Karl Cabili

Partnership Cases

Article 1767
Luciano
E.
Salazar
vs.
Sanitary
Manufacturing Corporation, et al.

Wares

G.R. Nos. 75975-76

December 15, 1989
FACTS:
Saniwares was incorporated for the primary purpose of manufacturing
and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young, went
abroad to look for foreign partners, for its expansion plans. Delaware entered into
an Agreement with Saniwares and some Filipino investors whereby ASI and the
Filipino investors agreed to participate in the ownership of an enterprise which
would engage primarily in the business of manufacturing in the Philippines and
selling here and abroad vitreous china and sanitary wares. The parties agreed
that the business operations in the Philippines shall be carried on by "Sanitary
Wares Manufacturing Corporation." An agreement was made, this containing
provisions designed to protect a minority group, including the grant of veto
powers over a number of corporate acts and the right to designate certain
officers. The relations of the members of the Corporation deteriorated over time,
and, during the election of its Board of Directors, the ASI group and the Filipino
Investors had a disagreement regarding the election of the six Philippine
Investors. This disagreement resulted in the filing of the two groups of different
sets of representatives of the Philippine Investors for the Sanitary Wares Mfg
Corp.
ISSUE:
Was the business established by the two a Joint Venture?
RULING:
Yes. In an action at law, where there is evidence tending to prove that the
parties joined their efforts in furtherance of an enterprise for their joint profit, the
question whether they intended by their agreement to create a joint adventure, or
to assume some other relation is a question of fact for the jury. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary
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corporation. It has been noted that the important provisions of the Agreement and
evidences presented show that the parties have agreed to establish a joint
venture. Moreover, ASI in its communications referred to the enterprise as joint
venture. Furthermore, it is ruled by Jurisprudence that a Corporation may enter
into a joint venture Partnership with another so long as the nature of such
venture is in line with its business and authorized by its charter this which is
noticeable in the case at hand.
Thus, being a joint venture, they are to follow the Agreement set by them
wherein the ASI is only to elect three out of the nine directors while the rest shall
be designated by the Filipino Stockholders.
x x x

Commissioner of Internal Revenue vs. Suter, and

the Court of Tax Appeals
G.R. No. L-25532
February 28, 1969
FACTS:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on 30 September 1947 by respondent William J. Suter, as a General
Partner, and Julia Spirig and Gustav Carlson, as limited partners. It was
registered as a Limited Partnership with the Securities and Exchange
Commission (SEC). In 1948, however, Suter and Spirig got married and,
thereafter, on 18 December 1948, Carlson sold his share in the partnership to the
two. The Commissioner of Internal Revenue, in 1959 found in an assessment
that the income of the firm and the individual incomes of the partners-spouses
Suter and Spirig resulted in a deficiency of income tax.
ISSUE:
Was the Partnership dissolved after the marriage of the partners and the
subsequent sale to the spouses by the remaining partner of his participation in
the partnership?
RULING:
No. The Partnership was formed by Mr. Suter, Ms. Spirig, and Mr. Carlson
for the business of importing, marketing, distributing, and operating automatic
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phonographs, radios, television sets, and gaming machines, their parts, and their
accessories. What they have all donated to the mutual fund was owned by each
other separately. The Partnership was also formed long before the marriage of
Suter and Spirig. Furthermore, though it is true that the Partners are now
spouses to each other, and that the third partner has sold his share in the
Partnership to the said spouses, the respondents-partners capital contribution
were separately owned and contributed before the occurrence of the wedding;
thus they separately own their respective contributions in the Partnership. They
are not prohibited by the Civil Code to enter into a contract of Partnership.
x x x

Lim Tong Lim

Industries, Inc.,

vs.

Philippine

Fishing

Gear

G.R. No. 136448

November 3, 1999
FACTS:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter
Yao entered into a Contract for the purchase of fishing nets of various sizes from
the Philippine Fishing Gear Industries, Inc. They claimed that they were engaged
in a business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. They, however, failed to pay for the fishing nets and
the floats, leading the respondent to file a collection suit against the three in their
capacities as General Partners with a prayer for a writ of preliminary attachment.
Chua filed a Manifestation admitting his liability and requesting a reasonable time
within which to pay and 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. The trial court maintained the Writ,
and upon motion of private respondent, ordered the sale of the fishing nets at a
public auction.

The trial court rendered its Decision ruling that, as general

partners, they were jointly liable to pay respondent.

ISSUES:
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Was there Partnership between the three mentioned persons?

RULING:
Yes. It is stated in the A. 1767 of the Civil Code 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. It is found from the findings of the court that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
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 loss.
These boats, nets, and floats, the purchase and the repair of which were
financed with borrowed money, fell under the term common fund under Article
1767. The contribution contemplated in the Article may be in the form of cash,
fixed assets, credit, or industry. Their agreement 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.

(The case also appear under Article 1825 with a separate issue and ruling
relevant to said article)
x x x

Ortega, Del Castillo, Jr., and Bacorro vs. CA, SEC,

and Misa
G.R. No. 109248
July 3, 1995
FACTS:
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was
duly registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. On 19
December 1980, appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F.
Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners. On
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February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter

stating that they are withdrawing and retiring from the firm and that liquidation be
made. On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership.
ISSUES
Was there a Partnership formed by the Firm?
RULING
Yes. According to the Paragraph 2 of A. 1767 of the Civil Code, Two or
more persons may also form a partnership for the exercise of a profession.
Bearing the case at hand, the Organization is a firm composed of Lawyers, all
whom are practicing the profession as a Lawyer. It can thus be said that, in
accordance with the whole of the mentioned article, there exist a Partnership
between the Petitioner and the Respondents. However, their Partnership is
formed only for the practice of law as a mere association only. It cannot be
likened to the Partnership contemplated in Par. 1 of the aforementioned Article,
which is carried out for the purpose of trade or business.
(The case also appear under Articles 1784 and 1830 with separate issues and
rulings relevant to said articles)

Charles F. Woodhouse vs. Fortunato F. Halili

G.R. No. L-4811
July 31, 1953
FACTS:
On November 29, 1947, Woodhouse entered into a written agreement
with Halili stating that: 1) that they shall organize a partnership for the bottling
and distribution of Mission soft drinks where the plaintiff to act as industrial
partner and the defendant a capitalist, and 2) that plaintiff was to secure its
franchise for and in behalf of the proposed partnership. Prior to entering into this
agreement, Woodhouse had informed the Mission Dry Corporation that he had
interested a prominent financier in the business in the bottling and distribution of
the said beverages and requested that the right to bottle and distribute be
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granted him for a limited time under the condition that it will finally be transferred
to the corporation. He was given "a thirty-days" option on exclusive bottling and
distribution rights for the Philippines, thus formal negotiations ensued on
November 27, 1947. The contract was signed by the Plaintiff on December 3,
1947. The two returned to the Philippines in January 1948, while the operations
began on the first week of February 1948. Woodhouse then demanded Halili the
execution of the partnership papers, however, the latter made excuses and
wouldnt execute the agreement.
ISSUE:
Did the fraud by Woodhouse (Plaintiff) regarding his false representation
annul the Partnership Agreement between the two?
RULING:
No. In order for a fraud to vitiate consent in the Contract, the fraud must
be the Causal Inducement in the making of a Contract. It is noticeable in the case
that the principal consideration that induced Halili to enter into the partnership
with Woodhouse, was the latters ability to get the exclusive franchise to bottle
and distribute for the partnership and not something else. The supposed
ownership of an exclusive franchise, however, was actually the consideration or
price Woodhouse gave in exchange for the share of 30 per cent granted him in
the net profits of the partnership business.

x x x

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Article 1768
Aguila Jr vs. Court of Appeals
G.R. No. 127347
November 25, 1999
FACTS:
In April 1991, the spouses Ruben and Felicidad Abrogar entered into a
loan agreement with a lending firm called A.C. Aguila & Sons, Co., a partnership.
The loan was for P200,000. To secure the loan, the spouses mortgaged their
house and lot located in a subdivision. The terms of the loan further stipulates
that in case of non-payment, the property shall be automatically appropriated to
the partnership and a deed of sale be readily executed in favor of the
partnership. She does have a 90-day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn
over the property and so the firm filed an ejectment case against her (wherein
she lost). She also failed to redeem the property within the period stipulated. She
then filed a civil case against Alfredo Aguila, manager of the firm, seeking for the
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declaration of nullity of the deed of sale. The RTC retained the validity of the
deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the sale
is void for it is a pactum commissorium sale which is prohibited under Art. 2088
of the Civil Code (note the disparity of the purchase price, which is the loan
amount, with the actual value of the property, which is after all located in a
subdivision).
ISSUE:
Whether or not the case filed by Felicidad shall prosper.
RULING:
No. Unfortunately, the civil case was filed not against the real party in
interest. As pointed out by Aguila, he is not the real party in interest but rather it
was the partnership A.C. Aguila & Sons, Co. The Rules of Court provide that
every action must be prosecuted and defended in the name of the real party in
interest. A real party in interest is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit. Any decision rendered
against a person who is not a real party in interest in the case cannot be
executed. Hence, a complaint filed against such a person should be dismissed
for failure to state a cause of action, as in the case at bar.
Under Article 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners. The partners
cannot be held liable for the obligations of the partnership unless it is shown that
the legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes. In this case, Felicidad has not shown that A.C. Aguila
& Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or
illegal purposes. Moreover, the title to the subject property is in the name of A.C.
Aguila & Sons, Co. It is the partnership, not its officers or agents, which should
be impleaded in any litigation involving property registered in its name. A violation
of this rule will result in the dismissal of the complaint.

(The case also appear under Article 1819)

x x x

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Ang Pue & Co. vs. Sec. of Commerce and Industry

G.R. No. L-17295
July 30, 1962
FACTS:
Ang Pue and Tan Siong, both Chinese citizens, organized the partnership
Ang Pue & Company for a term of five years from May 1, 1953, extendible by
their mutual consent. The corresponding articles of partnership were registered in
the Office of the Securities & Exchange Commission on June 16, 1953. On June
19, 1954 RA No. 1180 was enacted to regulate the retail business. It provided,
among other things, that, after its enactment, a partnership not wholly formed by
Filipinos could continue to engage in the retail business until the expiration of its
term.
On April 15, 1958 prior to the expiration of the 5-year term of the
partnership, but after the enactment of the RA 1180, the partners amended the
original articles of partnership so as to extend the term of life of the partnership to
another 5 years. When the amended articles were presented for registration in
the Office of the SEC on April 16, 1958, registration was refused upon the ground
that the extension was in violation of the aforesaid Act.
ISSUE:
Whether or not a corporation or a partnership could claim a juridical
personality of its own as a matter of absolute right?
RULING:
To organize a corporation or a partnership that could claim a juridical
personality of its own and transact business as such, is not a matter of absolute
right but a privilege, which may be enjoyed only under such terms as the State,
may deem necessary to impose. That the State, through Congress, and in the
manner provided by law, had the right to enact Republic Act No. 1180 and to
provide therein that only Filipinos and concerns wholly owned by Filipinos may
engage in the retail business can not be seriously disputed. That this provision
was clearly intended to apply to partnership already existing at the time of the
enactment of the law is clearly showing by its provision giving them the right to
continue engaging in their retail business until the expiration of their term or life.

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To argue that because the original articles of partnership provided that the
partners could extend the term of the partnership, the provisions of RA 1180
cannot be adversely affect appellants herein, is to erroneously assume that the
aforesaid provision constitute a property right of which the partners can not be
deprived without due process or without their consent. The agreement contain
therein must be deemed subject to the law existing at the time when the partners
came to agree regarding the extension. In the present case, as already stated,
when the partners amended the articles of partnership, the provisions of RA1180
were already in force, and there can be not the slightest doubt that the right
claimed by appellants to extend the original term of their partnership to another
five years would be in violation of the clear intent and purpose of the law
aforesaid.
x x x

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Article 1769
Heirs of Tan Eng Kee vs. Court of Appeals
G.R. No.126881
October 3, 2000
FACTS:
Benguet Lumber has been around even before World War II but during
the war, its stocks were confiscated by the Japanese. After the war, the brothers
Tan Eng Lay and Tan Eng Kee pooled their resources in order to revive the
business. In 1981, Tan Eng Lay caused the conversion of Benguet Lumber into a
corporation called Benguet Lumber and Hardware Company, with him and his
family as the incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of
Tan Eng Kee demanded for an accounting and the liquidation of the partnership.
Tan Eng Lay denied that there was a partnership between him and his
brother. He said that Tan Eng Kee was merely an employee of Benguet Lumber.
He showed evidence consisting of Tan Eng Kees payroll; his SSS as an
employee and Benguet Lumber being the employee. As a result of the
presentation of said evidence, the heirs of Tan Eng Kee filed a criminal case
against Tan Eng Lay for allegedly fabricating those evidence. Said criminal case
was however dismissed for lack of evidence.
ISSUE:
Whether or not Tan Eng Kee is a partner.
RULING:
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No. There was no certificate of partnership between the brothers. The

heirs were not able to show what was the agreement between the brothers as to
the sharing of profits. All they presented were circumstantial evidence, which in
no way proved partnership.
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 Kees 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.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a
sole proprietorship. He registered the same as such in 1954; that Kee was just
an employee based on the latters payroll and SSS coverage, and other records
indicating Tan Eng Lay as the proprietor. Also, the business definitely amounted
to more P3,000.00 hence if there was a partnership, it should have been made in
a public instrument.
But the business was started after the war (1945) prior to the publication
of the New Civil Code in 1950? Even so, nothing prevented the parties from
complying with this requirement.
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee
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. Even if it can be speculated that a scenario
wherein if 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. 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. A demand for periodic accounting is evidence of a partnership which
Kee never did.
The Supreme Court also noted:
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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 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.
x x x

Pascual vs. Commissioner of Internal Revenue

G.R. No. L-78133
October 18, 1988
FACTS:
Mariano Pascual and Renato Dragon bought two parcels of land from
Santiago Bernardino, et al. on June 22, 1965. On May 22, 1966, Pascual and
Dragon bought another three parcels of land from Juan Roque. The Bernardino
properties were sold in 1968 to Marenir Development Corporation, for a net profit
of P165,224.70. The Roque properties were sold to Erlinda Reyes and Maria
Samson in 1970 for a net profit of P60,000.00. Pascual and Dragon paid the
capital gains taxes in 1973 and 1974, availing of the tax amnesties granted in
those years. However, in March 31, 1979, the Acting Commissioner wrote to

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Pascual and Dragon, demanding the amount of P107,101.70 representing their

deficiency income taxes for the years 1968 and 1970.Pascual and Dragon
contested this assessment, contending that they availed of the tax amnesties
of1973 and 1974 and should no longer have to pay their deficiency income taxes.
The Commissioner replied saying that because they derived profits from the sale
of properties that they co-owned, their co-ownership was actually an unregistered
partnership taxable for corporate income tax separate and distinct from that of
the partners under 20[b], NIRC and the profit that this corporation obtained was
subject to taxes prescribed under 24, NIRC. Although they did pay taxes in
1973 and 1974, what was paid was the tax due on their personal income from
the transaction, and not the tax due on the income derived from their de facto
partnership. Pascual and Dragon filed a Petition for Review with the CTA, which
affirmed the decision of the CIR. The CTA based its ruling on Evangelista vs.
Commissioner of Internal Revenue (102 Phil. 140 [1957]),where an unregistered
partnership was formed and was subjected to corporate income tax distinct from
that imposed on the partners. Pascual and Dragon elevated the case to the
Supreme Court, contending that there was insufficient evidence to show that they
had in fact created an unregistered partnership.
ISSUE:
Was there an unregistered partnership created by Pascual and Dragon
such that it could be subject to corporate income tax distinct from the income tax
of the partners?
RULING:
The Supreme Court found in favor of Pascual and Dragon, saying that the
case of Evangelista, used by the CTA in resolving the issue, differed significantly
from the case at bar. In Evangelista, the Supreme Court found that there was a
clear intention to invest money and to create profit from a series of real estate
transactions. In the case at bar, the purchase and sale of land were found to be
isolated incidents that did not show the character of habituality peculiar to
business transactions for the purpose of gain. The sharing of returns does not in
itself establish a partnership whether or not the persons sharing have a joint or
common right or interest in the property. The Court cited Justice Bautistas
concurring opinion in Evangelista, which noted that the mere fact of sharing of
profits from a transaction involving land held in co-ownership does not a
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partnership make. An isolated transaction where two or more persons contribute

funds to buy certain real estate for profit in the absence of any other
circumstances showing a contrary intention cannot be considered a partnership.
x x x

Sardane vs. Court of Appeals

G.R. No. L-47045
November 22, 1988
FACTS:
Acojedo, herein private respondent brought an action for collection of a
sum of P5,217.25 based on promissory notes executed by the herein petitioner
Nobio Sardane in favor of the Acojedo. It has been established in the trial court
that on many occasions, Acojedo demanded the payment of the total amount of
P5,217.25. The failure of the petitioner to pay the said amount prompted Acojedo
to seek the services of lawyer who made a letter formally demanding the return
of the sum loaned. Because of the failure of the petitioner to heed the demands
extrajudicially made by Acojedo, the latter was constrained to bring an action for
collection of sum of money. In an oral testimony given by petitioner Sardane he
stated that a partnership existed between him and Acojedo which vary the
meaning of the abovementioned promissory notes, and that the said amount
taken by him from Acojedo was not his personal debt, but expenses of the
partnership between him and Acojedo. Consequently, said trial court concluded
that the promissory notes involved were merely receipts for the contributions to
said partnership.
ISSUE:
Whether there exists a partnership?
RULING:
No. The Court of Appeals held, and SC agrees, that even if evidence
aliunde other than the promissory notes may be admitted to alter the meaning
conveyed thereby, still the evidence is insufficient to prove that a partnership
existed between the private parties hereto. As manager of the basnig Sardane
naturally, some degree of control over the operations and maintenance thereof
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had to be exercised by herein petitioner. The fact that he had received 50% of
the net profits does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that while the
receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, no such inference shall be drawn if such
profits were received in payment as wages of an employee.
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. which
involved the same factual and legal milieu.
There are other considerations noted by respondent Court which negate
herein petitioner's pretension that he was a partner and not a mere employee
indebted to the present private respondent. Thus, in an action for damages filed
by herein private respondent against the North Zamboanga Timber Co., Inc.
arising from the operations of the business, herein petitioner did not ask to be
joined as a party plaintiff. Also, although he contends that herein private
respondent is the treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First Instance to the
fact that the casco bears the name of herein petitioner disregards the finding of
the respondent Court that it was just a concession since it was he who obtained
the engine used in the Sardaco from the Department of Local Government and
Community Development. Further, the use by the parties of the pronoun "our" in
referring to "our basnig, our catch", "our deposit", or "our boseros" was merely
indicative of the camaraderie and not evidentiary of a partnership, between
them.

Afisco Insurance vs. Court of Appeals

G.R. No.112675
January 25, 1999
FACTS:
Petitioners are 41 non-life insurance corporations that entered into a
reinsurance treaty with MUNICH a non-resident foreign insurance corporation.
Munich required these 41 companies to form a pool referred to as CLEARING
HOUSE in the case.

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The pool then submitted an income tax return. BIR then assessed
(assessment was made beyond the allowable period of assessment) a deficiency
corporate income tax. This assessment was protested by petitioners through
SGV contending that they are not an unregistered partnership, that they have tax
exemption and that there is double taxation, and that the assessment made was
beyond the period allowed by law. BIR denied the protest. The case was then
elevated to the CA, which ruled that the pool was a partnership taxable as a
corporation and that the collection of the premiums from Munich form part of their
income, and thus considered as taxable income.
Petitioners contend that they cannot be taxed as a corporation, because
(a) the reinsurance policies were written by them individually and separately, (b)
their liability was limited to the extent of their allocated share in the original risks
insured and not solidary, (c) there was no common fund, (d) the executive board
of the pool did not exercise control and management of its funds, unlike the
board of a corporation, (e) the pool or clearing house was not and could not
possibly have engaged in the business of reinsurance from which it could have
derived income for itself. They further contend that remittances to Munich are not
dividends and to subject it to tax would be tantamount to an illegal double
taxation, as it would result to taxing the same premium income twice in the hands
of the same taxpayer.

ISSUE:
May the insurance pool be deemed a partnership or an association that is
taxable as a corporation?
RULING:
The pool is taxable as a corporation.
In the present case, the ceding companies entered into a Pool Agreement
or an association that would handle all the insurance businesses covered under
their quota-sharing reinsurance treaty and surplus reinsurance treaty with
Munich. There are unmistakable indicators that it is a partnership or an
association covered by NIRC.
a. The pool has a common fund, consisting of money and other valuables
that are deposited in the name and credit of the pool.
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b. The pool functions through an executive board which resembles the

BOD of a corporation.
c. Though the pool itself is not a reinsurer, its work is indispensable,
beneficial and economically useful to the business of the ceding companies and
Munich because without it they would not have received their premiums. Profit
motive or business is therefore the primordial reason for the pools formation.
The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact that of the pool is being used in the transaction of
business for profit. It is apparent, and petitioners admit that their association or
co-action was indispensable to the transaction of the business. If together they
have conducted business, profit must have been the object as indeed, profit was
earned. Though the profit was apportioned among the members, this is one a
matter of consequence as it implies that profit actually resulted.
Petitioners' reliance on Pascual v. Commissioner is misplaced, because
the facts obtaining therein are not on all fours with the present case. In Pascual,
there was no unregistered partnership, but merely a co-ownership, which took up
only 2 isolated transactions. The CA did not err in applying Evangelista, which
involved a partnership that engaged in a series of transactions spanning more
than 10 years, as in the case before us.
x x x

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Article 1770
Pioneer Insurance and Surety Corp. vs. Court of
Appeals
G.R. No. 84197; GR No. 84157
July 28, 1989
FACTS:
Herein petitioner (Jacob Lim) was engaged in airline business as owneroperator of Southern Air Lines (SAL) a single proprietorship. He entered into a
contract of sale with Japan Domestic Airlines, purchasing two aircrafts and one
set of necessary spare price to be paid in installments. Pioneer Insurance and
Surety Corporation 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 Bormaheco, Francisco and Modesto Cervantes and
Constancio Maglana (respondents) contributed some funds used in the purchase
of the above aircrafts and spare parts. The funds were supposed to be their
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Partnership Cases

contributions to a new corporation proposed by Lim to expand his airline

business. They executed two 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 agreement contain that the parties bind
themselves to jointly and severally indemnify Pioneer in case of loss or damage
in consequence of having become the surety. Meanwhile, Lim doing business
under the name of SAL, executed chattel mortgage in favor of Pioneer. After
sometime, Lim defaulted in paying subsequent installments, thereby prompting
JDA to request payments from the surety. Pioneer was then obliged to pay, in
which he complied with. Thereafter, Pioneer filed extrajudicial foreclosure of
chattel mortgage before the Sheriff of Davao City. The Cervanteses and
Maglana, however, filed a third party claim alleging that they are co-owners of the
aircrafts. After trial on the merits, a decision was rendered holding Lim liable to
pay Pioneer but dismissed Pioneers complaint against all other defendants. CA
modified its decision plaintiffs complaint against all the defendants was
dismissed. In all other respects the trial courts decision was affirmed.
ISSUE:
How are losses to be treated in situations where there contributions to the
intended corporation where not invested through corporate form.
HELD:
These questions are premised on the petitioners theory that as a result of
the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana
and petitioner Lim to incorporate, a de facto partnership among them was
created, and that as a consequence of such relationship all must share in the
losses and/or gains of the venture in proportion to their contribution. 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.
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 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
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Partnership Cases

the name of the pretended corporation, so as to be liable as such in an action for

settlement of the alleged partnership and contribution. 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. 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.
x x x

Innocencia Deluao and Felipe Deluao v. Nicanor

Casteel
No. L-21906
December 24, 1968
FACTS:
Nicanor Casteel filed various fishpond application for a big tract of
swampy land, which was not approved several times. Meanwhile, during the
pendency of his fourth attempt for the application, few other persons also filed
fishpond application, one of those is herein petitioner. Due to the threat poised
upon his position by other applicants, Casteel then decided to occupy said area
by introducing improvements thereon. However, he lacks financial resources.
Hence he sought financial aid from his uncle, Felipe Deluao, who extended loans
to him. Thereafter, the parties executed contract of service of which they agreed
that Innocencia Deluao will hire Nicanor Casteel to render services and be the
manager and sole buyer of all the fish products of the said fishpond.
Subsequently, Deluaos pending fishpond application was rejected by the
Director of Fisheries on which he did not file any petition for reinvestigation. On
the other hand, Casteels application was approved and he was given permit to
exploit fishpond. As a result, Casteel forbade Innocencia Deluao from
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Partnership Cases

administering further the fishpond. Alleging violations of the contract of service,

Deluao filed an action for specific performance before the Court of First Instance,
praying that Casteel should respect and abide with terms and condition of the
said contract, and that she should be allowed to continue administering said
fishpond and collecting the proceeds from the sale of the fishes caught.
Injunction was also filed by Deluao, restraining Casteel from doing acts
complained of and that such injunction be made permanent. Casteel countered
such complaint by alleging that he was the owner and lawful occupant and
applicant of the said fishpond in dispute. The lower court decided in favor of
Deluao. Hence this instant appeal.
ISSUE:
Whether or not the contract of service executed by the parties created
co-ownership and partnership between the appellant and appellees.
HELD:
The court ruled that the evidence substantiate that the initial intention of
the parties was not to form co-ownership but to establish partnership Deluao as
the capitalist partner and Casteel as the industrial partner and the ultimate
undertaking of which is to divide into two equal parts the fishpond as might have
been developed by the amount extended by the plaintiff-appellees with the
further provision that Casteel should reimbursed the expenses incurred by the
appellees over one-half of the fishpond that would pertain to him. Although the
contract was denominated as contract of service, it was actually a
memorandum of their partnership agreement. Art.1830 of the Civil Code
enumerates as one of the causes of dissolution of the partnership is when any
event which makes it unlawful for the business of the partnership to be carried on
or for the members to carry it on in partnership. The Fisheries Act prohibits the
holder of a fishpond permit from transferring or subletting the fishpond granted to
him without the previous consent or approval of the Secretary of Agriculture and
Natural Resources. To that effect, since the partnership had for its object the
division into two equal parts of the fishpond between the appellees and the
appellant after it shall have been awarded to the latter, and therefore it envisage
an unauthorized transfer of one-half thereof to parties other than the applicant
Casteel, it was dissolved by the approval of his application and the award to him
of the fishpond. The approval of was an event which makes it unlawful for the
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Partnership Cases

business of the partnership to be carried on in partnership. The case is

remanded to the lower court for reception of evidence as regards the accounting
of the profits realized by the partnership before the exploitation of the fishpond
was granted to Casteel.

(The case also appear under Articles 1811 and 1830 with separate issues and
rulings relevant to said articles)

x x x

Article 1771
Mauricio Agad vs. Severino Mabato, and Mabato
and Agad Co.
G.R. No. L-24193
June 28, 1968
FACTS:
Plaintiff Mauricio Agad alleging that he and defendant Severino Mabato
are partners in a fishpond business, filed a complaint for payment of sum of
money amounting to P14,000 as share of profits in the partnership from 1957 to
1963 and for the dissolution of partnership. Mabato, on the other hand, moved to
dismissed the complaint for lack of cause of cause of action alleging that the
contract had not been perfected because Agad had failed to give his P1,000
contribution to the partnership capital. Defendant also raised the ground of lack
of jurisdiction of the court because the case involves principally the determination
of rights over public lands. The court granted the dismissal of the case on the
ground of failure to state cause of action which was predicated on the theory that
the contract of partnership is null and void pursuant to Art. 1773 of the Civil Code,
because an inventory of the fishpond referred thereto has not been attached
thereto.
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Partnership Cases

ISSUE:
Whether or not an immovable property or real rights has been contributed
to the partnership, which will render it null and void for non-compliance with the
inventory requirement as provided under Art. 1773, in connection with Art. 1711
of the Civil Code
RULING:
None of the partners contributed either a fishpond or real right to any
fishpond. Their contributions were limited to the sum of P1,000 each. It should be
noted that the partnership was established "to operate a fishpond" not "to engage
in fishpond business". The validity of the partnership was upheld.
A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary. (Art. 1771, Civil Code)
A contract of partnership is void, whenever immovable property is
contributed thereto, if inventory of said property is not made, signed by the
parties and attached to public instrument.
x x x

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Partnership Cases

Article 1772
Commissioner of Internal Revenue vs. Ledesma
G.R. No. L-17509
January 30, 1970
FACTS:
On July 9, 1949 herein respondents, Carlos Ledesma, Julieta Ledesma
and the spouses Amparo Ledesma and Vicente Gustilo, Jr., purchased from their
parents, Julio Ledesma and Florentina de Ledesma, the sugar plantation known
as "Hacienda Fortuna." By virtue of the purchase, respondents acquired onethird each of the undivided portion of the plantation. In their individual income tax
returns for the year 1949 the respondents included as part of their income their
respective net profits derived from their individual sugar production from.
On July 11, 1949, the respondents organized themselves into a general
co-partnership under the firm name "Hacienda Fortuna." The articles of general
co-partnership were registered in the commercial register on July 14, 1949.
Paragraph 14 of the articles of general partnership provides that the agreement
shall have retroactive effect as of January 1, 1949. On March 22, 1959 the
Commissioner assessed against the partnership "Hacienda Fortuna" corporate
income tax for the calendar year 1949. The respondents contested the
assessment upon the ground that the "Hacienda Fortuna" was a registered
general co-partnership and requested for the cancellation of the assessment
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Partnership Cases

based on the theory that the co-partnership "Hacienda Fortuna" was exempt from
the payment of corporate income tax on its income from the day its articles of
general co-partnership were registered in the mercantile registry. They were,
however, assessed for corporate income tax from January 1 to July 13, 1949.
Respondents, through counsel, wrote a letter to the Commissioner asking for the
reconsideration of his ruling upon the ground that during the period from January
1 to July 13, 1949 the respondents were operating merely as co-owners of the
plantation known as "Hacienda Fortuna", so that the case of the "Hacienda
Fortuna" was really one of co-ownership and not that of an unregistered copartnership which was subject to corporate tax. That request for reconsideration
was denied.
It is the position of the Commissioner that from January 1 to July 13, 1949
the partnership "Hacienda Fortune" should be considered still an unregistered
co-partnership for the purposes of the assessment of the corporate income tax,
notwithstanding the fact that paragraph 14 of its articles of co-partnership
provides that the partnership agreement should retroact to January 1, 1949.
Respondents contend that prior to July 14, 1949 they were operating the
sugar plantation under a system of co-ownership, and not as a partnership, so
that they were not under obligation to pay the corporate income tax. The
respondents further contend that even assuming that they were operating the
sugar plantation as a partnership the registration of the articles of general copartnership on July 14, 1949 had operated to exempt said partnership from
corporate income tax on its net income during the entire taxable year, from
January 1 to December 31, 1949.
ISSUE:
Whether or not the partnership known as "Hacienda Fortuna" should pay
corporate income tax as an unregistered partnership from January 1, 1949 to
July 13, 1949, the period in the year 1949 prior to the date of said registration?
RULING:
As early as 1924 the Bureau of Internal Revenue had applied the "statusat-the-end-of-the-taxable-year" rule in determining the income tax liability of a
partnership, such that a partnership is considered a registered partnership for the
entire taxable year even if its articles of co-partnership are registered only at the
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Partnership Cases

middle of the taxable year, or in the last month of the taxable year. it is a fair and
sound application of Section 24 of the tax code that once a partnership is
registered during a taxable year that partnership should be considered as
registered "partnership exempt from the payment of corporate income tax during
that taxable year, and only the partners thereof should be made to pay income
tax on the profits of the partnership that were divided among them.
It may thus be said that a premium is given to a partnership that is
registered by exempting it from the payment of corporate income tax, and making
only the individual partners pay income tax on the basis of their respective
shares in the partnership profits. On the other hand, the partnership that is not
registered is being penalized by making it pay corporate income tax on the profits
it realizes during a taxable year and at the same time making the partners thereof
pay their individual income tax based on their respective shares in the profits of
the partnership. In other words, there is double assessment of income tax
against the partners of the unregistered partnership, but only one assessment
against the partners of registered partnership.
The exclusion of a registered partnership from the entities subject to the
payment of corporate income tax under Section 24 of the tax code should be
made to cover the entire taxable year, regardless of whether the registration
takes place at the middle, or towards the last days, of the taxable year. This is so
because, after all, the taxable status of the taxpayer, for the purposes of the
payment of income tax, is determined as of the end of the taxable year, and the
income tax is collected after the end of the taxable year. Since it is the policy of
the government to encourage a partnership to register its articles of copartnership in order that the government can better ascertain the profits of the
partnership and the distribution of said profits among the partner, this benefit of
exclusion from paying corporate income tax arising from registration should be
liberally extended to registered, or registering, partnerships in order that the
purpose of the government may be attained.
x x x

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Partnership Cases

Article 1773
Solis vs. Barroso
G.R. No. L-27939
October 30, 1928
FACTS:
The spouses Lambino and Barroso made a donation of propter nuptias of
lands in favor of their son Alejo Lambino and Fortunata Solis in a private
document in consideration of the marriage, which the latter were about to enter
into. One of the conditions of this donation is that in case of the death of one of
the donees, one-half of these lands thus donated would revert to the donors
while the surviving donee would retain the other half. On the 8th of the said
month of June 1919, Alejo Lambino and Fortunata Solis were married and
immediately thereafter the donors delivered the possession of the donated lands
to them. On August 3, 1919 donee, Alejo Lambino, died. In the same year donor
Juan Lambino also died. After the latter's death, his wife, Maxima Barroso,
recovered possession of the donated lands.
The surviving donee Fortunata Solis filed the action demanding of the
defendants the execution of the proper deed of donation according to law,
transferring one-half of the donated property, and moreover, to proceed to the
partition of the donated property and its fruits.
ISSUE:
Whether or not there is a valid donation?
RULING:
Donations for valuable consideration are such as compensate services
which constitute debts recoverable from the donor, or which impose a charge
equal to the amount of the donation upon the donee, neither of which is true of
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Partnership Cases

the present donation, which was made only in consideration of marriage. The
lower court insists that, by the fact that this is a donation propter nuptias, it is
based upon the marriage as a consideration, and must be considered onerous.
Neither is this opinion well founded. In donations propter nuptias, the marriage is
really a consideration, but not in the sense of being necessary to give birth to the
obligation. This may be clearly inferred from article 1333, which makes the fact
that the marriage did not take place a cause for the revocation of such donations,
thus taking it for granted that there may be a valid donation propter nuptias, even
without marriage, since that which has not existed cannot be revoked. And such
a valid donation would be forever valid, even if the marriage never took place, if
the proper action for revocation were not instituted, or if it were instituted after the
lapse of the statutory period of prescription. This is, so because the marriage in a
donation propter nuptias is rather a resolutory condition which, as such,
presupposes the existence of the obligation, which may be resolved or revoked,
and it is not a condition necessary for the birth of the obligation.
x x x

Torres vs. Court of Appeals

G.R. No. 134559
December 9, 1999
FACTS:
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 effect the survey and subdivision of the lots; approval of the subdivision
project; advertisement in the local newspaper; construction of roads, curbs and
gutters; and also contracted an engineering firm for the building of housing units.
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of adverse
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Partnership Cases

claims on the title to the land, which eventually scared away prospective buyers.
Despite his requests, petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project
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 is 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.
RULING:
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 Manuels 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.

Article 1775
Smith vs. Lopez
G.R. No. 1472
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Partnership Cases

September 30, 1905

FACTS:
Smith and Reyes, as proprietors of the Philippine Gas Light Company,
brought this action against the defendant sisters, Jacinta and Ignacia Lopez de
Pineda, to recover from them the sum of 3,270 pesos, Mexican currency, with
interest due thereon and costs of proceedings, for work performed in connection
with the installation of a water system, urinals, closets, shower baths, and drain
pipes in the house belonging to the defendants. The plaintiffs alleged that they
had complied with the agreement made with the father of the defendants, the
administrator of the property, and defendants having refused to pay the same as
agreed.
The court, after considering the allegations made and the evidence
introduced by both parties, on April 3, 1903, entered judgment against the
defendants and in favor of the plaintiffs. To this judgment defendants duly
excepted, having first moved for a new trial.
One of the errors assigned by counsel for defendants and appellants in
this court is that the court below erred in recognizing plaintiffs capacity to sue as
a partnership, there being no evidence to show that they were legally organized
as such.
ISSUE:
Whether or not plaintiffs as proprietors have capacity to sue.
RULING:
Messrs. Smith and Reyes executed the contract in their own individual
capacity and not in the name of any partnership. They acted as co-owners of the
Philippine Gas Light Company. In their complaint they sought to enforce a
legitimate right, which they had as such co-owners. (Arts. 392 et seq., and 1669
of the Civil Code.)
The plaintiffs were not seeking to enforce a right pertaining to a legal
entity. They were not obliged to register in the Mercantile Registry. They were
merely merchants having a common interest in the business. They were under
no obligation to register. (Arts. 16 and 17 of the Code of Commerce.)
x x x

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Partnership Cases

Article 1776 1783

Lyons vs. Rosenstock
G.R. No. L-35469
March 17, 1932
FACTS:
Elser and Lyons are engaged in real estate. To secure the loan needed to
complete the amount for the first payment on the San Juan Estate, Elser

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Partnership Cases

mortgage the equity of redemption in the property owned by himself and Lyons
on Carriedo Street. This mortgage was executed on June 30, 1920, at which time
Elser expected that Lyons would come in on the purchase of the San Juan
Estate. But when he learned from the letter from Lyons of July 21, 1920, that the
latter had determined not to come into this deal, Elser began to cast around for
means to relieve the Carriedo property of the encumbrance which he had placed
upon it. For this purpose, on September 9, 1920, he addressed a letter to the
Fidelity & Surety Co., asking it to permit him to substitute a property owned by
himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K.
Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity &
Surety Co. agreed to the proposition; and on September 15, 1920, Elser
executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del
Pillar property and delivered the same, with 1,000 shares of J. K. Pickering &
Company, to said company. The latter thereupon in turn executed a cancellation
of the mortgage on the Carriedo property and delivered it to Elser. But
notwithstanding the fact that these documents were executed and delivered, the
new mortgage and the release of the old were never registered; and on
September 25, 1920, thereafter, Elser returned the cancellation of the mortgage
on the Carriedo property and took back from the Fidelity & Surety Co. the new
mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J.
K. Pickering & Company which he had delivered to it upon the consent of Lyons
for the mortgage to remain on the Carriedo property.
The development of the San Juan Estate was a success from the start,
the financing apart from the modest financial participation of his three associates
in the San Juan deal, was the work of Elser accomplished entirely upon his own
account. The case for the plaintiff supposes that, when Elser placed a mortgage
for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as
half owner of said property, became, as it were, involuntarily the owner of an
undivided interest in the property acquired partly by that money; and it is insisted
for him that, in consideration of this fact, he is entitled to the four hundred fortysix and two-thirds shares of J. K. Pickering & Company, with the earnings
thereon, as claimed in his complaint.
ISSUE:
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Partnership Cases

Whether or not Lyons is a partner of Elser and thus entitled to the profit of
the venture?
RULING:
No. Lyons himself did not want to participate in the development of the
project. No partnership was formed. The mortgage of the property is immaterial
to the issue of partnership existence.
In the purely legal aspect of the case, the position of the appellant is, in
our opinion, untenable. If Elser had used any money actually belonging to Lyons
in this deal, he would under article 1724 of the Civil Code and article 264 of the
Code of Commerce, be obligated to pay interest upon the money so applied to
his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily
attach with respect to property acquired by a person who uses money belonging
to another. Of course, if an actual relation of partnership had existed in the
money used, the case might be difference; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is claimed, existed. But
there was clearly no general relation of partnership, under article 1678 of the Civil
Code. It is clear that Elser, in buying the San Juan Estate, was not acting for any
partnership composed of himself and Lyons, and the law cannot be distorted into
a proposition which would make Lyons a participant in this deal contrary to his
express determination.
It seems to be supposed that the doctrines of equity worked out in the
jurisprudence of England and the United States with reference to trust supply a
basis for this action. The doctrines referred to operate, however, only where
money belonging to one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment to see that the
situation here involved is not one for the application of that doctrine, for no
money belonging to Lyons or any partnership composed of Elser and Lyons was
in fact used by Elser in the purchase of the San Juan Estate. Of course, if any
damage had been caused to Lyons by the placing of the mortgage upon the
equity of redemption in the Carriedo property, Elser's estate would be liable for
such damage. But it is evident that Lyons was not prejudice by that act.
x x x
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Partnership Cases

Article 1784

Ortega, Del Castillo, Jr., and Bacorro vs. CA, SEC,

and Misa
G.R. No. 109248
July 3, 1995
FACTS:
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was
duly registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. On 19
December 1980, appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F.
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Partnership Cases

Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners. On
February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter
stating that they are withdrawing and retiring from the firm and that liquidation be
made. On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership.
ISSUE
When did the Partnership of the Firm begin?
RULING
According to A. 1784 of the Civil Code, A Partnership begins from the
moment of the execution of the contract, unless it is otherwise stipulated. The
Partnership was born from the time it was mutually desired and consented by the
Parties involved in this case, the firm. Their registration both in the Mercantile
Registry as well as on the SEC merely helps any person with an interest against
them a chance to get their claims. Thus, the Petitioner may claim any obligation
due to him if any from the Partnership from the time he has joined up to the
time he dissolved his membership from the Firm in accordance with the
agreement between him and the Firm.
(The case also appear under Articles 1767 and 1830 with separate issues and
rulings relevant to said articles)
x x x

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Partnership Cases

Article 1786
William Uy vs. Bartolome Puzon
No. L-19819
October 26, 1977
FACTS:
Defendant Bartolome Puzon had a contract of public works with the
government. He sought the financial assistance of the plaintiff William Uy, by
virtue of which a partnership was created, (U. P. Construction Company) which
became the subcontractor of the projects.
Due to financial constraints, the defendant promised to contribute his
share in the capital as soon as his loan with PNB shall be approved. However,
his application could only be acted upon if he will be able to clear his obligations
with the bank. With this, the plaintiff gave the defendant a certain amount as an

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Partnership Cases

advance contribution of the former, to be used by the latter to pay his obligations
with the bank. The defendant thus applied the proceeds of the loan to the
partnership, a part thereof as reimbursement for the capital contribution of the
plaintiff and another part as his partial share contribution. However, to guarantee
said loan, defendant, without the knowledge and consent of the plaintiff, assigned
to the bank all the payments to be received on account of the projects, which he
did upon payment by the government.
As the financial demands of the projects increased, plaintiff made a
demand from the defendant to comply with his obligation to complete his capital
contribution, but to no avail. Failing to reach an agreement, the defendant, as
prime contractor, terminated the subcontract agreement with the firm. The plaintiff
instituted a complaint for the dissolution of the partnership and for payment of
damages. The trial court rendered a decision against the defendant.

ISSUE:
Whether the defendant is guilty of violating the terms of the partnership
agreement, hence liable to pay damages.
RULING:
Yes. The Court upheld the findings of the lower court as follows:
1. Defendant failed to contribute his share in the capital of the
partnership. The partners agreed that each shall contribute P50,000.
Out of the loan obtained, he actually contributed only P20,000 and
thereafter failed to make any further contribution.
2. Defendant misapplied partnership funds by assigning to PNB all
payments to be received on account of the contracts with the
government. He withheld and applied a large part of such payment
(over three hundred thousand pesos) to pay his personal loan with the
bank. The balance was deposited in his current account and only a
small amount of P27,820 was deposited in the current account of the
partnership.

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Partnership Cases

3. Such assignment is prejudicial to the partnership. The amount paid by

the government (a little over 1 million pesos) rightfully and legally
belongs to the partnership by virtue of the subcontract agreements.
Should the defendant gave to the partnership all that were earned and
due it, the money would have been used as a safe reserve for the
discharge of all obligations of the firm and the partnership would have
been able to successfully and profitably carried out the projects it
subcontracted.
Since the defendant was at fault, he is liable to reimburse the plaintiff
whatever amount the latter had invested in or spent for the partnership on
account of the construction projects. In addition, under Article 2200 of the Civil
Code, indemnification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits, which the obligee failed to obtain. The
defendant, therefore, is also liable to pay compensatory damages.

Article 1788
Liwanag vs. Court of Appeals
G.R. No. 114398
October 24, 1997
FACTS:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan
went to the house of complainant Isidora Rosales (Rosales) and asked her to join
them in the business of buying and selling cigarettes. Convinced of the feasibility
of the venture, Rosales readily agreed. Under their agreement, Rosales would
give the money needed to buy the cigarettes while Liwanag and Tabligan would
act as her agents, with a corresponding 40% commission to her if the goods are
sold; otherwise the money would be returned to Rosales. Consequently, Rosales
gave several cash advances to Liwanag and Tabligan amounting to P633,
650.00. During the first two months, Liwanag and Tabligan made periodic visits to
Rosales to report on the progress of the transactions. The visits, however,
suddenly stopped, and all efforts by Rosales to obtain information regarding their
business proved futile. Alarmed by this development and believing that the
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Partnership Cases

amounts she advanced were being misappropriated, Rosales filed a case of

estafa against Liwanag. After trial on the merits, the trial court rendered finding
Liwanag guilty as charged. Appeal to the CA was unavailing since Appellate
Court affirmed her conviction. On petition for review to the High Court, Liwanag
advances the theory that the intention of the parties was to enter into a contract
of partnership, wherein Rosales would contribute the funds while she would buy
and sell the cigarettes, and later divide the profits between them. She also
argues that the transaction can also be interpreted as a simple loan, with
Rosales lending to her the amount stated on an installment basis.
ISSUE:
Whether or not petitioners contention deserve merit.
RULING:
No. The receipt indicates that the money delivered to Liwanag was for a
specific purpose, that is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be returned to Rosales. Thus, even
assuming that a contract of partnership was indeed entered into by and between
the parties, we have ruled that when money or property has been received by a
partner for a specific purpose (such as that obtaining in the instant case) and he
later misappropriated it, such partner is guilty of estafa. Neither can the
transaction be considered a loan, since in a contract of loan, once the money is
received by the debtor, ownership over the same is transferred. Being the owner,
the borrower can dispose of it for whatever purpose he may deem proper. In the
instant petition, however, it is evident that Liwanag could not dispose of the
money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes, and if this was not possible then to return
the money to Rosales. Since in this case there was no transfer of ownership of
the money delivered, Liwanag is liable for conversion under Art. 315, par. 1(b) of
the Revised Penal Code.
x x x

US vs. Clarin
G.R. No. 5840
September 17, 1910

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Partnership Cases

FACTS:
Sometime before 1910, Pedro Larin formed a partnership with Pedro
Tarug, Eusebio Clarin and Carlos de Guzman. Larin, being the capitalist, agreed
to contribute P172.00 to the partnership and the three others shall use said fund
to trade mangoes. The three industrial partners bought mangoes and sell them
and they earned P203.00 but they failed to give Larins share of the profits. Larin
charged them with the crime of estafa, but the provincial fiscal filed an
information only against Eusebio Clarin in which he accused him of appropriating
to himself not only the P172 but also the share of the profits that belonged to
Larin, amounting to P15.50. Clarin was eventually convicted.
ISSUE:
Whether or not the conviction is correct.
RULING:
No. The P172.00 having been received by the partnership, the business
commenced and profits accrued, the action that lies with the partner who
furnished the capital for the recovery of his money is not a criminal action for
estafa, but a civil one arising from the partnership contract for a liquidation of the
partnership and a levy on its assets if there should be any.
The then Penal Code provides that those who are guilty of estafa are
those who, to the prejudice of another, shall appropriate or misapply any money,
goods, or any kind of personal property which they may have received as a
deposit on commission for administration or in any other producing the obligation
to deliver or return the same, (as, for example, in commodatum, precarium, and
other unilateral contracts which require the return of the same thing received)
does not include money received for a partnership; otherwise the result would be
that, if the partnership, instead of obtaining profits, suffered losses, as it could not
be held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the charge
of estafa, for which it would be sufficient to argue that the partnership had
received the money under obligation to return it.
x x x

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Partnership Cases

Article 1789
Evangelista & Co., et al. vs. Estrella Abad Santos
No. L-31684
June 28, 1973
FACTS:
In the amended Articles of Co-partnership dated June 7, 1955,
respondent was included as an industrial partner in the petitioner co-partnership,
where the individual petitioners are the original capitalist partners. The amended
articles further provided that the profits and losses shall be divided in proportion
of 70% for the capitalist partners and 30% for the industrial partner.
On December 16, 1963, respondent initiated a suit against the petitioners,
alleging that the partnership had been paying dividends to the partners except to
her and that notwithstanding her demands had refused to give her information
regarding the partnership affairs. On the part of the petitioners, they denied all
the allegations of the respondent and alleged that the amended articles did not
express the true agreement of the parties, that respondent was not an industrial
partner but a mere profit-sharer, that she did not in fact contributed her industry
to the partnership because she has been devoting all her time to her duties as a
judge, and as such, could not lawfully contribute her full time and industry as an
industrial partner.
ISSUE:
Whether the respondent is an industrial partner.
RULING:
Yes. In resolving the contentions raised by the petitioners, the Supreme
Court adopted the findings made by the CA.
On the allegation that the amended articles of partnership did not express
the true intention of the parties, the lower court (as affirmed by the CA and
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Partnership Cases

adopted by the SC) relied on the documentary evidence presented by the

respondent, including the amended Articles of Co-partnership, first, because the
petitioners have admitted their genuineness and due execution and, secondly,
said evidence indubitably show that the respondent is an industrial partner of the
company. In addition, such allegation was deemed as an afterthought made by
the petitioners only upon the filing of their answer to the complaint, since for a
period of eight years they did nothing to correct the alleged false agreement of
the parties.
On the contention that respondent was active in the performance of her
duties as a judge had never been able to contribute her industry in the firm, and
by having such public office she could not lawfully do so. The lower court found
that the respondent actually rendered her services for the firm, without which
they would not have carried out the business for which the company was
organized.
Citing Article 1789 of the New Civil Code, which states that an industrial
partner cannot engage in business for himself without the express permission of
the partnership, said provision is not applicable to the case of the respondent,
since being a judge can hardly be characterized as a business. The appellate
court further observed that the petitioners only exercised their right of exclusion
after the filing of the complaint, despite having always known respondent as a
judge even before she joined the company.
x x x

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Article 1794
Josue Soncuya vs. Carmen De Luna
No. 45464
April 28, 1939
FACTS:
The parties were partners of Centro Escolar de Seoritas. Plaintiff filed a
complaint for damages against the defendant, who was the managing partner,
based on an alleged fraudulent management of the partnership. The trial court,
upon a demurrer interposed by the defendant, dismissed the case on the
grounds that the facts alleged were not sufficient to constitute a cause of action.
ISSUE:
Whether a mere complaint based on fraudulent management of the
partnership sufficient to adjudicate a claim for damages against a co-partner.
RULING:
No. The Court opined that for a partner to be able to claim from another
partner who manages the general co-partnership, damages suffered by him by
reason of the fraudulent administration of the latter, a previous liquidation of said
partnership is necessary. Liquidation is needed to determine the profits and
losses, the causes of the latter, and the responsibility of the defendant as well as
the damages which each partner may have suffered.
It was not alleged by the plaintiff in the complaint that such liquidation has
been made nor was it prayed that it be made. Consequently, there was no
reason or cause for plaintiff to institute the action for damages.

(The case also appear under Article 1831)

x x x

Article 1796

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Partnership Cases

Juan Agustin, et al. vs. Bartolome Inocencio

No. 3745
October 26, 1907
FACTS:
The parties in the case were partners, each of whom contributed a sum
out of the partnership profits for the construction of a casco for the use of their
business. For the same purpose, an additional sum was borrowed from the wife
of the defendant, who was also the managing partner. In the progress of the
work, the defendant found the need for additional funds, for which he advanced
another additional amount. All his acts in relation to the project were listed in the
partnership book, open at all times for inspection.
Upon the subsequent death of the defendants family members, the debt
of the partnership owed to his wife passed to him and as such became a creditor
of the partnership. In relation thereof, the plaintiffs initiated a complaint to which
the trial court ruled in favor of the defendant, but treated the various sums subject
of the controversy as an addition to the latters capital in the firm.
ISSUE:
Whether the defendant acted within the powers of a managing partner in
relation to the acquisition of funds.
RULING:
Yes. The court answered in the affirmative, stating that the work done on
the casco is within the scope of the partnership and necessary to carry out its
express object. As such, the borrowing and advancement of money needed for
the completion of the work was not outside the powers of the managing partner.
In addition, the court upheld the decision rendered by the trial court for
the reason that such sum of money, if considered as a loan, would place the
defendant, as a creditor, in a stronger position as against his associates than if
regarded as a mere contribution to the capital. Such will not be prejudicial to the
other partners (plaintiffs), but will rather be beneficial to them.
x x x

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Partnership Cases

Pedro Martinez vs. Ong Pong Co and Ong Lay

No. 5236
January 10, 1910
FACTS:
The plaintiff herein delivered P1,500 to the defendants and agreed to
invest such amount in a store, the profits and losses of which will be divided
among them in equal shares.
The plaintiff filed a complaint to compel the defendants to render an
accounting of the partnership, or else to refund him the amount he had given for
the said purpose. On the part of the defendants, it was alleged that nothing
resulted from their undertaking save the loss of the subject amount, which is their
capital. The trial court ruled in favor of the plaintiff, and ordered the defendants to
return one-half of the amount plus an additional sum, which is one-half of the
possible profits for the period that the store was supposed to have been open.
ISSUE:
Whether the defendants were liable to pay a part of both the capital and
the profits.
RULING:
No. The defendants were liable only to refund the money they received
for the purpose of their undertaking since the possible profit and its amount, as
determined by the trial court, were not sufficiently proven.
Such liability to refund the subject amount was imposed by the Court on
the basis that neither of the defendants rendered an accounting nor proven the
losses of their business. The Court explained that in the absence of an
agreement vesting in one person the management of the business, all partners
are actual administrators thereof, and such, they are agents of the firm and
incurred the liabilities peculiar to every agent, among which is that of rendering
account to the principal of their transaction. Thus, for failure to fulfill an obligation
on the part of a partner (the defendants) who acted as agent in receiving money
for a given purpose, and for which he has rendered no accounting, such agent is
responsible only for the losses.
The Court found no application for Article 1688 of the (old) Civil Code,
which states that the partnership is liable to every partner for the amounts he

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Partnership Cases

may have disbursed on account of the same and for the proper interest, for the
reason that no other money than that contributed as capital was involved
x x x

Article 1797
Spouses Ishwar Jethmal Ramnani and Sonya
Jethmal Ramnani vs. The Honorable Court of
Appeals, et al.
G. R. No. 85496
May 7, 1991
FACTS:
Ishwar Jethmal Ramnani (Ishwar) was based in New York. He appointed
his brothers Navalrai and Choithram as attorneys-in-fact, empowering them to
manage and conduct his business concern in the Philippines. As such,
Choithram purchased on installments several parcels of land from Ortigas &
Company, Ltd. (Ortigas) and made improvements thereon. When Ishwar asked
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Partnership Cases

Choithram to account for the income and expenses relative to these properties,
the latter failed and refused to do so, to which the former revoke the general
power of attorney. Choithram and Ortigas were duly notified of such revocation.
Nevertheless, Choithram transferred all rights and interest of Ishwar in favor of
his daughter-in-law (Nirmla), to which Ortigas executed the corresponding deeds
of sale in favor of the same.
Ishwar filed a complaint against Choithram, Nirmla, and Ortigas for the
payment of the value of the properties and damages. The trial court dismissed
the complaint, mainly upon the following grounds: first, that Ishwar, in his claim
that he remitted sum of money to Choithram for purposes of investing it in real
estate, did not exhibit any document to support such claim; and second, that the
placing of the real properties in the name of Ishwar was only a temporary
arrangement, as alleged by Choithram.
Upon appeal, the Court of Appeals reversed the decision of the lower
court in favor of Ishwar, but dismissed the case as against Ortigas. Hence the
petition.
ISSUE:
Whether Choithram is liable for damages, and if so, up to what extent and
under what basis.
RULING:
Yes. The Court upheld the findings made by the respondent Court of
Appeals with regard to the defenses raised by Choithram. First, that the absence
of documents to evidence the remittance claimed by Ishwar is not a strong basis
to defeat such claim. According to the Court, it is not unusual among close family
members to entrust money to each other without any formalities or receipt due to
the special relationship of trust between them.
Second, on the temporary arrangement theory of Choithram, the Court
said that if it is true, why would Ishwar included their other brother, Navalrai, as
an attorney in fact. Furthermore, since Choithram raised this claim of his based
on the fact that he is a British citizen while Ishwar is an American citizen, and as
such, it was only through Ishwar that the former can acquire real properties in the
country, (due to the then existing parity rights in favor of US citizens) the Court
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Partnership Cases

questioned the use of Ishwars name (contradictory to Choithrams claim that

Ishwar is of low character, motivated by greed and ungratefulness) and why not
Choithrams own son, who is also a US citizen of legal age at that time. The
Court deemed such theory as an afterthought made only by Choithram when
they filed their answer to the complaint.
In finding fault on the part of Choithram, the Court, nevertheless, treated
the relationship between him and Ishwar as a partnership as such would be
favorable for both parties and may pave the way towards their reconciliation.
According to the Court, the two brothers were engaged in a business venture;
one furnished the capital, the other contributed his industry and talent. Through
the industry and genius of Choithram, Ishwars property was developed and
improved into a valuable asset worth millions of pesos. Justice and equity dictate
that the two share equally the fruit of their joint investment and efforts. Choithram
must have been motivated only by a strong conviction that as the industrial
partner in the acquisition of said assets he has as much claim to said properties
as Ishwar, the capitalist partner in the joint venture.
Nevertheless, with the devious machinations and schemes employed by
Choithram in attempting to dispose of the properties to deprive spouses Ishwar of
any possible means to recover any award the Court may grant in their favor, and
since he acted with evident bad faith and malice, he should pay moral and
exemplary damages, jointly and severally with Nirmla and Ortigas.
The subject real properties, including the improvements thereon, were
divided equally between Ishwar and Choithram. The latter, together with Nirmla
and Ortigas, are solidarily liable to pay the value of said one-half share in the
subject properties.
x x x

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Partnership Cases

Article 1800
Jose Fortis vs. Gutierrez Hermanos
No. 2484
April 11, 1906
FACTS:
Plaintiff was an employee of the defendant. He brought this action to
recover a balance due him as salary. He alleged that he was entitled to five per
cent of the net profits of the business of the defendants, as a salary. The trial
court ruled in favor of the plaintiff.
The defendants brought the case to the Supreme Court, raising, among
others, question on the contract of employment with the plaintiff, and a claim that
the latter was a co-partner of the defendants.
ISSUE:
Whether a contract of employment made between the plaintiff and the
defendant was duly authorized.
RULING:

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Partnership Cases

Yes. The Court sustained that there existed a contract of employment

between the parties. The contract was made on the part of the defendants by
Miguel Alonzo Gutierrez, one of the managers of the company under the articles
of partnership, with full power to transact all of the business thereof. As such
manager he had authority to make a contract of employment with the plaintiff.
In addition, the Court answered in the negative the claim of respondent
that the plaintiff is a co-partner, based on the following grounds: 1) the
arrangement was a mere contract of employment; 2) the plaintiff had no voice
nor vote in the management of the affairs of the company; 3) under the articles of
partnership, the net profits of the business shall be divided among the partners
only after all expenses had been paid. Part of such expenses to be paid was the
salary of the plaintiff. The fact that the compensation received by the plaintiff was
to be determined based on the profits did not in any case make him a partner.
x x x

Jose Garcia Ron vs. La Compaia de Minas de

Batan
No. 4597
November 23, 1908
FACTS:
The plaintiff instituted the action to recover from the respondent the salary
due him for the services he rendered for the latter. His claim was based on the
contract of employment entered into between him and Genaro Ansuategui, the
local manager of certain mines of the defendant company. The defendant denied
existence of such contract, alleging that the local manager was not authorized to
enter into any such contract, such authority not having been granted to him under
his letter of instructions.
ISSUE:
Whether the local manager of the defendant company was actually
authorized to enter into contracts of employment.
RULING:
Yes. Contrary to what the defendant company alleged, the Court is of the
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Partnership Cases

opinion that the authority to contract for the employment of the plaintiff was
clearly conferred upon Ansuategui, the local manager, by the terms of the letter
of instructions. The contents of such document suggests that it was conferred
upon him wide scope in the employment and discharge of labor, in order for him
to successfully perform his duties, given the nature of the enterprise and the
remoteness of the location of the mines. Other provisions of the letter of
instructions expressly provide that the local manager is duly authorized to
represent the company so far as this was necessary for their proper local
management. There can be no doubt, therefore, that Genaro Ansuategui was
fully and expressly authorized by the terms of this letter of instructions to enter
into the alleged contract of employment with the plaintiff on behalf of the
defendant company.
x x x

Tai Tong Chuache

Commission, et al.

&

Co.

vs.

The

Insurance

No. L-55397
February 29, 1988
FACTS:
Spouses Palomo (Palomo) executed a mortgage over its property to
secure the payment of the loan it obtained from petitioner Tai Tong Chuache &
Co. Arsenio Lopez Chua (Chua), as representative of the latter, insured the
companys interest in the property with the private respondent, Travellers MultiIndemnity Corporation (Travellers), while Palomo, on its part, insured its property
with various insurance companies. Said property was totally razed by fire.
Palomo demanded indemnity from the insurance companies, including
Travellers, but the latter refused.
A complaint was instituted by Palomo against Travellers, to which
petitioner intervened. The Insurance Commision dismissed the complaint.
Specifically with regard to petitioner, the public respondent denied its intervention
on the basis of a certification that in a certain civil case against Palomo, the
complainant was Chua and not the petitioner company, inferring that the

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Partnership Cases

abovementioned loan must have been paid and as such, petitioner has no more
interest as to the insured property as well as in the case related thereto.
ISSUE:
Whether the petitioner company, being only represented by Chua, is
entitled to enforce the liability of respondent insurance company.
RULING:
Yes. Petitioner, being a partnership, may sue and be sued in its name or
by its duly authorized representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned, even the respondent insurance
company recognized him as the managing partner of the partnership. Thus, as
managing partner, he may execute all acts of administration as provided in Article
1800, including the right to sue debtors of the company in case of their failure to
pay their obligations. At the very least, Chua being a partner of petitioner is an
agent of the partnership, and as such, it is understood that he acted for and in
behalf of the firm.
Respondent insurance company was held liable.
x x x

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Partnership Cases

Article 1803
The Great Council of the United States of the
Improved Order of Red Men vs. The Veteran Army
of the Philippines
No. 3186
March 7, 1907
FACTS:
The Defendant (Veterans Army) was organized as an association. Under
its constitution, it shall be composed of a department and two or more posts. Six
members of the department constitute a quorum for the transaction of business.
One of the posts organized was the General Henry W. Lawton Post, No.
1, (Lawton Post) which, through Albert McCabe, entered into a contract of lease
with the plaintiff. Lawton Post abandoned the premises before the expiration of
the term, to which the plaintiff commenced an action to recover the rent for the
unexpired term. The trial court ruled against herein defendant, but acquitted
McCabe. In its appeal, the defendant claimed that the action could not be
maintained against it because it never contracted with the plaintiff and never
authorized anyone to so contract in its name.
ISSUE:
Whether the defendant, by its nature and constitution, was liable for the
obligation incurred by one of its posts.
RULING:
No. Although the court found difficulty in determining the exact nature of
the defendant organization, it deemed most favorable to consider the former as a
civil partnership. Being such a partnership, it is necessary for the plaintiff to prove
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Partnership Cases

that the contract in question was executed by someone authorized to do so by

the defendant.
Under Article 1695, (old Civil Code) any one partner is empowered to
contract in the name of the partnership only when the articles of partnership
make no provision for the management of its business. In the case of Veterans
Army, however, it can be deduced from its constitution that it had provided for the
management of its business. Although there was nothing said in its provisions
about the power of making contracts and such power was not expressly given to
any officer, the Court deemed it to have been reserved to the department as a
whole; that, as provided in its constitution, the department could not be bound
unless by resolution adopted by it at some meeting where at least six members
of the department were present.
Since no evidence was offered to show that the department had ever
taken such action, no such contract, as the one in question, was binding on the
defendant. The contract of lease entered into was entirely between the plaintiff
and the Lawton Post. However, the liability of Lawton Post was not presented in
the appeal made by the plaintiff.
x x x

E. M. Bachrach vs. La Protectora et al.

No. 11624
January 21, 1918
FACTS:
Marcelo Barba, acting manager of defendant La Protectora, was
authorized by its partners to contract for the purchase of two automobiles. He
negotiated said purchase with the plaintiff and paid a part of the agreed price and
executed promissory notes for the balance. From time to time after the said
purchase, Barba made additional purchases for various automobile effects and
accessories to be used in the business of the firm.
The plaintiff instituted an action against the firm and all its partners to
recover the outstanding balance. The trial court ruled against all of the
defendants. From this judgment only the rest of the partners made an appeal and
none was taken in behalf either of the firm or Barba.
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Partnership Cases

ISSUE:
Whether the rest of the partners liable for the debts of the partnership and
if so, up to what extent.
RULING:
Yes. Even if the authority given to Barba, with respect to the purchase of
the automobiles, was intended merely to enable him to bind only the partnership
and not to confer upon him the power to bind the individual partners personally,
the liability of the latter is based on the fact that they are members of the civil
partnership and as such are liable for its debts.
In the given case, the appellants are severally liable for their respective
shares of the entire indebtedness found to be due, without distinguishing whether
such part of the debt resulted from the authorized purchase of the trucks or from
the additional purchases of accessories made by Barba. This is based on the fact
that no agreement was made by the parties with regard to the form of
management of the partnership. Under Article 1695 of the (Old) Civil Code, in the
absence of such agreement, all the partners are considered agents of the
partnership. Barba therefore must be held to have had authority to incur all of the
expenses. In addition, being the president and manager of the firm, there can be
no doubt that he had actual authority to incur these obligations.
x x x

Article 1804
Jose Machuca vs. Chuidian, Buenaventura & Co.
No. 1011
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Partnership Cases

May 13, 1903

FACTS:
The defendant partnership was originally composed of three Chuidian
family members and one D. Mariano Buenaventura. Upon retirement of one of
the Chuidians, the partnership went into liquidation. Buenaventura subsequently
died, his estate passing to his children, among whom was D. Vicente
Buenaventura (Vicente). The latters interest in his fathers advances and capital
in the partnership was recorded in the books of the firm. Vicente assigned to D.
Jose Gervasio Garcia 25 percent share in all that may be obtained from the
liquidation of the partnership. Garcia in turn assigned such right to the plaintiff,
who initiated this action to compel the recording of his claim in the books of the
partnership and to be adjudicated as a creditor of the firm. The trial court ruled in
favor of the plaintiff, granting the relief asked by the latter and in addition, ordered
immediate receipt by the same of the assigned right.
ISSUE:
Whether the plaintiff is entitled to receive forthwith 25 percent of the
assigned interest in the partnership.
RULING:
No. In the partnership agreement, it was stipulated that upon the
dissolution of the firm, the pending obligations in favor of outside parties should
be satisfied first, followed by the claims of the Chuidian minors, and what is due
to the respective partners on account of their advances in the firm is to be paid
last of all, the ultimate residue, if there be any, shall be distributed to the partners
in the proportion to which they were entitled to. In the same agreement, outside
parties refer to creditors who were not partners.
It therefore follows that Vicente, whose rights are those of his father, is in
no case entitled to receive any part of the partnership assets until the creditors
who are non-partners and the Chuidian minors are paid. As such, the right
assigned by Vicente was likewise subject to this condition. The assignment does
not purport to transfer an interest in the partnership, but only a future contingent
right to 25 percent of such portion of the ultimate residue of the partnership
property as Vicente may become entitled to receive.

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Partnership Cases

Furthermore, it was clear that what Vicente has undertaken to assign was
not a present interest but an interest in whatever may be obtained from the
liquidation of the partnership. The assignment is not to take effect until all the
liabilities of the partnership have been discharged and nothing remains to be
done except to distribute the assets among the partners.
The rights acquired by the plaintiff under the assignment still remain
subject to such condition, and as such, is wholly uncertain of realization since it
may be that the entire assets of the firm will be exhausted in the payment of the
creditors entitled to preference under the partnership agreement.
x x x

Article 1805
Antonio Pardo vs. The Hercules Lumber Co., INC.,
and Ignacio Ferrer
No. 22442
August 1, 1924
FACTS:

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Partnership Cases

Petitioner is a stockholder respondent corporation, Hercules Lumber Co.,

Inc. His request for permission to inspect the books of the corporation by himself
and his duly authorized agents had been denied by herein respondent, Ignacio
Ferrer, the acting secretary of the said corporation. The reason for this denial is
due to a provision in the by laws of the corporation that states that every
stockholder may examine the books of the company as well as other documents
pertaining thereto only upon the days which the board of directors shall annually
fix. Thus, limiting the days on which inspection of the books may be done. In a
subsequent resolution passed by the board of directors on the general
shareholders meeting for March 30 of the same year, the date fixed for inspection
was from the 15th to 25th, should inspection not be done within the said period,
the right to inspect the books is lost for the remaining portion of the year, that is.
As a result of this denial, Petitioner filed a writ of mandamus to compel the
respondents to allow the former to inspect and examine the books.
ISSUE:
Whether or not the provision limiting the period of inspection constitutes
an unreasonable restriction on the shareholders right of inspection
RULING:
Yes, the Supreme Court held that a by-law unduly restricting the right of
inspection is undoubtedly invalid. A resolution of the board of directors of a
corporation limiting the right of stockholders to inspect its records to a period of
10 days shortly prior to the annual stockholders meeting is an unreasonable
restriction on the right of inspection given by section 51 of the Corporation Law
(Act No. 1459), which declares that the right of inspection can be exercised at
reasonable hours. This means that the right of inspection may be exercised at
reasonable hours on business days throughout the year, and not merely during
an arbitrary period of a few days chosen by the directors.
In addition, the Supreme Court added that the motive of the shareholder
in exercising the right is immaterial.
x x x

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Partnership Cases

Article 1806
Pang Lim and Benito Galvez vs. Lo Seng
No. 16318
October 21, 1921
FACTS:
Pang Lim and Lo Seng were partners under the firm name, Lo Seng &
Co. The firm is engaged in the business of running El Progreso, a distillery
located in Bulacan. The property on which the plant is located is owned by a
certain Lo Yao, a chinaman who resides in Hongkong.

Through his

representative, Lo Shui as attorney in fact the said property was placed under
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lease contract with the partnership. Upon the expiration of the term, another
contract was executed thereby extending the lease to another 15 years. The
original contract of lease, as well as the agreement extending the same, was
never registered in the Property registry. Subsequent ly, Pang Lim sold all his
interest in the partnership to his his partner, Lo Seng, the latter becoming the
sole owner of the Distillery. After such sale of interest, through Lo Yaos
representative, Lo Shui executed a Deed conveying to Pang Lim and a certain
Benito Galvez, an employee of the dissolved partnership, the property subject of
the lease agreement. The deed was executed and acknowledge before a notary
public. As a result of the conveyance, Pang Lim and Benito Galvez demanded
the possession of the property from Lo Seng which was he refused to surrender.
As a consequence, herein petitioners filed a case of unlawful detainer against Lo
Seng.
ISSUE:
Whether or not the plaintiffs, as purchasers of the state, are at liberty to
terminate the lease.
RULING:
No, the Supreme Court held that while yet a partner in the firm of Lo Seng
& Co., Pang Lim participated in the creation of this lease; and when he sold out
his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang
Lims interest in the firm assets, including the lease; and Pang Lim cannot now
be permitted, in the guise of a purchaser of the estate, to destroy an interest
derived from himself, and for which he has received full value.
Further, this Court stated that, above all other persons in business
relations, partners are required to exhibit towards each other the highest degree
of good faith. In fact, the relation between partners is essentially fiduciary, each
being considered in law, as he is in fact, the confidential agent of the other. It is
therefore accepted as fundamental in equity jurisprudence that one partner
cannot, to the detriment of another, apply exclusively to his own benefit the
results of the knowledge and information gained in the character of partner. Thus,
it has been held that if one partner obtains in his own name and for his own
benefit the renewal of a lease on property used by the firm, to commence at a
date subsequent to the expiration of the firms lease, the partner obtaining the
renewal is held to be a constructive trustee for the firm as to such lease.
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x x x

The Director of Lands vs. Lope Alba, et al. Eligio

Catalan vs. Ramon Gatchalian
No. L-11648
April 22, 1959
FACTS:
Eligio Catalan and Ramon Gatchalian were partners, as such, to secure
payment of a loan, they mortgaged 2 lots located in Tacloban City, owned by the
partnership, in favor of a certain Dr. Dionisio Marave. The partners failed to settle
their obligation. Consequently, the mortgage was foreclosed and sold at a public
auction to which Dr. Marave became the highest bidder. However before the
lapse of the redemption period, or one year after such sale, Catalan was able to
redeem the property using his own funds. The sheriff executed a Certificate of
redemption in favor of Catalan. The trial Court ordered the cancellation of the title
under the name of the Partnership and instead directed the issuance of such
under the name of Catalan only.
ISSUE:
Whether or not Catalan can claim exclusive title to the partnership
properties he redeemed using his own funds.
RULING:
No, Catalan did not become the sole owner of the foreclosed partnership
properties he redeemed notwithstanding the fact that he used his own funds. The
reason is as follows:
The Supreme Court held that under the general principles of law, a
partner is an agent of the partnership pursuant to article 1818 of the New Civil
Code. The Court went on by stating that every partner becomes a trustee for his
copartner with regard to any benefits or profits derived from his act as partner
(article 1807, of the New Civil Code). Consequently, when Catalan redeemed the
properties in question, he became a trustee and held the same in trust for his
copartner Gatchalian, subject to this right to demand from the latter his
contribution to the amount of redemption. Also, Dr. Marave had not become the
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absolute owner of the said properties, since he never received the definite and
formal certificate of sale, due to the redemption made by Catalan. Hence, the
Court held, there was no title to the properties which he conveyed to Catalan as
redemptioner.
x x x

Article 1807
R.Y. Hanlon vs. John W. Haussermann and A.W.
Beam and George C. Sellner
No. 14617
February 18, 1920
FACTS:
Benguet Mining Consolidated Corporation was organized in 1903 with an
authorized capital stock of 1 million at P1 par value; 499,000 stocks have been
issued while 501,000 remained unissued. In 1909 the milling plant, which was
situated near Baguio, was badly damaged and partly destroyed by high water
until it became totally destroyed in 1911. Consequently rendering the company
without any working capital, without credit and unable to rebuilt the damaged
plant. Defendants Haussermann and Beam were stockholders and members of
the Board of Directors of the said corporation, acting as Vice president and
secretary-treasurer, respectively. They entered into an agreement with Plaintiff
Hanlon who is an experienced mining engineer in connection with the latters
proposed plan for the rehabilitation of the company he also asked permission to
inspect the company. In the terms of their agreement, Plaintiff was to pay P
75,000 in cash in exchange of 250,000 unissued shares. However, Hanlon was
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not financially capable of raising P75,000. Aid was sought in the person of
Sellner, a businessman who undertook to provide P 50,000 and the remaining P
25,000 was provided by the defendants. After some time, Hanlon flew to the
United States of America, as part of his plan or rehabilitating the plant, he
executed a power of attorney in favor of Beam to act on his behalf while he was
away. Unfortunately, Sellner was unable to fulfill his undertaking within the period
specified in the contract. Thus, the defendants assumed that they were absolved
from their obligation. They entered into a new contract with Bank of the Philippine
Islands to provide for financial assistance.
This prompted Plantiff to institute and action to compel the defendants to
account for his share in the profits gained by them in rehabilitating the plant.
Judgement was rendered in favor of Hanlon, requiring the defendants to
surrender to the Plaintiff 24,000 shares plus dividends.
ISSUE:
Whether or not Hanlon is entitled to the profits of the company
notwithstanding the fact that he defaulted in his obligation.
RULING:
No. The Supreme Court held that the defendants have acted in good faith
for the accomplishment of the common purpose and to the full extent of their
obligation during the existence of their contract. Further, the Court went on in
stating that if Sellner had not defaulted, of if Hanlon had been able to produce the
necessary capital from some other source, during the time set for raising the
money, the original project would undoubtedly have proceeded to its
consummation. The Court also held that there was no act by the defendants that
resulted in the prevention the consummation of the said project, that nothing
more could be required of the defendants than a full and honest compliance with
their contract. The default of Hanlon discharged the defendants and they cannot
be held liable upon it.
Ultimately, the Supreme Court ruled that Hanlon cannot be entitled to
relief where he had remained in default throughout and at no time had he offered
to comply with the obligations incumbent upon himself.
x x x
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Article 1808 1809

Jose Ornum and Emerciana Ornum vs.
Lasala, et al.,

Mariano,

G.R. No. L-47823

July 26, 1943
FACTS:
Pedro Lasala and Emerenciano Ornum formed a partnership, whereby
the former, as capitalist, delivered the sum of money to the latter who, as
industrial partner, was to conduct a business at his place of residence. In 1912,
Emerenciano Ornum asked for the dissolution of the Lasala and was replaced by
the petitioners who became the new partners. Upon joining the business, the
petitioners, contributed a sum as their capital, adding to the original capital
owned by Pedro Lasala. The Petitioners are, as well, to be Industrial Partners to
run the business. Pedro Lasalas children (the respondents) succeeded to all his
rights and interest in the partnership after his death. The partners never knew
each other personally and no formal partnership agreement was ever executed.
During the course divided, but the partners were given the election, as evidenced
by the statements of accounts, to invest their respective shares in such profits as
additional capital. Statements of accounts were periodically prepared by the
petitioners and sent to the respondents who invariably did not make any
objection thereto. The last and final statement of account was then prepared by
the petitioners after the respondents announced their desire to dissolve the
partnership. After receiving it, Fr. Mariano Lasala, spokesperson of the
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respondents, wrote a letter to the petitioners on July 19, 1932 asking that they be
remitted and paid a sum of money based on a statement of accounts they made
this which the Petitioner complied with. However, such statement of accounts
was not signed by the Respondents. Thereafter the complaint in this case was
filed by the respondents, praying for an accounting and final liquidation of the
assets of the partnership.

ISSUE:
May the Respondents further raise their right to a Formal Account as to
the Partnership Affairs?
RULING:
Yes. Based on the case at hand, the Respondents, through their
spokesperson, have their interest accounted and approved by them through the
letter and Statement of Accounts that they have delivered to Petitioner through
letter. After such shares had been paid by the petitioners and accepted by the
respondents without any reservation, the approval of the statement of accounts
was virtually confirmed and its signing thereby became a mere formality to be
complied with by the respondents exclusively. Their refusal to sign, after
receiving their shares, amounted to a waiver to that formality in favor of the
petitioners who has already performed their obligation.

(The case also appear under Articles 1842 with a separate issue and ruling
relevant to said article)

x x x

Jose Fernandez vs. Francisco de la Rosa

No. 413
February 2, 1903
FACTS:

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On January 1900, Plaintiff, Jose Fernandez and Defendant, Francisco De

la Rosa verbally entered into an agreement to form a partnership for the
purchase of ciscoes to be used for hire. The defendant was to purchase the
cascoes the costs of which are to be shouldered by each partner, the profits to be
divided proportionately. During the month of March, the defendant purchased
cascoes amouting to P500 (No. 1515) and P1,000 (No. 2089), respectively. In
April of the same year, the parties decided to execute articles of partnership but
the draft contained articles that were materially different from their verbal
agreement; defendant was unwilling to include

casco No. 2089 in the

partnership, as a result, they failed to come up with a written agreement. In the

meantime, the defendant had control and management of the cascoes. The
plaintiff sought for an accounting of the contributions made which the defendant
refused to render since he denied the existence of the partnership. Subsequently
the defendant received back P 1,125.
ISSUE:
Whether or not the partnership existed between the parties
RULING:
Yes. In a contract of partnership, between the parties there must be a
meeting of the minds as to two essential points: (1) mutual contribution to a
common stock and (2) a joint interest in the profits. The presence of the
foregoing elements results in the existence of a partnership relation.
The Supreme Court found that the first element, mutual contribution is
present; money had been furnished by the plaintiff and received by the defendant
in the understanding that it was meant to be used to purchase the cascoes. The
second element, being the intention to share profits, can be deduced from the
fact that the purchase of the cascoes in common also considering the fact that
prior to the purchase of the first casco, the formation of a partnership was
contemplated by the parties. On the contrary, if the objective of the parties were
mere passive ownership in common and not the active use and profit, the relation
would be of joint ownership and not of a partnership. This Court held that it is
apparent that a complete and perfect contract of partnership was entered into by
the parties. Further, it had been held that a written agreement was not necessary
in order to give efficacy to the verbal contract of partnership. As a consequence,
this court declared that the partnership was formed between the parties in
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January 1900, that the existence of which the defendant is bound to recognize;
that the two cascoes, nos. 1515 and 2089 constitute partnership property, and
that the plaintiff is entitled to an accounting of the defendants administration of
such property and of the profits derived therefrom.

Dan Fue Leung vs. Hon. Intermediate Appellate

Court and Leung Yiu
G.R. No. 70926
January 31, 1989
FACTS:
Sun Wah Panciteria was established in October 1955 by Petitioner Dan
Fue Leung, it was registered as a single proprietorship. Subsequently, private
respondent Leung Yiu contends that he made a capital contribution amounting to
P 4,000 to which he presented a receipt signed by the Petitioner. During the trial,
Private respondent was able to present evidence to show that Sun Wah
Panciteria was actually a partnership and that he was one of the partners. In
addition, he claims that he received P 12,000 covered by Equitable Banking
Corporation Check No. 13389470-B issued by the Petitioner representing profits
from the operation of the restaurant. Petitioner denied having issued the said
check as well as having received P4,000 contribution of the Private Respondent.
The Intermediate Appellate Court affirmed the ruling of the Court of First instance
declaring the private respondent a partner of the petitioner; that as such, he is
entitled to recover the sum of 22% of the annual profits obtained from the
operation of the restaurant from October 1955. Petitioner claims that the lower
courts factual finding is erroneous; that the respondent extended financial
assistance for which he shall receive a share in the profits of the restaurant. But
denied that this amount meant contribution of capital by a partner to a
partnership.
ISSUE:
Whether or not private respondent is a partner thereby becoming entitled
to receive profits from the operation of Sun Wah Panciteria.
RULING:
Yes, the Supreme Court held that the private respondent is a partner in
the Sun Wah Panciteria. As it was held in Yulo vs Yang Chiao Cheng, (106 Phil
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110 and article 1767 of the Civil Code) the following requisites of a partnership
are established, these are: 1) two or more persons bind themselves to contribute
money, property, or industry to a common fund; and 2) intention on the part of the
partners to divide the profits among themselves. Private respondent Leung Yiu is
seeking for the accounting of his interest in the partnership. Article 1806, 1807
and 1809 provides that the right of a partner to demand an accounting exist as
long as the partnership exists. Only upon the dissolution of the partnership when
final accounting is done does prescription begin to run.
x x x

Jose Garrido vs. Agustin Asencio

No. 4281
March 30, 1908
FACTS:
Plaintiff, Jose Garrido and Defendant, Agustin Asencio were partners
under the firm name Asencio y Gia. Unfortunately the partnership business did
not flourish, as a result, the partners by mutual agreement decided to dissolve
the partnership. Plaintiff now seeks to recover his capital investment despite the
claim by the defendant that the business suffered a loss as evidenced by his
testimony under oath, the books of the partnership and the vouchers he
submitted to the court. The trial court, in appreciating the evidence presented by
the defendant, ruled in the latters favor. Plaintiff made an appeal questioning the
sufficiency of the books as evidence of the alleged losses of the business as
claimed by the defendant.
ISSUE:
Whether or not the plaintiff may question the correctness of the entries
made in the partnership books.
RULING:
No, it had been found by the court that the plaintiff and the defendant
were equally responsible for the mode in which the books were kept; and that the
books were at all times open to the inspection of the plaintiff. The Supreme Court
reiterated the doctrine laid down in Belm, Meyer & Co. rs. Kosatzin (5 Phil 660)
which was found to be applicable in this case, which states that the correctness

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of the entries in these books must be taken to be admitted by him, except so far
as it is made to appear that they are erroneous as a result of fraud or mistake.
Prior to the trial, it appears that the books were placed in possession of the
plaintiff for more than six weeks in addition, during the trial he was given ample
opportunity to scrutinize and detect if there are any erroneous or fraudulent items
appearing therein, but he was unable to find any. Consequently, this Court held
that there was no evidence to debunk their findings that the weight of evidence is
insufficient to support their previous judgment.
x x x

Sison vs. McQuaid

G.R. L-6304
December 29,1953
FACTS:
On March 28, 1951, Sison brought an action against Mcquaid alleging
that during the year 1938 the latter borrowed from him various sums of money
aggregating P2,210. Since Mcquaid was not able to pay the loan in 1938, she
proposed to take in Sison as a partner in her lumber business and that the latter
to contribute the sum of P2,210. Sison agreed to Mcquaid's proposal and as a
result a partnership was formed. Before the last World War, the partnership sold
to the United States Army lumber worth P13,800. Mcquaid persistently refused
to deliver one half of it or P6,900 despite repeated demands of Sison. Sison
prays for judgment declaring the existence of the alleged partnership and
requiring Mcquaid to pay him the sum of P6,900 in addition to damages and
costs.
ISSUE:
Whether or not Sison can recover from Mcquaid the P6,900 of the
purchase price sold by the partnership?
RULING:
No. Plaintiff seeks to recover from defendant one-half of the purchase
price of lumber sold by the partnership to the United States Army. But his
complaint does not show why he should be entitled to the sum he claims. It does
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not allege that there has been a liquidation of the partnership business and the
said sum has been found to be due him as his share of the profits. The proceeds
from the sale of a certain amount of lumber cannot be considered profits until
costs and expenses have been deducted. Moreover, the profits of the business
cannot be determined by taking into account the result of one particular
transaction instead of all the transactions had. Hence, the need for a general
liquidation before a member of a partnership may claim a specific sum as his
share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the
ground that the complaint states no cause of action and without prejudice to the
filing of an action for accounting or liquidation should that be what plaintiff really
wants.

(The case also appear under Article 1839)

x x x

Article 1811
Inocencia Deluao and Felipe Deluao vs. Nicanor
Casteel and Juan Depra, Nicanor Casteel
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No. 21906
August 29, 1969
FACTS:
Nicanor Casteel was the original occupant of a parcel of land containing a
fishpond. He wanted to prevent subsequent occupants from entering his premise
and filing for application for permits over the area applied for by him. These
permits were pursuant to Section 63 of the Fisheries Act which allows only
holders of permits or leases issued or executed by the Secretary of Agriculture
and Natural Resources (DANR Secretary) to exercise the acts of entering the
land and construct a fishpond. In other words, the transfer or sub-leasing of
fishponds covered by permits or leases is not allowed. In order to prevent others
from filing applications for the issuance of the said permit over his area, Casteel
expanded his occupation thereon by introducing improvements in the form of
dikes and the cultivation of marketable fishes. To facilitate said improvements on
the fishpond, he sought financial aid from the Petitioner spouses Deluao. Given
the circumstances, Casteel was forced to enter into a contract of partnership with
the spouses with the end view of dividing the fishpond, half of which to be
transferred to the spouses. Eventually, Casteels application for the issuance of
permit by the DANR secretary had been granted. The spouses argued that they
should be awarded of the fishpond considering that the subject matter of their
partnership is the beneficial right over the fishpond which they insist is specific
partnership property as stated in article 11 of the Civil Code which states that a
partner is a co-owner with his partners of specific partnership property.
ISSUE:
Whether or not the beneficial right over the fishpond is considered
specific partnership property contemplated by law under article 1811 of the Civil
Code.
RULING:
No, the Supreme Court held that specific partnership property
contemplated in article 1811 of the Civil code refers to tangible property such as
a car, truck or a piece of land, but not an intangible thing such as the beneficial
right to a fishpond. The Supreme Court further stated that a fishpond of the public
domain can never be considered a specific partnership property because only its

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use and enjoyment and never its title or ownership, is granted to specific private
persons.
In addition, the reason why the DANR Secretary did not find it just to
award half of the fishpond to the spouses in spite of the several appeals and
motions for reconsideration filed by them is because the P 27,000 financial aid
they provided had not been alleged nor proven to have been indispensable to the
granting of the fishpond to Casteel.
(The case also appear under Articles 1770 and 1830 with separate issues and
rulings relevant to said articles)
x x x

Article 1812
The Leyte Samar Sales Co., and Raymundo
Tomassi vs. Sulpicio V. Cea and Olegario Lastrilla
No. 5963
May 20, 1953
FACTS:
Fred Brown, Arnold Hall, Jean Roxas are partners of Far Eastern Lumber
& Commercial Co. (FELCO), an unregistered commercial partnership. On
September 29, 1949, a sale was made between Fred Brown and Oleario Lastrilla
of all the shares of Fred Brown in the partnership. On October 29, 1948 a suit for
damages was filed directed against the partners of FELCO. In Civil Case No.

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193, the Court of First Instance of Leyte through the respondent judge Sulpico V.
Cea rendered judgment against FELCO and the partners. On June 4, 1951,
Lastrilla filed a case where he claimed to be the owner of all the shares and
interest of the defendant Brown, which he purchased on September 29, 1949. On
June 9, 1951, the Court of appeals affirmed the judgment of the Court of First
Instance, when the decision became final, the sheriff sold at an auction all rights,
interest, titles and participation of the defendants in certain buildings and
properties in favor of Robert Dorfe and Pepito Asturias. Lastrilla requested that
the sheriff retain possession of a certain portion of the proceeds as may be
necessary to satisfy his claims. On June 13, 1951, despite opposition by the
plaintiffs, the judge allowed that Lastrilla be entitled to 17% of the properties sold.
ISSUE:
Whether or not Lastrilla had proper claim over the proceeds of the sale of
partnership property..
RULING:
No, The Supreme Court held that Lastrilla was not a creditor of the
partnership, as such; he does not have any proper claim to the proceeds of the
auction. In other words, a partner is not a creditor of the partnership for the
amount of his shares.
With regard to the lower courts judgment ordering the delivery of 17% of
the proceeds of the auction sale to respondent Lastrilla, the Supreme Court
declared such as null and void; that such orders are patently erroneous, because
they were promulgated in the excess or outside of its jurisdiction.
x x x

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Article 1815
Teck Seing and Co., Ltd. and Santiago Jo Chung,
et al vs. Pacific Commercial Company, et al
G.R. No. 19892
September 6, 1923
FACTS:
The "Sociedad Mercantil, Teck Seing & Co., Ltd.," applied to be adjudged
an insolvent. Its creditors, the Pacific Commercial Company, Piol & Company,
Riu Hermanos, and W. H. Anderson & Company, filed a motion to a) Declare the
individual partners as parties to the proceeding; b) to require each of said
partners to file an inventory of his property; and c) each partners be adjudicated
insolvent debtors in this proceeding. Its Partners are Santiago Jo Chung Cang,
Go Tayco, Yap Gueco, Jo Ybec, and Lim Yogsing all of them who contributed
the same amount for the Capital Fund of Teck Seing and Co., Ltd.
ISSUES:
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Does the non-inclusion of any of the names of the Partners in the

Partnership Name prevent the creation of a General Partnership, thus limiting the
obligations of each Partner?
RULING:
No. As regards the Obligations of the Partners with respect to Third
Persons, it is stated in the Civil Code that Every Partership shall operate under a
firm name, which may or may not include the name of one or more of the
partners This means that all those considered partners, whether or not their
names are indicated in the Partnerships Firm Name, so long as they are
considered as Partners by other Partners, have an Obligation to those Third
Persons that the Partnership may make contact with. The case at hand shows
that the mentioned people are Partners to each other in their firm that is engaged
in selling of merchandise in general. However, as they are considered as General
Partners, the liability to third persons extends to all of them despite the fact that
their names are not included in the Partnership Name.

(The case also appear under Article 1843 with a separate issue and ruling
relevant to said article)
x x x

In the matter of the Petition for authority to

continue use of the firm name Ozaeta, Romulo,
De Leon, Mabanta & Reyes
July 30, 1979
FACTS:
Two separate petitions were filed by the surviving partners of Atty.
Alexander Sycip and Atty. Hermino Ozaeta, both of which prayed that they be
allowed to continue using, in the names of their respective firms, the names of
the partners who have passed away. The two partnerships are: Sycip, Salazar,
Feliciano, Hernandez, Castillo, and Ozaeta, Romulo, De Leon, Mabanta and
Reyes. The petitioners presented several arguments to support their plea, among
the arguments presented include the following: they claimed that the continued
use of a deceased partners name in the firm name of a law partnership has been
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consistently allowed in the United States Courts and is an accepted practice in

the legal profession of most countries in the world; that there is no local custom
in our country that prohibits such practice; that there is no possibility of imposition
or deception because the deaths of their respective deceased partners were
well-publicized in all newspapers of general circulation for several days.
However, this petition stands against article 1815 of the Civil Code.
ISSUE:
Whether or not the surviving partners are authorized to continue using the
name of their deceased partner in their firm name.
RULING:
No, the Supreme Court held that the continued use of the name of their
deceased partners will run counter to article 1815 of the Civil code which
provides:
Article 1815. Every partnership shall operate under a firm name, which
ay or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in
the firm name, shall be subject to the liability of a partner.
In explaining the aforementioned provision, the Supreme Court stated
that it is clearly tacit in the above provision that names in a firm name of a
partnership must either be those of living partners and, in the case of nonpartners, should be living persons who can be subjected to liability. The surviving
partners are thus directed to drop the names Sycip and Ozaeta from their
respective firm names. These names however may be included in the list of
individuals who have been partners of the firms with the indication of the years
they served as such.
x x x

Philippine National Bank vs. Severo Eugenio Lo,

Ng Khey Ling and Yep Seng
No. 26937
October 5, 1927
FACTS:

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Partnership Cases

Severo Eugenio Lo, Ng Khey Ling, J.A. Say Lian Ping, Ko Tiao Hun, On
Yem Ke Lam and Co Sieng Peng were partners under the firm name of Tai Sing
& Co. engaged in the business of the purchase and sale of merchandise, goods,
and native as well as Chinese and Japanese products.

Say Lian Ping, the

general manager, executed a power of attorney in favor of A.Y. Kelan who was
made authorized to apply for and obtain a loan of P 8,000 for the partnership.
Certain properties of the partnership were mortgaged to secure the loan. This
credit was renewed several times and a chattel mortgage to cover the P 20,000
loan which was to earn interest at 9% per annum. As a result, the defendants
became indebted to the petitioner for the total amount of P 22, 727.74 plus
interest.

The trial court ordered them to pay Petitioner jointly and severally.

Defendants denied that the partnership was a general one and that the credit
obtained by the partnership had not been authorized by the board of directors of
the company.
ISSUE:
Whether or not the partners should be held jointly and severally liable for
the partnership notwithstanding the anomaly in the partnership name.
RULING:
The Supreme Court held that the object of article 126 of the Code of
Commerce requiring a general partnership to transact business under the name
of all its members, of several of them, or of only one, is to protect the public from
imposition and fraud; and that the provision of said article is for the protection of
the creditors rather than of the partners themselves. In this case, the appellants
admit that the association formed is a general partnership; it had been registered
in the Mercantile Register in the province of Iloilo, the only anomaly is with regard
to the partnership name. It had been held by this court that such anomalous
adoption of the firm name does not affect the liability of the general partners as to
third parties under article 127 of the code of commerce. The defendants cannot
invoke their defense of anomaly in the firm name which they themselves
adopted. In other words, the court held that the judgment against the appellants
is in accordance with article 127 of the Code of Commerce which states that all
the members of a general partnership, be they managing partners thereof or not,
shall be personally and solidarily liable with all their property, for the results of the

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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.
x x x

Sharruf & Co., Salomon Sharruf and Elias

Eskenazi vs. Baloise Fire Insurance Co., Sun
Insurance Office, LTD., and Springfield Insurance
Co.
No. 44119
March 30, 1937
FACTS:
Petitioners Salomon Sharruf and Elias Eskenazi were engaged in
business operating under the firm name Sharruf & Co. They were able to obtain
insurance coverage from the Defendants covering merchandise amounting to
P40,000. Eventually, the plaintiffs entered into a contract of partnership wherein
they substituted the firm name to Sharruf & Eskenazi.

Elias and Solomon

contributed additional goods, but it was essentially the same and only partners of
the firm. One afternoon a fire broke out in the building where the goods were
stored. Petitioners now are claiming indemnity for the destruction of the goods
located in the burnt building. The lower court rendered judgment in favor of the
petitioner, the defendants were ordered to indemnify the former the total amount
of P40,000 plus interest at 8%. The defendants questioned the personality of the
partnership and alleged that the lower court erred in holding that the claim of the
petitioners was not fraudulent due to the peculiar circumstances of the case such
as the loss of invoices and sales slips.
ISSUE:
Whether or not petitioner had a juridical personality and insurable interest
RULING:
Yes, the Supreme court reiterated its ruling in the case of Lim Cuan Sy vs.
Northern Assurance Co. (55 Phil 248) wherein it had been held that a policy
insuring merchandise against fire is not invalidated by the fact that the name of
the Insured in the policy is incorrectly written Liam Cuan Sy instead of Lim Cuan
Sy & Co., the latter being the proper legal designation of the firm, where it
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Partnership Cases

appears that the designation Lim Cuan Sy was commonly used s the name of
the firm in its business dealings and that the error in the designation of the
insured in the policy was not due to any fraudulent intent on the part of the latter
and did not mislead the insurer as to the extent of the liability assumed.
In this case, the court held that the change in the firm name did not
change the membership of the partnership. Also, it did not appear that the
petitioners intended to defraud the insurance companies. The responsibility of
the insurance companies with respect to the insurance policies had not been
altered.
However, with regard to whether the petitioners are entitled to receive
indemnity from the defendants the Supreme court held that when the evidence
relative to the cause of a fire and the author thereof is so vague and doubtful, the
insured cannot be attributed incendiary intervention therein for the mere fact that
he had the keys to the unoccupied building in his possession. The Supreme
Court went on in saying that when a person presents a claim for damages
caused by fire to articles and goods not existing at the time of the fire does so
fraudulently and his claim is fraudulent. Since the petitioners have acted in bad
faith in presenting a fraudulent claim, they are not entitled to indemnity claimed
by them.
x x x

Hung-Man-Yoc vs. Kieng-Chiong-Seng et al.

No. 2888
October 23, 1900
FACTS:
Chua Che-Co, Yu- Yec-Pin, Ang-Chu-Keng and Kiong-Tiao-Eng were
partners under the firm name of Kieng-Chiong-Seng whose principal line of
business is the importation of goods for sale. A previous judgment was rendered
against the defendants Chua-Che-Co, Yu-Yec-Pin and Ang-Chu-Keng for the
amount of P7,962.14 in Mexican currency (equivalent to P 7, 372.75 in Philippine
currency) with legal interest rate of 6% per annum. It had not been proven that
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Partnership Cases

Kieng-Chiong-Seng was not a firm name but only a designation of a partnership.

Petitioner insists that a partnership exists even though such entity was not
evidenced by any public document as required by article 119 of the code of
commerce also notwithstanding the fact that it was not registered pursuant to
article 17 of the same code. Of all the defendants, only Chu-Che-Co made an
appeal. Hence this present case.
ISSUE:
Whether or not Kieng-Chiong-Seng is considered a firm name of a
general partnership under article 126 of the Code of commerce (Art. 1815, Civil
Code)
RULING:
No. The requisites for a firm name of a general partnership under Article
126 of the Code of Commerce (article 1815, Civil Code) or that of a limited
partnership under article 146 (article 1844, Civil Code) were not present. Article
126 states that a firm name of a general partnership must contain the names of
all the partners, or some of them, or at least one of them to be, followed by the
words and company if not all the names of the partners are used. In this case,
the names of the alleged partners (Chua Che-Co, Yu- Yec-Pin, Ang-Chu-Keng
and Kiong-Tiao-Eng) were not included in the firm name.

(The case also appear under Article 1844 with a separate issue and ruling
relevant to said article)
x x x

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Article 1816
La Compaia Maritima vs. Francisco Muoz, Et Al.
G.R. No. L-3704
December 12, 1907
FACTS:
Francis Muoz de Bustillo, Emilio Muoz and Rafael Naval formed an
ordinary general commercial partnership, Francis Muoz and Sons, for the
purpose of carrying a mercantile business. Muoz de Bustillo was a capitalist
partner while Muoz and Naval were industrial partners. Plaintiff La Compania
Maritima brought an action to recover the sum of P26,828.30 against the
partnership and the partners in their own individual capacity. Muoz and Naval
were absolved from liability.
In their brief, it is claimed that it is not an ordinary general commercial
partnership while in their article of partnership it is expressly stated that they
have agreed and do form an ordinary general commercial partnership. The object
of the partnership is purely mercantile and all requirements under the Code of
Commerce were complied with. The articles of partnership were even recorded in
the mercantile registry of Albay. There is no doubt that there is a partnership.
Appellees also claimed that Muoz is not a partner because 1) he
contributed nothing to the partnership, 2) he has no salary and 3) he is excluded
from the management. The Supreme court in upholding that Muoz is a partner
stated that 1) he contributed as much as other industrial partner, 2) he receives
a salary, the only difference between him and Naval is that the latter was entitled
to a fixed salary while he is not and 3) that the partners can validly do the
exclusion from management in accordance with the provision of Art. 125 of the
Code of Commerce.
ISSUE:
Is an industrial partner in an ordinary general mercantile partnership liable
to third persons for debts and obligations contracted by the partnership?

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RULING:
Yes. In an ordinary general partnership an industrial partner is liable to
third parties for debts and obligations of partnership. The construction of the law
should be avoided which would enable two persons, each with a large amount of
private property, to form and carry on a partnership and, upon the bankruptcy of
the latter, to say to its creditors that they contributed no capital to the company
but only their services, and that their private property is not, therefore, liable for
its debts.
It should be noted, however, that the execution of the judgment should
not issue against the private property of the partners until the property of the
partnership is exhausted.
x x x

Teodoro De Los Reyes vs. Vicente Lukban and

Esperidion Borja
G.R. No. 10695,
December 15, 1916
FACTS:
Teodoro delos Reyes brought a suit in the Court of First Instance of
Manila against Vicente Lukban and Espiridion Borja to recover from them
payment for the merchandise they bought on credit by the firm Lukban & Borja
from the plaintiff's ship supply store named La Industria.
A judgment was rendered, on which the defendant firm was ordered to
pay the sum of P1,086.65 with interest thereon amounting to P1,102.95.
Esperidion Borja paid P522.69. Teodoro delos Reyes later on brought a suit
against Lukban & Borja to recover the sum of P853, the remaining unpaid
balance plus legal interest.
Defendant Lukban contended that he is not liable, he was merely an
industrial partner in the firm and it was Borja who furnished the capital. As it was
proven on trial that the partnership has no more remaining property, as it is
already insolvent, the court rendered judgment holding Borja and Lukban jointly
and severally liable to pay the sum to plaintiff delos Reyes.
ISSUE:
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Partnership Cases

Is a creditor entitled to collect individually from the partners the amount of

the debt that the dissolved partnership owed at the time of its dissolution?
RULING:
Yes. The creditor has the right to recover from the partners thereof in the
manner provided by Art. 127 of the Code of Commerce (now governed by Art.
1816 of the Civil Code of the Philippines).
Art. 127 of the Code of Commerce provides:
"All the members of the general co-partnership, be they or be they not
managing partners of the same, are personally and severally liable with all their
properties 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 the person
authorized to make use thereof".
x x x

Pacific Commercial
Martinez, Et Al.,

Company

vs.

Aboitiz

&

G.R. No. L-25007

March 2, 1926
FACTS:
Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez
formed a regular, collective, mercantile partnership with a capital of P40,000 as
contributed equally by de Silva and the two Aboitiz while Jose Martinez was an
industrial partner with no capital contribution. As provided in the article of
partnership, Martinez was to receive 30% of the profits and shall also be
responsible for losses which should not exceed 30%.
The partnership, through Guillermo Aboitiz, executed a promissory note in
favor of Pacific Commercial Company in the sum of P23,168.71 with interest at
12% per annum. They executed a chattel mortgage to secure the note. Due to
their failure to pay their obligation, the chattel mortgage was foreclosed and sold
at P2,000 which was paid over to plaintiff Pacific Co. Due to non payment of the
remaining balance, plaintiff brought a suit for recovery of unpaid balance with
interest against the partnership.
A judgment was rendered in favor of plaintiff and the partnership was
ordered to pay the sum of P27,951.68 and the interest amounting to P21,168.71
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Partnership Cases

at 10% per annum until fully paid plus fees. The judgment further provided that
the execution should first issue against the property of the partnership Aboitiz &
Martinez and in the event of the insolvency of the partnership, it might issue
against the property of de Silva and Aboitiz and in the event of insolvency, then
against the property of Jose Martinez. Defendant Martinez appealed to the
decision and invoked that under Art. 141 of the Code of Commerce, he is merely
an industrial partner, thus, he cannot be held liable for the partnership's debt.
ISSUE:
Is an industrial partner liable for partnership's debt?
RULING:
Yes. The language of Art. 127 of the Code of Commerce is clear and
specific and must be taken to mean exactly what it says, namely, that all the
members of a general co partnership are liable with all their properties for the
results of the duly authorized transactions made in the name and for the account
of the partnership.
Defendant's reliance to Art. 141 is misplaced. This article of the Code of
Commerce relates merely to the distribution of losses among partners
themselves in the settlement of the partnership affairs and has no obligations to
third parties.

Island Sales, Inc. vs. United Pioneers General

Construction Company, Et. Al
G.R. No. L-22493
July 31, 1975
FACTS:
United Pioneers Gen. Cons. Co. is a general partnership duly organized
under the laws of the Philippines. Among the general partners are Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo R. Lumauig and Augusto Palisoc.
The partnership purchased from the plaintiff a motor vehicle on
installment basis and issued a promissory note for P9,440 payable in twelve
monthly installments with an acceleration clause. It failed to pay the second
monthly installment which caused the plaintiff to file an action for the unpaid
balance amounting to P7,119.07, the general partners were named as codefendants.
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Partnership Cases

On motion of plaintiff, the complaint against defendant Lumauig was

dismissed. The other defendants were declared in default due to their failure to
appear when the case was set for hearing. The plaintiff was allowed to present
evidence ex parte, consequently, the trial court rendered a decision holding the
remaining defendants solidarily liable to pay the P7,119.07 plus 12% interest until
fully paid
Defendants Daco and Sim moved for reconsideration of the decision
claiming that since there are five general partners the joint and subsidiary liability
of each partner should not exceed 1/5 of the obligations of the defendant
partnership. The trial court denied the motion notwithstanding the conformity of
plaintiff to limit the liability of each partner to 1/5 of the obligation.
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 obligation of the partnership?
RULING:
No. Condonation by creditor of share in partnership debt of one partner
does not increase pro rata liability of other partners.
There were five general partners when the promissory note was executed
for and in behalf of the partnership. Since the liability of the partners is pro rata,
their liability shall be limited to only 1/5 of the obligation. The fact that the
complaint against Lumauig was dismissed does not unmake him as a general
partner in the defendant company. In moving to dismiss the complaint, the
plaintiff merely condoned Lumauig's liability to him.
x x x

Elmo Muasque vs. Court of Appeals, Celestino

Galan Tropical Commercial Company and Ramos
Pons
G.R. No. L-39780
November 11, 1985

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Partnership Cases

FACTS:
Petitioner Elmo Muasque in behalf of the partnership "Galan &
Muasque", as a Contractor, entered into a written contract with respondent
Tropical for remodeling of its Cebu Branch building. A total amount of P25,000
was to be paid under the contract for the entire services of the Contractor. The
first payment made by Tropical was in the form of a check for P7,000 in the name
of petitioner. Petitioner endorsed the check in favor of Galan to enable the latter
to deposit it in the bank and pay for the materials and labor used. A
misunderstanding ensued between Muasque and Galan which came to the
knowledge of Tropical, thus, the second check issued by the latter was drawn in
the name of "Galan and Associates" and was encashed by Galan. Meanwhile,
the construction continued through the sole efforts of petitioner, which caused
him to borrow money from a certain Mr. Espina. Two checks were subsequently
given to petitioner pursuant to a court order.
Petitioner filed a complaint for payment of sum of money and damages
against the respondents seeking to recover the amounts covered by the two
checks and the additional expenses that petitioner incurred in the construction.
Both the trial and appellate courts absolved respondents from any liability and
held petitioner together with Galan jointly liable to intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the credit that they
extended to the partnership.
ISSUE:
Is Petitioner Muasque solidarily or jointly liable with Respondent Galan
to pay the credits of intervenors Blue Diamond Glass and Cebu Southern
Hardware?
RULING:
Petitioner is solidarily liable with respondent Galan to pay the credits of
the two intervenors. Therefore, petitioner may recover from respondent Galan
any amount that he pays, in his capacity as a partner, to the above intervenors.
Art. 1816 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". 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
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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 this case, Tropical, Blue Diamond and Cebu Hardware had every
reason to believe that partnership existed between petitioner and Galan, thus, it
is fair that 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.
As between petitioner Muasque and Galan, justice so dictates that
Muasque be reimbursed by Galan for the payments made by the former as it
was satisfactorily established that Galan acted in bad faith in his dealings with
Munasque as a partner.

(The case also appear under Article 1818 with a separate issue and ruling
relevant to said article)
x x x

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Partnership Cases

Article 1818
Ildefonso de la Rosa vs. Enrique Ortega Go-Cotay
G.R. No. L-24243
January 15, 1926
FACTS:
Chinamen Go-Lio and Vicente Go-Sengco formed a partnership of
purchase and sale of article of commerce in Nueva Ecija, during Spanish
Regime. Go-Lio went to China, where he later on died, leaving a widow and three
children. When Vicente Go-Sengco died his son, defendant Enrique Ortega GoCotay took charge of the business. Plaintiff Ildefonso dela Rosa was appointed
as administrator of the estate of Go-Sengco here in the Philippines. As
administrator, he requested for the winding up of the partnership which was
refused by defendant.
Plaintiff filed a complaint for the delivery of the one half of all the property
of the partnership and his appointment as receiver of the property. The Court
appointed three commissioners to make an inventory and liquidate all of the
property in question. In order to prevent commissioner Cabo-Chan from
assuming the office of receiver, the defendant filed a bond. The court later on
adopted the report submitted by commissioner Cabo-Chan, wherein it was stated
that the partnership incurred losses in the amount of P89,099.22, in view of
which the plaintiff has nothing to recover, as their was no profit to divide.
ISSUE:
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Partnership Cases

Should the partnership bear the losses incurred under the management
of defendant?
RULING:
No. Defendant Ortega Go-Cotay assumed complete responsibility for the
business by objecting to the appointment of a receiver as prayed for by plaintiff
de la Rosa, and by giving bond therefore. He ceases to be a managing partner at
that time in order to become a receiver and while before that date the property
was liable for his acts, yet that is not the case with his subsequent acts. Without
judicial authority he cannot continue the business of partnership, being
personally liable for the losses.
x x x

George Litton vs. Hill & Ceron, Et Al.

G.R. No. L-45624,
April 25, 1939
FACTS:
Plaintiff Litton sold and delivered to Carlos Ceron, managing partner of
Hill & Ceron, certain number of mining claims. Ceron paid to Litton the sum of
P1,150 leaving a balance of P720. Plaintiff filed a complaint when he failed to
collect from the partnership and the surety. Hill testified that he had the same
power to buy and sell, and that on the day of transaction, the partnership was in
existence. Hill also mentioned that he advised Litton not to deliver the sales
because the partnership was about to dissolve. The court ordered Ceron to
personally pay the claim, which was later on affirmed by the Court of Appeals.
According to the Court of Appeals for one of the partners to bind the partnership
the consent of the other is necessary.
ISSUE:
Is the partnership liable to pay the claim of the petitioner?
RULING:
The partnership is liable for the payment of the obligation.
"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
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on the partnership transactions." (Mills vs. Riggle, 112 Pac., 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.)
Third persons, like the plaintiff, are not bound in entering into a contract
with any of the two partners, to ascertain whether or not this partner with whom
the transaction is made has the consent of the other partner. The public need not
make inquiries as to the agreements had between the partners. Its knowledge is
enough that it is contracting with the partnership which is represented by one of
the managing partners.
x x x

Elmo Muasque vs. Court of Appeals, Celestino

Galan Tropical Commercial Company and Ramos
Pons
G.R. No. L-39780
November 11, 1985
FACTS:
Petitioner Elmo Muasque in behalf of the partnership "Galan &
Muasque", as a Contractor, entered into a written contract with respondent
Tropical for remodeling of its Cebu Branch building. A total amount of P25,000
was to be paid under the contract for the entire services of the Contractor. The
first payment made by Tropical was in the form of a check for P7,000 in the name
of petitioner. Petitioner endorsed the check in favor of Galan to enable the latter
to deposit it in the bank and pay for the materials and labor used. A
misunderstanding ensued between Muasque and Galan which came to the
knowledge of Tropical, thus, the second check issued by the latter was drawn in
the name of "Galan and Associates" and was encashed by Galan. Meanwhile,
the construction continued through the sole efforts of petitioner, which caused
him to borrow money from a certain Mr. Espina. Two checks were subsequently
given to petitioner pursuant to a court order.
Petitioner filed a complaint for payment of sum of money and damages
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Partnership Cases

against the respondents seeking to recover the amounts covered by the two
checks and the additional expenses that petitioner incurred in the construction.
Both the trial and appellate courts absolved respondents from any liability and
held petitioner together with Galan jointly liable to intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the credit that they
extended to the partnership.
ISSUE:
Do the payments made to Galan bind the partnership?
RULING:
Yes. The payments made to Galan bind the partnership.
The payments made to the partnership are valid where the recipient
made it appear that he and another were true partners in the partnership.
Likewise, when Muasque 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.
The partners are liable to third persons who extended credit to the
partnership. 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.

(The case also appear under Article 1816 with a separate issue and ruling
relevant to said article)
x x x

Article 1819

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Santiago Syjuco, Inc. vs. Hon. Judge Jose P.

Castro, Et. Al.
GR No. 70403
July 7, 1989
FACTS:
Respondent Lims borrowed money in the aggregate sum of P2,460,000
secured by mortgages from petitioner Santiago Syjuco, Inc. The Lims failed to
pay their obligations despite several demands, which caused the petitioner to file
a petition for foreclosure of one of the mortgages which resulted to various suits
that have dragged on for more than twenty years. On various cases filed by Lims
to assail the validity of the mortgage such as; due to usurious interest and lack of
notice of publication and various appeals. The Lims now petition for the
nullification of the mortgage on the ground that the property cannot be foreclosed
as it had been contributed to the respondent partnership when the individual
Lims unauthorizedly mortgaged the property to Syjuco.
ISSUE:
Should the property be exempted from foreclosure as it is owned by the
respondent partnership and not in personal capacity of the Lims?
RULING:
No. There can be no dispute that the respondent partnership was
chargeable with knowledge of the mortgagee from the moment of its execution.
The legal fiction of a separate juridical personality will not shield it from the
conclusion of having such knowledge which naturally and irresistibly flows from
the undenied facts.
Equally or even more preclusive of the respondent's claim is the last
paragraph of Art. 1819 of the Civil Code, which contemplates a situation
duplicating the circumstances that attended the execution of the mortgage in
favor of Syjuco.
Art. 1819 of the Civil Code provides:
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.
It has been held that the right to mortgage is included in the right to
convey.

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Partnership Cases

x x x

Aguila Jr vs. Court of Appeals

G.R. No. 127347
November 25, 1999
FACTS:
In April 1991, the spouses Ruben and Felicidad Abrogar entered into a
loan agreement with a lending firm called A.C. Aguila & Sons, Co., a partnership.
The loan was for P200,000. To secure the loan, the spouses mortgaged their
house and lot located in a subdivision. The terms of the loan further stipulates
that in case of non-payment, the property shall be automatically appropriated to
the partnership and a deed of sale be readily executed in favor of the
partnership. She does have a 90-day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn
over the property and so the firm filed an ejectment case against her (wherein
she lost). She also failed to redeem the property within the period stipulated. She
then filed a civil case against Alfredo Aguila, manager of the firm, seeking for the
declaration of nullity of the deed of sale. The RTC retained the validity of the
deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the sale
is void for it is a pactum commissorium sale, which is prohibited under Art. 2088
of the Civil Code (note the disparity of the purchase price, which is the loan
amount, with the actual value of the property, which is after all located in a
subdivision).
ISSUE:
Whether or not the case filed by Felicidad shall prosper.
RULING:
No. Unfortunately, the civil case was filed not against the real party in
interest. As pointed out by Aguila, he is not the real party in interest but rather it
was the partnership A.C. Aguila & Sons, Co. The Rules of Court provide that
every action must be prosecuted and defended in the name of the real party in
interest. A real party in interest is one who would be benefited or injured by the
judgment, or who is entitled to the avails of the suit. Any decision rendered
against a person who is not a real party in interest in the case cannot be
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Partnership Cases

executed. Hence, a complaint filed against such a person should be dismissed

for failure to state a cause of action, as in the case at bar.
Under Article 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners. The partners
cannot be held liable for the obligations of the partnership unless it is shown that
the legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes. In this case, Felicidad has not shown that A.C. Aguila
& Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or
illegal purposes. Moreover, the title to the subject property is in the name of A.C.
Aguila & Sons, Co. It is the partnership, not its officers or agents, which should
be impleaded in any litigation involving property registered in its name. A violation
of this rule will result in the dismissal of the complaint.

(The case also appear under Article 1768)

x x x

Article 1820
Manuel
Trillana

Ormachea

Tin-Congco

vs.

Santiago

GR. No. 4776

March 18, 1909.
FACTS:
Plaintiff Manuel Ormachea Tin-Congco and Luis Vizmanos Ong Queco
were engaged in business in Hagonoy, Malolos. Defendant Santiago Trillana
purchased from them merchandise amounting to P4,000. The partnership was
later on dissolved and the business was divided up between the partners and all
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Partnership Cases

the accounts and debts belonging to defendant were allotted to plaintiff.

Plaintiff filed a complaint against defendant praying that he be ordered to
pay the amount plus interest which makes the total debt to P5,500. The
indebtedness was proven by documents signed by defendant and his agents in
favor of the partnership or their agent named Lawa.
Defendant contended that he had already settled his obligations by
means of periodical payments in tuba or the liquor of nipa palm. Defendant used
as evidence the document execute by Jose R. Lopez (Lawa), who used to be the
manager of the partnership, declaring that defendant has no outstanding debt
with the distillery which used to be under his management. Lawa admitted that
he executed the document but because the latter was not indebted to him but to
Manuel Ormachea, to whom the credits standing against Trillana was transferred.
ISSUE:
Does a manager of a business, after definite dissolution of partnership,
have the authority to release debtors?
RULING:
None. After the close of the business, the management of which was
entrusted to a certain person, and after expiration of two years from the date of
his withdrawal, he could not legally issue a document of warrant which would
fatally exempt the debtor from the payment of the debt existing in favor of the
partner to whom the credit claimed to have been extinguished may belong,
because he has no authority for such an act.
x x x

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Article 1821 1824

Benito Liwanag and Maria Liwanag Reyes vs.
Workmen's Compensation Commission, Et Al.
G.R. No. L-12164
May 22, 1959
FACTS:
Appellants Benito Liwanag and Maria Liwanag Reyes are partners of
Liwanag Auto Supply, a commercial establishment located at Sampaloc, Manila.
They employed Roque Balderama as security guard who died in a criminal
incident while on duty. The widow and minor children filed a claim for
compensation before the Workmen's Compensation Commission, which granted
their claim and holding the appellants solidarily liable to pay the claim.
The appellants do not question the right of appellees to compensation
what they are questioning is their solidary liability, they claim that the
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Partnership Cases

compensation is divisible because there is nothing in the Compensation Act

which provides that the obligation of an employer arising from an injury or death
of an employee should be solidary and that if the legislative intent in enacting the
law is to impose solidary obligation, the same should have been specifically
provided, in the absence of such clear provision, the responsibility of appellants
should not be solidary but merely jointly.
ISSUE:
Are the co-partners liable solidarily or jointly?
RULING:
Although the Workmen's Compensation Act does not contain any
provision expressly declaring the obligation of business partners arising from
compensable injury or death of an employee should be solidary, however, there
are other provisions of law from which it could be inferred that the liability must
be solidary. If the responsibility of the partners were to be merely joint and not
solidary and one of them happens to be insolvent, the amount awarded to
dependents of the deceased employee would only be partially satisfied, which is
evidently contrary to the intent and purpose of the law to give full protection to the
employee.
x x x

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Article 1825
Lim Tong Lim
Industries, Inc.,

vs.

Philippine

Fishing

Gear

G.R. No. 136448

November 3, 1999
FACTS:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter
Yao entered into a Contract for the purchase of fishing nets of various sizes from
the Philippine Fishing Gear Industries, Inc. They claimed that they were engaged
in a business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. They, however, failed to pay for the fishing nets and
the floats, leading the respondent to file a collection suit against the three in their
capacities as General Partners with a prayer for a writ of preliminary attachment.
Chua filed a Manifestation admitting his liability and requesting a reasonable time
within which to pay and 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
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Partnership Cases

Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. The trial court maintained the Writ,
and upon motion of private respondent, ordered the sale of the fishing nets at a
public auction.

The trial court rendered its Decision ruling that, as general

partners, they were jointly liable to pay respondent.

ISSUES:
Is Lim Tong Lim liable for the amounts that were loaned by Chua and Yao
despite the fact that he was not a signatory to the agreement between the two
and the Respondent?
RULING:
Yes. It is found from the findings of the court that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats
financed by a loan secured from Jesus Lim. Although it is true that it is Chua and
Yao whom are the only signatories in the loan, they have also introduced Lim as
party in the contract, although not actually signed by him. Furthermore, it can be
considered that Lim may be made liable in the loan as well for the fact that the
loan was made for their benefit and for their fishing business. He cannot claim
that, even if he did not sign the loan contract, he cannot be held liable for the
failure of the other two to pay for he has also benefitted from it.

(The case also appear under Article 1767 with a separate issue and ruling
relevant to said article)
x x x

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Partnership Cases

Article 1826
Adriano Mirasol vs. The Municipality of Tabaco,
Albay
G.R. No. L-17877
July 10, 1922
FACTS:
Sometime in 1916, the defendant municipality decided to have an
artesian well drilled in the central portion of the town. Plaintiff's lot is one of those
included in the project. He interposed no objection, thus, the project was started.
After the machinery were installed, but before the drilling actually begun, the
plaintiff objected the continuation of the work, and whereupon, the operations
were immediately suspended. The acting president talked to the plaintiff and
again the plaintiff gave his consent to its being drilled on his lot, the well was
completed without any further obligation on the part of the plaintiff.
The plaintiff later on filed an action of ejectment and for damages, alleging
that the defendant municipality, without his consent, caused an artesian well to
be bored on a building lot owned by him thereby rendering the land
unserviceable for the uses to which it was to be devoted by the plaintiff. The trial
court rendered a decision absolving the defendant from the complaint.
ISSUE:
Does the defendant municipality have the right over the land?
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Partnership Cases

RULING:
The defendant municipality has acquired no title to the land occupied by
the well nor even easement therein; its interest can only be regarded as mere
license. Ordinarily, a license is revocable at the pleasure of the licensor, but it has
been held in most jurisdictions in the United States that where the licensee has
entered upon land under a license and has with the express and implied consent
of the owner expended money or labor for extensive improvements on the
strength of such license, the owner is estopped from revoking the license.

Article 1826 1827

Leoncia Viuda de Chan Diaco vs. Jose S. Y. Peng
No. 29182
October 24, 1928
FACTS:
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 known as the store of "La Viuda de G. G.
Chan Diaco." In their petition they alleged that Leoncia was indebted to them,
which was incurred 30 days before the filing of said petition for the declaration of
insolvency. The case was set for a hearing, but Leoncia failed to appear despite
the fact that she was duly notified. As a result, the court declared her insolvent
and ordered the sheriff to take possession of their property, come merchandise
was sold at a public auction. The Judge of CFI ordered the clerk of court to take
cognizance of further evidence, after various hearings, and the taking of
considerable testimony, the clerk of court rendered report to the court. The report
was approved by Judge del Rosario and the merchants Ico, Keep and Chan
Bona were ordered to show cause why they should not return to the assignee
merchandise to the value of 20,000, alleged to have been delivered to them by
Leoncia together with the 5,000 in cash. Subsequently, the lawyer of the
insolvent filed her exception to the report of the referee, which had already been
approved by the court. On July 23, 1926, the court rendered a decision,
reaffirming its former order of and ordered the insolvent to deliver to the assignee
the sum of P56,000, more or less, alleged to have been in her possession on
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Partnership Cases

April 19, 1925. The court further ordered her to surrender the books of accounts
mentioned in the referee's report together with the accounts receivable
amounting to P40,000 and the sums withdrawn by her from her current account
with the China Banking Corporation a few days prior to the declaration of
insolvency; and directed the assignee to file actions against the merchants Cua
Ico, Chan Keep, and Simon A. Chan Bona for the return by them of the sum of
P5,000 in cash, plus the merchandise valued at P20,000 delivered to them by the
insolvent in fraud of her creditors. The counsel for the insolvent filed a motion
asking the court to dismiss the proceedings against her on the ground that they
should have been brought to the partnership of which she is only a member. In
view of the aforesaid motion, the Judge set the motion down for hearing. After
hearing, it was found that the alleged partnership between her and her relatives
is fictitious organization. He therefore recommended that the insolvency
proceedings against her be denied. The court, through another Judge, decided to
dismiss the petition for insolvency proceeding of Leoncia.
ISSUE:
Whether of not the lower court erred in ordering the filing of a new petition
of insolvency against the fictitious partnership Lao Liong Niew & Co. and the
delivery to the sheriff of all the property of the insolvency
RULING:
It is to be observed that conceding for the sake of the argument that the
debts in question were incurred by the alleged partnership, 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. 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 and, under this rule, it seems clear that the alleged
partnership here in question may, if necessary, be included in the case by
amendments to the insolvency petition. The order for the dismissal of the case is
set aside.
x x x
Page | 104

Partnership Cases

Article 1828
Idos vs. Court of Appeals
G. R. No. 110782
September 25, 1998
FACTS:
The petitioner herein, Irma L. Idos, is a businesswoman engaged in
leather tanning. Her accuser for violation of B.P. 22, is her erstwhile supplier and
business partner, Eddie Alarilla. The complainant Eddie Alarilla supplied
chemicals and rawhide to the accused-appellant Irma L. Idos for use in the
latters business of manufacturing leather. Eventually, the parties formed a
partnership under the name of Tagumpay Manufacturing. However, the
partnership was short lived. In January 1986 the parties agreed to terminate their
partnership. Upon liquidation of the business the partnership had as of May 1986
receivables and stocks worth P1,800,000.00. The complainants share of the
assets was P900,000.00, to pay for which the accused-appellant issued four
postdated checks. The complainant was able to encash 3 checks, but one check
was dishonored due to insufficiency of funds. Despite demand of complainant,
the accused-appellant failed to pay. RTC rendered judgment convicting accusedappellant for violation of BP 22. CA affirmed the decision of the RTC. Hence this
instant appeal.
ISSUE:
Whether or not CA erred in affirming the decision of the RTC that
petitioner violated BP 22.
RULING:
The evidence on record would show that the subject check was to be
funded from receivables to be collected and goods to be sold by the partnership,
and only when such collection and sale were realized. Thus, there is sufficient
basis for the assertion that the petitioner issued the subject check to evidence
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Partnership Cases

only complainants share or interest in the partnership, or at best, to show her

commitment that when receivables are collected and goods are sold, she would
give to private complainant the net amount due him representing his interest in
the partnership. It did not involve a debt of or any account due and payable by
the petitioner. Two facts stand out. Firstly, three of four checks were properly
encash by complainant; only one (the third) was not. But eventually even this one
was redeemed by petitioner. Secondly, even private complainant admitted that
there was no consideration whatsoever for the issuance of the check, whose
funding was dependent on future sales of goods and receipts of payment of
account receivables. Now, it could not be denied that though the parties
petitioner and complainanthad agreed to dissolve the partnership, such
agreement did not automatically put an end to the partnership, since they still had
to sell the goods on hand and collect the receivables from debtors. In short, they
were still in the process of winding up the affairs of the partnership, when the
check in question was issued. The best evidence of the existence of the
partnership, which was not yet terminated (though in the winding up stage), was
the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private
complainant remained as co-partners. The check was thus issued by the
petitioner to complainant, as would a partner to another, and not as payment
from a debtor to a creditor. Payment of that share in the partnership was
conditioned on the subsequent realization of profits from the unsold goods and
collection of the receivables of the firm. This condition must be satisfied or
complied with before the complainant can actually encash the check. The
reason for the condition is that petitioner has no independent means to satisfy or
discharge the complainants share, other than by the future sale and collection of
the partnership assets. Thus, prior to the selling of the goods and collecting of
the receivables, the complainant could not, as of yet, demand his proportionate
share in the business. This situation would hold true until after the winding up,
and subsequent termination of the partnership. For only then, when the goods
were already sold and receivables paid that cash money could be availed of by
the erstwhile partners. Wherefore, the instant petition is hereby granted and the
petitioner is acquitted.

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Partnership Cases

Yu vs. NLRC
G. R. 97212
June 30, 1993
FACTS:
Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm
name of "Jade Mountain Products Company Limited" ("Jade Mountain").
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their interests in
the partnership to private respondent Willy Co and to one Emmanuel Zapanta.
Mr. Yu Chang, a limited partner, also sold and transferred his interest in the
partnership to Willy Co.
On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the
Mandaluyong office for work and there met private respondent Willy Co for the
first time. Petitioner was not allowed to work anymore in the Jade Mountain
business enterprise. His unpaid salaries remained unpaid. Yu filed a complaint
for illegal dismissal.
ISSUE:
Whether the partnership, which had hired petitioner Yu as Assistant
General Manager, had been extinguished and replaced by a new partnership
composed of Willy Co and Emmanuel Zapanta?
RULING:
Yes. In respect of the first issue, we agree with the result reached by the
NLRC, that is, that the legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired petitioner
in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection is found in the Civil Code provisions
relating to partnerships. Article 1828 of the Civil Code provides as follows:

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Partnership Cases

Art. 1828.

The dissolution of a partnership is the change in the

relation of the partners caused by any partner ceasing to be associated in the

carrying on as distinguished from the winding up of the business.
The occurrence of events, which precipitate the legal consequence of
dissolution of a partnership, do not, however, automatically result in the
termination of the legal personality of the old partnership.
The legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at
bar, it is important to underscore the fact that the business of the old partnership
was simply continued by the new partners, without the old partnership
undergoing the procedures relating to dissolution and winding up of its business
affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceding partnership, and continued using the old
name of Jade Mountain Products Company Limited, without winding up the
business affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most of
them and opening a new business enterprise.
Creditors of the old Jade Mountain are also creditors of the new Jade
Mountain, which continued the business of the old one without liquidation of the
partnership affairs.

(The case also appear under Article 1828 with a separate issue and ruling
relevant to said article)
x x x

Article 1829
Sy vs. Court of Appeals
Page | 108

Partnership Cases

G. R. No. 94285
August 31, 1999
FACTS:
Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy,
Jayme Sy, Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the
SEC on March 29, 1962, with Jose Sy as managing partner. Partners Sy Yong
Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August 12,
1978, December 30, 1979 and August 7, 1987, respectively. At present, the
partnership has valuable assets such as tracts of lands planted to sugar cane
and commercial lots. Sometime in September, 1977, during the lifetime of all the
partners, Keng Sian brought an action, against the partnership as well as against
the individual partners for accounting of all the properties allegedly owned in
common by Sy Yong Hu and the plaintiff (Keng Sian), and for the delivery or
reconveyance of her one-half (1/2) share in said properties and in the fruits
thereof. Keng Sian averred that she was the common-law wife of partner Sy
Yong Hu, that Sy Yong Hu, together with his children, who were partners in the
partnership, connived to deprive her of her share in the properties acquired
during her cohabitation with Sy Yong Hu, by diverting such properties to the
partnership. Sy Hong Hu countered the allegation of the Keng Sian by alleging
that she is just a house helper and that the subject properties are exclusively
owned by the partnership and she has absolutely no right or interest therein.
During the pendency of said civil case, Marciano Sy filed a petition for
declaratory relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed
as SEC Case No. 1648, praying that he be appointed managing partner of the
partnership, to replace Jose Sy who died on August 12, 1978. Answering the
petition, Vicente Sy, Jesus Sy and Jayme Sy, who claim to represent the majority
interest in the partnership, sought the dissolution of the partnership and the
appointment of Vicente Sy as managing partner. Hence the Hearing Officer of
SEC came out with a decision dismissing the petition, dissolving the partnership
and naming Jesus Sy, in lieu of Vicente Sy who had died earlier, as the managing
partner in charge of winding the affairs of the partnership. Its decision was
affirmed by SEC en banc. On the basis of the above decision of the SEC en
banc, Hearing Officer approved a partial partition of certain partnership assets. In
1982, the children of Keng Sian with Sy Yong Hu, filed a petition, docketed as
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Partnership Cases

SEC Case No. 2338, to revoke the certificate of registration of Sy Yong Hu &
Sons, and to have its assets reverted to the estate of the late Sy Yong Hu. After
hearings, the petition was dismissed.In the meantime, the RTC appointed Felix
Ferrer as the Special Administrator of the Intestate Estate of Sy Yong Hu.
Thereafter he moved to intervene in the proceedings in SEC Case No.1648, for
the partition and distribution of the partnership assets but it was subsequently
denied. A motion for reconsideration was filed, as a result, an order remanding
the instant case to the hearing officer for further proceeding on the aspect of
partition/distribution of partnership assets. During the continuation of the
proceedings in SEC, the propriety of placing the partnership under receivership
was taken up. The parties brought to the attention of the Hearing Officer the
existence of Civil Case pending before the RTC, they also agreed that during the
pendency of the aforesaid court case there will be no disposition of the
partnership assets. Thereafter, partnership assets were place under receivership
committee. A motion for reconsideration was filed by herein petitioners, CA
granted the petition and set aside the Order of Hearing Officers of SEC and
remanded the case for further execution of the partition and distribution of
partnership assets. Private respondent seasonably interposed a motion for
reconsideration of such decision of the CA. Acting thereupon, CA reversed its
decision and remanded the case for the formation of receivership committee.
ISSUE:
Whether or not the CA erred in affirming the decision of the SEC which
approved the appointment of a receivership committee.
RULING:
The dissolution of a partnership is the change in the relation of the parties
caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up, of its business. Upon its dissolution, the
partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination. The dissolution of the
partnership did not mean that the juridical entity was immediately terminated and
that the distribution of the assets to its partners should perfunctorily follow. On
the contrary, the dissolution simply effected a change in the relationship among
the partners. The partnership, although dissolved, continues to exist until its
termination, at which time the winding up of its affairs should have been
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Partnership Cases

completed and the net partnership assets are partitioned and distributed to the
partners. From the time a dissolution is ordered until the actual termination of the
partnership, the SEC retained jurisdiction to adjudicate all incidents relative
thereto. Thus, the disputed order placing the partnership under a receivership
committee cannot be said to have varied the final order of dissolution. Neither did
it suspend the dissolution of the partnership. If at all, it only suspended the
partition and distribution of the partnership assets pending disposition of Civil
Case No. 903 on the basis of the agreement by the parties and under the
circumstances of the case. It bears stressing that, like the appointment of a
manager in charge of the winding up of the affairs of the partnership, said
appointment of a receiver during the pendency of the dissolution is interlocutory
in nature, well within the jurisdiction of the SEC. Furthermore, having agreed with
the respondents not to dispose of the partnership assets, petitioners effectively
consented to the suspension of the winding up or, more specifically, the partition
and distribution of subject assets. Petitioners are now estopped from questioning
the order of the Hearing Officer issued in accordance with the said agreement.
Receivership, which is admittedly a harsh remedy, should be granted with
extreme caution. Sound bases therefore must appear on record, and there
should be a clear showing of its necessity. The need for a receivership in the
case under consideration can be gleaned from the aforecited disquisition by the
Court of Appeals finding that the properties of the partnership were in danger of
being damaged or lost on account of certain acts of the appointed manager in
liquidation. Moreover, it has been held by this Court that an order placing the
partnership under receivership so as to wind up its affairs in an orderly manner
and to protect the interest of the plaintiff (herein private respondent) was not
tainted with grave abuse of discretion. The allegation that respondents rights are
adequately protected by the notices of lis pendens in Civil Case 903 is
inaccurate. As pointed out in their Comment to the Petition, the private
respondents claim that the partnership assets include the income and fruits
thereof. Therefore, protection of such rights and preservation of the properties
involved are best left to a receivership committee in which the opposing parties
are represented.
x x x
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Partnership Cases

Testate Estate of Lazaro Mota et al., vs. Salvador

Serra
No. 22825
February 14, 1925
FACTS:
Herein parties entered into a contract of partnership for construction and
exploitation of a railroad line. The agreed capital is P150,000.00, in which the
partners must pay in equal parts, but it was insufficient as the expenses
exceeded and reached up to P226,092.92. On January 29, 1920, the defendant
entered into contract of sale with Concepcion, Whitaker and Luzurriaga, whereby
he sold to the latter the estate and central known as Palma with its running
business together with improvements, machineries and buildings, real and
personal properties, rights, choses in action and interest including the sugar
plantation of the harvest year. The buyer paid down payment and the balance
was agreed to be paid in installment basis. Afterwards Concepcion and Whitaker
bought from the plaintiff one-half of the railroad line, the total amount of purchase
price was not yet paid by the former. The parties agreed that the partnership
Palma and San Isidro be dissolved and that the partnership agreement be
totally cancelled and of no force and effect whatever. As a result the entire
Hacienda Palma, with the entire railroad, the subject matter of the contract of
partnership between plaintiffs and defendant became the property of Whitaker
and Concepcion. However they failed to pay the defendant the purchased price,
the vendor (herein defendant) foreclosed the mortgage upon the property, which
was adjudicated to him at the public sale held by the sheriff for the amount of
P500,000.00. Since the defendant failed to pay the one-half of the amount
expended by the plaintiffs upon the construction of railroad, the plaintiff instituted
the present action, praying that defendant be made to pay P113,046.46 plus
legal interest. Defendant set up the defense (1) novation (2) confusion of rights of
debtor and creditor (3) extinguishment of contract. The trial court ruled that there
was novation and that the contract cannot be revived, which the parties
themselves in interest have spontaneously and voluntarily extinguished.
ISSUE:
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Partnership Cases

Whether the plaintiff may enforce any right arising out of the contract of
partnership, which has been annulled, such as right to claim the part of the cost
of the construction of the railroad line.
RULING:
The dissolution of a partnership must not be understood in the absolute
and strict sense so that at the termination of the object for which it was created
the partnership is extinguished, pending. The winding up of some incidents and
obligations of the partnership, but in such case, the partnership will be reputed as
existing until the juridical relations arising out of the contract are dissolved. The
dissolution of a firm does not relieve any of its members from liability for existing
obligations, although it does save them from new obligations to which they have
not expressly or impliedly assented, and any of them may be discharged from old
obligations by novation or other form of release. It is often said that a partnership
continues, even after dissolution, for the purpose of winding up its affairs. For all
of the foregoing, the judgment appealed from is reversed, and we hold that the
defendant Salvador Serra is indebted to the plaintiffs, the Testate Estate of
Lazaro Mota, et al., in the amount of P113,046.46, and said defendant is hereby
sentenced to pay the plaintiffs the said amount, together with the agreed interest
at the rate of 10 per cent per annum from the date of the filing of the complaint.
x x x

Article 1830
Antonio C. Goquiolay, et al. vs. Washington Z.
Sycip, et al.
G.R. No. L-11840
December 10, 1963
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Partnership Cases

FACTS:
Tan Sin An and Antonio C. Goquiolay executed a commercial partnership
for a period of ten years of which Goquiolay contributed 60% while Tan Sin An
40%. The business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership also agreed upon in
the partnership agreement that Tan Sin An would be the exclusive managing
partner, and in the event of the death of any of the partners the partnership would
continue, wherein the deceased shall be represented by his heirs. Goquiolay
executed a general power of attorney in favor of Tan Sin An appointing the latter
as manager of the partnership and conferring upon him the usual powers of
management. The partnership acquired three parcels of land in Davao; these
which are the only assets of the partnership. On the same date, Tan Sin An, in
his individual capacity, acquired 46 parcels of land. These two mortgage
obligations were, later on, consolidated. Tan Sin An died and was survived by his
widow, defendant Kong Chai Pin. Kong Chai Pin, was appointed administratrix of
the intestate estate of Tan Sin An. Kong Chai Pin filed a petition with the probate
court for authority to sell all the 49 parcels of land for a claim in intestate
proceedings and sold it to Sycip and Lee. When Goquiolay learned about the
said sale, he filed a petition in the intestate proceedings to set aside the order of
the probate court approving the sale in so far as his interest over the parcels of
land sold was concerned.
ISSUE:
Is the Partnership between Goquiolay and Kong Chai Pin valid
considering that it is Tan Sin An the latters deceased spouse who was the
original Partner?
RULING:
Yes. Though it is stated by the Civil Code that Dissolution is caused 5)
by the death of any Partner it must be remembered that it is the
Agreement/Contract of the Partners that shall govern the Partnership and shall
only be substantiated by the Civil Code; this which is expressly stated in the
same provision that Dissolution is caused 1) Without Violation of the
Agreement Between the partners. In the case, it was agreed upon by the
Original Partners that their Heirs/Assigns shall succeed over them in case of their
death and while the Partnership term has not yet expired. Therefore, Kong Chai
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Partnership Cases

Pin, upon the death of her husband, shall succeed over the latters rights as
manager of the partnership.

(The case also appear under Articles 1845-1852 with a separate issue and
ruling relevant to said article)
x x x

Inocencia Deluao and Felipe Deluao vs. Nicanor

Casteel and Juan Depra, Nicanor Casteel
No. 21906
August 29, 1969
FACTS:
Nicanor Casteel was the original occupant of a parcel of land containing a
fishpond. He wanted to prevent subsequent occupants from entering his premise
and filing for application for permits over the area applied for by him. These
permits were pursuant to Section 63 of the Fisheries Act which allows only
holders of permits or leases issued or executed by the Secretary of Agriculture
and Natural Resources (DANR Secretary) to exercise the acts of entering the
land and construct a fishpond. In other words, the transfer or sub-leasing of
fishponds covered by permits or leases is not allowed. In order to prevent others
from filing applications for the issuance of the said permit over his area, Casteel
expanded his occupation thereon by introducing improvements in the form of
dikes and the cultivation of marketable fishes. To facilitate said improvements on
the fishpond, he sought financial aid from the Petitioner spouses Deluao. Given
the circumstances, Casteel was forced to enter into a contract of partnership with
the spouses with the end view of dividing the fishpond, half of which to be
transferred to the spouses. Eventually, Casteels application for the issuance of
permit by the DANR secretary had been granted. The spouses argued that they
should be awarded of the fishpond considering that the subject matter of their
partnership is the beneficial right over the fishpond which they insist is specific
partnership property as stated in article 11 of the Civil Code which states that a
partner is a co-owner with his partners of specific partnership property.
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Partnership Cases

ISSUE:
Whether or not the letter addressed by the spouses Deluao not to share
in the fishpond resulted in the dissolution of the partnership under article 1830 of
the Civil Code.
RULING:
Yes, the Court held that the subsequent letter made by the spouses
Deluao expressing their desire not to share in the fishpond with Casteel after he
was awarded the area covering the fishpond by the Secretary of DANR,
produced the dissolution of the entire contract of partnership for the purpose of
joint administration and thereafter the division of the fishpond after the award be
given to Casteel- that is between the parties, because the partnership was
automatically dissolved being contrary to law.

(The case also appear under Articles 1770 and 1811 with separate issues and
rulings relevant to said articles)
x x x

Domingo Bearneza vs. Balbino Dequilla

No. L-17024
March 24, 1922
FACTS:
Balbino Dequilla and Perpetua Bearneza formed a partnership for
purchasing and exploiting of a fishpond. Perpetua Bearneza obligated herself to
contribute to the payment if the expenses of the business, which she make good,
and both agreeing to divide the profits between themselves, which they have
been doing until her death in the year 1912. The deceased left a will, appointing
Domingo Bearneza as her heir to succeed to all her rights and interest in the
fishpond in question. Bernaez demanded the delivery of the part of the fishpond
belonging to the decedent from Dequilla, but the latter refused. Hence Bernaez
brought an action to recover the one-half part of the fishpond in dispute. The

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Partnership Cases

lower court rendered judgment in favor of the plaintiff, declaring him the owner of
the one-half part of the fishpond in dispute. Hence this instant appeal
ISSUE:
Whether or not the plaintiff has the right to maintain an action for the
recovery of one-half of the said fishpond.
RULING:
The partnership formed between Perpetua Bearneza and Balbino
Dequilla is a kind particular partnership, which the subject matter is the
exploitation of the fishpond. Although the fishpond was referred to as ours or
your fishpond, this reference cannot be held to include the land on which the
said fishpond was constructed. It has not been proven that Perpetua Bearneza
participated in the ownership of the said land. And exhibit showed that the
defendant has been paying as exclusive owner the land tax thereon. The
conclusion thereon, from the evidence, is that the land on which the fishpond was
constructed did not constitute a part of the subject-matter of the partnership. Said
partnership was dissolve upon the death of Perpetua Bearneza, subsequently
the only rights inherited by the heir were those resulting from the liquidation in
favor of the deceased partner and nothing more. The court held that herein
plaintiff doesnt have right of action. The lower courts decision declaring the
plaintiff as owner of the one-half of the fishpond is hereby reversed.
x x x

Urbano Lota vs. Benigno Tolentino

No. L-3518
February 29, 1952
FACTS:
Plaintiff filed an action against defendant to compel the latter to render an
accounting of the his management in the business and to deliver to the plaintiff
whatever share he may have in the assets of the partnership after the liquidation
has been approved by the court. The partnership above-mentioned was entered
into by and between plaintiff and defendant in the year 1918, whereby they
agreed to engage in general business, both to divide the profits and losses share
and share alike, and the defendant to be the manager of the business. Plaintiff

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alleges that from 1918 until 1928 defendant had rendered an annual accounting,
but had refused to do so from 1929 to 1937, hence, plaintiff's complaint. The
plaintiff died on 1938 and he was substituted by the administrator of his estate,
Solomon Lota, on 1939. Defendant also died the subsequent year, 1939, hence
the court ordered that the plaintiff to amend the complaint by substituting the
deceased

defendant

of

the

administrator

of

his

estate

or

his

legal

representatives. On 1941, the court dismiss the case for lack of prosecution
which was reconsidered but later on was dismissed, due to non-compliance with
the bind requirement and to take her oath. After almost ten years, the plaintiff
made another try to substitute the heirs of the deceased. Defendant prayed that
the case be dismissed, with which the lower court granted. Hence this instant
appeal.
ISSUE:
Whether or not the accounting and liquidation of the partnership formed in
1918 between Urbano Lota and Benigno Tolentino may be continued against the
heirs of the latter.
RULING:
The court held that, "In the first place, it is well settled that when a
member of a mercantile partnership dies, the duty of liquidating its affairs
devolves upon the surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. The theory of the appellant is that the
heirs may properly be substituted for the deceased Benigno Tolentino, because
they are in possession of property allegedly belonging to the partnership in
question, and the appellant seeks the recovery thereof. Apart from the fact that
said allegation seems to refer to a cause of action foreign to the claim for
accounting and liquidation against Tolentino, and should have been made in a
proper pleading to be duly admitted by the lower court, the filing of appellant's
motion for substitution more than twelve years after the institution of the
complaint came too late and already called for the application of the rule
requiring dismissal for lack of prosecution. It is immaterial that, before the lower
court issued the appealed resolution, the appellant attempted to have the case
set for hearing, because his counsel ought to have known that the deceased
defendant had not yet been properly substituted. The resolution herein

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complained of would therefore be as it is hereby affirmed, with costs against the

appellant.
x x x

Maximo Guidote vs. Romana Borja

No. 28920
October 24, 1928
FACTS:
Plaintiff brought an action against the administratrix of the estate of
Narciso Santos to recover sum of money, which was alleged to be a net profits
due to the plaintiff in the partnership business conducted under the name of
Taller Sinukuan, in which the deceased is the Capitalist partner and the plaintiff
the industrial partner. The defendant admitted the existence of the partnership
but as counter-claim, prayed that plaintiff be ordered to render an accounting of
the partnership business and to pay the estate of the deceased the sum of
P25,000 as a nets profits, credits and property pertaining to said deceased. In
trial, the partnership was indeed proven but the probative was not determined.
However, it has been found that after the death of his partner Narciso, plaintiff
failed to liquidate the affairs of the partnership and render account thereof to the
administratrix of Santos estate. Hence the complaint of the plaintiff was
dismissed and absolved the defendant therefrom, as well as ordered the plaintiff
to render a full and complete accounting. Plaintiff, thereupon, rendered an
account prepared by a public accountant but numerous objections was made by
defendant, the court then ordered the defendant to submit an accounting of the
partnership. New account was presented which appears to be favorable to the
defendant. In order to contradict the account presented by the public
accountants, plaintiff presented the bookkeeper as witness in his favor. After trial,
the court held that plaintiff is bound to pay the estate of the deceased the sum of
P26,020.89 plus legal interest. Hence this instant appeal.
RULING:
Whether or not the court erred in accepting the accounting laid down by
the public accountants as regards to the partnership assets.

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RULING:
Death of one of the partners dissolves the partnership, but that the
liquidation of its affairs is by law intrusted, not to the executors of the deceased
partner, but to the surviving partners or to liquidators appointed by them. There
may be errors in the interpretation of the accounts, and it is possible that the
amount of P26,020.89 charged against the plaintiff is excessive, but the evidence
presented by him is so confusing and unreliable as to be practically of no weight
and cannot serve as a basis for a readjustment of the accounts prepared by the
accountant Lindaya and the apparently reliable witness, Jose Turiano Santiago.
In equity surviving partners are treated as trustees of the representatives of the
deceased partner, in regard to the interest of the deceased partner in the firm. As
a consequence of this trusteeship, surviving partners are held in their dealings
with the firm assets and the representatives of the deceased to that nicety of
dealing and that strictness of accountability required of and incident to the
position of one occupying a confidential relation. It is the duty of surviving
partners to render an account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over to them the share of
such deceased member in the surplus of firm property, whether it consists of real
or personal assets. The appellant has completely failed to observe the rule, and
he is not in position to complain if his testimony and that of his witnesses is
discredited.
x x x

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Partnership Cases

Article 1831
Josue Soncuya vs. Carmen De Luna
No. 45464
April 28, 1939
FACTS:
The parties were partners of Centro Escolar de Seoritas. Plaintiff filed a
complaint for damages against the defendant who was the managing partner,
based on an alleged fraudulent management of the partnership. The trial court,
upon a demurrer interposed by the defendant, dismissed the case on the
grounds that the facts alleged were not sufficient to constitute a cause of action.
ISSUE:
Whether the plaintiff is entitled to recover forthwith damages from his copartner by virtue of a mere complaint of fraudulent management of the firm.
RULING:
No. Before a partner can claim from another partner damages suffered by
him by reason of the fraudulent administration of the latter, a previous liquidation
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Partnership Cases

of said partnership is necessary. Liquidation is necessary to determine the profits

and losses, the causes of the latter, and the responsibility of the defendant as
well as the damages which each partner may have suffered. This is necessary in
the given case in order to establish the allegation of fraudulent management of
the business (and to use such established guilt later as a ground for the decree
of dissolution)
It was not alleged by the plaintiff that such liquidation has been made nor
was it prayed that it be made. Thus, the decision appealed from was affirmed.

(The case also appear under Articles 1794 with a separate issue and ruling
relevant to said article)

Article 1834
Singson vs. Visayan Sawmill
No. L-27343
February 28, 1979
FACTS:
Manuel Singson and several others filed a complaint against Isabela
Sawmill, Spouses Saldajeno, Leon Garibay and Timoteo Tubungbanua, seeking
to recover various sums of money arising from several business deals entered
into between the parties herein and to declare the Chattel Mortgage executed by
Garibay and Tubungbanua in favor of Margarita Saldajeno as void being in fraud
of creditors. Defendant spouses Saldajeno filed cross-claim against their codefendants herein. The lower court rendered decision in favor of the plaintiffs and
against defendants. The defendant, Sps. Saldajeno, appealed to the Court of
Appeals. The CA rendered a decision in favor of the plaintiffs. Hence this instant
appeal.
ISSUE:
Whether Margarita Saldajeno should be held liable granted the fact that
there was a dissolution of the partnership between the partners.
RULING:

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Partnership Cases

It is true that the dissolution of a partnership is caused by any partner

ceasing to be associated in the carrying on of the business. However, on
dissolution, the partnership is not terminated but continuous until the winding up
of the business. The remaining parties did not terminate the business of the
partnership Isabela Sawmill. Instead of winding up the business, they continue
the business still in the name of the said partnership. It is expressly stipulated in
the memorandum-agreement that the remaining partners had constituted
themselves as the partnership entity, the Isabela Sawmill. There was no
liquidation of the assets of the partnership, the remaining partners continued
doing business in the name of Isabela Sawmill and used the properties of the
said partnership. It does not appear that the withdrawal of Saldajeno in the
partnership was published in the newspapers. She is partly to be blamed
because she did not insisted on the liquidation of the said partnership assets.
However Saldajeno is entitled for reimbursement of the amount she paid
because under the memorandum-agreement, Garibay and Tabungbanua
undertook to release Saldajeno from any obligation of Isabela Sawmill to third
persons.
x x x

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Partnership Cases

Article 1836
Dr. Simeon Claridades vs. Vicente Mercader and
Perfecto Fernandez
No. L-20341
May 14, 1966
FACTS:
Herein parties formed a partnership among themselves for exploitation of
fishpond. Plaintiff seeks for the dissolution of the partnership, hence he brought
an action before the Court of First Instance of Bulacan. Defendants admitted the
existence of the partnership but alleged that its operation had been so
unproductive, also they alleged that there is an impending auction sale of said
fishpond due to delinquency in the payment of taxes owing to lack of funds and
plaintiffs failure to contribute what is due from him. Meanwhile several persons
intervened in the action, one of which claims absolute ownership on the said
disputed fishpond, also it was alleged that the complaint must be dismissed due
to improper venue. The lower court granted the motion and reconsideration has
been denied. Hence this instant appeal.
ISSUE:
Whether or not the action should be properly dismissed due to improper
venue.
RULING:
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Partnership Cases

The complaint merely seeks liquidation of the partnership. The nature of

such action is personal which may be brought in the place of residence of the
plaintiff or the defendant, at the election of the plaintiff. Hence the court of First
Instace of Bulacan may take cognizance of the said action. The dismissal of the
case is set aside and the case is remanded to the lower court for further
proceedings, with costs against intervenors.
x x x

Article 1839
Sison vs. McQuaid
G.R. L-6304
December 29,1953
FACTS:
On March 28, 1951, Sison brought an action against Mcquaid alleging
that during the year 1938 the latter borrowed from him various sums of money
aggregating P2,210. Since Mcquaid was not able to pay the loan in 1938, she
proposed to take in Sison as a partner in her lumber business and that the latter
to contribute the sum of P2,210. Sison agreed to Mcquaid's proposal and as a
result a partnership was formed. Before the last World War, the partnership sold
to the United States Army lumber worth P13,800. Mcquaid persistently refused
to deliver one half of it or P6,900 despite repeated demands of Sison. Sison
prays for judgment declaring the existence of the alleged partnership and
requiring Mcquaid to pay him the sum of P6,900 in addition to damages and
costs.
ISSUE:
Whether or not Sison can recover from Mcquaid the P6,900 of the
purchase price sold by the partnership.
RULING:
No. Plaintiff seeks to recover from defendant one-half of the purchase
price of lumber sold by the partnership to the United States Army. But his
complaint does not show why he should be entitled to the sum he claims. It does
not allege that there has been a liquidation of the partnership business and the
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Partnership Cases

said sum has been found to be due him as his share of the profits. The proceeds
from the sale of a certain amount of lumber cannot be considered profits until
costs and expenses have been deducted. Moreover, the profits of the business
cannot be determined by taking into account the result of one particular
transaction instead of all the transactions had. Hence, the need for a general
liquidation before a member of a partnership may claim a specific sum as his
share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the
ground that the complaint states no cause of action and without prejudice to the
filing of an action for accounting or liquidation should that be what plaintiff really
wants.

(The case also appear under Article 1839)

x x x

Po Yeng Cheo vs. Lim Ka Yam

G.R. 18707
December 9, 1922
FACTS:
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased,
and as such Po Yeng Cheo inherited the interest left by Po Gui Yao in a business
conducted in Manila under the style of Kwong Cheong Tay. This business had
been in existence in Manila for many years prior to 1903, as a mercantile
partnership, with a capitalization of P160,000, engaged in the import and export
trade; and after the death of Po Gui Yao he has an interest amounting to
P60,000. The manager of Kwong Cheong Tay, for many years prior of its
complete cessation from business in 1910, was Lim Ka Yam, the original
defendant herein.
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do
business. Lim Ka Yam appears at no time to have submitted to the partners any

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Partnership Cases

formal liquidation of the business, though repeated demands to that effect have
been made upon him by the plaintiff.
ISSUE:
Whether or not Po Yeng Cheo can recover from Lim Ka Yam his interest
in the capital of the partnership and the proportionate interest in the shares of
stocks of another company owned by the partnership.
RULING:
No. Though the manager of a mercantile partnership has ceased to do
business is accountable to his associates for any assets of the concern in his
hands, judgment cannot be rendered against him for the proportionate share of
the capital claimed by one of the partners in an action brought by such partner
alone, where the concern has not been liquidated and there is no proof showing
the existence of assets applicable to capital account. A single partner cannot
recover from another without process of liquidation or division, a part of the
undivided property of the partnership.
When the manager of a mercantile partnership dies the duty of liquidating
it devolves upon the surviving member, or members, of the firm and not upon the
legal representative of the deceased member.
x x x

Villanueva vs. De Leon

G. R. 23726
August 27, 1925
FACTS:
Domingo Florentino died at Vigan, Ilocos Sur, on January 16, 1924,
leaving a considerable estate. Roberta de Leon had presented a motion in which
she prayed in effect that the court allow her to intervene in the proceedings. She
alleged that she and the deceased Florentino had been living together as
husband and wife since 1888; that in that year they formed a partnership to
which each contributed P1,000 for the purpose of engaging in business; and that
the partnership was dissolved by the death of Florentino without there having
been any liquidation.
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Partnership Cases

ISSUE:
Whether or not a partner of a deceased person has such interest in the
estate of the deceased as to allow her to take part in the approval of the
accounts.
RULING:
Yes. An alleged partner of a deceased person has such interest in the
estate of the deceased as to allow him to take part in the approval of accounts.
It is the duly of the probate court to scrutinize carefully the accounts of
executors and administrators and to correct all errors founded in law or fact. It is
the right of all the creditors and distributees of the estate to be present and, if so
disposed, to contest the account of the executor or administrator. Only a prima
facie right at the time of filing the petition is sufficient to entitle the applicant to
intervene in the accounts of the executor or administrator. It is for the trial court to
determine whether the person seeking to participate in the proceedings is a
person interested within the meaning of the law, or is merely an intruder who
should be excluded from any further participation. The determination of this
question must necessarily be largely discretionary in the trial court. Any doubt as
to the interest of the petitioner ought, however, to be resolved in favor of the
petitioner, and any doubt arising in the appellate court ought to be resolved in
favor of the action taken by the trial judge. Administrators and executors instead
of opposing the intervention of interested parties should welcome the
participation of the same for their own protection.
x x x

Article 1840

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Yu vs. NLRC
GR. 97212
June 30, 1993
FACTS:
Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm
name of "Jade Mountain Products Company Limited" ("Jade Mountain").
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their interests in
the partnership to private respondent Willy Co and to one Emmanuel Zapanta.
Mr. Yu Chang, a limited partner, also sold and transferred his interest in the
partnership to Willy Co.
On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the
Mandaluyong office for work and there met private respondent Willy Co for the
first time. Petitioner was not allowed to work anymore in the Jade Mountain
business enterprise. His unpaid salaries remained unpaid. Yu filed a complaint
for illegal dismissal.
ISSUE:
Whether Yu could assert his rights under his employment contract as
against the new partnership.
RULING:
No. The new partnership is entitled to appoint and hire a new general or
assistant general manager to run the affairs of the business enterprise taken
over. The new partnership had its own new General Manager, apparently Mr.
Willy Co, the principal new owner himself, who personally ran the business of
Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus
became superfluous or redundant.

It follows that petitioner Benjamin Yu is

entitled to separation pay at the rate of one month's pay for each year of service
that he had rendered to the old partnership, a fraction of at least six (6) months
being considered as a whole year.

(The case also appear under Article 1828 with a separate issue and ruling

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relevant to said article)

x x x

Laguna Trans. Co. Inc. vs. Social Security System

G.R. L-14606
April 28, 1960
FACTS:
Sometime in 1949, the Binan Transportation Co, sold part of the lines and
equipment it operates Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Dominador Vera Cruz. The said vendees formed an unregistered partnership
under the name of Laguna Transportation Company. The original partners
forming the Laguna Transportation Company, with the addition of two new
members, organized a corporation known as the Laguna Transportation
Company, Inc., which was registered with the Securities and Exchange
Commission on June 20, 1956, and which corporation is the plaintiff now in this
case. SSS served notice upon the petitioner requiring it to register as member of
the System and to remit the premiums due from all the employees of the
petitioner and the contribution of the latter to the System beginning the month of
September 1957.
ISSUE:
Whether or not the petitioner is engaged in business as a common carrier
for at least 2 years.
RULING:
Yes. While it is true that a corporation once formed is conferred a juridical
personality separate and district from the persons composing it, it is but a legal
fiction introduced for purposes of convenience and to subserve the ends of
justice. The concept cannot be extended to a point beyond its reasons and policy,
and when invoked in support of an end subversive of this policy, will be
disregarded by the courts.
The weight of authority supports the view that where a corporation was
formed by, and consisted of members of a partnership whose business and
property was conveyed and transferred to the corporation for the purpose of
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continuing its business, in payment for which corporate capital stock was issued,
such corporation is presumed to have assumed partnership debts, and is prima
facie liable therefore. The reason for the rule is that the members of the
partnership may be said to have simply put on a new coat, or taken on a
corporate cloak, and the corporation is a mere continuation of the partnership.
x x x

Philippine Air Lines, Inc. vs. Balanguit, et al.

G.R. L-8715
June 30, 1956
FACTS:
Sometime before May 21, 1947, the Philippine Air Lines, Inc. (PAL)
purchased and acquired a majority of the shares of the Far Eastern Air Transport,
Inc. (FEATI). The purchase gave rise to the problem of what to do with the
FEATI employees. After some negotiations between the representatives of the
FEATI Employees Association and the PAL, the parties finally reached an
agreement on May 21, 1947, whereby the PAL agreed to absorb some 70 per
cent of the FEATI employees. However, On July 9, 1947, the PAL reached an
agreement with the Public Utilities Employees Association whereby they entered
into an agreement cancelling the agreements of May 21, 1947 and August 1,
1946. It also provided for the laying off of all the FEATI employees as of June 15,
1947 and the payment to them of one and a half months separation pay which
amounted, roughly to P150,000.00.
On November 11, 1952, almost six years from the time they were laid off,
the Public Utilities Employees Association aforesaid filed a petition with the Court
of Industrial Relations praying that the PAL be ordered to pay them the twelve
(12) days vacation leave and twelve (12) days sick leave with pay, from August 1,
1946, which had already accrued at the time they were laid off on June 15, 1947.
ISSUE:
Whether or not PAL is liable for the unpaid vacation and sick leave of the
FEATI employees.
RULING:
No. In some cases, when one company buys out another and continues
the business of the latter company, the buyer may be said to assume the
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obligations of the company bought out when said obligations are not of
considerable amount or value, specially when incurred in the ordinary course of
trade, and when the business of the latter company is continued. However, when
said obligation is of extraordinary value, as in this case, amounting to about
P100,000, and the FEATI was bought out not to continue its business but to stop
its operation in order to eliminate competition, as shown by the fact that all the
employees of the FEATI were laid-off, we cannot say that the vendee assumed
all the obligations of the rival airline.
When the employees failed to raise that question or have it embodied in
the agreement, said failure may be regarded as a waiver of their right. And when
they received a separation pay equivalent to one and one half months and then
kept quiet about their vacation and sick leave for a period of more than five
years, there is every reason to believe that there was actually such renunciation
and waiver.
x x x

Bernardo vs. Pascual, et al., and the WCC

G.R. L-13260
October 31, 1960
FACTS:
On March 9, 1955 the deceased Pedro Pascual was together with two
loggers when he met his death as a result of an accident while felling a tree in
Bernardo's lumber concession. On March 31, 1955, the widow of the deceased
on behalf of herself and their children filed a claim for compensation with the
Workmen's Compensation Commission and was awarded by the latter.
ISSUE:
Whether or not Bernardo is liable for a claim of compensation by the
widow and children of Pascual.
RULING:
Yes. A partner in a lumber concession who acquires the interests of his
co-partners becomes the sole concessionaire and becomes liable to all creditors
of the partnership. (Art. 1840 of the Civil Code)

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With respect to petitioner's claim that he became a lumber concessionaire

only on October 13, 1955, suffice it to say that prior to the date, he was partner to
several persons owning the concession in San Miguel, Bulacan, and subsequent
thereto, he acquired the interest of his partners and became the sole
concessionaire. Under those circumstances he became liable to the creditors of
the partnership.
x x x

Article 1841
Bonnevie, et al. vs. Hernandez
G. R. L- 5837
May 31, 1954
FACTS:
On January 1947, Bonnevie with other associates formed a syndicate or
secret partnership for the purpose of acquiring the plants, franchises and other
properties of the Manila Electric Co. (Meralco). Hernandez was made a partner
so that he could push the deal with Meralco. He was able to buy the properties
of Meralco for P122,000.
About the latter half of the following month the members of the
partnership proceeded with the formation of the proposed corporation. But before
the incorporation papers could be perfected, several partners, expressed their
desire to withdraw from the partnership and get back the money they had
invested therein. The partnership was then dissolved. In accordance with the
terms of the resolution, the withdrawing partners were, on the following day,
reimbursed their respective contributions to the partnership fund.

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Following the dissolution of the partnership, the members who preferred

to remain in the business went ahead with the formation of the corporation,
taking in new associates as stockholders. The new corporation was named "Bicol
Electric Company."
Two years from their withdrawal from the partnership, when the corporate
business was already in a prosperous condition, plaintiffs brought the present
suit against Jaime Hernandez, claiming a share in the profit the latter is
supposed to have made from the assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225,000 and their share of it to be
P115,312.50.
ISSUE:
Whether or not the plaintiffs are entitled for their share out of the profit of
the corporation.
RULING:
No. Assuming that the assignment actually brought profit to the
partnership, it is hard to see how defendant could be made to answer for
plaintiffs' alleged share thereof. Defendant did not receive the consideration for
the assignment for, as already stated, the assignment was made in payment for
subscriptions of various persons to the capital stock of the new corporation.
Plaintiffs, in order to give color of legality to their claim against defendant,
maintain that the latter should be held liable for damages caused to them,
consisting of the loss of their share of the profits, due to defendant's failure
properly to perform his duty as a liquidator of the dissolved partnership, this on
the theory that as managing partner of the partnership, it was defendant's duty to
liquidate its affairs upon its dissolutions. But it does not appear that plaintiffs have
ever asked for a liquidation, and as will presently be explained no liquidation was
called for because when plaintiffs withdrew from the partnership the
understanding was that after they had been reimbursed their investment, they
were no longer to have any further interest in the partnership or its assets and
liabilities. Moreover, the stipulation of facts made at the hearing does not bear out
the claim that defendant was the managing partner of the partnership, for if there
appears that the partnership had its general manager in the person of Pedro
Serranzana, who upon the formation of the new corporation also became its vicepresident and general manager.
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Partnership Cases

As a general rule, when a partner retires from the firm, he is entitled to the
payment of what may be due him after a liquidation. But certainly no liquidation is
necessary where there is already a settlement or an agreement as to what the
retiring partner shall receive. In the instant case, it appears that a settlement was
agreed upon on the very day the partnership was dissolved. For when plaintiffs
and Judge Jaime Reyes withdrew from the partnership on that day they did so as
agreed to by all the partners, subject to the only condition that they were to be
repaid their contributions or investments within three days from said date. And
this condition was fulfilled when on the following day they were reimbursed the
respective amounts due them pursuant to the agreement.
x x x

Emnace vs. Court of Appeals

G. R. 126334
November 23, 2001
FACTS:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia
were partners in a business concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to dissolve their partnership and
executed an agreement of partition and distribution of the partnership properties
among them, consequent to Jacinto Divinagracias withdrawal from the
partnership.
Vicente Tabanao died in 1994, and petitioner failed to submit to Tabanao's
heirs any statement of assets and liabilities of the partnership and to render an
accounting of the partnership's finances. Petitioner also reneged on his promise
to turn over to Tabanaos heirs the deceaseds 1/3 share in the total assets of the
partnership, amounting to P30,000,000.00, or the sum of P10,000,000.00,
despite formal demand for payment thereof.
ISSUE:
Whether or not the heirs of Tabanao may demand an accounting of the
partnership's business even after its dissolution.

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RULING:
Yes. The three (3) final stages of a partnership are: (1) dissolution; (2)
winding-up; and (3) termination. The partnership, although dissolved, continues
to exist and its legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and distribution of the net
partnership assets to the partners. For as long as the partnership exists, any of
the partners may demand an accounting of the partnerships business.
Prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done.
Contrary to petitioners protestations that respondents right to inquire into
the business affairs of the partnership accrued in 1986, prescribing four (4) years
thereafter, prescription had not even begun to run in the absence of a final
accounting. Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the
duty to account, the above-cited provision states that the right to demand an
accounting accrues at the date of dissolution in the absence of any agreement to
the contrary. When a final accounting is made, it is only then that prescription
begins to run. In the case at bar, no final accounting has been made, and that is
precisely what respondents are seeking in their action before the trial court, since
petitioner has failed or refused to render an accounting of the partnerships
business and assets. Hence, the said action is not barred by prescription.
x x x

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Article 1842
Jose Ornum and Emerciana Ornum vs. Mariano,
Lasala, et al.,
G.R. No. L-47823
July 26, 1943
FACTS:
Pedro Lasala and Emerenciano Ornum formed a partnership, whereby
the former, as capitalist, delivered the sum of money to the latter who, as
industrial partner, was to conduct a business at his place of residence. In 1912,
Emerenciano Ornum asked for the dissolution of the Lasala and was replaced by
the petitioners who became the new partners. Upon joining the business, the
petitioners, contributed a sum as their capital, adding to the original capital
owned by Pedro Lasala. The Petitioners are, as well, to be Industrial Partners to
run the business. Pedro Lasalas children (the respondents) succeeded to all his
rights and interest in the partnership after his death. The partners never knew
each other personally and no formal partnership agreement was ever executed.
During the course divided, but the partners were given the election, as evidenced
by the statements of accounts, to invest their respective shares in such profits as
additional capital. Statements of accounts were periodically prepared by the
petitioners and sent to the respondents who invariably did not make any
objection thereto. The last and final statement of account was then prepared by
the petitioners after the respondents announced their desire to dissolve the
partnership. After receiving it, Fr. Mariano Lasala, spokesperson of the
respondents, wrote a letter to the petitioners on July 19, 1932 asking that they be
remitted and paid a sum of money based on a statement of accounts they made
this which the Petitioner complied with. However, such statement of accounts
was not signed by the Respondents. Thereafter the complaint in this case was
filed by the respondents, praying for an accounting and final liquidation of the
assets of the partnership.
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ISSUES:
Was there a Final Liquidation that occurred between the Petitioner and
the Respondent?
RULING:
No. This approval precludes any right on the part of the respondents to a
further liquidation, unless the latter can show that there was fraud, deceit, error or
mistake in said approval. No findings show that there was fraud. The
pronouncement that the evidence tends to prove that there were mistakes in the
petitioners' statements of accounts, without specifying the mistakes, merely
intimates as suspicion and is not such a positive and unmistakable finding of fact
as to justify a revision.

(The case also appear under Articles 1808-1809 with a separate issue and
ruling relevant to said articles)
x x x

Sunga-Chan vs. Chua

G. R. 143340
August 15, 2001
FACTS:
Respondent alleged that in 1977, he verbally entered into a partnership
with Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in
Manila. For business convenience, respondent and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE GAS APPLIANCE
CENTER (hereafter Shellite), under the name of Jacinto as a sole proprietorship.
Respondent allegedly delivered his initial capital contribution of P100,000.00 to
Jacinto while the latter in turn produced P100,000.00 as his counterpart
contribution, with the intention that the profits would be equally divided between
them.
Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner
Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations,

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control, custody, disposition and management of Shellite without respondent's

consent.

Despite

respondent's

repeated

demands

upon

petitioners

for

accounting, inventory, appraisal, winding up and restitution of his net shares in

the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly
continued the operations of Shellite, converting to her own use and advantage its
properties.
ISSUES:
1.
Whether or not a partnership exists between Jacinto and Lamberto?
2.
Whether or not the respondent's claim of accounting 3 years after
Jacinto's death was within the prescribed period?
RULING:
1.
Yes. A partnership may be constituted in any form, except where
immovable property of real rights are contributed thereto, in which case a public
instrument shall necessary. Hence, based on the intention of the parties, as
gathered from the facts and ascertained from their language and conduct, a
verbal contract of partnership may arise. The essential profits that must be
proven to that a partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits.
2.

Yes. With regard to petitioners' insistence that laches and/or prescription

should have extinguished respondent's claim, we agree with the trial court and
the Court of Appeals that the action for accounting filed by respondents three (3)
years after Jacinto's death was well within the prescribed period. The Civil Code
provides that an action to enforce an oral contract prescribes in six (6) years
while the right to demand an accounting for a partner's interest as against the
person continuing the business accrues at the date of dissolution, in the absence
of any contrary agreement. Considering that the death of a partner results in the
dissolution of the partnership, in this case, it was Jacinto's death that respondent
as the surviving partner had the right to an account of his interest as against
petitioners. It bears stressing that while Jacinto's death dissolved the partnership,
the dissolution did not immediately terminate the partnership. The Civil Code
expressly provides that upon dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business, culminating
in its termination.
x x x
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Magdusa vs. Albaran

G. R. L-17526
June 30, 1962
FACTS:
Magusa and Albaran, together with various other persons, had verbally
formed a partnership de facto, for the sale of general merchandise in Surigao,
Surigao, to which appellant contributed P2,000 as capital, and the others
contributed their labor, under the condition that out of the net profits of the
business 25% would be added to the original capital, and the remaining 75%
would be divided among the members in proportion to the length of service of
each. Sometime in 1953 and 1954, the appellees expressed their desire to
withdraw from the partnership, and appellant thereupon made a computation to
determine the value of the partners' shares to that date. Appellees thereafter
made demands upon appellant for payment, but appellant having refused, they
filed the initial complaint in the court below. Appellant defended by denying any
partnership with appellees, whom he claimed to be mere employees of his.
ISSUE:
Whether or not the appellees, as retiring partners are entitled to the return
of their capital share before dissolution?
RULING:
No. A partner's share cannot be returned without first dissolving and
liquidating the partnership, for the return is dependent on the discharge of the
creditors, whose claims enjoy preference over those of the partners; and it is selfevident that all members of the partnership are interested in his assets and
business, and are entitled to be heard in the matter of the firm's liquidation and
the distribution of its property. The liquidation Exhibit "C" is not signed by the
other members of the partnership besides appellees and appellant; it does not
appear that they have approved, authorized, or ratified the same, and, therefore,
it is not binding upon them. At the very least, they are entitled to be heard upon
its correctness.
In addition, unless a proper accounting and liquidation of the partnership
affairs is first had, the capital shares of the appellees, as retiring partners, can
not be repaid, for the firm's outside creditors have preference over the assets of
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Partnership Cases

the enterprise (Civ. Code, Art. 1839), and the firm's property can not be
diminished to their prejudice. Finally, the appellant can not be held liable in his
personal capacity for the payment of partners' shares for he does not hold them
except as manager of, or trustee for, the partnership. It is the latter that must
refund their shares to the retiring partners. Since not all the members of the
partnership have been impleaded, no judgment for refund can be rendered, and
the action should have been dismissed.
x x x

Article 1843
Teck Seing and Co., Ltd. and Santiago Jo Chung,
et al vs. Pacific Commercial Company, et al
G.R. No. 19892
September 6, 1923
FACTS:
The "Sociedad Mercantil, Teck Seing & Co., Ltd.," applied to be adjudged
an insolvent. Its creditors, the Pacific Commercial Company, Piol & Company,
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Partnership Cases

Riu Hermanos, and W. H. Anderson & Company, filed a motion to a) Declare the
individual partners as parties to the proceeding; b) to require each of said
partners to file an inventory of his property; and c) each partners be adjudicated
insolvent debtors in this proceeding. Its Partners are Santiago Jo Chung Cang,
Go Tayco, Yap Gueco, Jo Ybec, and Lim Yogsing all of them who contributed
the same amount for the Capital Fund of Teck Seing and Co., Ltd.
ISSUES:
Is the Petitioner-Partnership a Limited Partnership?
RULING:
No. The Civil Code expresses that A limited partnership is one formed by
two or more persons having as members one or more general partners and
one or more limited partners. Limited Partnership requires that the composition
of its members be at least one General Partner, whose name shall appear in the
firm name, and at least one Limited Partner. There is nothing in the document
constituting the Teck Seing & Co., Ltd. that shows that at least one of the
Partners is a General Partner or a Limited Partner. What was only shown in the
said document was that they all gave equal shares in the mutual fund. None of
the mentioned has been fulfilled, thus they can be considered as a General
Partnership. Those who seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must show a substantially full
compliance with such laws. A limited partnership that has not complied with the
law of its creation is not considered a limited partnership at all, but a general
partnership.

(The case also appear under Article 1815 with a separate issue and ruling
relevant to said article)
x x x

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Partnership Cases

Article 1844
Hung-Man-Yoc vs. Kieng-Chiong-Seng et al.
No. 2888
October 23, 1900
FACTS:
Chua Che-Co, Yu- Yec-Pin, Ang-Chu-Keng and Kiong-Tiao-Eng were
partners under the firm name of Kieng-Chiong-Seng whose principal line of
business is the importation of goods for sale. A previous judgment was rendered
against the defendants Chua-Che-Co, Yu-Yec-Pin and Ang-Chu-Keng for the
amount of P7,962.14 in Mexican currency (equivalent to P 7, 372.75 in Philippine
currency) with legal interest rate of 6% per annum. It had not been proven that
Kieng-Chiong-Seng was not a firm name but only a designation of a partnership.
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Partnership Cases

Petitioner insists that a partnership exists even though such entity was not
evidenced by any public document as required by article 119 of the code of
commerce also notwithstanding the fact that it was not registered pursuant to
article 17 of the same code. Of all the defendants, only Chu-Che-Co made an
appeal. Hence this present case.
ISSUE:
Whether or not such firm name is that of a limited partnership under Art.
146 (Art. 1844, Civil Code)
RULING:
No. The firm name cannot be considered a firm name of a limited
partnership because it lacked the word limited in its name.
This being the case, the Supreme Court held that Kieng-Chiong-Seng
was a de facto partnership and that although it had no legal standing, and
contracted obligations in favor of the plaintiff, the liability arising from such
obligations must be enforceable against some one. Since this type of partnership
does not fall in any of the other classes of partnership defined in the Code of
Commerce, the general provisions applicable to all partnerships contained in
article 120 of the Code of Commerce applies. This article reads:
The persons in charge of the management of the association who
do not comply with the provisions of the forgoing article (art. 119, which
requires that the articles of partnership be recorded in a public instrument
and that the partnership be registered in the Mercantile Register) shall be
responsible together with the persons not member of the association with
whom they may have transacted business in the name of the same.
Consequently, the defendant Chua-Che-Co had not been involved in the
management of the business nor did he enter into any contract with the
Petitioner. It was in fact only Yu-Yec-Pin and Kieng-Tiao-Eng who made all the
contracts for the partnership. Thus the Court held that Chua-Che-Co incurred no
liability and that he cannot be held individually responsible for the payment of
Plaintiffs claims.
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Partnership Cases

(The case also appear under Article 1814 with a separate issue and ruling
relevant to said article)
x x x

Article 1845 - 1852

Antonio C. Goquiolay, et al. vs. Washington Z.
Sycip, et al.
G.R. No. L-11840
December 10, 1963
FACTS:
Tan Sin An and Antonio C. Goquiolay executed a commercial partnership
for a period of ten years of which Goquiolay contributed 60% while Tan Sin An
40%. The business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership also agreed upon in
the partnership agreement that Tan Sin An would be the exclusive managing
partner, and in the event of the death of any of the partners the partnership would
continue, wherein the deceased shall be represented by his heirs. Goquiolay
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Partnership Cases

executed a general power of attorney in favor of Tan Sin An appointing the latter
as manager of the partnership and conferring upon him the usual powers of
management. The partnership acquired three parcels of land in Davao; these
which are the only assets of the partnership. On the same date, Tan Sin An, in
his individual capacity, acquired 46 parcels of land. These two mortgage
obligations were, later on, consolidated. Tan Sin An died and was survived by his
widow, defendant Kong Chai Pin. Kong Chai Pin, was appointed administratrix of
the intestate estate of Tan Sin An. Kong Chai Pin filed a petition with the probate
court for authority to sell all the 49 parcels of land for a claim in intestate
proceedings and sold it to Sycip and Lee. When Goquiolay learned about the
said sale, he filed a petition in the intestate proceedings to set aside the order of
the probate court approving the sale in so far as his interest over the parcels of
land sold was concerned.
ISSUES:
Did the widow of Tan Sin An succeed him in the Partnership upon the
latters death?
RULING:
Yes. It is expressed in the Partnership Agreement that the Partnership
may be continued by an heir or assign of a Partner in case of that Partners death
before the expiration of the term. Normally, upon succession of the Heir or
Assign, that person shall be a Limited Partner only. However, he may also
choose even without the agreement of the Surviving Partner/s to become a
General Partner if he wishes to do so; in that case, his personal assets shall also
be made to answer to any debts of the Firm, if any. She has the authority to act
as a manager of the Partnership. Thus, as a Partner, the successor may, in her
own capacity, deal with the selling of their real property so long as the purpose of
the Partnership is buying and selling of real estate which is the case at hand.
Furthermore, she also doesnt need to be able to get the consent of the surviving
partner in the sale of the real property for they are already Partners as
contemplated in the Agreement.
x x x

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