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Compiled Partnership Digests #3 AJ | Amin | Cha | Janz | Krizel | Paco | Vien | Yen

PIONEER INSURANCE V CA (1989)


Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts . The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature. Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. TC: Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. CA: modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed ISSUE IN G.R. No. 84197: Whether or not, petitioner is entitled to recover payment from private respondent Lim- NOT ENTITLED According to the Supreme Court, plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of

P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by the judgment. In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925). Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. (Phil. Air Lines, Inc. v. Heald Lumber Co ISSUE IN G.R. No. 84157: WON A DE FACTO PARTNERSHIP WAS FORMED BETWEEN LIM, BORMAHECO, CERVANTESES, AND MAGLANA- NO, THUS THEY SHOULDNT ALL SHARE ON THE LOSSES While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co). However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen). In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that

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defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses. It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the crossclaims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as security. CFI ruled that Estrella was an industrial partner and ordered the defendants to render an accounting of the business operations of the partnership, and to pay her the amounts due her in the partnership profits. CA affirmed.

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS v. ESTRELLA ABAD SANTOS
Facts: October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 they amended Articles of Copartnership and included Estrella Abad Santos, as industrial partner, with petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The amendment provided: "the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos." In 1963, Estrella filed suit against the three other partners alleging that the partnership, which was also made a partydefendant, had been paying dividends to the partners except to her that despite demands the defendants refused to let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership. She prayed that the defendants be ordered to render accounting to her of the partnership business and to pay her corresponding share in the partnership profits after such accounting, plus attorney's fees and costs. Evangelista et al denied everything and alleged that the amended Articles of Co-partnership did not express the true agreement of the parties, which was that the

ISSUE: WON Estrella is an industrial partner or merely a profit sharer? HELD: INDUSTRIAL PARTNER Evangelista et al. have admitted the genuineness and due execution of the Articles of Co-partnership. The SC ruled that the articles indubitably show that Estrella is an industrial partner of Evangelista &co. Appellants are virtually estopped from attempting to detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and consent, and there is no credible showing that they ever protested against or opposed their contents prior of the filing of their answer to Estralla's complaint. Evangelista also argue that the appellee Estrella Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the performance of the duties of her public office. This fact proves beyond peradventure that it was never contemplated between the parties, for she could not lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil Code. The SC ruled that even as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they would not have had the wherewithal to operate the business for which appellant company was organized. Article 1767 of the New Civil Code which provides that "By 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, 'does not specify the kind of industry that a partner may thus contribute, hence the said services may legitimately be considered as appellee's contribution to the common fund. Another article of the same Code relied upon appellants reads: 'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so;

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and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.' It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation. There is no pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as a business. It must be pointed out that Defendants' excluded Estrella only after 9 years. Having always known her as a City judge even before she joined appellant company on June 7, 1955 as an industrial partner, why did it take appellants many years before excluding her? Hence, she is an industrial partner of appellant company, with the right to demand for a formal accounting and to receive her share in the net profit that may result from such an accounting. SC cited Art. 1899 of the CC as basis. 'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs: (1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners; (2) If the right exists under the terms of any agreement; (3) As provided by article 1807; (4) Whenever other circumstance render it just and reasonable. becoming due upon default in the payment of the first installment on the date due, complete with the costs of collection. Pecson filed an action for the recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees. The trial court awarded the sum of P17000 to Pecson. Moran appealed to the Court of Appeals which rendered a decision awarding Pecson the ff: (a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their agreement); (b) Eight thousand (P8,000), (the commission for eight months); (c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project); (d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made) Moran appealed to the Supreme Court . First Issue: the award of P47500 The award of speculative damages has no basis in fact and law. The agreement between the petitioner and the private respondent is a contract of partnership. Article 1797 of the Civil Code provides: The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. (if Maam asks for the difference between the case and that of Uy, the Court awarded compensatory damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that the partnership made some profits .There is no evidence whatsoever that the partnership in the instant case between the

Moran vs CA
... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum

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petitioner and the private respondent would have been a profitable venture.) But Pecson is entitled to the recovery of P6000 because he contributed P10K and the records show that Moran spent only P4K for the printing of the posters. Also, they made a profit of P6K because they sold 2000 posters for P5 each. The profit should be divided between the two of them. Second issue: the P8K commission No basis either. The agreement does not state the basis of the commission. The payment of the commission could only have been predicated on relatively extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission. Third issue: return of P7K as his supposed return on investment in the magazine venture. The CA erred when it concluded that the project never left the ground because the project did take place. Only it failed. There was a copy of the book presented. Co is only liable to pay MARTINEZ half of the capital, or P750, representing half of the loss which both ONGS should jointly bear due to their omission, to earn legal interest of 6% from time of filing this complaint, and costs RATIO: In his defense, Ong Pong Co raised the issue of the closure/failure of the store by virtue of ejectment proceedings instituted against them. THIS, however, has no real significance in the determination of the merits of this case To be sure, the whole action is based upon the fact that the ONGS received capital from MARTINEZ for the purpose of organizing a store. The ONGS, according to the agreement, were to handle the said money and invest it in a store which was the object of the association The ONGS had no special agreement vesting in one sole person the management of the business. Thus, both ONGS were the actual administrators thereof; and as such administrators, they were the agents of the company and incurred the liabilities peculiar to every agent, among which is that of rendering account to the principal of their transactions, and paying him everything they may have received by virtue of the mandatum Since neither of them has rendered such account nor proven the losses, they are therefore obliged to refund the money that they received for the purpose of establishing the said store There is no evidence presented that the entire capital or any part thereof was lost. Without proof, the allegation that the effects of the store were ejected is, as earlier mentioned, of no moment. Even if we assume this to be true, it could still not be inferred that the ejectment was due to the fact that no rents were paid, and that the rent was not paid on account of the loss of the capital belonging to the partnership With regard to the CFIs finding of profits, it appears that the same was based on the statements of Ong Pong Co, to the effect that "there were some profits, but not large ones." this, however, was never proven. And even we admit the same, such statement still does not make it possible to estimate the alleged profits. As such, the CFI ruling on this point is REVERSED Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a partner who acted as agent in receiving money for a given purpose, for which he has rendered no accounting, such agent is responsible only for the losses which, by a violation of the provisions of the law, he incurred. This being an obligation to pay in cash, there are no other losses than the legal interest, which interest is not due except from the time of the judicial demand, or, in the present case, from the filing of the complaint Art. 1688 is NOT applicable in this case, in so far as it provides "that the partnership is liable to every partner for the amounts he may have disbursed on account of the same and for the proper interest," for the reason that no other money than that contributed as is involved Art. 1138, CC is also NOT applicable here as this deals with debts of a partnership where the obligation is NOT joint. Likewise, Art 1723 regarding the liability of two or more agents with respect to the return of the money that they received from their principal is NOT applicable. No showing of solidarity having been established, their liability is JOINT!

MARTINEZ v. ONG PONG CO Arellano, CJ (1910)


MARTINEZ delivered to Ong Pong Co and Ong Lay (ONGS) the sum of P1,500. The ONGS, in a private document, acknowledged that they had received the money with the agreement that they will invest it in a store, and the profits or losses therefrom was to be divided with MARTINEZ in equal shares Later, MARTINEZ filed a complaint in order to compel the ONGS to render him an accounting of the partnership, or else to refund him the P1,500 that he had given them Ong Pong Co alone appeared to answer the complaint. He admitted the fact of the agreement, but he alleged that Ong Lay (deceased) was the one who had managed the business, and that nothing had resulted therefrom except the loss of the capital of P1,500, to which loss MARTINEZ agreed to bear CFI rendered decision ordering Ong Pong Co to return to MARTINEZ one-half of the capital of P1,500 (P750) plus P90 as one-half of the profits, calculated at the rate of 12% per annum for the six months that the store was supposed to have been open (total of P840) with legal interest of 6% until the full payment, with costs hence, this appeal by Ong Pong Co ISSUE: WON MARTINEZ is entitled to the capital he contributed to the partnership HELD: YES. The ONGS failed to fulfill their obligation as partners who, acting as MARTINEZs agents in receiving money, did not render proper accounting therefor. Such renders them jointly liable for the losses, solidarity not having been established. CFI decision is AFFRIMED in this regard but REVERSED inasmuch as it found that the capital invested earned profits. Thus, the CFI ruling awarding MARTINEZ another P840 is DELETED. Ong Pong

Agustin v. Inocencio
FACTS:

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The parties, who had been conducting a partnership as industrial partners without capital, contributed from its profits the sum of P807.28 as a fund toward the construction of a casco for use in their business, to which they added P3,500, borrowed from Maria del Rosario, the wife of Inocencio, he being the managing partner. It is admitted that this total (a little over P4,300), was the estimated cost of the casco but in the progress of the work Inocencio found that it called for additional funds, which he advanced to the amount of P2,024.49. This amount is necessary in order to complete the work undertaken. Although it would seem that he failed to notify his partners of the various items from time to time going to make up this sum, it is shown that the books were at all times open to their inspection, and that, being asked to examine them, they omitted to do so, and that the Agustin, representing all the partners, was also present at the construction of the casco, in charge of the practical work and cognizant of its needs and its progress. ISSUE/HELD: WON Inocencio, in borrowing money and advancing funds, was acting within the scope of his authority as a managing partner. YES RATIO: The work done in the casco having been within the scope of the association and necessary to carry out its express object, the borrowing of the money required to carry it on, with the acquiescence if not with the affirmative consent of his associates, was not outside the powers of the managing partner and constitutes a debt for which all the associates are liable. The note passed into the hands of Inocencio by reason of the successive deaths of his wife and of their only child, each without debts, and for the amount thereof he became a creditor, subject, however, to the deduction therefrom of his proportionate part of the indebtedness. The trial court treated his claim as an addition to his capital in the firm, rather than as a loan, and this constitutes one of the grounds of error stated by the appellant. We do not deem it necessary to pass upon this objection, for the reason that, considered as a loan, this sum would place the defendant as a creditor in a stronger position as against his associates than if regarded as a mere contribution to capital. The error, if it be an error, is not, therefore, prejudicial to the plaintiff, but is rather beneficial to him. The respondent did not except to it. Various small sums have been paid out of the profits to some of the partners and these were properly allowed him in the judgment. On the theory on which the action was disposed of, the trial court committed no error in the computation of the various shares. Of the four parties plaintiff, but one, Victor del Rosario, is interested in this appeal, which has been dismissed as to the others, and as to him the judgment of the trial court must be affirmed, with costs of this instance. Claiming fraudulent administration of the partnership, SONCUYA filed with the CFI Manila an amended complaint against DE LUNA in her own name and as administratrix of the estate of the deceased partner Avelino, in which he prayed that DE LUNA be sentenced to pay him the sum of P700,432 as damages and costs DE LUNA interposed a demurrer based on the following grounds: (1) no cause of action; and (2) that the complaint is ambiguous, unintelligible and vague CFI sustained DE LUNAs demurrer and ordered SONCUYA to amend his amended complaint. SONCUYA refused, thus, DE LUNA filed a motion to dismiss which the CFI granted. From this order of dismissal, SONCUYA filed this appeal ISSUE: WON SONCUYAs amended complaint states a cause of action HELD: NO, it does not state a cause of action. The order of dismissal is AFFIRMED. RATIO: For the purpose of adjudicating SONCUYAs claim to damages which he alleges to have suffered as a partner by reason of the supposed fraudulent management of the partnership by DE LUNA, it is first necessary that a liquidation of the business thereof be made so that the profits and losses may be known and the liabilities of DE LUNA as well as the damages which each partner may have suffered, may be determined It is not alleged in the complaint that such a liquidation has been effected nor is it prayed that it be made. Consequently, there is no reason or cause for SONCUYA to institute the action for damages which he claims from the managing partner DE LUNA For a partner to be able to claim from another partner who manages the general co-partnership, damages allegedly suffered by him by reason of the fraudulent administration of the latter, a previous liquidation of said partnership is necessary

SONCUYA v. DE LUNA Villareal, J. (1939)


Josue SONCUYA, Carmen DE LUNA and Librado Avelino were partners in the business called "Centro Escolar de Seoritas." DE LUNA was its managing partner

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