership failing to comply with all the legal formalities, the law considers them
as partners and the association is a partnership in so far as it is a favorable to third persons, by reason of the
equitable principle of estoppel.

Da Costa and Gorcey cannot deny that they are partners of the partnership Stasikinocey, because in all their
transactions with the National City Bank they represented themselves as such. McDonald cannot disclaim
knowledge of the partnership Stasikinocey because he dealt with said entity in purchasing two of the vehicles
in question through Gorcey and Da Costa. The sale of the vehicles to MacDonald being void, the sale to
Gonzales is also void since a buyer cannot have a better right than the seller.

As was held in Behn Meyer & Co. vs. Rosatzin, where a partnership not duly organized has been recognized as
such in its dealings with certain persons, it shall be considered as “partnership by estoppel” and the persons
dealing with it are estopped from denying its partnership existence.

If the law recognizes a defectively organized partnership as de facto as far as third persons are concerned, for
purposes of its de facto existence it should have such attribute of a partnership as domicile.

On the Validity of the Chattel Mortgage

The chattel mortgage is in the form required by law, and there is therefore the presumption of its due
execution which cannot be easily destroyed by the biased testimony of the one who executed it.

The interested version of Da Costa that the affidavit of good faith appearing in the chattel mortgage was
executed in Quezon City before a notary public for and in the City of Manila was correctly rejected by the trial
court and the Court of Appeals.

In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa appears as a co-manager in
the letter of Gorcey to the National City Bank and in the promissory note executed by Da Costa, and that even
the partners considered him as such, the “partner” who executed the chattel mortgage in question must be
deemed to be so fully authorized.

Section 6 of the Chattel Mortgage Law provides that when a partnership is a party to the mortgage, the
affidavit may be made and subscribed by one member thereof.

In this case the affidavit was executed and subscribed by Da Costa, not only as a partner but as a managing
partner.

Dispositive: CA decision affirmed.

Corporate Law Case Digest: Pioneer Insurance v. CA (1989)

G.R. No. 84197 July 28, 1989

Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a partnership absent intent
to form one (Corporate Law)

FACTS:
1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship

May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract regarding:

2 DC-#A type aircrafts

1 set of necessary spare parts

Total: $ 190,000 in installments

May 22 1965: Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on
behalf of its principal Lim

Border Machinery and Heacy Equipment Co, Inc. Francisco and Modesto Cervantes and Constancio Maglana
contributed funds for the transaction based on the misrepresentation of Lim that they will form a new corp.. to
expand his business

Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security

Restructuring of obligation to change the maturity was done 2x w/o the knowledge of other defendants

made the surety of JDA prescribed so not entitled to reimbursement

Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure of chattel
mortgage as security

CA affirmed Trial of Merits: Only Lim is liable to pay

ISSUE: W/N failure of respondents to incorporate = de facto partnership.

HELD: NO. CA affirmed.

Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume the relation of
partners as bet. themselves, when their purpose is that no partnership shall exists

Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to make others liable)

Lim never intended to form a corp.

LEONCIA VIUDA DE CHAN DIACO v. JOSE S. Y. PENG

Facts:

The San Miguel Brewery, Porta Pueo & Co., and Ruiz & Rementeria S. en C. instituted insolvency proceedings
against Leoncia Vda. de Chan Diaco, alleged to be the owner of a grocery store on Calle Nueva, Binondo,
known as the store of "La Viuda de G. G. Chan Diaco." The above-mentioned firms alleged, among other
things, that Leoncia was indebted to them. The petition for the declaration of insolvency was set down for
hearing. Leoncia did not appear at the hearing and the court declared her insolvent and ordered the sheriff to
take possession of her property.

Attorney for the insolvent filed a motion asking the court to dismiss the proceedings against her on the ground
that they should have been brought against the partnership "Lao Liong Naw & Co.," of which she was only a
member. The alleged partnership was evidenced by an agreement and from which it appeared that Lao Liong
Naw (Leoncia), Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Chan Bun Le, and Juan Maquitan Chan had formed
a partnership.

In view of the aforesaid motion Judge Del Rosario suspended for the time being the effects of the decision.
After several hearings in which various witnesses were examined and documents presented on behalf of both
sides, the referee rendered a second report, in which he found as facts that the alleged partnership between
the insolvent and some of her relatives and employees was only a fictitious organization created for the
purpose of deceiving the Bureau of Customs and enable some of the aforesaid relatives, who were mere
coolies, to come to the Philippines under the status of merchants.

The court, therefore, affirmed the suspension of the decision, dismissed the insolvency proceedings, and
ordered the assignee to return to the sheriff all the property of the insolvent which he, the sheriff, might have
in his possession.

Issues: Whether or not Leoncia Vda. de Chan Diaco is liable

Ruling:

Yes. All of the assignments of error are well taken. The evidence appearing in the record fully supports the
findings of the referee and his report should have been approved by the court below. It clearly appears from
the record that said partnership, as such, has no visible assets and that, therefore, the partners individually
must, jointly and severally, respond for its debts (Code of Commerce, art. 127). As the appellee is one of the
partners and admits that she is insolvent, we can see no reason for the dismissal of the proceedings against
her.

It is further to be noted that both the partnership and the separate partners thereof may be joined in the
same action, though the private property of the latter cannot be taken in payment of the partnership debts
until the common property of the concern is exhausted. The decision appealed from is hereby reversed , the
reports and recommendations of the referee are approved, and the order for the dismissal of the case is set
aside.