CASE DIGESTS

PARTNERSHIP AGENCY & TRUST

SUBMITTED TO:
ATTY. AGUSTIN P. LABAN III

SUBMITTED BY:
III-C
 Addatu, Ian
Addatu, Kristine
Aquisan, Wynster
Bahillo, Bryan Christopher
Balajadia, Celinna
Balajadia, Julius
Balderas, Danika
Baez, Rochelle
Bangliten, Miraldine
Basto, Allan Patrick
Basungit, Waylan
Boyongan, Joyce
Bragas, Noreen
Bucang, Rizza
Cagan, Jenalyn
Calsiyao,Walter
Claver, Ayangwa Francis
Cruz, Kristine
Cupatan, Eugene Francis
Distor, Lilibeth
Dizon, Clarisse
Dizon, Katherine
Domingo, Patricia Immaya
Dulnuan, Kenneth
Dumayag, Germa
Estioko, Mary Therese
Eugenio, Precious
Flores, Richard Francis
Ilagan, Angelyn
Ingson, Jefftee
Laguinday, Mae
Lawagan, Joseph Jr.
Malaga, Sam Boy
Mandiit, Concepcion
Marquez, Princess
Nabunat, Alda
Olivar, Karl Thomas
Palsiw, Edward Raymond
Panganiban, Bren Dayanara
Patingan, Eastan Lee
Puyoc, Miracquel
Reyes, Carla
Robles, Amarra
Siblagan, Roger
Sokoken, Quennie
I. INTRODUCTION
II. PARTNERSHIP

A) GENERAL ARTICLES 1767-1783

COMMISSIONER OF INTERNAL REVENUE vs. BURROUGHS

LIMITED AND THE COURT OF TAX APPEALS
G.R. No. L-66653 June 19, 1986

FACTS:

Burroughs Limited is a foreign corporation authorized to engage in

trade or business in the Philippines through a branch office located at
Metro Manila.

On March 1979, said branch office applied with the Central Bank for
authority to remit to its parent company abroad, branch profit
amounting to P7, 647,058.00. On March 14, 1979, it paid the 15%
branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and
remitted to its head office the amount of P6,499,999.30 claiming that
the 15% profit remittance tax should have been computed on the basis
of the amount actually remitted which is P6,499,999.30 and not on the
amount before profit remittance tax which is P7,647,058.00, private
respondent filed on December 24, 1980, a written claim for the refund
or tax credit of the amount of P172,058.90 representing alleged
overpaid branch profit remittance tax

ISSUE:

Whether the tax base upon which the 15% branch profit remittance tax
shall be imposed is the amount applied for remittance on the profit
actually remitted after deducting the 15% profit remittance tax.

RULING:

Any profit remitted abroad by a branch to its head office shall be

subject to a tax of fifteen per cent (15 %). The tax base upon which the
15% branch profit remittance tax shall be imposed is the profit actually
remitted abroad and not on the total branch profits out of which the
remittance is to be made.

The claim of private respondent that it made an overpayment in the

amount of P172,058.90 which is the difference between the remittance
tax actually paid of Pl,147,058.70 and the remittance tax that should
have been paid of P974,999,89

Under Section 24 (b) (2) of the Tax Code the 15% branch profit
remittance tax shall be imposed on the profit actually remitted abroad
and not on the total branch profit out of which the remittance is to be
made. Based on such ruling petitioner should have paid only the
amount of P974,999.89 in remittance tax computed by taking the 15%
of the profits of P6,499,999.89 in remittance tax actually remitted to its
head office in the United States, instead of Pl,147,058.70, on its net
profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its
branch profit remittance tax in the amount of P172, 058.90.

COMMISSIONER OF INTERNAL REVENUE vs.

WILLIAM J. 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 September 30, 1947 respondent William J. Suter as the
general partner with contribution of P20,000 and Julia Spirig with
P18,000 and Gustav Carlson P2,000 as the limited partners. On
October 1, 1947, the limited partnership registered with the Securities
and Exchange Commission (SEC). The firm engaged in the importation,
marketing, distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their parts and
accessories. It had an office and held itself out as a limited partnership,
handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the
Central Bank.

In 1948, general partner Suter and limited partner Spirig got married
and, thereafter, on December 18, 1948, limited partner Carlson sold his
share in the partnership to Suter and his wife. The sale was recorded
with the SEC on December 20, 1948.

The limited partnership had been filing its income tax returns as a
corporation, without objection, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, consolidated the income of
the firm and the individual incomes of Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in
the amount of P2, 678.06 for 1954 and P4, 567.00 for 1955.

Suter protested the assessment, and requested its cancellation and

withdrawal, as not in accordance with law, but his request was denied.
Unable to secure reconsideration, he appealed to the Court of Tax
Appeals, which rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.

ISSUE:

Whether or not the partnership was dissolved after the marriage of the
partners William J. Suter and Julia Spirig Suter.
RULING:

The limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the only
general partner, William J. Suter to the originally limited partner, Julia
Spirig one year after the partnership was organized.

A husband and a wife may not enter into a contract of general co-
partnership, because under the Civil Code, which applies in the
absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing
partnership.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO

CONTINUE USE OF THE FIRM NAME SYCUP, SALAZAR, ETC/
ORZAETA, ROMULO, ETC
92 SCRA 1

FACTS:

Two separate Petitions were filed before the Court 1) by the surviving
partners of Atty. Alexander Sycip, who died on May 5, 1975, and 2) by
the surviving partners of Atty. Herminio Ozaeta, who died on February
14, 1976, praying that they be allowed to continue using, in the names
of their firms, the names of partners who had passed away.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its
business under a firm name which includes the name of a deceased
partner in fact, Article 1840 of the Civil Code explicitly sanctions the
practice when it provides in the last paragraph that:
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such person
or partnership.

2. In regulating other professions, such as accountancy and

engineering, the legislature has authorized the adoption of firm names
without any restriction as to the use, in such firm name, of the name of
a deceased partner.

3. No local custom prohibits the continued use of a deceased partner's

name in a professional firm's name.

ISSUE:
Whether the law firm may be allowed to continue using, in the names
of their firms, the names of partners who had passed away.

RULING:

They shall not be allowed to continue using a deceased partners name

in a professional firm name.

1. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and

"Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the
use in their partnership names of the names of deceased partners will
run counter to Article 1815 of the Civil Code which provides:
Art. 1815. Every partnership shall operate under a firm
name, which may 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.

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.
In fact, Article 1825 of the Civil Code prohibits a third person from
including his name in the firm name under pain of assuming the
liability of a partner. The heirs of a deceased partner in a law firm
cannot be held liable as the old members to the creditors of a firm
particularly where they are nonlawyers.
Prescinding the law, there could be practical objections to allowing the
use by law firms of the names of deceased partners. The public
relations value of the use of an old firm name can tend to create undue
advantages and disadvantages in the practice of the profession. An
able lawyer without connections will have to make a name for himself
starting from scratch. Another able lawyer, who can join an old firm,
can initially ride on that old firm's reputation established by deceased
partners.

2. A partnership for the practice of law cannot be likened to

partnerships formed by other professionals or for business. For one
thing, the law on accountancy specifically allows the use of a trade
name in connection with the practice of accountancy.
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. ... It is
not a partnership formed for the purpose of carrying on trade or
business or of holding property."
Thus, it has been stated that "the use of a nom de plume,
assumed or trade name in law practice is improper.

3. It must be conceded that in the Philippines, no local custom permits

or allows the continued use of a deceased or former partner's name in
the firm names of law partnerships. Firm names, under our custom,
identify the more active and/or more senior members or partners of
the law firm. A glimpse at the history of the firms of petitioners and of
other law firms in this country would show how their firm names have
evolved and changed from time to time as the composition of the
partnership changed:
 There would seem to be a question, under the working of the
Canon, as to the propriety of adding the name of a new partner
and at the same time retaining that of a deceased partner who
was never a partner with the new one.

The possibility of deception upon the public, real or consequential,

where the name of a deceased partner continues to be used cannot be
ruled out. A person in search of legal counsel might be guided by the
familiar ring of a distinguished name appearing in a firm title.

ORTEGA V. COURT OF APPEALS

245 SCRA 529

FACTS:

On December 19, 1980, respondent Misa associated himself together,

as senior partner with petitioners Ortega, del Castillo, Jr., and Bacorro,
as junior partners. On Feb. 17, 1988, respondent Misa wrote a letter
stating that he is withdrawing and retiring from the firm and asking for
a meeting with the petitioners to discuss the mechanics of the
liquidation. Petitioner filed a petition to the Commissions Securities
Investigation and Clearing Department for the formal dissolution and
liquidation of the partnership.

On March 31, 1989, the hearing officer rendered a decision ruling that
the withdrawal of the petitioner has not dissolved the partnership. The
hearing officer opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of
the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is

formed, is to act as legal adviser and representative of any
 individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations xxx
ISSUES:

1. Whether the partnership is a partnership at will or one for a specific

undertaking.
2. Whether the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith.

RULING:

1. A partnership that does not fix its term is a partnership at will. That
the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and
Castillo," is indeed such a partnership need not be unduly belabored.
The partnership agreement does not provide for a specified period or
undertaking. The "DURATION" clause simply states:
5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the
surviving partners."

The "purpose" of the partnership is not the specific undertaking as

erroneously referred to in the law by the hearing officer. Otherwise, all
partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates is a
specific undertaking or "project" which has a definite or definable
period of completion.

2. The birth and life of a partnership at will is predicated on the mutual

desire and consent of the partners. The right to choose with whom a
person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can result in a
liability for damages.

ESTANISLAO, JR. V. COURT OF APPEALS

160 SCRA 830

FACTS:

Petitioner and private respondents are brothers and sisters who are co-
owners of certain lots which were then being leased to the Shell
Company of the Philippines Limited (SHELL). They agreed to open and
operate a gas station thereat to be known as Estanislao Shell Service
Station with an initial investment of P15, 000.00 to be taken from the
advance rentals due them from SHELL. They agreed to help their
brother, petitioner herein, by allowing him to operate and manage the
gasoline service station of the family. They negotiated with SHELL. It
was agreed that petitioner would apply for the dealership. Respondent
Remedios helped in managing the business with petitioner. Later the
parties herein entered into an Additional Cash Pledge Agreement with
SHELL wherein it was reiterated that the P15, 000.00 advance rental
shall be deposited with SHELL to cover advances of fuel to petitioner as
dealer with a provision that said agreement cancels and supersedes
the Joint Affidavit executed by the co-owners.

For some time, the petitioner submitted financial statements regarding

the operation of the business to private respondents, but thereafter
petitioner failed to render subsequent accounting. Private respondents
filed a complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered: (1) to
execute a public document embodying all the provisions of the
partnership agreement entered into between plaintiffs and
defendant as provided in Article 1771 of the New Civil Code; (2) to
render a formal accounting of the business operation up to the time
the order is issued and that the same be subject to proper audit; (3) to
pay the plaintiffs their lawful shares and participation in the net profits
of the business. The trial court dismissed the complaint. Private
respondents moved for reconsideration. The dismissal was set aside
and the trial court rendered in their favor. Petitioner appealed, the
appellate court affirmed in toto the decision of the trial court and
denied the subsequent motion for reconsideration. Hence, this
petition for certiorari. Petitioner argued that because of the said
stipulation cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous
agreement had thereby been abrogated.

ISSUE:

Whether or not a partnership exists between members of the same

family arising from their joint ownership of certain properties.

RULING:

We find no merit in [petitioners] argument. Said cancelling provision

was necessary for the Joint Affidavit speaks of P 15,000.00
advance rentals starting May 25, 1966 while the latter agreement
also refers to advance rentals of the same amount starting May
24, 1966. There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent document
that it "cancels and supersedes" the previous one. True it is that in
the latter document, it is silent as to the statement in the Joint Affidavit
that the P 15,000.00 represents the "capital investment" of the
parties in the gasoline station business and it speaks of petitioner as
the sole dealer, but this is as it should be for in the latter
document SHELL was a signatory and it would be against its policy if in
the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship
of petitioner. Moreover other evidence in the record shows that there
was in fact such partnership agreement between the parties. This is
attested by the testimonies of private respondent Remedies Estanislao
and Atty. Angeles. Petitioner submitted to private respondents the
periodic accounting of the business. Petitioner gave a written
authority to private respondent Remedies Estanislao, his sister, to
examine and audit the books of their common business (aming
negosyo). Respondent Remedios assisted in the running of the
business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money to
a common fund with the intention of dividing the profits among
themselves. The sole dealership by the petitioner and the issuance of
all government permits and licenses in the name of petitioner was
in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL
products.
 CAMPOS RUEDA & CO V PACIFIC COMMERCIAL
44 Phil 916

FACTS:

Campos, Rueda & Co., a limited partnership, is indebted to the

appellants: Pacific Commercial Co., Asiatic Petroleum Co, and
International Banking Corporation amounting to not less than P1,
000.00 (which were not paid more than 30 days prior to the date of the
filing by petitioners of the application for voluntary insolvency). The
trial court denied their petition on the ground that it was not proven,
nor alleged, that the members of the firm were insolvent at the time
the application was filed. It also held that the partners are personally
and solidarily liable for the consequences of the transactions of the
partnership.

ISSUE:

Whether or not a limited partnership may be held to have committed

an act of insolvency.

RULING:

Yes. A limited partnerships juridical personality is different from the

personality of its members. On general principle, the limited
partnership must answer for and suffer the consequence of its acts.
Under our Insolvency Law, one of the acts of bankruptcy upon which an
adjudication of involuntary insolvency can be predicated is the failure
to pay obligations. The failure of Campos, Rueda & Co., to pay its
obligations constitutes an act w/c is specifically provided for in the
Insolvency Law for declaration of involuntary insolvency. The
petitioners have a right to a judicial decree declaring the involuntary
insolvency of said partnership.
 VARGAS AND CO. VS CHAN 29
Phil 446 (1915)

FACTS:

The plaintiff is a mercantile association duly organized under the laws

of the Philippine Islands and presumably registered as required by law.
On the 19th day of August, 1911, an action was begun by Chan Hang
Chiu against the plaintiff in this case to recover a sum of money. The
summons and complaint were placed in the hands of the sheriff, who
certified that on the 19th day of August, 1911, he served the same on
Vargas & Co. by delivering to and leaving with one Jose Macapinlac
personally true copies thereof, he being the managing agent of said
Vargas & Co. at the time of such service.

The contention of Vargas & Co. being a partnership, it is necessary, in

bringing an action against it, to serve the summons on all of the
partners, delivering to each one of them personally a copy thereof; and
that the summons in this case having been served on the managing
agent of the company only, the service was of no effect as against the
company and the members thereof and the judgment entered by
virtue of such a service was void.

ISSUE:

Whether or not there was proper service of summons.

RULING:

We are of the opinion that this contention can be sustained. We may

say that it has been the universal practice in the Philippine Islands
since American occupation, and was the practice prior to that time, to
treat companies of the class to which the plaintiff belongs as legal or
juridical entities and to permit them to sue and be sued in the name of
the company, the summons being served solely on the managing
agent or other official of the company specified by the section of the
Code of Civil Procedure referred to. The plaintiff brings this action in
the company name and not in the name of the members of the firm.
Actions against companies of the class to which plaintiff belongs are
brought, according to the uninterrupted practice, against such
companies in their company names and not against the individual
partners constituting the firm.
 NGO TIAN TEK VS. PHIL. EDUCATION CO.
78 PHIL. 275 (1947)

FACTS:

The plaintiff, Philippine Education Co., Inc., instituted in the Court of

First Instance of Manila an action against the defendants, Vicente Tan
alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for the
recovery of some P16,070.14, unpaid cost of merchandise purchased
by Lee Guan Box Factory from the plaintiff and five other corporate
entities which, though not parties to the action, had previously
assigned their credits to the plaintiff, together with attorney's fees,
interest and costs. /by agreement of the parties, the case was heard
before a referee, Attorney Francisco Dalupan, who in due time
submitted his report holding the defendants jointly and severally liable
to the plaintiff for the sum of P16, 070.14 plus attorney's fees and
interest at the rates specified in the report. On March 6, 1939, the
Court of First Instance of Manila rendered judgment was affirmed by
the Court of Appeals in its decision of January 31, 1941, now the
subject of our review at the instance of the partnership Ngo Tian Tek
and Ngo Hay, petitioner herein.

ISSUE:

Whether or not the death of any of the partner in a partnership is a

ground for the dismissal of a pending case.

RULING:

No. Regarding the suggestion in petitioner's memorandum that this

case should be dismissed because of the death of Ngo Hay, it is
sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is sued
as a partnership possessing a personality distinct from any of the
partners.
 ANG PUE & COMPANY, ET AL., vs. SECRETARY OF COMMERCE
AND INDUSTRY
G.R. No. L-17295 July 30, 1962

FACTS:

Ang Pue and Tan Siong who are Chinese citizens organized the
partnership Ang Pue & Company for a term of five years from May 1,
1953, extendible by their mutual consent. It was for maintaining a
business of general merchandising, buying and selling at wholesale
and retail construction materials for commerce, either native or
foreign. On June 16, 1953, the articles of partnership were registered in
the Office of the Securities & Exchange Commission.

R.A. No. 1180 was passed which provides that a partnership not wholly
formed by Filipinos could continue to engage in the retail business until
the expiration of its term. The partners agreed to extend the
partnership for another five years. However, the Securities & Exchange
Commission refused registration because it violates R.A. No. 1180.

ISSUE:

Whether or not the right to organize a partnership is an absolute right,

hence, the partners have the right to extend the original term of their
partnership notwithstanding R.A. No. 1180.

RULING:

No. The Supreme Court stated that 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.

Moreover, even if it was provided in the original articles of partnership

that the partners could extend the term of the partnership, R.A. No.
1180 applies to them. According to the Supreme Court, the agreement
contained 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 Republic Act 1180 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.
 MARIANO P. PASCUAL and RENATO P. DRAGON vs. THE
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS
G.R. No. 78133 October 18, 1988

FACTS:

On June 22, 1965, petitioners bought two (2) parcels of land from
Santiago Bernardino, et al. and on May 28, 1966, they bought another
three (3) parcels of land from Juan Roque. The first two parcels of land
were sold by petitioners in 1968 to Marenir Development Corporation,
while the three parcels of land were sold by petitioners to Erlinda
Reyes and Maria Samson on March 19, 1970.

The petitioners were assessed and required to pay a total amount of

P107, 101.70 as alleged deficiency corporate income taxes.

The Commissioner alleged that petitioners as co-owners in the real

estate transactions formed an unregistered partnership or joint
venture, thus, subjecting it to a corporate income tax.

Petitioners filed a petition for review with the respondent Court of Tax
Appeals but the latter only affirmed the decision of the Commissioner.
The basis of the CTA is the ruling in Evangelista.

ISSUE:

Whether or not the petitioners formed an unregistered partnership,

hence, subject to a corporate income tax.

RULING:

No. The Supreme Court cited the concurring opinion of Mr. Justice
Angelo Bautista in Evangelista wherein the latter argued that under
Article 1769 of the new Civil Code, paragraphs 1 and 2, those who
agree to form a co- ownership share or do not share any profits made
by the use of the property held in common does not convert their
venture into a partnership. Or the sharing of the gross returns does not
of itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property.

In the present case, there is clear evidence of co-ownership

between the petitioners. However, there is no adequate basis to
support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not make them
partners. They shared in the gross profits as co- owners and paid their
capital gains taxes on their net profits and availed of the tax amnesty
thereby. Under the circumstances, they cannot be considered to have
formed an unregistered partnership which is liable for corporate
income tax, as the respondent commissioner proposes.
 LORENZO T. OA and HEIRS OF JULIA BUALES v.
THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. L-19342 May 25, 1972

FACTS:

On March 23, 1944, Julia Buales died, leaving as heirs her surviving
spouse, Lorenzo T. Oa and her five children. In 1948, a civil case was
instituted before the CFI Manila for the settlement of Julias estate. Mr.
Oa was appointed administrator of the estate of the deceased, who
then submitted a project of partition which was approved by the Court
on May 1949. Since the three heirs were still minors when the project
of partition was approved, Mr. Lorenzo Oa, being their father and
administrator of the estate, filed a petition for appointment as guardian
of the three. Come November 1949, the Court appointed Mr. Oa as
guardian of the persons and property of the minors.

The project of partition shows that the three heirs have undivided one-
half (1/2) interest in ten (10) parcels of land, six houses, and an
undetermined amount to be collected from the War Damage
Commission. Later on, they received from the Commission the amount
of P50, 000 which, instead of dividing it among themselves, they used
said amount in the rehabilitation of properties owned by them in
common. Moreover, said project of partition discloses that the estate
shares equally with Mr. Lorenzo Oa, the administrator thereof. Despite
the approval of the Court concerning the project of partition, no
attempt was done to divide the properties listed. The properties
remained under the management of Mr. Oa who utilized said
properties in business by leasing or selling those and investing the
income generated and the proceeds from the sales in real properties
and securities. In consequence, their properties and investments
gradually increased.

The Commissioner of Internal Revenue, having considered the

circumstances, decided that the petitioners have formed an
unregistered partnership hence, it is subject to the corporate tax
pursuant to Tax Code. He assessed against the petitioners the amounts
of P8, 092.00 and P13, 899.00 as corporate income taxes for the year
1955 and 1956, respectively. The petitioners, however, protested
against the assessment and insisted that they were co-owners of the
properties inherited and the profits derived from the transactions.
Being co-owners, they should not be liable for the corporate income
taxes.

ISSUE:
Whether the petitioners be considered as co-owners of the properties
inherited or be deemed as unregistered co-partners.

RULING:

The petitioners must be considered as unregistered co-partners.

The Supreme Court pronounced that from the time petitioners allowed
not only the incomes from their respective shares of the inheritance
but also the inherited properties to be used by Mr. Lorenzo T. Oa as a
common fund in engaging various transactions or business, with the
intention of generating profits to be shared by them proportionally,
such act was tantamount to contributing said incomes to a common
fund, and in effect forming an unregistered partnership within the
purview of the Tax Code. It is incontrovertible that the petitioners did
not merely limit themselves to holding the properties inherited by
them. During the material years, 1955 and 1956, some of the
properties were sold at considerable profits.
Moreover, the Supreme Court averred that in cases of inheritance,
there should be a period when the heirs can be deemed as co-owners
rather than unregistered co-partners within the contemplation of the
Corporate Tax Laws. Prior to partition and distribution of the estate of
the deceased, all the income thereof belong commonly to all the heirs,
without them becoming unregistered co-partners. However, this does
not necessarily follow that such status as co-owners continues until the
inheritance is actually and physically distributed among the heirs, for it
is easily conceivable that after knowing their respective shares in the
partition, they might decide to continue holding said shares under the
common management of the administrator or executor or of anyone
chosen by them and engage in business on that basis. Withal, if this
were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent the law.

For tax purposes, the co-ownership of inherited properties is

automatically converted into an unregistered partnership the moment
said common properties and the incomes derived therefrom are used
as a common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as determined
in a project partition either duly executed in an extrajudicial settlement
or approved by the court in the corresponding testate or intestate
proceeding. As explained by the Supreme Court, from the moment of
partition, the heirs are entitled already to their respective definite
shares of the estate and incomes thereof, for each of them to manage
and dispose of as exclusively his own without the intervention of the
other heirs. If after such partition, the heir allows his share to be held
in common with his co-heirs under a single management to be used
with the intent of making profit thereby in proportion to his share,
there can be no doubt that, even if no document or instrument were
executed for the purpose, for tax purposes, at least, an unregistered
partnership is formed.

The moment the respective known shares are used as part of the
common assets of the heirs to be used in generating profits, it is but
proper that the income of such shares should be considered as part of
the taxable income of an unregistered partnership.

JOSE GATCHALIAN, ET AL. v. THE COLLECTOR OF INTERNAL

REVENUE
G.R. No. L-45425 April 29, 1939

FACTS:

Prior to December 15, 1934, Mr. Jose Gatchalian and Company

contributed and paid P2.00 in order to purchase one sweepstakes
ticket, to which they registered in the name of Jose Gatchalian and
Company. Fortunately, the ticket won one of the third prizes amounting
to P50, 000.00 and the corresponding check covering the said prize
was drawn by the National Charity Sweepstakes Office in favor of Jose
Gatchalian and Company against the Philippine National Bank. Come
December 29, 1934, Mr. Gatchalian was required by Alfredo David,
then income tax examiner, to file the corresponding income tax return
covering the prize won by them.

On January 8, 1935, after winning the ticket, the Collector of Internal

Revenue made an assessment against Mr. Gatchalian and Company
requesting the payment of Income Tax amounting to P1, 499.94 to the
deputy provincial treasurer of Bulacan, giving Gatchalian and company
a couple of days within which to pay the said amount. The plaintiff
replied requesting exemption from payment, however, the collector of
internal revenue denied their request and repeated his mandate for the
payment of income tax. For failure to pay the said income tax on the
required day, the collector of internal revenue issued a warrant of
distraint and levy against the property of the plaintiff. Three of
Gatchalians company paid under protest the sum of P602.51 as part of
the tax and penalties, to shun shame arising from the embargo of the
property. The said companion also requested the collector that they be
allowed to pay under protest the balance of the tax and penalties by
monthly installments. The collector granted the request but subjected
to the condition that the plaintiff must file the usual bond secured by
two solvent persons to guarantee prompt payment of each installment.

Such being the case, the plaintiff formally protested against the
payment of the sum of P602.51, the defendant, however, overruled the
protest and denied the request for refund. For the second time, the
collector issued another warrant of distraint and levy for failure to pay
monthly installments. Again, to avoid embarrassment arising from the
levy of their property, the plaintiff through Gatchalian paid under
protest the sum of P1, 260.93 representing the unpaid balance of the
income tax and penalties. A month after payment, the plaintiff officially
complained and entreated the refund of the total sum of P1, 863.44
paid under protest. Despite continual requests for refund, the
defendant still, repudiated.

ISSUE:

Whether the plaintiff formed an unregistered partnership or merely a

community of property without personality.

RULING:

The Supreme Court ruled that the plaintiff formed an Unregistered

Partnership since they contributed to the cost of the sweepstakes
ticket. A partnership thus formed is liable for the payment of income
tax.

Based on the stipulation of facts, the plaintiff organized a partnership

of a civil nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally the prize
which they win, as they did in the amount of P50, 000.00. The
partnership was not only formed, but upon the organization thereof
and the winning of the prize, Mr. Gatchalian personally appeared in his
capacity as co-partner before the office of the Philippines Charity
Sweepstakes, which issued the check for P50, 000.00. Such being the
case, it negated the idea that the plaintiff organized a community of
property only.

Moreover, having organized and constituted a partnership of a civil

nature, the said entity is the one bound to pay the income tax, which
the defendant collected under the provisions of Act 2833. The said law
mandated that there shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar
year from all sources by every corporation, joint-stock company,
partnership, joint account, association or insurance company, no
matter how created or organized, but not including duly registered
general co-partnership.

SARDANE V COURT OF APPEALS

G.R. No. L-47045 November 22, 1980

FACTS:

Sardane executed promissory notes in the amount of P 5, 217.25

because of failure to pay; Acojedo brought an action for collection of
sum of money. MTC granted the petition but RTC reversed upholding
reason that the existed partnership between the 2, which could them
vary the meaning of the promissory notes. RTC concluded the PN
involved were merely receipts for the contributions to said partnership
and upheld the claim that there was ambiguity in the PN hence; parol
evidence was allowable to contradict the terms of the represented loan
contract.

ISSUE:

Whether or not partnership exited

RULING:

Even if evidence other that PN may be admitted to alter the meaning

conveyed thereby, still the evidence is insufficient to prove that a
partnership existed between the private parties. In the fact that he had
received 50% of the net profits does not conclusively establish that he
was a partner of Acojedo. Article 1769 NCC explicitly provides that the
receipts of the person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, no such profits were
received in payment as wages of an employee.

INOCENCIA DELUAO and FELIPE DELUAO vs. NICANOR CASTEEL

and JUAN DEPRANICANOR CASTEEL
G.R. No. L-21906 December 24, 1968

FACTS:

In 1940, Nicanor unsuccessfully registered a fishpond in a big tract of

swampy land in the sitio of Malalag in Davao for 3 consecutive times
because the Bureau of Fisheries did not act upon his previous
applications. Despite, the said rejection, Casteel did not lose interest.
Because of the threat poised upon his position by the other applicants
who entered upon and spread themselves within the area, Casteel
realized the urgent necessity of expanding his occupation thereof by
constructing dikes and cultivating marketable fishes. But lacking
financial resources at that time, he sought financial aid from his uncle
Felipe Deluao. Moreover, upon learning that portions of the area
applied for by him were already occupied by rival applicants, Casteel
immediately filed a protest, Consequently, tow administrative cases
ensued involving the area in question.

However, despite the finding made in the investigation of the above

administrative cases, the Director of Fisheries nevertheless rejected
Casteels application on October 25, 1949 and required him to remove
all the improvements which he had introduced on the land and ordered
that the land be leased through public auction. In November 25, 1949
Inocencia Deluao, wife of Felipe, and Casteel executed a contract of
service. On the same date the contract was entered into, Inocencia
executed a special power of attorney in favor of Jesus Donesa. On
November 29, the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948 and because of such, Delauo
reiterated his claim over the same area in the two administrative cases
and asked for reinvestigation of the application of Casteel over the
fishpond. A decision by Secretary of Agriculture was rendered ordering
Casteel to be reinstated in the area and that he shall pay for the
improvements made thereupon. On January 1951, Casteel forbade
Inocencia from administering the fishpond and ejected the latters
representative, Jesus Donesa, from the premises.

ISSUE:

Whether the reinstatement of Casteel over the subject land constitutes

dissolution of the partnership between him and Deluao?

RULING:

Yes, the reinstatement of Casteel dissolved his partnership between

him and Deluao. The Supreme Court ruled that the arrangement under
the so-called contract of service continued until the decision both
dated September 15, 1950 were issued by Secretary of Agriculture and
Natural Resources. This development brought the dissolution of the
partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have
been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one half thereof to parties other than the
applicant Casteel, it was dissolved by the approval of his application
and the award to him of the fishpond.

The approval was an event which made it unlawful for the members to
carry it on in partnership. Furthermore, subsequent events likewise
reveal the intent of both parties to terminate the partnership because
each refused to share the fishpond with the other.
ALBERT F. KIEL V. ESTATE OF P. SABERT
G.R. No. 21639

FACTS:
Albert F. Kiel and William Milfiel established the Parang Plantation
Company over certain private lands in the province of Cotabato. Kiel
subsequently took over the interest of Milfiel.

In 1910, Kiel and P.S. Sabert entered into an agreement to develop the
Parang Plantation Company. Sabert was to furnish capital to run the
plantation while Kiel was to manage it. They were to share and share
alike in the property. This contract was formed so that the land could
be acquired in the name of Sabert, Kiel being a German citizen is not
eligible to acquire public lands in the Philippines. Kiel was subsequently
deported from the Philippines at the onset of World War II.

While Kiel was away, Sabert with five other people organized the
Nituan Plantation Company, where Sabert transferred all his rights over
the parcels of land originally owned under the Parang plantation.
Sabert wrote Kiel that he had offered to sell the property for Php
40,000 or to find a partner to manage the parcels of land, either way
he will straiten or recompense Kiel. Sabert died before such amicable
arrangement was realized; thus Kiel proceeds against the estate of
Sabert.

ISSUES:

(1) Whether or not partnership existed between the parties to

determine if Kiel has any right against Saberts estate.
(2) If proven, what is Kiel entitled to?

RULING:

(1) There existed a co-partnership between Kiel and Sabert.

No partnership agreement in writing was entered into by Kiel and

Sabert. The question consequently is whether or not the alleged verbal
copartnership formed by Kiel and Sabert has been proved, if we
eliminate the testimony of Kiel and only consider the relevant
testimony of other witnesses. In performing this task, we are not
unaware of the rule of partnership that the declarations of one partner,
not made in the presence of his copartner, are not competent to prove
the existence of a partnership between them as against such other
partner, and that the existence of a partnership cannot be established
by general reputation, rumor, or hearsay.

The testimony of the plaintiff's witnesses, together with the

documentary evidence, leaves the firm impression with us that Kiel
and Sabert did enter into a partnership, and that they were to share
equally. Applying the tests as to the existence of partnership, we feel
that competent evidence exists establishing the partnership. Even
more primary than any of the rules of partnership above announced, is
the injunction to seek out the intention of the parties, as gathered from
the facts and as ascertained from their language and conduct, and
then to give this intention effect.

(2) The amount to be recovered must be determined by further

proceedings. Sabert allegedly sold all his land in the Nituan Plantation
Company for P40, 000, although this fact was not proven. The lower
court seems to agree that Kiel is entitled to of such amount. The
court disagrees. Kiel under the facts had no standing in court to ask for
any part of the land, his only legal right is to ask for what is in effect an
accounting with reference to its improvements and income as of 1917
when Sabert became the trustee of the estate on behalf of Kiel.

Kiel has clearly shown his right to one-half of the value of the
improvements and personal property on the land as to the date upon
which he left the plantation. Such improvements and personal property
include buildings, coconut palms, and other plantings, cattle and other
animals, implements, fences, and other constructions, as well as
outstanding collectible credits, if any, belonging to the partnership. The
value of these improvements and of the personal property cannot be
ascertained from the record and the case must therefore be remanded
for further proceedings.
 TECK SEING & CO., LTD. AND SANTIAGO JO CHUNG ET. AL
(PARTNERS) V.
PACIFIC COMMERCIAL COMPANY, ET. AL.
G.R. No. 19892

FACTS:

Teck Seing & Co., Ltd. applied to be declared insolvent. Pacific

Commercial Company, Riu Hermanos, and W. H. Anderson & Company,
as creditors of Teck Seing & Co., Ltd. prayed for the court to order each
of the alleged partners as parties to the proceedings for their claims,
for each to produce an inventory of their properties and for each to be
declared insolvent debtors in the proceedings. The written contract
entered by the parties seem to purport a limited partnership. According
to the articles of the Code of Commerce, the general copartnership
must transact business under the name of all its members, of several
of them, or of one only. Turning to the document presented the
composition of the firm name requirement is not met. None of the
partners names appear in the firm name and yet it was registered
under the mercantile registry. Teck Seing Co. also argues that because
of this, they may be declared a mere de facto commercial association
wherein under the Code of Commerce the right of action was merely
against the persons in charge of the management of the association
and not a partnership whose liability attaches to each of the partners
personally and in solidum.

ISSUE:

Whether or not Teck Seing & co., Ltd. is a general partnership.

RULING:

There exists a general partnership among them.

The legal intention deducible from the acts of the parties controls in
determining the existence of a partnership. If they intend to do a thing
which in law constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such relation. Here, the
intention of the persons making up Teck Seing & co., Ltd. was to
establish a partnership which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges resorted to in
order to evade liability for possible losses, while assuming their
enjoyment of the advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity under a
designation distinct from that of any of the members of the firm should
be penalized, and not the creditors who presumably have dealt with
the partnership in good faith.

Professor Jose A. Espiritu, as amicus curi, states on the issue

regarding partnership name:
I do not believe that the adoption of a wrong name is a
material fact to be taken into consideration in this case; first, because
the mere fact that a person uses a name not his own does not prevent
him from being bound in a contract or an obligation he voluntarily
entered into; second, because such a requirement of the law is merely
a formal and not necessarily an essential one ... ; and third, because
the failure of the partners herein to adopt the correct name ... cannot
shield them from their personal liabilities, as neither law nor equity will
permit them to utilize their own mistake in order to put the blame on
third persons...

Articles 127 and 237 of the Code of Commerce make all the members
of the general copartnership liable personally and in solidum with all
their property for the results of the transactions made in the name and
for the account of the partnership. Section 51 of the Insolvency Law,
likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. If a firm is insolvent,
but one or more partners thereof are solvent, the creditors may
proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing the
property of the partners. We reach the conclusion that the contract of
partnership found in the document hereinbefore quoted established a
general partnership or, to be more exact, a partnership as this word is
used in the Insolvency Law.
MAURICIO AGAD vs. SEVERINO MABATO and MABATO and AGAD
COMPANY
23 SCRA 1223

FACTS:

Petitioner Agad alleges that he and Respondent Mabato are partners

in a fishpond business, to the capital of which Agad contributed P1,
000, with the right to receive 50% of the profits. Respondent Mabato
handled the partnership fund and had yearly rendered accounts of the
operations of the partnership; and that, despite repeated demands,
Mabato had failed and refused to render accounts for the years 1957 to
1963.

Agad prayed that judgment be rendered sentencing Mabato to pay him

(Agad) the sum of P14, 000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1, 000 as
attorney's fees, and ordering the dissolution of the partnership. Mabato
however alleged that the partnership never existed, on the ground that
the contract therefor had not been perfected, despite the execution of
the public document, because Agad had allegedly failed to give his P1,
000 contribution to the partnership capital.

Respondent also filed a motion to dismiss on the grounds that

complaint states no cause of action and that the lower court had no
jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. The court
(CFI) issued the order appealed from, granting the motion to dismiss
the complaint for failure to state a cause of action. On the ground that
the contract of partnership, is null and void, pursuant to Art. 1773 of
our Civil Code, because an inventory of the fishpond referred in said
instrument had not been attached thereto.
Articles 1771 and 1773 of said Code provide:

Art. 1771. 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. 1773. 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 the public
instrument.

ISSUE:
Whether or not "immovable property or real rights" have been
contributed to the partnership under consideration, thus the
partnership is void due to the violation of Art. 1773.

RULING:

No. There is no violation of Art. 1773 because there is real property or

real rights contributed by the partners.

It should be noted, however, that, as stated in contract of partnership,

that the partnership was established "to operate a fishpond", not
to "engage in a fishpond business". Moreover, none of the
partners contributed either a fishpond or a real right to any
fishpond. Their contributions were limited to the sum of P1,
000 each. Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,
000.00) Pesos Philippine Currency, of which One Thousand (P1,
000.00) pesos has been contributed by Severino Mabato and One
Thousand (P1, 000.00) Pesos has been contributed by Mauricio
Agad.

Here, only capital of money was contributed. The case was remanded
to the lower court for further proceeding.
 J. M. TUASON & CO., INC., represented by it Managing
PARTNER, GREGORIA ARANETA, INC. vs. QUIRINO BOLAOS
G.R. No. L-4935 May 28, 1954

FACTS:

Plaintiffs complaint against defendant was to recover possession of a

registered land. In the complaint, the plaintiff is represented by its
Managing Partner, Gregorio Araneta, Inc., another corporation.
Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession
under claim of ownership, adverse to the entire world by defendant
and his predecessors in interest" from "time immemorial".

After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and ordering
him to restore possession thereof to plaintiff and to pay the latter a
monthly rent. Defendant appealed directly to the Supreme Court and
contended, among others, that Gregorio Araneta, Inc. cannot act as
managing partner for plaintiff on the theory that it is illegal for two
corporations to enter into a partnership

ISSUE:

Whether or not a corporation may enter into a joint venture with

another corporation.

RULING:

It is true that the complaint states that the plaintiff is "represented

herein by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation being
represented by another person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. cannot act as managing
partner for plaintiff on the theory that it is illegal for two corporations
to enter into a partnership is without merit, for the true rule is that
"though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature
of that venture is in line with the business authorized by its charter."
(Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2.
Fletcher Cyc. of Corp., 1082.). There is nothing in the record to indicate
that the venture in which plaintiff is represented by Gregorio Araneta,
Inc. as "its managing partner" is not in line with the corporate business
of either of them.

WOLRGANG AURBACH vs. SANITARY WARES MANUFACTURING

CORPORATOIN
G.R. No. 75951 December 15, 1989

FACTS:

These consolidated petitions seek the review of the amended decision

of the Court of Appeals.

In 1961, Saniwares, a domestic corporation 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, European or American who could help in its expansion plans.
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware,
United States 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 an
incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."

At the request of ASI, the agreement contained provisions designed to

protect it as a minority group, including the grant of veto powers over
a number of corporate acts and the right to designate certain officers,
such as a member of the Executive Committee whose vote was
required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments to avail
of incentives with the condition that at least 60% of the capital stock of
the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the
American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a
basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had
other subsidiaries of joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin
Young.

After disposing of the preliminary items in the agenda, the

stockholders then proceeded to the election of the members of the
board of directors. The ASI group nominated three persons namely;
Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo, Sr.,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin
Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar,
who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin
Young ruled the last two nominations out of order on the basis of
section 5 (a) of the Agreement, the consistent practice of the parties
during the past annual stockholders' meetings to nominate only nine
persons as nominees for the nine-member board of directors, and the
legal advice of Saniwares' legal counsel.

These incidents triggered off the filing of separate petitions by the

parties with the Securities and Exchange Commission (SEC). The first
petition filed was for preliminary injunction by Saniwares, Emesto V.
Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo and George F. Lee against Luciano Salazar and
Charles Chamsay. The second petition was for quo warranto and
application for receivership by Wolfgang Aurbach, John Griffin, David
Whittingham, Luciano E. Salazar and Charles Chamsay against the
group of Young and Lagdameo.

The two petitions were consolidated and tried jointly. It rendered a

decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and
Salazar appealed the decision to the SEC en banc which affirmed the
decision.

The SEC decision led to the filing of two separate appeals with the
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay and by Luciano E. Salazar. The
petitions were consolidated and the appellate court ordered the case
be remanded to the SEC with the directive that a new stockholders'
meeting of Saniwares be ordered convoked as soon as possible, under
the supervision of the Commission.
Upon a motion for reconsideration filed by the Lagdameo Group the
Court of Appeals directed that in all subsequent elections for directors
of Sanitary Wares Manufacturing Corporation, American Standard Inc.
(ASI) cannot nominate more than three (3) directors; that the Filipino
stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can
nominate only six (6) candidates and in the event they cannot agree
on the six (6) nominees, they shall vote only among themselves to
determine who the six (6) nominees will be, with cumulative voting to
be allowed but without interference from ASI.

ISSUES:

(1) Whether or not the nature of the business established by the

parties was a joint venture or a corporation.
(2) Whether or not the ASI group may vote their additional equity
during elections of Saniwares' board of directors.

RULING:

(1) The rule is that whether the parties to a particular contract have
thereby established among themselves a joint venture or some other
relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and
construction of contracts.

It has been ruled that 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.

In the instant cases, our examination of important provisions of the

Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish
a joint venture and not a corporation. 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 corporation.

According to the unrebutted testimony of Mr. Baldwin Young, he

negotiated the Agreement with ASI in behalf of the Philippine nationals.
He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.

(2) As in other joint venture companies, the extent of ASI's

participation in the management of the corporation is spelled out in
the Agreement. Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the remaining six by the other
stockholders. This allocation of board seats is obviously in consonance
with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is

imperative that the parties should honor and adhere to their respective
rights and obligations thereunder. The clearly established minority
position of ASI and the contractual allocation of board seats cannot be
disregarded. On the other hand, the rights of the stockholders to
cumulative voting should also be protected.

If the Filipino stockholders cannot agree who their six nominees will be,
a vote would have to be taken among the Filipino stockholders only.
During this voting, each Filipino stockholder can cumulate his votes.
ASI, however, should not be allowed to interfere in the voting within
the Filipino group. Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats,
a result which is clearly contrary to the contractual intent of the
parties.

The legal concept of a joint venture is of common law origin. It has no

precise legal definition but it has been generally understood to mean
an organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses,
and a mutual right of control. The main distinction cited by most
opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction,
and is thus of a temporary nature. This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have
for its object a specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships.
The Supreme Court has however recognized a distinction between
these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a
joint venture with others.

To allow the ASI Group to vote their additional equity to help elect even
a Filipino director who would be beholden to them would obliterate
their minority status as agreed upon by the parties.
 B) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES
ARTICLES 1784-1809

MAURO LOZANA vs. SERAFIN DEPAKAKIBO

107 PHIL. 728

FACTS:

Mauro Lozana entered into a contract with Serafin Depakakibo wherein

they established a partnership capitalized at the sum of P30, 000,
Lozana furnishing 60% thereof and the 40% from Depakakibo for the
purpose of maintaining, operating and distributing electric light and
power in the Municipality of Dumangas, Province of Iloilo, under a
franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or
certificate of public necessity and convenience in favor of the said Mrs.
Piadosa Buenaflor was cancelled and revoked by the Public Service
Commission on May 15, 1955. A temporary certificate of public
convenience was issued in the name of Olimpia D. Decolongon on
December 22, 1955. Evidently because of the cancellation of the
franchise in the name of Mrs. Piadosa Buenaflor, Lozana sold a
generator, Buda (diesel), 75 hp. 30 KVA capacity, to the new grantee
Olimpia D. Decolongon, by a deed dated October 30, 1955.
Depakakibo, on the other hand, sold one Crossly Diesel Engine, 25 h.
p., to the spouses Felix Jimenea and Felina Harder, by a deed dated July
10, 1956.

On November 15, 1955, Lozana brought an action against Depakakibo,

alleging that he is the owner of the Generator Buda (Diesel), valued at
P8, 000 and 70 wooden posts with the wires connecting the generator
to the different houses supplied by electric current in the Municipality
of Dumangas, and that he is entitled to the possession thereof, but
that Depakakibo has wrongfully detained them as a consequence of
which Lozana suffered damages. Lozana prayed that said properties be
delivered back to him. Three days after the filing of the complaint, an
order was issued authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon Lozanas filing of a bond in the
amount of P16, 000 in favor of the Depakakibo. On December 5, 1955,
Depakakibo filed an answer, denying that the generator and the
equipment mentioned in the complaint belong to Lozana and alleging
that the same had been contributed by the Lozana to the partnership
entered into between them in the same manner that Depakakibo had
contributed equipment also, and therefore that he is not unlawfully
detaining them. By way of counterclaim, Depakakibo alleged that
under the partnership agreement the parties were to contribute
equipment, Lozana contributing the generator and Depakakibo, the
wires for the purpose of installing the main and delivery lines; that
Lozana sold his contribution to the partnership, in violation of the
terms of their agreement.

ISSUE:
Whether or not the partnership agreement is void.

RULING:

Upon examining the contract of partnership, especially the provision

thereon wherein the parties agreed to maintain, operate and distribute
electric light and power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal, or contrary to
law and public policy such as to make the contract of partnership, null
and void ab initio. The agreement could have been submitted to the
Public Service Commission if the rules of the latter require them to be
so presented. But the fact of furnishing the current to the holder of the
franchise alone, without the previous approval of the Public Service
Commission, does not per se make the contract of partnership null and
void from the beginning and render the partnership entered into by the
parties for the purpose also void and non-existent. Under the
circumstances, therefore, the lower court erred in declaring that the
contract was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the contribution of the
plaintiff to the partnership did not pass to it as its property. It also
follows that the claim of Depakakibo in his counterclaim that the
partnership be dissolved and its assets liquidated is the proper
remedy, not for each contributing partner to claim back what he had
contributed.

The judgment appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must be, as they
hereby are set aside and the case remanded to the court below for
further proceedings in accordance with law.
 MAXIMILIANO SANCHO v. SEVERIANO LIZARRAGA
G.R. No. L-33580 February 6, 1931

FACTS:

On October 15, 1920, Sancho and Lizarraga entered into a contract of

partnership. However, LIzarraga failed to pay his contribution to the
partnership which prompted Sancho to file an action for the rescission
of the partnership.

ISSUE:

Whether or not the partnership may be dissolved due to failure to

contribute to the capital.

RULING:

Yes. Owing to the defendants failure to pay to the partnership the

whole amount which he bound himself to pay, he became indebted to
it for the remainder, with interest and any damages occasioned
thereby.
 WILLIAM UY V. BARTOLOME PUZON, substituted by FRANCO
PUZON
G.R. No. L-19819 October 26, 1977

FACTS:

Puzon had a contract with the Republic of the Philippines for the
construction of the Ganyangan Bato Section of the Pagadian
Zamboanga City Road, and of five bridges in the Malangas-Ganyangan
Road. Puzon and Uy agreed to enter into partnership with the capital of
P100, 000 of which each partner shall contribute P50, 000.00. Uy was
able to give P40, 000 wherein P10, 000 was his advance contribution of
the share and P30, 000 as his partial contribution until it reached P115,
453.39 including his capital.

On the other hand, Puzon failed to contribute his share in the capital of
the partnership. The record showed that the loan which amounted to
P150, 000 was divided to paying Uy the amount of P60, 000, P40, 000
was a reimbursement of Uys contribution to partnership and the
balance of P20, 000 as Puzons contribution to the partnership. Then
later on, Puzon failed to make any contributions to the partnership
funds.

ISSUE:

Whether or not the partnership was dissolved due to Puzons failure to

contribute to the partnership capital.

RULING:

Yes. If the appellant gave to the partnership all that were earned and
due it under the subcontract agreements, 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 prosecute the projects it subcontracted.

In the case at bar, the Bureau of Public Highways paid P1, 047,181.01
which should have belonged to the partnership. However, Puzon only
deposited P27, 820 in the current account of the partnership.
 THE UNITED STATES VS. EUSEBIO CLARIN
G.R. No. 5840 (1910)

FACTS:

Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in
company with Eusebio Clarin and Carlos de Guzman, might buy and
sell mangoes. Larin made an agreement with the three men by which
the profits were to be divided equally between him and them. Tarug,
Clarin, and de Guzman traded the mangoes and obtained P203.
However, they did not give Larin his half of the profits; neither did they
render him any account of the capital. Larin charged them with the
crime of estafa, but the provincial fiscal filed an information only
against 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. Tarug and de Guzman appeared in the case as
witnesses.

ISSUE:

Whether or not Larin is a member of the partnership.

RULING:

Yes. When 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, a contract is formed which is called
partnership. (Art. 1665, Civil Code.)

When Larin put the P172 into the partnership which he formed with
Tarug, Clarin, and Guzman, he invested his capital in the risks or
benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the
usufruct of his money, it would not devolve upon of his three partners
to return his capital to him, but upon the partnership of which he
himself formed part, or if it were to be done by one of the three
specifically, it would be Tarug, who, according to the evidence, was the
person who received the money directly from Larin.

The P172 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.

No. 5 of article 535 of the Penal Code, according to which those are
guilty of estafa "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 character 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.

We therefore freely acquit Eusebio Clarin, with the costs de oficio. The
complaint for estafa is dismissed without prejudice to the institution of
a civil action.

PEOPLE VS. CAMPOS, C.A.

G.R. No. 18678-R, Oct. 29, 1957, 54 O.G. 681 (1957)

FACTS:

The complainant and the accused were partners in the farming of a 47-
hectare land leased by the complainant from one Juan Alonzo for the
agreed rental of 75 cavans of palay. When the palay had been
harvested from the land and was ready for threshing, the accused
informed the complainant. The complainant sent his nephew, Manuel
Matias, to observe the threshing with specific instructions to give the
share of the tenants and the partners' respective shares, and then
segregate the 75 cavans of palay for the rentals. After the division of
the produce, the share of the complainant was deposited at the
warehouse in Cabiao, while the share of the accused was deposited in
his house. Matias, as instructed by the complainant, delivered the 75
cavans of palay set aside for the rentals (valued at P750) to the
accused for the purpose of delivering the same to the landowner,
Alonzo. Instead of making the delivery, the accused misappropriated
the 75 cavans of palay.

Prosecuted for estafa, the accused raised the defense that no

accounting and liquidation had been effected between the partners
and that a balance of more than P1, 000 was still due him from the
partnership.

ISSUE:

Whether or not the palay still belongs to the partnership.

RULING:

No. The appellate court held that there was a liquidation of the
partnership as far as the harvest in question was concerned; "for it is
improbable that the shares of the partners were set aside, without
taking into account their obligations to each other; and it is not very
likely also that the 75 cavans of palay for the rentals were segregated
without some sort of accounting. Granting for the purposes of
argument that the partnership had not been liquidated, still we hold
that appellant is responsible for estafa. The 75 cavans of palay were
segregated from the partnership, and delivered to the appellant for the
express purpose of delivering or paying the same to Alonzo. The said
palay no longer belonged to the partnership. Instead of complying with
his duty, the appellant converted and misappropriated the said goods
to his own personal use and benefit. A partner is guilty of estafa if he
fraudulently appropriates partnership property delivered to him, with
specific directions to apply it to uses of the partnership."

Whether these rulings still obtain under the new Civil Code is a
legitimate matter for inquiry. It is to be noted that the Supreme Court
made its rulings before the new Civil Code took effect. At that time the
concept of partners' co-ownership of partnership property was
unknown to Philippine law. And while the Court of Appeals cases were
decided after the effectivity of the new Civil Code, it does not seem
that the court took account of the concept of co-ownership introduced
by the Code. When account is taken of this concept the difficulties
pointed out with respect to theft also present themselves with respect
to estafa.

The equal right of a partner to possess partnership property for

partnership purposes is further subject to modification by agreement
and to the provisions of the Code governing partnerships.
PEDRO MARTINEZ vs. ONG PONG CO and ONG LAY
G.R. No. L-5236 January 10, 1910

FACTS:

On the 12th of December, 1900, Pedro Marinez delivered P1, 500 to

the defendants who, in a private document, acknowledged that they
had received the same with the agreement, as stated by them, "that
we are to invest the amount in a store, the profits or losses of which we
are to divide with the former, in equal shares." Later, Martinez filed a
complaint in order to compel the defendants to render him an
accounting of the partnership as agreed to, or else to refund him the
P1, 500 that he had given them for the said purpose. Ong Pong Co
alone appeared to answer the complaint; he admitted the fact of the
agreement and the delivery to him and to Ong Lay of the P1, 500 for
the purpose aforesaid, but he alleged that Ong Lay, who was then
deceased, was the one who had managed the business, and that
nothing had resulted therefrom save the loss of the capital of P1, 500,
to which loss the plaintiff agreed. The CFI ordered Ong Pong Co to
return to the plaintiff one-half of the said capital of P1, 500 plus P90 as
one-half of the profits, calculated at the rate of 12% per annum for the
six months that the store was supposed to have been open (total of
P840) with legal interest of 6% until the full payment, with costs Ong
Pong Co then assailed the decision of the CFI.

ISSUE:

Whether or not Martinez is entitled to the capital he contributed to the

partnership.

RULING:

Yes. The fact that the defendants received certain capital from the
plaintiff for the purpose of organizing a company; they, according to
the agreement, were to handle the said money and invest it in a store
which was the object of the association; they, in the absence of a
special agreement vesting in one sole person the management of the
business, were the actual administrators thereof; as such
administrators they were the agent of the company and incurred the
liabilities peculiar to every agent, among which is that of rendering
account to the principal of their transactions, and paying him
everything they may have received by virtue of the mandatum. Neither
of them has rendered such account; they are therefore obliged to
refund the money that they received for the purpose of establishing
the said store the object of the association. This was the principal
pronouncement of the judgment.

Judgment appealed from is affirmed, provided, however, that the

defendant Ong Pong Co shall only pay the plaintiff the sum of P750
with the legal interest thereon at the rate of 6 per cent per annum from
the time of the filing of the complaint, and the costs.

RAMNANI vs. COURT OF APPEALS

196 SCRA 731
FACTS:

Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are

brothers of the full blood. Ishwar and his spouse Sonya had their main
business based in New York. Ishwar and his wife Sonya had their main
business based in New York. Ishwar received US $150,000.00 from his
father-in-law in Switzerland. In 1965, Ishwar sent the amount of US
$150,000.00 to Choithram in two bank drafts of US$65,000.00 and
US$85,000.00 for the purpose of investing the same in real estate in
the Philippines. Realizing the difficulty of managing their investments
in the Philippines they executed a general power of attorney on
January 24, 1966 appointing Navalrai and Choithram as attorneys-in-
fact, empowering them to manage and conduct their business concern
in the Philippines.

On February 1, 1966 and on May 16, 1966, Choithram entered into two
agreements for the purchase of two parcels of land located in Barrio
Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership. A
building was constructed thereon by Choithram in 1966. Three other
buildings were built thereon by Choithram through a loan of P100,
000.00 obtained from the Merchants Bank as well as the income
derived from the first building.
Sometime in 1970 Ishwar asked Choithram to account for the income
and expenses relative to these properties during the period 1967 to
1970. Choithram failed and refused to render such accounting.
Thereafter, Ishwar revoked the general power of attorney. Choithram
and Ortigas were duly notified of such revocation on April 1, 1971 and
May 24, 1971, respectively. Said notice was also registered with the
Securities and Exchange Commission on March 29, 1971 and was
published in the April 2, 1971 issue of The Manila Times for the
information of the general public.

Nevertheless, Choithram, transferred all rights and interests of Ishwar

and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on February
19, 1973. On October 6, 1982, Ishwar and Sonya filed a complaint
against Choitram and/or spouses Nirmla and Moti and Ortigas Ltd. for
reconveyance of said properties or payment of its value and damages.

ISSUE:

Whether a partnership was formed?

RULING:

The Court held that there was a partnership formed. Even without a
written agreement, the scenario is clear. Spouses Ishwar supplied the
capital of $150,000.00 for the business. They entrusted the money to
Choithram to invest in a profitable business venture in the Philippines.
For this purpose they appointed Choithram as their attorney-in-fact. We
have a situation where two brothers engaged in a business venture.
One furnished the capital, the other contributed his industry and talent.
Justice and equity dictate that the two share equally the fruit of their
joint investment and efforts.
 MORAN, JR. v. CA
G.R. No. L-59956 Oct. 31, 1984

FACTS:

Pecson and Moran entered into an agreement for the printing of

posters featuring the delegates of the 1971 Constitutional Convention;
that 95k posters were supposed to be printed and sold at P2/each; that
each would contribute P15k.That Moran will supervise the work, while
Pecson would receive a P1k monthly commission Pecson gave Moran
P10k for which the latter issued a receipt Only 2k posters were printed,
but each was sold for P5 Moran then executed 2 promissory notes in
favor of Pecson. Pecson then filed an action for the recovery of a sum
of money for the return of his P10, 000 contribution, payment of his
share in the profits that the partnership would have earned.

The trial court held that each party is entitled to rescind the contract
since both failed to fulfill their respective promises (Moran the printing
of the 95k posters; Pecson the P15k contribution).

The Court of Appeals held that Moran must pay Pecson, among others,
the amount of expected profits and the latters commission in the
partnership.

ISSUE:

Whether or not Moran is obliged to give Pecson the amount of

expected profits from their partnership.

RULING:

No, he is not. When a partner who has undertaken to contribute a sum

of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Art.1786) and for
interests and damages from the time he should have complied with his
obligations (Art. 1788).

Being a contract of partnership, each partner must share in the profits

and losses of the venture, for that is the essence of partnership. Even
in the assurance of the other partner that they would earn a huge
amount of profits, in the absence of fraud, the other cannot claim a
right to recover the highly speculative profits

In the present case, the fantastic nature of expected profits is obvious

that various factors need to be considered. The failure of COMELEC to
proclaim all 320 candidates of the Constitutional Convention on time
was a major factor in Morans decision not to go on with the printing of
all 95,000 posters.

NG YA v. SU COMMERCIAL CO.
50 O.G. 4913

FACTS:
Ng Ya is a Chinese merchant based in Surigao. Ng Ya ordered from Sugbu
Commercial (based in Cebu) 1,000 galvanized iron and aluminium sheets. It was
agreed that the goods would be delivered in a weeks time, or on or
before January 5, 1950. The amount of these goods is P5, 400, which
appears to have been paid by Ng Ya in full. However, the said goods were not
delivered on the said date. Sugbu kept promising to deliver it at some future
time.

Sugbu Commercial later found out that Ng Ya is also in need of cigarettes for
retail. The former then offered the latter cigarettes. Ng Ya was enticed
by the offer and then entered into another contract of sale with Sugbu.
She paid the amount of the cigarettes worth P4, 000 with the help of Lana
Bakery. However, after a couple of months, neither the cigarettes nor the
galvanized iron and aluminium sheets reached Ng Ya.

Consequently, Lana Bakery, from whom Ng Ya obtained the P4, 000 got angry
with her and, for this reason, Ng Ya was forced to reimburse the amount.

She then kept coming back to Sugbu to demand either the delivery of the goods
she ordered or the payment of P 9,400 to no avail.

Ng Ya finally filed a complaint with the CFI Cebu. Sugbu Commercial filed a
third party complaint against Pow Sun Gee, alleging that the latter received the
amounts of P5,400 and P4,000 in his capacity as manager of Sugbu
Commercial when he was not authorized to issue official receipts and
that only his co-partner Shih Tiong Chu, who was most of the time in Manila,
could do so. In this regard, Sugbu Commercial prayed that Pow Sun Gee be
ordered to indemnify Sugbu Commercial for whatever is adjudged against
the latter in favor of plaintiff Ng Ya.
The Trial Court decided in favor of Ng Ya and sentenced Sugbu to pay plaintiff the
sum of P9, 400 and condemning Pow Sun Gee to reimburse Sugbu Commercial
Company.

ISSUE:

Whether a mere manager of a partnership has the power to issue receipts.

RULING:
Yes, a manager of a partnership is presumed to have all the incidental
powers to carry out the object of the partnership in the transaction of
the business. There is of course an exception to the general rule; when
the powers of a manager are specifically restricted, he could not
exercise the powers expressly limited of him.

But when the articles of association do not specify the powers of the
manager, it is admitted on principle that a manager has the powers of
a general agent, and even more when the object of the company is
determined, the manager has all the powers necessary for the
attainment of such object.

Sugbu Commercial was not able to present articles of co-partnership

that would show any limitation upon the powers of the manager an
indication that there was none. For this reason, we hold and declare
that the minor power of issuing official receipt is included in the
general powers of the manager.
Indeed, it would be quite queer that the manager of any juridical entity
would not be authorized to issue official receipts for amounts delivered
to that entity through said manager, and that only his co-partner Shih
Tiong Chu, who was most of the time in Manila, could do so. This is not
in keeping with the present day business dealings, for it is slow and
inconvenient to those who transact with the company.
 TEAGUE V. MARTIN, ET AL.
G.R. No. 30286. September 12, 1929.

FACTS:

Teague, Martin, et al. formed a partnership for the operation of a fish

business. The partnership purchased properties for the operation of the
business. Teague asked to dissolve the partnership. Martin, et al.
agreed, upon proper accounting of the properties of the partnership.
Teague insisted that the equipment used in the fish business such as
their marine vessel, among others, is his, and not of the partnership.
No successful agreement to dissolve the partnership was shown.
Teague filed a complaint to dissolve the partnership. The lower court
decreed that the partnership is dissolved and that the equipment
belong to Teague, but must pay the partnership for the purchase of the
equipment. Teague filed this petition praying for a new trial.

ISSUE:

Teague contends that the equipment he purchased do not form part of

the assets of the partnership, and as such he must not be ordered to
reimburse the partnership.

RULING:

The partnership had the use and benefit of the vessel in its business
and that the partnership has never paid anything for its use. Teague
should be compensated for the value of the time which the partnership
made use of the vessel.
SANTOS V. VILLANUEVA, E. DEL ROSARIO AND C. DEL ROSARIO.
No. 8876-R. September 7, 1953. Official Gazette, Volume 50,
No. 1 (January 1954)

FACTS:

Santos and the del Rosarios formed a partnership for the purpose of
operating a tailoring business. Thereafter, E. del Rosario executed a
sale in favor of Villanueva of the entire partnership assets without the
knowledge and consent of Santos. Santos filed for rescission of the sale
with the lower court. The court found the sale void for want of consent
from Santos. Thus, this appeal from Villanueva.

ISSUE:

Whether a sale of partnership property by a partner without the

consent of co-partners is valid.

RULING:

Partnership property cannot be validly sold or conveyed by any one of

the partners without the consent of all the other partners forming the
partnership. Nor could any of the partners transfer to another person
his interest in the partnership without the previous consent of his
partners.
 E. M. BACHRACH vs. "LA PROTECTORA", ET AL. Vicente Foz
G.R. No. L-11624 January 21, 1918

FACTS:

In the year 1913, the individual named as defendants (Nicolas

Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano) formed
a civil partnership, called La Protectora, for the purpose of engaging
in the business of transporting passengers and freight. On June 23,
1913, one Marcelo Barba, acting as manager of La Protectora came
to Manila and negotiated the purchase of two automobile trucks from
the plaintiff, E. M. Bahrach, for the agree price of Php 16,500.00. Barba
paid the sum of Php 3,000.00 in cash and executed three (3)
promissory notes for the remaining balance.

As a preliminary purchase of the two trucks, the defendants executed

in due a form a document in which they declared that they were
members of the La Protectora and that they had granted to its
president full authority "in the name and representation of said
partnership to contract for the purchase of two automobiles". This
document was apparently executed in obedience to the requirements
of subsection 2 of article 1697 of the Civil Code, for the purpose of
evidencing the authority of Marcelo Barba to bind the partnership by
the purchase. The document in question was delivered by him to
Bachrach at the time the automobiles were purchased. From time to
time after the purchase of the two (2) trucks, Marcelo Barba purchased
of the plaintiff various automobile effects and accessories to be used in
the business of La Protectora, hence, it resulted to indebtedness of
total sum of Php 2,916.57.

The plaintiff foreclosed a chattel mortgage which he had retained on

the trucks to secure the purchase price, hence, the sale was
insufficient to pay such indebtedness. The petitioner filed an action in
the Court of First Instance against La Protectora. At the hearing, the
judgment rendered was against the defendants, yet the four
individuals appealed.

ISSUE:

Whether or not the four individuals are liable to the debts.

RULING:

The business conducted under the name of "La Protectora" was

evidently that of a civil partnership; and the liability of the partners to
this association must be determined under the provisions of the Civil
Code. The authority of Marcelo Barba to bind the partnership, in the
purchase of the trucks, is fully established by the document executed
by the four appellants upon June 12, 1913.

The promissory notes constitute the obligation exclusively of "La

Protectora" and of Marcelo Barba; and they do not in any sense
constitute an obligation directly binding on the four appellants. Their
liability is based on the fact that they are members of the civil
partnership and as such are liable for its debts. In connection with
article 1137 of the Civil Code, that each is liable with the others for his
aliquot part of such indebtedness. The Court of First Instance seems to
have founded its judgment against the appellants in part upon the idea
that the document executed by them constituted an authority for
Marcelo Barba to bind them personally, as contemplated in the second
clause of article 1698 of the Civil Code.
 JOSE MACHUCA vs. CHUIDIAN, BUENAVENTURA & CO.
G.R. No. 1011 May 13, 1903

FACTS:

The defendants are a regular general partnership, organized in Manila,

December 29, 1882, as a continuation of a prior partnership of the
same name. The original partners constituting the partnership of 1882
were D. Telesforo Chuidian, Doa Raymunda Chuidian, Doa Candelaria
Chuidian, and D. Mariano Buenaventura. The capital was fixed in the
partnership agreement at 16,000 pesos, of which the first three
partners named contributed 50,000 pesos each, and the last named
10,000 pesos, and it was stipulated that the liability of the partners
should be "limited to the amounts brought in by them to form the
partnership stock."

It appears from the partnership agreement that each one of them had
advanced money to the preexisting partnership, which advances were
assumed or accounts-current aggregated, represented the advances
from the Chuidians and the balance that balance that from D. Mariano
Buenaventura.

Doa Raymunda Chuidian retired from the partnership November 4,

1885. On January 1, 1888, the partnership went into liquidation, and it
does not appear that the liquidation had been terminated when this
action was brought.

On January 1, 1894, D. Mariano Buenaventura died, his estate passing

by will to his children, among whom was D. Vicente Buenaventura.
Upon the partition of the estate the amount of the interest of D.
Vicente Buenaventura in his father's account-current and in the capital
was ascertained and recorded in the books of the firm. On December
15, 1898, D. Vicente Buenaventura executed a public instrument in
which for a valuable consideration he "assigns to D. Jose Gervasio
Garcia . . . a 25 per cent share in all that may be obtained by whatever
right in whatever form from the liquidation of the partnership of
Chuidian, Buenaventura & Co., in the part pertaining to him in said
partnership.

The plaintiff claims under Garcia by virtue of a subsequent assignment,

which has been notified to the liquidator of the partnership. The
liquidator of the partnership having declined to record in the books of
the partnership the plaintiff's claim under the assignment as a credit
due from the concern to him this action is brought to compel such
record to be made, and the plaintiff further asks that he be adjudicated
to be a creditor of the partnership in an amount equal to 25 per cent of
D. Vicente Buenaventura's share in his father's account-current, as
ascertained when the record was made in the books of the partnership
upon the partition of the latters estate, with interest, less the liability
to which the plaintiff is subject by reason of his share in the capital.

ISSUE:

Whether or not Machucha is entitled to receive claim over the

partnerships share.
RULING:

The underlying question in the case relates to the construction of

clause 19 of the partnership agreement, by which it was stipulated that
"upon the dissolution of the company, the pending obligations in favor
of outside parties should be satisfied, the funds of the minors Jose and
Francisco Chuidian should be taken out, and afterwards the resulting
balance of the account-current of each one of those who had put in
money (imponentes) should be paid."

The construction of this clause is that it establishes a basis for the final
adjustment of the affairs of the partnership; that that basis is that the
liabilities to non-co-partners are to be first discharged; that the claims
of the Chuidian minors are to be next satisfied; and that what is due to
the respective partners on account of their advances to the firm is to
be paid last of all, leaving the ultimate residue, of course, if there be
any, to be distributed, among the partners in the proportions in which
they may be entitled thereto.

Partners, being at the same time creditors, were "outside parties," it is

clear that a distinction is made in this clause between creditors who
were partners and creditors who were not partners, and that the
expression "outside parties" refers to the latter class. Upon this
interpretation of the assignment, it becomes unnecessary to inquire
whether article 143 of the Code of Commerce, prohibiting a partner
from transferring his interest in the partnership without the consent of
the other partners, applies to partnerships in liquidation, as contended
by the defendant. The assignment by its terms 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, if there
should be any, among the partners.

It is contended by the plaintiff that, as the partnership was without

authority to enter upon new mercantile operations after the liquidation
commenced, the increase in D. Mariano Buenaventura's account-
current during that period was the result of a void transaction, and that
therefore the plaintiff is entitled to withdraw at once the proportion of
such increase to which he is entitled under the assignment. It is
sufficient to say that it nowhere appears in the case that the increase
in D. Mariano Buenaventura's account-current during the period of
liquidation was the result of new advances to the firm, and the figures
would appear to indicate that it resulted from the accumulation of
interest.

The plaintiff having acquired no rights under the assignment which are
now enforceable against the defendant, this action cannot be
maintained. The liquidator of the defendant having been notified of the
assignment, the plaintiff will be entitled to receive from the assets of
the partnership, if any remain, at the termination of the liquidation, 25
per cent of D. Vicente's resulting interest, both as partner and creditor
 FUE LEUNG V. INTERMEDIATE APPELLATE COURT
169 SCRA 746

FACTS:

The Sun Wah Panciteria, a restaurant, located at Florentino Torres

Street, Sta. Cruz, Manila, was established sometime in October, 1955.
It was registered as a single proprietorship and its licenses and permits
were issued to and in favor of Dan Fue Leung, respondent. Leung Yiu,
complainant, gave P4, 000.00 as his contribution to the partnership
with the understanding that he would be entitled to twenty-two
percent (22%) of the annual profit derived from the operation of the
said panciteria. Respondent, however, later on denied having entered
into a partnership averring that is was in the nature of financial
assistance to him in the operation of his panciteria, although he
promised to give 22% of the annual profit.

ISSUE:

Whether or not the complainant is considered a partner and hence

entitled to recover the sum equivalent to twenty-two percent (22%) of
the annual profits derived from the operation of Sun Wah Panciteria?

RULING:

Yes, the complainant is a partner of the owner of Sun Wah Panciteria.

In essence, the complainant alleged that when Sun Wah Panciteria was
established, he gave P4, 000.00 to the respondent with the
understanding that he would be entitled to twenty-two percent (22%)
of the annual profit derived from the operation of the said panciteria.
These allegations, which were proved, make the private respondent
and the petitioner partners in the establishment of Sun Wah Panciteria
because Article 1767 of the Civil Code provides that "By the contract of
partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing
the profits among themselves".

Notwithstanding the use of the term financial assistance therein, we

agree with the appellate court's observation to the effect that "... given
its ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of
destitution. But this circumstance under which the P4, 000.00 was
given to the petitioner does not obtain in this case. The complaint
explicitly stated that "as a return for such financial assistance, plaintiff
(private respondent) would be entitled to twenty-two per centum
(22%) of the annual profit derived from the operation of the said
panciteria.

SISON V. MC QUIAD
94 Phil. 201

FACTS:

Plaintiff during the year 1938 lent to the respondent various sums of
money, aggregating P2, 210, to enable her to pay her obligation to the
Bureau of Forestry and to add to her capital in her lumber business.
Defendant was not able to pay the loan in 1938, as she had promised,
she proposed to take in plaintiff as a partner in her lumber business,
plaintiff to contribute to the partnership the said sum of P2,210 due
him from defendant in addition to his personal services; that plaintiff
agreed to defendants proposal and, as a result, there was formed
between them, under the provisions of the Civil Code, a partnership in
which they were to share alike in the income or profits of the business,
each to get one-half thereof. Before the last World War, the partnership
sold to the United States Army 230,000 board feet of lumber for P13,
800, for the collection of which sum defendant, as manager of the
partnership, filed the corresponding claim with the said army after the
war.

But, defendant refused to deliver half of it. Plaintiff, therefore, prays

for judgment declaring the existence of the alleged partnership and
requiring defendant to pay him the said sum of P6, 900, in addition to
damages and costs.

ISSUE:

Whether or not, plaintiff is entitled to recover a share in the proceeds

of the sale.

RULING:

No, the plaintiff has no cause of action.

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 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 a 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.

ORNUM VS. LASALA

74 Phil. 241

FACTS:

The respondents, Mariano Lasala and company, are natives of Taal,

Batangas and resided in Manila. The petitioners, Jose Ornum and
Emerenciana Ornum are also natives of Taal, Batangas but resided in
Tablas, Romblon. In 1908, Pedro Lasala, the father of the respondents,
and Emerenciano Ornum formed a partnership. Pedro provided a
capital of PhP 1, 000 to Emerenciano to conduct a business in Romblon.
In 1912, Emerenciano was replaced by Jose and Emerenciana. The
petitioners contributed PhP 505.54. Thus, the capital for the business
of Romblon had a total of PhP 1, 505.54.

Upon the death of Pedro, his children, the respondents, succeeded to

all his rights and interest in the partnership. Jose and Emerenciana
received half of the net gains. The other half is divided between them
and the Lasalas. The Lasalas decided to give a portion of their profits
as capital in the partnership.

After 20 years, the business has a total value of PhP 44, 618.67. After
some time, the respondents had announced their desire to dissolve the
partnership. Consequently, the petitioners gave a last and final
statement of accounts to the respondents dated May 27, 1932.

The spokesman of the respondents wrote a letter to the petitioners to

remit the amounts contained in the statement of accounts. The
petitioners accepted the request. However, the statement of accounts
was not signed by the respondents.

A complaint was filed by the respondents praying for an accounting

and final liquidation of the assets of the partnership. The Court of First
Instance held that the last and final statement of accounts was tacitly
approved by the respondents through the letter of their spokesman.
The Court of Appeals reversed the decision on the ground that the final
statement of accounts remained unsigned.

ISSUE:

Whether the respondents have the right to request an accounting and

final liquidation of the assets of the partnership.

RULING:

No, the respondents have no right to request an accounting and final

liquidation of the assets of the partnership. The court stated that there
was an approval of the final statement of accounts by virtue of the
letter of the spokesman and the failure of the respondents to object
the statements and their promise to sign as soon as they received their
shares.

Such approval denies the respondents to their right to an accounting

and final liquidation of the assets of the partnership.

C) PROPERTY RIGHTS OF A PARTNER ARTICLES 1810-1814

CLEMENTE VS. GALVAN

67 Phil. 565

FACTS:

In 6 June 1931, plaintiff and defendant formed a partnership. Hardy a

year had passed, plaintiff filed a complaint asking for the dissolution of
the partnership and to compel the defendant to submit an accounting
of his administration and to deliver the shares.

The defendant confirmed the dissolution and liquidation of affairs. By

way of counterclaim, the defendant asked for the reimbursement of
half of the PhP 4, 000 which was due to the deficit of the partnership.

Mencarini was appointed as a receiver. The plaintiff required said

receiver to deliver to him certain machines and to charge the value of
PhP 4, 500. Mercarini complied by delivering to the plaintiff the keys to
the place where the machines were found which was the same place
as the defendants home. The plaintiff failed to take possession
because the defendant filed a motion in court and the court suspended
the order.
Meanwhile two cases were executed against the plaintiff for the
collection of a sum of money. In order to avoid attachment, the plaintiff
ordered the receiver to mortgage the machines.

ISSUE:

Whether the action of mortgaging the machines was proper.

RULING:

No. The mortgage was not proper. In the first place, the machines were
originally from the defendant which was transferred to the partnership.
Thus, the machines belong to the partnership and not to the plaintiff.
The machines shall remain to be a property of the partnership until a
partition is effected according to the result of the liquidation.

LEYTE-SAMAR-SALES AND K. TOMASSI VS. S. CEA AND O.

CASTRILLA
93 Phil. 100

FACTS:

After winning a claim for damages filed by Leyte-Samar Sales Co.

(LESSCO) and Raymond Tomassi against the Far Eastern Lumber &
Commercial Co. (FELCO), the sheriff sold at auction on June 9, 1951 to
Robert Dorfe and Pepito Asturias all the rights, interests, titles and
participation" of the defendants in certain buildings and properties. But
on June 4, 1951 Olegario Lastrilla filed in the case a motion claiming to
be the , owner by purchase of all the "shares and interests" of
defendant Fred Brown in the FELCO which he bought on September 29,
1949. He also requested the sheriff be to retain in his possession
portion of the deeds of the auction sale to pay his right.

The judge granted Lastrilla's motion by requiring the sheriff to retain

17 per cent of the money "for delivery to the assignee, administrator
or receiver" of the FELCO. But was later modified by mere declaring
that Lastrilla was entitled to 17 per cent of the properties sold.
ISSUE:

Can a partner file proper claim to the proceeds of the sale?

RULING:

No. On June 9, 1951 when the sale was effected of the properties of
FELCO, Lastilla was already a partner of FELCO. If he was a creditor of
the FELCO, perhaps or maybe. But he was not. The partner of a
partnership is not a creditor of such partnership for the amount of his
shares.

Granting that the auction sale did not included the interest or portion
of the FELCO properties corresponding to the shares of Lastrilla in the
same partnership, the other purchasers will have to recognize
dominion of Lastrillas over 17 per cent of the properties awarded to
them. So Lastrilla acquired no right to demand any part of the money
paid by the purchaser to the sheriff for the benefit of FELCO and
Tomassi for the reason that, his shares could not have been and were
not auctioned off.

Supposing that the shares have been actually sold the owner of
property wrongfully sold may not voluntarily come to court, and insist
he approve the sale and claim proceed as owner. The reason is that the
sale was made for the judgment creditor and not for anybody else.

D) OBLIGATIONS OF THE PARTNERS TO THIRD PERSONS

ARTICLES 1815-1827

PHIL. NATIONAL BANK VS. LO

50 Phil. 803

FACTS:

On September 29, 1916, the appellants Severo Eugenio Lo and Ng

Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke
Lam and Co Sieng Peng formed a commercial partnership under the
name of "Tai Sing and Co.," with a capital of P40, 000. J. A. Say Lian
Ping was appointed general manager with the powers specified in said
articles of copartnership. On June 4, 1917, general manager A. Say Lian
Ping executed a power of attorney in favor of A. Y. Kelam, authorizing
him to act in his stead as manager and administrator of the
partnership. On July 26, 1918 Ke Lam obtained loan from PNB
mortgaging certain personal properties of the partnership. This
commercial credit was renewed with the bank several times up to May
22, 1921. PNB filed a claim against the partnership for its outstanding
account.

Lo, as his defense, claimed that Tai Sing & Co was not a general
partnership and that the credit in the current account of the
partnership was not approved by the Board of Directors of the
partnership nor the person for whom the loan was contracted.

ISSUES:

Whether or not the anomalous name of the partnership affects its

liability?

Whether or not the death of the general manager would not justify the
reversal of the judgment?

RULING:

No, it does not affect the liability of the general partners to third
parties under article 127 of the Code of Commerce. The Supreme Court
held in the case of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil.,
142), in which it said that the object of article 126 of the Code of
Commerce in requiring a general partnership to transact business
under the name of all its members, of several of them, or of one only,
is to protect the public from imposition and fraud; and that the
provision of said article 126 is for the protection of the creditors rather
than of the partners themselves. The doctrine was enunciated that the
law must be unlawful and unenforceable except the sense of depriving
innocent parties of their rights who may have dealt with the offenders
in ignorance of the latter having violated the law; and that contracts
entered into by commercial associations defectively organized are
valid when voluntarily executed by the parties, and the only question is
whether or not they complied with the agreement. Therefore, the
defendants cannot invoke in their defense the anomaly in the firm
name which they themselves adopted.

No, for two reasons: (1) Because Ou Yong Kelam was a partner who
contracted in the name of the partnership, without any objection of the
other partners; and (2) because it appears in the record that the
appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng,
appointed Sy Tit as manager, and he obtained from the plaintiff bank
the credit in current account, the debit balance of which is sought to be
recovered in this action.

NICOLAS CO-PITCO v. PEDRO YULO

G.R. No. L-3146 September 14, 1907

FACTS:

Florencio Yulo and Jaime Palacios were partners in the operation of a

sugar estate in Victorias, Island of Negros. Co-Pitco found out, that
there was a balance due from the firm of Php 1,638.40. Palacios being
out of the country, Co-pitco ordered judgment against the defendant,
Pedro Yulo, for the entire amount, with interest.

ISSUE:

Whether or not Yulo is liable for the entire amount.

RULING:

The partnership was a civil partnership, as distinguished from a

mercantile partnership. Being a civil partnership, by the express
provisions of Articles 1698 and 1137 of the Civil Code, the partners are
not liable each for the whole debt of the partnership. The liability is pro
rata and in this case Pedro Yulo is responsible to plaintiff for only one-
half of the debt. The fact that the other partner, Jaime Palacios, had left
the country cannot increase the liability of Pedro Yulo.

The judgment of the court was reversed and judgment is ordered in

favor of the plaintiff and against the defendant, Pedro Yulo, for the sum
of Php 819.20, with interest at the rate of 6 per cent per annum.

NOTE: The case does not mention who Co-pitco is, but he may either
be the lower court judge or a creditor. The former may be inferred
because he 'ordered' judgment, unless during those times, the terms
ordered and 'prayed for' were used interchangeably by the court. The
latter may also be inferred because the SC held that Yulo is
"responsible to plaintiff for only one-half of the debt." Obviously, the
debtor can only be liable to his creditor and not to the judge, unless
the judge is also the creditor. Whether he be the judge, creditor, or
both, what matters is the doctrine of this case.

ISLAND SALES, INC. v. UNITED PIONEERS GENERAL

CONSTRUCTION COMPANY, ET. AL G.R. No. L-22493 July 31,
1975

FACTS:
United Pioneers General Construction Company is a general
partnership which purchased a motor vehicle by installment from
Island Sales, Inc., with the condition that upon failure to pay any of the
installments as they fall due would render the whole unpaid balance
immediately due and demandable.

United Pioneers defaulted in its payment hence it was sued and the
partners were impleaded as co-defendants.

Upon motion of Island Sales, Lumauig, one of the partners was

removed as a defendant.

United Pioneers lost the civil case and the trial court rendered
judgment ordering United Pioneers to pay the outstanding balance plus
interest and costs. It further decreed that the remaining co-defendants
shall pay Island Sales in case United Pioneers property will not be
enough to satisfy its indebtedness to Island Sales.

ISSUE:

What is the extent of the liability of the partners?

RULING:

Their liability is pro-rata pursuant to Article 1816 of the Civil Code. But
is should be noted that since there were 5 partners when the purchase
was made in behalf of the partnership, the liability of each partner
should be 1/5 (of the companys obligation) each. The fact that the
complaint against Lumauig was dismissed, upon motion of the Island
Sales, does not unmake Lumauig as a general partner in the company.
In so moving to dismiss the complaint, Island Sales merely condoned
Lumauigs individual liability to them.

COMPANIA MARITIMA V. MUNOZ

9 Phil 326
FACTS:

Francisco Muoz, Emilio Muoz, and Rafael Naval formed a partnership

under the name of Francisco Muoz & Sons for the purpose of
carrying on the mercantile business in the Province of Albay.
FRANCISCO was the capitalist partner while EMILIO and RAFAEL were
industrial partners. In the articles of partnership, Francisco Muoz &
Sons was called an ordinary, mercantile partnership. This is what the
partners expressly stated and that they have agreed to form, and did
form, an ordinary, general mercantile partnership. The object of the
partnership is a purely mercantile one and all the requirements of the
Code of Commerce in reference to such partnership were complied
with. Also, the articles of partnership were recorded in the mercantile
registry in the Province of Albay La Compaia MARITIMA brought this
action in the CFI Manila against the partnership Franciso Muoz &
Sons, and the partners (FRANCISCO, EMILIO and NAVAL) to recover
the sum of P26,828.30. The CFI acquitted EMILIO and NAVAL but
sentenced the partnership and FRANCISCO to pay MARITIMAs claims.
From this judgment, MARITIMA filed the instant appeal

ISSUES:

Whether or not the other partners (EMILIO and NAVAL) should be held
liable. Otherwise stated, are industrial partners in a general
partnership liable to third persons for the debts and obligations
contracted by the partnership?

Whether or not industrial partners under a general partnership are

liable to 3rd parties for obligations contracted by the partnership.

Whether or not some of them may be industrial and some

capitalist partners is not relevant. They are all general partners! There
is nothing in the Code of Commerce which says that the industrial
partners shall be the only general partners, nor is there anything which
says that the capitalist partners shall be the only general partners.

RULING:

Yes, they are liable. The CFI judgment is REVERSED in acquitting

EMILIO and NAVAL.

Sub-issue Whether or not EMILIO is really an industrial partner in

Francisco Muoz & Sons

By the articles of partnership, there is no question that FRANCISCO and

NAVAL are partners, the former being the capitalist partner and NAVAL
as one of the industrial partners. There is, however, a question as to
EMILIOs involvement in the

Partnership. The claim of that EMILIO contributed nothing to the

partnership, either in property, money, or industry, cannot be
sustained. He contributed as much as did the other industrial partner,
NAVAL, the only difference being that NAVAL was entitled to a fixed
salary of P2,500 for being in charge of the branch office at Ligao. Now,
it cannot be said that just because no yearly or monthly salary was
assigned to EMILIO, he contributed nothing to the partnership or that
received nothing from it. As can be gleaned from the articles of
partnership, he was to receive at the end of 5years 1/8 of the profits;
thus, he will actually receive something. The fact that the receipt of
this money was postponed for five years is not important. That EMILIO
was excluded from the management of the business is also of no
moment. By signing the articles of partnership, EMILIO actually
excluded himself from such management, for he signed the articles of
partnership by the terms of which the management was expressly
conferred to other persons therein named. Partners can do this
pursuant to the Code of Commerce which requires them to state the
partners to whom the management is entrusted

In a limited partnership, the Code of Commerce recognizes a difference

between general and special partners, but in a general partnership
there is no such distinction all the members are general partners.

Art 127 of the Code of Commerce is however explicit in saying that all
the members of the general co- partnership are liable personally and
in solidum with all their property for the results of the transactions
made in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to make use
thereof.

Do the words "all the partners" found in Art 127 include industrial
partners?

The Court cited many other provisions of the Code which used the
phrase all the partners and concluded that in all of them, the
industrial partners must be included It cannot have been intended that,
in a general partnership like in the case at bar where there were two
industrial and only one capitalist partner, the industrial partners should
have no voice in business at all. Going one by one with the cited
provisions of the Code using the phrase all the partners, it could not
have been the intention that industrial partners are to have no power
in determining who the managing partner shall be; or that when the
manager appointed mismanages the business the industrial partners
should have no right to appoint a co-manager; that they should have
no right to examine the books; that they might use the firm name in
their private business; or that they have no voice in the liquidation of
the business after dissolution, etc.

To give a capitalist partner who contributed no more than, say,P500,

many rights and to take them away from a person who contributed his
services worth infinitely more than P500, would be discriminate
unfairly against industrial partners.
If the phrase "all the partners" as found in the other provisions other
than Art 127 includes industrial partners, then Art 127must include
them and they are liable by the terms thereof for the debts of the firm
there is no injustice in imposing liability in favor of 3 rd parties upon the
industrial partners. This is because industrial partners, as held above,
have a voice in the management of the business; they share in the
profits and as to third persons it is no more than right that they should
share in the obligations. BUT it is contended that Art 140 and 141
expressly declare the contrary. This contention is misplaced. It is to be
noticed in the first place that this article does not say that they shall
not be liable for losses. Article 140-41 merely declares how the profits
and losses shall be divided among the partners. It says nothing about
third persons and nothing about the obligations of the partnership. The
use of the word "losses" alone in Art 141 is not intended to impose the
liability to third persons. Instead, it is the word losses coupled with
the word "obligations" which speaks of liabilities to 3rd persons.

Our construction of Art 141 relates exclusively to the settlement of the

partnership affairs among the partners themselves and has nothing to
do with the liability of the partners to third persons. Thus, when the
affairs of the partnership are liquidated and it turns out that there had
been losses instead of profits, then, the capitalist partner shall pay
such losses; that is, pay them to the industrial partners if they have
been compelled to disburse their own money in payment of the debts
of the partnership With reference to the Civil Code, our construction of
the Code of Commerce provisions herein is clarified. Under the Civil
Code, Arts 1689 and 1691 contain in substance the provisions of
Arts140 and 141 of the Code of Commerce. It is to be noticed that
Arts1689-91 is a section that treats of the obligations of the partners
between themselves. The liability of the partners as to third persons is
treated in a distinct section, comprising Arts 1697-99.Art 127 of the
Code of Commerce relates then to the liabilities of partnerships to 3rd
parties while Arts 140-41 relate to liabilities of partners to each other.
 GEORGE O. DIETRICH, v. O.K. FREEMAN, JAMES L. PIERCE, and
BURTON WHITCOMB
18 PHIL. 341

FACTS:

This action was brought against O.K. Freeman, James L. Pierce, and
Burton Whitcomb, as owners and operators of the Manila Steam
Laundry, to recover the sum of P952 alleged to be the balance due the
plaintiff for services performed during the period from January 9, 1907,
to December 31, 1908. Judgment was rendered in favor of the plaintiff
and against Freeman and Whitcomb, jointly and severally, for the sum
of P752, with interest at the rate of 6 per cent per annum from the
27th day of August, 1909, and the costs of the cause. The complaint as
to Pierce was dismissed, Whitcomb alone appealing.

When the plaintiff was first employed on the 9th of January, 1907, this
steam laundry was owned and operated by Freeman and Pierce. Pierce,
on the 18th of January, 1907, sold all of his right, title, and interest in
the said laundry to Whitcomb, who, together with Freeman, then
became the owners of this laundry and continued to operate the same
as long as the plaintiff was employed.

The trial court found that the balance due the plaintiff for services
performed amounted to the sum of P752. This finding is fully supported
by the evidence of record.

ISSUES:

1. That the court erred in giving, jointly and severally, a judgment

against Freeman and Whitcomb for any sum whatever; and
2. That the court erred in holding the appellant Whitcomb liable.

It appears from the record that Whitcomb never knew the plaintiff,
never had anything to do with personally, and that the plaintiffs
contract was with Freeman, the managing partner of the laundry. It
further appears from the record that Pierce, after he sold his interest in
this laundry to Whitcomb, continued to look after Whitcombs interest
by authority of the latter.

RULING:

"Art. 17. The record in the commercial registry shall be optional for
private merchants and compulsory for associations established in
accordance with this code or with special laws, and for vessels.

"Art. 119 Every commercial association before beginning business shall

be obliged to record its establishment, agreements, and conditions in a
public instrument, which shall be presented for record in the
commercial registry, in accordance with the provisions of article 17.

"Additional instrument which modify or alter in any manner whatsoever

the original contracts of the association are subject to the same
formalities, in accordance with the provisions of article 25.

"Partners cannot make private agreements, but all must appear in the
articles of copartnership."

In the organization of this partnership by Freeman and Whitcomb the

above provisions of law were not complied with; that is, no formal
partnership was ever entered into by them, notwithstanding the fact
that they were engaged in the operation of this laundry.

The purpose for which this partnership was entered into by Freeman
and Whitcomb show clearly that such partnership was not a
commercial one; hence the provisions of the Civil Code and not the
Code of Commerce must govern in determining the liability of the
partners. (Manresa, vol. 1, p. 184; Aramburo, Civil Capacity, 407, 432;
Prautch v. Hernandez, 1 Phil. Rep., 705; and Co Pitco v. Yulo, 8 Phil.
Rep., 544.)

In support of the second assignment of error our attention has been

called to the cases of Hung-Man-Yoc v. Kieng-Chiong-Seng (6 Phil. Rep.,
498); Ang Quian Cieg v. Te Chico (12 Phil. Rep., 533); Bourns v. Carman
(7 Phil. Rep., 117). In the first of these cases the partnership was a
mercantile one, as it was engaged in the importation of goods for sale
at a profit. This was also true in the second case. In neither of these
cases were the provisions of articles 17 and 119 of the Code of
Commerce complied with. Those partnerships, although commercial,
were not organized in accordance with the provisions of the Code of
Commerce as expressed in those articles. In determining the liability of
the partners in these cases the court, after making the finding of facts,
was governed by the provisions of article 120 of the Commercial Code.
In the last case cited the partnership was one of cuentas en
participacion. "A partnership," quoting from the syllabus in this case,
"constituted in such a manner that its existence was only known to
those who had an interest in the same, there being no mutual
agreement between the partners, and without a corporate name
indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business,
is exactly the accidental partnership of cuentas en participacion
defined in article 239 of the Code of Commerce."
In a partnership of cuentas en participacion, under the provisions of
article 242 of the Code of Commerce, those who contract with the
person in whose name the business of such a partnership was
conducted shall have only the right of action against such person and
not against other persons interested. So this case is easily
distinguished from the case at bar, in that the one did not have the
corporate name while the other was known as the Manila Steam
Laundry.

The plaintiff was employed by and performed services for the Manila
Steam Laundry and was not employed by nor did he perform services
for Freeman alone. The public did not deal with Freeman and Whitcomb
personally, but with the Manila Steam Laundry. These two partners
were doing business under this name and, as we have said, it was not
a commercial partnership. Therefore, by the express provisions of
articles 1698 and 1137 of the Civil Code the partners are not liable
individually for the entire amount due the plaintiff. The liability is pro
rata and in this case the appellant is responsible to the plaintiff for only
one-half of the debt.

For these reasons the judgment of the court below is reversed and
judgment entered in favor of the plaintiff and against the defendant
Whitcomb for the sum of P376, with interest as fixed by the court
below. No costs will be allowed either party in this court.

A motion was filed on the 22d of August, 1910, by OBrien and De Witt,
asking this court to strike from the record certain allegations in the
printed brief of counsel for the appellee. These allegations are as
follows: "Does the receipt bear the earmarks of newly discovered
evidence? Or of newly manufactured evidence?" These questions were
directed against OBrien, one of the counsel for appellant in this case,
and were intended to have the court believe that OBrien had
manufactured the receipt referred to. There is nothing in this record
which shows that OBrien did falsify or manufacture the receipt. These
questions are clearly impertinent. It is our duty to keep our records
clean and free from such unwarranted statements. It is, therefore,
ordered that the same be stricken from the record. So ordered.
 SANTIAGO SYJUCO, INC. vs. HON. JOSE P. CASTRO
G.R. No. 70403 July 7, 1989

FACTS:

This case stems from year 1964 when private respondents Eugenio
Lim, together with his other brothers borrowed from petitioner
Santiago Syjuco, Inc. the sum of 800,000.00. The loan was given on
the security of the first mortgage on property registered in the names
of said borrowers as owners in common under a Transfer Certificate of
Title of the Registry of Deeds Manila. Additional loan was made secured
by the same property so that as of May 8, 1967, the aggregate of the
loans stood at P2, 460,000.00, exclusive of interest, and the security
had been augmented by bringing into the mortgage other property,
also registered as owned pro indiviso by the Lims under two titles.
Comes November 8, 1967 and the obligation matured, the Lims
however failed to pay it despite demands. Consequently, petitioner
Syjuco caused extra-judicial proceedings for the foreclosure of the
mortgage and the sheriff scheduled the auction sale of the mortgaged
property on December 27, 1968. This Attempt to foreclose led to more
than 20 years of legal battle with the Supreme Court disposing of this
case. One of the cases commenced by private respondents Lims
through their partnership was presided by respondent Judge Castro as
regards the validity of the mortgage executed way back in 1964. This
case however followed one case with regard to the foreclosure of the
subject property mortgage which had already become final and
executor affirming the right of petitioner to foreclose the mortgage.
Lims in their effort to stop the foreclosure, argued that the mortgage
was void because the property already belonged to the partnership
named Heirs of Hugo Lim and it did not grant any authority to any of
them to execute said mortgage. Further it asserted the claim that the
mortgaged property had been contributed to the plaintiff partnership
long before the execution of the Syjuco's mortgage.

ISSUE:

Whether or not the mortgaged property can be validly claimed to be

owned by the partnership Heirs of Hugo Lim, an entity separate and
distinct from the owners thereof. What is the effect of the partnership
not asserting its right at the very beginning and the acts by the
individual members?

RULING:

The record shows that the respondent partnership is composed

exclusively of the individual Lims who owns the property mortgaged to
the Syjuco. It is also a fact that despite its having been contributed to
the partnership, allegedly on March 30, 1959, the property was never
registered with the Register of Deeds in the name of the partnership,
but remained registered in the names of the Lims as owners in
common. The original mortgage deed of November 14, 1964 was
executed by the Lims as such owners, as were all subsequent
amendments of the mortgage. There can be no dispute that in those
circumstances, the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its execution. The
legal fiction of a separate juridical personality and existence will not
shield it from the conclusion of having such knowledge. If, therefore,
the respondent partnership was inescapably chargeable with
knowledge of the mortgage executed by all the partners thereof, its
silence and failure to impugn said mortgage within a reasonable time,
leaving a space of more than seventeen years, brought into play the
doctrine of estoppel to preclude any attempt to avoid the mortgage as
allegedly unauthorized. And more to the point: A property owner who
knowingly permits another to sell or encumber the property, without
disclosing his title or objecting to the transaction, is estopped to set up
his title or interest as against a person who has been thereby misled to
his injury. More specifically, the concept to which that species of
estoppel which results from the non-disclosure of an estate or interest
in real property has ordinarily been referred as fraud. Article 1819 of
the Civil Code further 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. The term
"conveyance" used in said provision, which is taken from Section 10 of
the American Uniform Partnership Act, includes a mortgage.
Interpreting Sec. 10 of the Uniform Partnership Act, it has been held
that the right to mortgage is included in the right to convey.

Even assuming the property belonged to the partnership, the right

could have been asserted at the time that the Lims instituted their first
action on December 24, 1968 or when they filed their subsequent
actions. In fact, consistently with the Lims' theory, they should be
regarded, in all the actions presented by them, as having sued for
vindication, not of their individual rights over the property mortgaged,
but those of the partnership. There is thus no reason to distinguish
between the Lims, as individuals, and the partnership itself, since the
former constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for all
intents and purposes and consistently with the Lims' own theory, it was
that partnership which was the real party in interest in all the actions;
it was actually represented in said actions by all the individual
members thereof, and consequently, those members' acts,
declarations and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law, those of the
partnership.

BENITO LIWANAG and MARIA LIWANAG REYES vs. WORKMEN'S

COMPENSATION COMMISSION, ET AL
G.R. No. L-12164 May 22, 1959

FACTS:

Petitioners in this case are co-owners of Liwanag Auto Supply. One time
the commercial guard on duty was skilled by criminals hence his widow
Ciriaca Vda. de Balderama and minor children Genara, Carlos and
Leogardo, all surnamed Balderama, in due time filed a claim for
compensation with the Workmen's Compensation Commission, which
was granted. The petitioners appealed the order claiming that the
Commission erred in ordering them to pay jointly and severally the
amount awarded. They argue that there is nothing in the compensation
Act which provides that the obligation of an employer arising from
compensable injury or death of an employee should be solidary
obligation, the same should have been specifically provided, and that,
in absence of such clear provision, the responsibility of appellants
should not be solidary but merely joint.

ISSUE:

What is the nature of the liability of the partners?

RULING:

Generally the liability of co-owners in a partnership is not solidary. On

the other hand, the law governing the liability of partners is not
applicable to the case at bar wherein a claim for compensation by
dependents of an employee who died in line of duty is involved. And
although the Workmen's Compensation Act does not contain any
provision expressly declaring solidary obligation of business partners,
there are other provisions of law from which it could be gathered that
their liability must be solidary. The provisions of the Civil Code above
under Articles 1711 and 1712 taken together with those of Section 2 of
the Workmen's Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners, like appellants,
should be solidary; otherwise, the right of the employee may be
defeated, or at least crippled. If the responsibility of appellants were to
be merely joint and solidary, and one of them happens to be insolvent,
the amount awarded to the appellees would only be partially satisfied,
which is evidently contrary to the intent and purposes of the Act. Since
the Workmen's Compensation Act was enacted to give full protection to
the employee, reason demands that the nature of the obligation of the
employers to pay compensation to the heirs of their employee who
died in line of duty, should be solidary; otherwise, the purpose of the
law could not be attained.

REYES, A., J., dissenting opinion

Whether the defendants herein be regarded as co-partners or as
mere co-owners, their liability for the indemnity due their deceased
employee would not be solidary but only pro rata (Arts. 485 and 1815,
new Civil Code). The Workmen's Compensation Act does not change
the nature of that liability either expressly or by intendment. To hold
that it does, is to read into the Act something that is not there. For this
Court, therefore, to declare that under the said Act the defendants
herein are liable solidarily is to play the role of legislator.

MACDONALD VS. THE NATIONAL CITY BANK OF NEW YORK

G.R. No. L-7991 May 21, 1956

FACTS:
Stasikinocey is a partnership formed by Alan W. Gocey, Louis F. da
Costa, Jr., William Kusik, and Emma Badong Gavino. This partnership
was denied registration by the Securities and Exchange Commission
due to the confusion between this partnership and the business
Cardinal Rattan, which is treated as a co-partnership where Gocey and
da Costa are considered general partners. It appears from record that
such Cardinal Rattan is merely the business style and name used by
the partnership Stasikinocey.

Prior to June 3, 1949, defendant Stasikinocey had an overdraft balance

of P6, 134.92 with The National City Bank of New York. Due to the
failure of the partnership to make the required payments, the account
was then converted to a simple loan for which a corresponding
promissory note was executed. This promissory note was secured by a
chattel mortgage executed by da Costa as general partner for and in
the name of Stasikinocey over 3 vehicles. During the subsistence of
the loan, those 3 vehicles were sold to Paul MacDonald. Paul
MacDonald later on sold 2 of the 3 cars to Benjamin Gonzales. The
bank brought an action for recovery of its credit and foreclosure of the
chattel mortgage upon learning of these transactions.

ISSUE:

Whether or not an unregistered commercial partnership can have a

domicile so that the registration of a chattel mortgage therein is notice
to the world.

RULING:

While an unregistered commercial partnership has no juridical

personality, nevertheless, where two or more persons attempt to
create a partnership failing to comply with all the legal formalities, the
law still considers them as partners and such association is a
partnership in so far as it is favorable to third persons, this is by reason
of the equitable principle of estoppel. Where a partnership not duly
organized has been recognized as such in its dealings with certain
persons, it shall be considered as partnership by estoppel and the
persons dealing with it are estopped from denying its partnership
existence.

It results that if the law recognizes a defectively organized partnership

as de facto as far as third persons are concerned, for purposes of its de
facto existence it should have such attribute of a partnership as
domicile.
 PIONEER INSURANCE & SURETY CORPORATION VS. CA,
G.R. No. 84197 July 28, 1989

FACTS:

Jacob Lim was the owner of Southern Air Lines, a single proprietorship.
In 1965, Lim convinced Constancio Maglana, Modesto Cervantes,
Francisco Cervantes, and Border Machinery and Heavy Equipment
Company (BORMAHECO) to contribute funds and to buy two aircrafts
which would form part a corporation which will be the expansion of
Southern Air Lines. Maglana et. Al. then contributed and delivered
money to Lim.

Instead of using the money given to him to pay in full the aircrafts,
Lim, without the knowledge of Maglana et. Al., made an agreement
with Pioneer Insurance for the latter to insure the two aircrafts which
were bought in installments from Japan Domestic Airlines (JDA) using
said aircrafts as security. So when Lim defaulted from paying JDA, the
two aircrafts were foreclosed by Pioneer Insurance. It was established
that no corporation was formally formed between Lim and Magalana.

ISSUE:

Whether or not the failure to incorporate automatically resulted in a de

facto partnership.

RULING:

No. There was no de facto partnership. Ordinarily, when co-investors

agreed to do business through a corporation but failed to incorporate,
a de facto partnership would have been formed, and as such, all must
share in the losses and/or gains of the venture in proportion to their
contribution. But in this case, it was shown that Lim did not have the
intent to form a corporation with Maglana et. al. This can be inferred
from acts of unilaterally taking out a surety from Pioneer Insurance and
not using the funds he got from Maglana et. al. The record shows that
Lim 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.
 LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) vs.
JOSE S. Y. PENG
G.R. No. L-29182 October 24, 1928

FACTS:

San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C.
instituted insolvency proceedings against Leoncia Vda. de Chan Diaco,
alleged to be the owner of a grocery store. In their petition for the
declaration of the insolvency, Leoncia was indebted to them in the sum
of P26, 234.47. Judge Simplicio del Rosario declared her insolvent and
ordered the sheriff to take possession of her property consisting of
some merchandise.
Leoncia filed a motion asking the court to dismiss the proceedings
against her on the ground that they should have been brought against
the partnership "Lao Liong Naw & Co.," of which she was only a
member.

ISSUE:

Whether or not Leoncia is liable for the debt contracted by the Lao
Liong Naw & Co.

RULING:

Yes. According to the Code of Commerce, Art. 127, partners individually

must, jointly and severally, respond for its debts.
In the case at bar, Leoncia is one of the partners and admits that she is
insolvent, the court 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. 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.
 E) DISSOLUTION AND WINDING UP ARTICLES 1828-1842
BENJAMIN YU vs. NATIONAL LABOR RELATIONS COMMISSION
G.R. No. 97212 June 30, 1993

FACTS:

Benjamin Yu was 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". The
partnership was organized by Lea and Rhodora Bendal as general
partners and Jeng, Ho-Fu and Chang, all citizens of the Taiwan, as
limited partners. The partnership business consisted of exploiting a
marble deposit in Bulacan. Its main office is in Makati, Metropolitan
Manila.

Yus monthly salary was P4, 000.00 but received only half since he had
accepted the promise of the partners that the balance would be paid
when the firm shall have secured additional operating funds from
abroad.
Later, without Yus knowledge, the general and limited partners sold
and transferred their interest to Willy Co and Zapanta. The actual
operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business,
except for Yu, who was not allowed to work anymore. His unpaid
salaries remained unpaid. He then filed a complaint for illegal dismissal
and recovery of unpaid salaries.

The respondents contended that Yu was never hired as an employee

by the present or new partnership.
The Labor Arbiter ruled in favor of Yu. On appeal, the NLRC reversed
LAs decision. NLRC stated that there was no law requiring the new
partnership to absorb the employees of the old partnership. No illegal
dismissal since the partnership simply declined to retain Yu.

Yu contended that a partnership has a juridical personality separate

and distinct from that of each of its members. Such independent legal
personality subsists, notwithstanding changes in the identities of the
partners. His employment contract could not have been affected by
changes of the partnership.

ISSUE:

Whether or not the old partnership had been extinguished and

replaced by a new partnership.

RUULING:

Yes. The legal effect of the changes in the membership of the

partnership was the dissolution of the old partnership. Article 1828 of
the Civil Code provides that:
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.

Article 1830 of the same Code must also be noted:

Dissolution is caused:

(1) Without violation of the agreement between the partners;

b) By the express will of any partner, who must act in
good faith, when no definite term or particular
undertaking is specified;

(2) In contravention of the agreement between the partners,

where the circumstances do not permit a dissolution under any
other provision of this article, by the express will of any partner
at any time;

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.
In the case at bar, the new partnership simply took over the business
enterprise owned by the preceding partnership, and continued using
the old name, 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.
The court ruled that not only the retiring partners but also the new
partnership itself which continued the business of the old, are liable for
the debts of the preceding partnership.
Moreover, the non-retention of Benjamin Yu as Assistant General
Manager did not constitute unlawful termination since the new
partnership is entitled to appoint a top manager of its own choice and
confidence. However, the new partnerships treatment to him amount
to arbitrary, bad faith treatment for which the new Jade Mountain may
legitimately be required to respond by paying moral damages.
 ESTATE OF MOTA VS. SERRA
47 PHIL. 464

FACTS:

On February 1, 1919, plaintiffs and defendant entered into a contract

of partnership, for the construction and exploitation of a railroad line
from the "San Isidro" and "Palma" centrals to the place known as
"Nandong." The original capital stipulated was P150, 000. It was
covenanted that the parties should pay this amount in equal parts and
the plaintiffs were entrusted with the administration of the partnership.
The agreed capital of P150, 000, however, did not prove sufficient, as
the expenses up to May 15, 1920, had reached the amount of P226,
092.92, presented by the administrator and O.K.'d by the defendant.
January 29, 1920, the defendant entered into a contract of sale with
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
whereby he sold to the latter the estate and central known as "Palma"
with its running business, as well as all the improvements, machineries
and buildings, real and personal properties, rights, choices in action
and interests, including the sugar plantation of the harvest year of
1920 to 1921, covering all the property of the vendor. This contract
was executed before a notary public of Iloilo. Before the delivery to the
purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga
renounced all his rights under the contract of January 29, 1920, in
favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave
rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C.
Whitaker and the herein defendant executed before Mr. Antonio Sanz, a
notary public in and for the City of Manila, another deed of absolute
sale of the said "Palma" Estate for the amount of P1, 695,961.90, of
which the vendor received at the time of executing the deed the
amount of P945, 861.90, and the balance was payable by installments
in the form and manner stipulated in the contract. The purchasers
guaranteed the unpaid balance of the purchase price by a first and
special mortgage in favor of the vendor upon the hacienda and the
central with all the improvements, buildings, machineries, and
appurtenances then existing on the said hacienda.

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.

Whitaker bought from the plaintiffs the one-half of the railroad line
pertaining to the latter, executing therefore the document. The price of
this sale was P237, 722.15, excluding any amount which the defendant
might be owing to the plaintiffs. Of the purchase price, Venancio
Concepcion and Phil. C. Whitaker paid the sum of P47, 544.43 only. In
the Deed, the plaintiffs and Concepcion and Whitaker agreed, among
other things, that the partnership "Palma" and "San Isidro," formed by
the agreement of February 1, 1919, between Serra, Lazaro Mota, now
deceased, and Juan J. Vidaurrazaga for himself and in behalf of his
brother, Felix and Dionisio Vidaurrazaga, should be dissolved upon the
execution of this contract, and that the said partnership agreement
should be totally cancelled and of no force and effect whatever. Since
the defendant Salvador Serra failed to pay one-half of the amount
expended by the plaintiffs upon the construction of the railroad line,
that is, P113,046.46, as well as Phil. C. Whitaker and Venancio
Concepcion, the plaintiffs instituted the present action praying: 1) that
the deed of February 1, 1919, be declared valid and binding; 2) that
after the execution of the said document the defendant improved
economically so as to be able to pay the plaintiffs the amount owed,
but that he refused to pay either in part or in whole the said amount
notwithstanding the several demands made on him for the purpose;
and 3) that the defendant be sentenced to pay plaintiffs the aforesaid
sum of P113, 046.46, with the stipulated interest at 10 per cent per
annum beginning June 4, 1920, until full payment thereof, with the
costs of the present action. Defendant set up three special defenses: 1)
the novation of the contract by the substitution of the debtor with the
conformity of the creditors; 2) the confusion of the rights of the
creditor and debtor; and 3) the extinguishment of the contract. The
court a quo in its decision held that there was a novation of the
contract by the substitution of the debtor, and therefore absolved the
defendant from the complaint with costs against the plaintiffs. With
regard to the prayer that the said contract be declared valid and
binding, the court held that there was no way of reviving the contract
which the parties themselves in interest had spontaneously and
voluntarily extinguished.

ISSUES:

1. Whether or not there was a novation of the contract by the

substitution of the debtor with the consent of the creditor, as
required by Article 1205 of the Civil Code;
 2. Whether or not there was a merger of rights of debtor and
creditor under Article 1192 of the Civil Code.

RULING:

1. No, there was no novation of the contract. It should be noted that in

order to give novation its legal effect, the law requires that the creditor
should consent to the substitution of a new debtor. This consent must
be given expressly for the reason that, since novation extinguishes the
personality of the first debtor who is to be substituted by new one, it
implies on the part of the creditor a waiver of the right that he had
before the novation which waiver must be express under the principle
that renuntiatio non praesumitur, recognized by the law in declaring
that a waiver of right may not be performed unless the will to waive is
indisputably shown by him who holds the right. The fact that Phil. C.
Whitaker and Venancio Concepcion were willing to assume the
defendant's obligation to the plaintiffs is of no avail, if the latter have
not expressly consented to the substitution of the first debtor. As has
been said, in all contracts of novation consisting in the change of the
debtor, the consent of the creditor is indispensable, pursuant to Article
1205 of the Civil Code which reads as follows: Novation which consists
in the substitution of a new debtor in the place of the original one may
be made without the knowledge of the latter, but not without the
consent of the creditor.

2. No, there was no merger of Rights. Another defense urged by the

defendant is the merger of the rights of debtor and creditor, whereby
under Article 1192 of the Civil Code, the obligation, the fulfillment of
which is demanded in the complaint, became extinguished. It is
maintained in appellee's brief that the debt of the defendant was
transferred to Phil. C. Whitaker and Venancio Concepcion by the
document. These in turn acquired the credit of the plaintiffs by virtue
of the debt; thus, the rights of the debtor and creditor were merged in
one person. The argument would at first seem to be incontrovertible,
but if we bear in mind that the rights and titles which the plaintiffs sold
to Phil. C. Whitaker and Venancio Concepcion refer only to one-half of
the railroad line in question, it will be seen that the credit which they
had against the defendant for the amount of one-half of the cost of
construction of the said line was not included in the sale. That the
plaintiffs sold their rights and titles over one-half of the line.

The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure

the payment of the price, executed a mortgage in favor of the plaintiffs
on the same rights and titles that they had bought and also upon what
they had purchased from Mr. Salvador Serra. In other words, Phil. C.
Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what
they had bought from the plaintiffs and also what they had bought
from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio
Concepcion had purchased something from Mr. Salvador Serra, the
herein defendant, regarding the railroad line, it was undoubtedly the
one-half thereof pertaining to Mr. Salvador Serra. This clearly shows
that the rights and titles transferred by the plaintiffs to Phil. C.
Whitaker and Venancio Concepcion were only those they had over the
other half of the railroad line. Therefore, as already stated, since there
was no novation of the contract between the plaintiffs and the
defendant, as regards the obligation of the latter to pay the former
one-half of the cost of the construction of the said railroad line, and
since the plaintiffs did not include in the sale, the credit that they had
against the defendant, the allegation that the obligation of the
defendant became extinguished by the merger of the rights of creditor
and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio
Concepcion is wholly untenable.

DOMINGO BEARNEZA, vs. BALBINO DEQUILLA

43 PHIL. 237

FACTS:
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua
Bearneza formed a partnership for the purpose of exploiting a fish
pond with Perpetua obligating herself to contribute to the payment
of the expenses of the business, which obligation she made good, and
both agreeing to divide the profits between themselves, which they
had been doing until the death of the said Perpetua in the year 1912-The
deceased left a will in one of the clauses of which she
appointed Domingo Bearnez, the herein plaintiff, as her heir to
succeed to all her rights and interests in the fish pond in question-
Domingo Bearnez then instituted an action to recover a part of
the fi sh pond belonging to the decedent, including of the profits
received by the defendant from the years 1913-1919. The defendant
alleges that "the formation of the supposed partnership between the
plaintiff and the defendant for the exploitation of the aforesaid fish
pond was not carried into effect, on account of the plaintiff having
refused to defray the expenses of reconstruction and exploitation of
said fishpond." and further averred that the right of the plaintiff had
already prescribed. Judgment was then rendered declaring the plaintiff
owner of one-half of the fish pond but without may awarding him any
damages-

ISSUE:

Whether or not the plaintiff has any right to maintain an action

for recovery of the said one-half of the fishpond

RULING:

The partnership formed was a particular partnership, it having had for

its subject-matter a specified thing, the exploitation of the
aforementioned fish pond-Although, as the trial court says in
its decision, the defendant, in his letters to Perpetua or her
husband, makes reference to the fish pond, calling it "our," or
"your fish pond," this reference cannot be held to include the land on
which the said fish pond was built-It has not been proven that
Bearneza participated in the ownership of the said land.
Therefore, the land on which the fish pond was constructed did not
constitute part of the subject-matter of the partnership. This
partnership was dissolved by the death of Perpetua Bearneza. Neither
can it be maintained that the partnership continued to exist after the
death of Perpetua, inasmuch as it does not appear that any stipulation
to that effect has ever been made by her and the defendant-The
partnership having been dissolved by the death of Perpetua
Bearneza, its subsequent legal status was that of a partnership in
liquidation, and the only rights inherited by her testamentary heir, the
herein plaintiff, were those resulting from the said liquidation in favor
of the deceased partner, and nothing more.
 URBANO LOTA (Substituted by SOLOMON LOTA in his capacity
as Administrator of the Estate of URBANO LOTA) vs. BENIGNO
TOLENTINO
G.R. No. L-3518 February 29, 1952

FACTS:

On April 6, 1949, counsel for plaintiff filed a motion praying that

deceased defendant be substituted by his heirs, Marta Sadiasa and
Efigenia, Resurreccion and Mercedes, all surnamed Tolentino, as parties
defendant.
The counsel for defendant interposed an opposition that the nature of
the action for accounting and liquidation of the partnership filed by
plaintiff since March 3, 1937, is purely personal in character and, upon
the death of the defendant on November 22, 1939, the claim was
already extinguished.

On March 3, 1937, plaintiff filed an action against defendant to order

the latter (a) to render an accounting of his management of their
partnership, and (b) to deliver the plaintiff whatever share he may
have in the assets of the partnership after the liquidation has been
approved by the Court. The plaintiff died in 1938, and on September
28, 1939, he was substituted by the administrator of his estate,
Solomon Lota.

The present appellant is Solomon Lota, in his capacity as administrator

of the estate of Urbano Lota, original plaintiff, who died in l938. The
decisive question that arises is whether or not, after the death of the
defendant Benigno Tolentino on November 22, 1939, plaintiff's action
for accounting and liquidation of the partnership formed in l918
between Urbano Lota and Benigno Tolentino, of which the latter was
the industrial and managing partner, may be continued against the
heirs of Benigno Tolentino. This question was decided adversely to the
appellant by the lower court and, in our opinion, correctly.

The applicable authority is the case of Po Yeng Cheovs. Lim Ka Yam, 44

Phil. 172, in which the following pronouncements were made:

In the first place, it is well settled that when a member of a mercantile

partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. And the same rule must be
equally applicable to a civil partnership clothed with the form of a
commercial association (art. 1670, Civil Code: Lichauco vs. Licahuco,
33 Phil., 350). Upon the death of Lim Ka Yam it therefore become the
duty of his surviving associates to take the proper steps to settle the
affairs of the firm, and any claim against him, or his state, for a sum of
money due to the partnership by reason of any misappropriation of its
funds by him, or for damages resulting from his wrongful acts as
manager, should be prosecuted against his estate in administration in
the manner pointed out in sections 686 to 701, inclusive, of the Code
of Civil Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the Yut
Siong Chyip Konski and Manila Electric Railroad and Light Company,
are in the possession of the partner, the proper step for the surviving
associates to take would be to make application to the court having
charge of the administration to require the administrator to surrender
such property.

But in the second place, as already indicated, the proceedings in this

cause, considered in the character of an action for an accounting, were
futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the
supposed liability of his intestate to respond for the plaintiffs
proportionate share of the capital and assets. But of course the action
was not maintainable in this aspect after the death of the defendant;
and the motion to discontinue the action against the administrator
should have been granted.

ISSUE:

Whether or not after the death of the defendant Benigno Tolentino,

plaintiff's action for accounting and liquidation of the partnership
formed in l918 between Urbano Lota and Benigno Tolentino, may be
continued against the heirs of Benigno Tolentino

RULING:

The resolution herein complained of will therefore be as it is hereby

affirmed, with costs against the appellant.

If the plaintiff was genuinely interested in substituting the proper party,

assuming that plaintiff's action may still be pursued after Tolentino's
death, he should have taken timely measures to have the
administratrix appointed on August 8, 1941, qualify or, in case of her
failure or refusal, to procure the appointment of another administrator;
because the plaintiff could have availed himself of section 6, Rule 80,
of the Rules of Court, providing that "letters of administration may be
granted to any qualified applicant, though it appears that there are
other competent persons having better right to the administration, if
such persons fail to appear when notified and claim the issuance of
letters to themselves." Certainly, inaction for almost eight years (after
the issuance of letters of administration) on the part of the appellant,
sufficiently implies indifference to or desistance from its suit.

The theory of the appellant is that the heirs may properly be

substituted for the deceased Benigno Tolentino, because they are in
possession of property allegedly belonging to the partnership in
question, and the appellant seeks the recovery thereof. Apart from the
fact that said allegation seems to refer to cause of action foreign to the
claim for accounting and liquidation against Tolentino, and should have
been made in proper pleading to duly admitted by the lower court, the
filing of appellant's motion for substitution more than twelve years
after the institution of the complaint came too late and already called
for the prosecution. It is immaterial that, before the appealed
resolution was issued by the lower court, the appellant attempted to
have the deceased defendant had not yet been properly substituted.
 ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN
and ANTONIO C. GOQUIOLAY" v. WASHINGTON Z. SYCIP, ET AL
G.R. No. L-11840 July 26, 1960

FACTS:

In 1940, Goquiolay and Tan Sin An were partners who owned 3 parcels
of land. On the same date that the partnership acquired these, Tan Sin
An purchased 46 parcels of land. For the partnership, it was P25, 000
while for Tan Sin An, it was P35, 000. A few months later, the two
mortgage obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result, Tan Sin An, in his individual
capacity, and the partnership bound themselves to pay jointly and
severally the total amount of P52, 282.20, with 8% annual interest
thereon within a period of eight years mortgaging in favor of said
entity the 3 parcels of land belonging to the partnership and the 46
parcels of land belonging individually to Tan Sin An. While in 1942, Tan
Sin An died, his widow, Kong Chai Pin was made Administratrix of his
estates in 1944. In 1949, she executed a sale of these lands. She sold
these to respondents Washington Sycip and Betty Lee. The properties
sold were not part of the contributed capital but land precisely
acquired to be sold, although subject to a mortgage in favor of the
original owners, from whom the partnership had acquired them.

ISSUE:

Whether or not Tan Sin Ans widow, Kong Chai Pin, became partner
when her husband died, allowing her to validly sell the property that
belongs to the partnership.

RULING:

Yes. Goquiolay insists that Kong Chai Pin never became more than a
limited partner, incapacitated by law to manage the affairs of
partnership; that the testimony of Kongs witnesses belie that she took
over the administration of the partnership property; and that, in any
event, the sale should be set aside because it was executed with the
intent to defraud Goquiolay of his share in the properties sold.
Goquiolay tried to argue that Kong Chai Pin only had the authority to
manage the property and did not include the power to alienate, citing
Art. 1713 of the Civil Code of 1889. What this argument overlooks is
that the widow was not a mere agent because she had become partner
upon her husbands death, which was expressly stipulated in the
articles of co-partnership. The stipulation in the articles of co-
partnership imply that there is a general partnership, and not merely a
limited one, because since the copartnershipwill have to be
continued with the heirs and assigns, it cannot continue if the
partnership would be converted to a limited one upon death of one of
the partners.

General Rule: Stipulations made between partners in the articles of co-

partnership which require that any of the two managing partners may
contract in the name of the partnership with the consent of the other,
creates an obligation between the two partners BUT shall not impose
the same obligation to a third person who contracts with the
partnership. This means that a third person has the right to presume
that the partner he contracts with already has the consent of his
partner when they both enter into a contract. In a partnership that
deals with real estate, it is presumed that every partner already has
ample power, as a general agent of the firm, to enter into an executory
contract for the sale of real estate.

There is no fraud: first of all, the price was already approved by the
Court in the previous case, even if the petitioners claim it to be much
too low. The relationship between the buyers of the lands and Kong
Chai Pin alone cannot be a badge of fraud. There is no proof that the
buyers were without independent means to purchase the property.
Goquiolay has no proof that he was a victim of a conspiracy because
he has no proof management, even if proven, could not give Kong Chai
Pin the character of general manager for the same contrary to law and
well-known authorities;

The pertinent portions of the articles of partnership provides: VII. The

affairs of the co-partnership shall be managed exclusively by the
managing partner or by his authorized agent, and it is expressly
stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power
of attorney to any person, firm or corporation he may select, upon such
terms as regards compensation as he may deem proper, and vest in
such person, firm or corporation full power and authority, as the agent
of the co-partnership and in his name, place and stead to do anything
for it or on his behalf which he as such managing partner might do or
cause to be done.

The law says that an agency created in general terms includes only
acts of administrations, but with regard to the power to compromise,
sell mortgage, and other acts of strict ownership, an express power of
attorney is required. Here Kong Chai Pin did not have such power when
she sold the properties of the partnership.
 GOQUIOLAY VS. SYCIP
9 SCRA 663

FACTS:

Tan Sin An and Antonio C. Goquiolay, entered into a general

commercial partnership, for dealing in real estate. The co-partnership
is composed of Tan Sin An as sole managing partner, and Antonio C.
Goquiolay as co-partner. The lifetime of the partnership was fixed at 10
years. In the event of the death of any of the partners at any time
before the expiration of said term, the co-partnership shall not be
dissolved but will have to be continued and the deceased partner shall
be represented by his heirs or assigns in said co-partnership (Art. XII,
Articles of Co-Partnership). However, the partnership could be
dissolved and its affairs liquidated at any time upon mutual agreement
in writing of the partners (Art. XIII, articles of Co-Partnership).
Goquiolay executed a general power of attorney. The partnership
purchased the three parcels of land, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation payable to
"La Urbana Sociedad Mutua de Construccion y Prestamos" for a period
of 10 years. Another 46 parcels were purchased by Tan Sin An in his
individual capacity, and he assumed payment of a mortgage debt
thereon. The downpayment and the amortization were advanced by
Yutivo and Co., for the account of the purchasers. The two separate
obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged
in favor of the "Banco Hipotecario de Filipinas" (as successor to "La
 Urbana"). Tan Sin An died, leaving as surviving heirs his widow, Kong
Chai Pin, and four minor children. Kong Chai Pin was appointed
administratrix of the intestate estate of her deceased husband.
Repeated demands for payment were made by the Banco Hipotecario
on the partnership and on Tan Sin An. Kong Chai Pin filed a petition
with the probate court for authority to sell all the 49 parcels of land to
Sycip and Lee, for the purpose of settling the debts of Tan Sin An and
the partnership. The administratrix executed a deed of sale of the 49
parcels of land to the defendants Sycip and Lee and of vendees'
assuming payments of the claims filed by Yutivo Sons Hardware Co.
and Sing Yee and Cuan Co., Inc. Later, Sycip and Lee executed in favor
of the Insular Development Co., Inc. a deed of transfer covering the
said 49 parcels of land. Goquiolay filed a petition in the intestate
proceedings seeking 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. The probate court annulled the sale executed by the
administratrix with respect to the 60% interest of Goquiolay over the
properties sold. The complaint was dismissed by the lower court.

ISSUES:

Whether or not the widow succeeded her husband Tan Sin An in the
sole management of the partnership upon Tans death.

Whether or not the widow become a limited partner only.

Whether or not the sale, covering the entire firm realty, results to the
dissolution of the partnership

RULING:

1. There is a merit in the contention that the lower court erred in holding
that the widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in
the sole management of the partnership, upon the latter's death. While
the Articles of Co-Partnership and the power of attorney executed by
Antonio Goquiolay, conferred upon Tan Sin An the exclusive
management of the business, such power, premised as it is upon trust
and confidence, was a mere personal right that terminated upon Tan's
demise. The provision in the articles stating that "in the event of death
of any one of the partners within the 10-year term of the partnership,
the deceased partner shall be represented by his heirs", could not have
referred to the managerial right given to Tan Sin An; more
appropriately, it related to the succession in the proprietary interest of
each partner. The covenant that Antonio Goquiolay shall have no voice
or participation in the management of the partnership, being a
limitation upon his right as a general partner, must be held
coextensive only with Tan's right to manage the affairs, the contrary
not being clearly apparent.

2. Kong Chai Pin, by her affirmative actions, manifested her intent to be

bound by the partnership agreement not only as a limited but as a
general partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income therefrom
up to and until the same were sold to Washington Sycip and Betty Lee.
In fact, by executing the deed of sale of the parcels of land in dispute
 in the name of the partnership, she was acting no less than as a
managing partner. Having thus preferred to act as such, she could be
held liable for the partnership debts and liabilities as a general partner,
beyond what she might have derived only from the estate of her
deceased husband. By allowing her to retain control of the firm's
property from 1942 to 1949, plaintiff estopped himself to deny her
legal representation of the partnership, with the power to bind it by the
proper contracts.

3. That the partnership was left without the real property it originally had
will not work its dissolution, since the firm was not organized to exploit
these precise lots but to engage in buying and selling real estate, and
"in general real estate agency and brokerage business".

RESOLUTION OF MOTION FOR RECONSIDERATION

Motion for reconsideration is denied.

Limited partners may not perform any act of administration with

respect to the interests of the co-partnership, not even in the
capacity agents of the managing partners. By seeking authority to
manage partnership property, Tan Sin An's widow showed that she
desired to be considered a general partner. By authorizing the
widow to manage partnership property (which a limited partner
could not be authorized to do), Goquiolay recognized her as such
partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership
property.

When the partnership business is to deal in real estate, one

partner has ample power, as a general agent of the firm, to enter
into an executory contract for the sale of real estate.( Chester vs.
Dickerson, 54 N. Y. 1, 13 Am. Rep. 550) Since the sale by the widow
was in conformity with the express objective of the partnership, "to
engage * * * in buying and selling real estate" (Art IV, No. 1, Articles
of Co-partnership), it cannot be maintained that the sale was made
in excess of her powers as general partner.

NG CHO CIO VS. NG DIONG

1 SCRA 275

FACTS:

On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian Ng

Cho Cio, Ng Sian King and Ng Due King entered into a contract of
general co-partnership under the name Ng Chin Beng Hermanos. The
partnership was to exist for a period of 10 years and Ng Diong was the
managing partner. The articles of co-partnership were amended by
extending its life to 16 years more.

The partnership obtained from the National Loan and Investment Board
loans and to guarantee its payment it executed in its favor a mortgage
on lots of the cadastral survey of Iloilo.
The partnership was declared insolvent upon petition of its creditors
and Crispino Melocoton was elected as assignee. The Agricultural and
Industrial Bank which had succeeded the National Loan and Investment
Board assigned its rights and interests in the loans obtained from it by
the partnership in the aggregate amount of P80, 000.00 in favor of C.N.
Hodges, together with the right and interest in the mortgage executed
to secure the loans. Since said loans became due and no payment was
forthcoming, Hodges asked permission from the insolvency court to file
a complaint against the assignee to foreclose the mortgage executed
to secure the same in a separate proceeding, and permission having
been granted, Hodges filed a complaint for that purpose. Meanwhile,
war broke out and nothing appears to have been done in the
insolvency proceedings. The court records were destroyed. However,
they were reconstituted later and given due course.

In order to pay the indebtedness to C.N. Hodges and raise necessary

funds to pay the other obligations of the partnership, Ng Diong, who
continued to be the manager of the partnership, sell all its properties
mortgaged to Hodges in order that the excess may be applied to the
payment of said other obligations. As a result Ng Diong executed on
April 2, 1946 a deed of sale thereof in favor of Hodges and the price
was applied to the payment of the debt of the partnership to Hodges
and the balance was paid to the other creditors of the partnership.

ISSUE:

Whether or not the manager may still execute the sale of its properties
to C. N. Hodges as was done by Ng Diong.

RULING:

Yes, because Ng Diong was still the managing partner of the

partnership and he had the necessary authority to liquidate its affairs
under its articles of co-partnership. And considering that war had
intervened and the affairs of the partnership were placed under
receivership up to October 6, 1945, Ng Diong could still exercise his
power as liquidator when he executed the sale in question in favor of
C. N. Hodges. This is sanctioned by Article 228 of the Code of
Commerce which was the law in force at the time.

LICHAUCO VS LICHAUCO
33 PHIL 350

FACTS:

In 1901, F. Lichauco Hermanos partnership was formed. It was

provided, among others, in the partnership agreement that Faustino
Lichauco will be the managing partner; and that the firm cannot be
dissolved except upon the 2/3 vote of all the partners. In 1904, the firm
wasnt performing well and was unprofitable and so its machineries
were dismantled. In 1905, Eugenia and one other partner demanded
Faustino to make an accounting of the firms assets but Faustino
refused to do so. Belatedly in 1912, Eugenia et al filed a civil suit
against Faustino to compel the latter to perform ac accounting.
Faustino, in his defense, argued that the firm was not dissolved
pursuant to the partnership agreement there being no 2/3 vote from all
the members (Faustino et al are only 1/5 of the firm).

ISSUE:

Whether or not Eugenia et al can demand an accounting.

RULING:

Yes. The firm was already dissolved in 1904 when its machineries were
dismantled this was a sign that the firm abandoned and concluded
the purpose for it was formed (rice cleaning business). Upon said
dissolution, it was the duty of Faustino to liquidate the assets and
inform his partners. The provision which requires a 2/3 votes of all the
partners to dissolve the firm cannot be given effect because the same
denied the right of a less number of partners to effect the dissolution
especially where the firm has already sustained huge losses. It would
be absurd and unreasonable to hold that such an association could
never be dissolved and liquidated without the consent and agreement
of two-thirds of its partners, notwithstanding that it had lost all its
capital, or had become bankrupt, or that the enterprise for which it had
been organized had been concluded or utterly abandoned.

SONCUYA V. DE LUNA
G.R. No. L-45464, April 28, 1939

FACTS:

Petitioner filed a complaint against respondent for damages as a result

of the fraudulent administration of the partnership, Centro Escolar de
Senoritas of which petitioner and the deceased Avelino Librada were
members. For the purpose of adjudicating to plaintiff damages which
he alleges to have suffered as a partner, it is necessary that a
liquidation of the business be made that the end profits and losses may
be known and the causes of the latter and the responsibility of the
defendant as well as the damages in which each partner may have
suffered, maybe determined.

ISSUE:

Whether the petitioner is entitled to damages.

RULING:

According to the Supreme Court the complaint is not sufficient to

constitute a cause of action on the part of the plaintiff as member of
the partnership to collect damages from defendant as managing
partner thereof, without previous liquidation. Thus, for a partner to be
able to claim from another partner who manages the general co-
partnership, allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said partnership is
necessary.

SINGSON vs. ISABELA SAWMILL

88 SCRA 623

FACTS:
In 1951, the defendants Leon Garibay, Margarita G. Saldejeno, and
Timoteo Tubungbanua entered into a Contract of Partnership under the
firm name Isabela Sawmill. In 1956, Oppen, Esteban, Inc. sold a
Motor Truck and two Tractors to the partnership Isabela Sawmill for the
sum of P20, 500.00. In order to pay the said purchase price, the
partnership agreed to make arrangements with the International
Harvester Company at Bacolod City so that the latter would sell farm
machinery to Oppen, Esteban, Inc. with the understanding that the
price was to be paid by the partnership. The International Harvester
Company has been paid a total of P19, 211.11, leaving an unpaid
balance of P1, 288.89. Margarita Saldejeno withdrew from the
partnership.

In 1958, a case was filed by the spouses Cecilio Saldajeno and

Margarita G. Saldajeno against the Isabela Sawmill, Leon Garibay, and
Timoteo Tubungbanua. Thus, the defendants entered into a
"Memorandum Agreement with the Saldajenos. The defendants
executed a document entitled "Assignment of Rights with Chattel
Mortgage. Thereafter the defendants Leon Garibay and Timoteo
Tubungbanua did not divide the assets and properties of the "Isabela
Sawmill" between them, but they continued the business of said
partnership under the same firm name "Isabela Sawmill".

In 1959 the Provincial Sheriff of Negros Occidental published two

notices that he would sell at public auction certain trucks, tractors,
machinery, office equipment and other things that were involved in the
case filed. The Provincial Sheriff then executed a Certificate of Sale in
favor of the defendant Margarita G. Saldajeno, as a result of the sale
conducted by him for the enforcement of the judgment rendered said
civil case. Margarita G. Saldajeno then executed a deed of sale in favor
of the Pan Oriental Lumber Company transferring to the latter for the
sum of P45, 000.00 the trucks, tractors, machinery, and other things
that she had purchased at a public.

Now, plaintiff Manuel Singsong, who is just one of the various creditors
of Isabela Sawmill, proved by his own testimony that he sold on credit
to the defendant "Isabela Sawmill" rice and bran, on account of which
business transaction there remains an unpaid balance of P3,580.50.
The same plaintiff also proved that the partnership owes him the sum
of P143.00 for nipa shingles bought from him on credit and unpaid for.
Manuel Singson, as creditors of the defendant partnership, is now
claiming the payment of said balance and also asking for the nullity of
the assignment of right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former partners Leon Garibay
and Timoteo Tubungbanua.

ISSUE:

Whether or not Isabela Sawmill ceased to be a partnership and that

creditors could no longer demand payment.
RULING:

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 to the business.

The remaining partners did not terminate the business of the

partnership "Isabela Sawmill". Instead of winding up the business of
the partnership, they continued the business still in the name of 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, Leon Garibay
and Timoteo Tubungbanua, continued doing the business of the
partnership. They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua, belonged to the
partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno,
was correctly held liable by the trial court because she purchased at
public auction the properties of the partnership which were mortgaged
to her. It does not appear that the withdrawal of Margarita G. Saldajeno
from the partnership was published in the newspapers. The appellees
and the public in general had a right to expect that whatever, credit
they extended to Leon Garibay and Timoteo Tubungbanua doing the
business in the name of the partnership "Isabela Sawmill" could be
enforced against the properties of said partnership. The judicial
foreclosure of the chattel mortgage executed in favor of Margarita G.
Saldajeno did not relieve her from liability to the creditors of the
partnership.

The appellant, Margarita G. Saldajeno, cannot complain. She is partly

to blame for not insisting on the liquidation of the assets of the
partnership. She even agreed to let Leon Garibay and Timoteo
Tubungbanua continue doing the business of the partnership "Isabela
Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in
good faith, the appellees also acted in good faith in extending credit to
the partnership. Where one of two innocent persons must suffer, that
person who gave occasion for the damages to be caused must bear
the consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo
Tubungbanua to continue doing the business of the partnership, the
appellees would not have been misled into thinking that they were still
dealing with the partnership "Isabela Sawmill". Under the facts, it is of
no moment that technically speaking the partnership "Isabela Sawmill"
was dissolved by the withdrawal therefrom of Margarita G. Saldajeno.
The partnership was not terminated and it continued doping business
through the two remaining partners.

The contention of the appellant that the appellees cannot bring an

action to annul the chattel mortgage of the properties of the
partnership executed by Leon Garibay and Timoteo Tubungbanua in
favor of Margarita G. Saldajeno has no merit. As a rule, a contract
cannot be assailed by one who is not a party thereto. However, when a
contract prejudices the rights of a third person, he may file an action to
annul the contract.

The court also held that a person, who is not a party obliged principally
or subsidiarily under a contract, may exercise an action for nullity of
the contract if he is prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would positively
result to him from the contract in which he has no intervention. The
plaintiffs-appellees were prejudiced in their rights by the execution of
the chattel mortgage over the properties of the partnership "Isabela
Sawmill" in favor of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua. Hence, said appellees have a
right to file the action to nullify the chattel mortgage in question.

PO YENG CHEO vs. LIM KA YAM

44 PHIL 172

FACTS:

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao,
deceased, and he inherited the interest left by Po Gui Yao in a business
conducted in Manila under the style of Kwong Cheong Tay which is a
mercantile partnership engaged in the import and export trade. After
the death of Po Gui Yao, seven persons also became partners in said
partnership. 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.

Among the properties pertaining to Kwong Cheong Tay and consisting

part of its assets were ten shares of a total par value of P10,000 in an
enterprise conducted under the name of Yut Siong Chyip Konski and
certain shares to the among of P1,000 in the Manila Electric Railroad
and Light Company, of Manila.

In the year 1910, Kwong Cheong Tay ceased to do business since it

ceased to transmit merchandise from Hong Kong. Lim Ka Yam appears
at no time to have submitted to the partners any formal liquidation of
the business, though repeated demands to that effect have been made
upon him by the plaintiff.

Po Yeng Cheo, as managing partner in said business, filed a case to

recover from Lim Ka Yam its properties and assets. The defendant, Lim
Ka Yam, died during the pendency of the case and his administrator,
one Lim Yock Tock, was required to appear and make defense.

In view of the facts, the trial judge rendered judgment in favor of the
plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as
administrator of Lim Ka Yam, the sum of sixty thousand pesos,
constituting the interest of the plaintiff in the capital of Kwong Cheong
Tay, plus the plaintiff's proportional interest in shares of the Yut Siong
Chyip Konski and Manila Electric Railroad and Light Company,
estimated at P11, 000, together with the costs. From this judgment the
defendant appealed. But the Court of Appeals found that the plaintiff
was entitled to an accounting from Lim Ka Yam, the original defendant,
as manager of the business already referred to, and he accordingly
required Lim Yock Tock, as administrator, to present a liquidation of
said business within a stated time. Since Lim Yock Tock cannot be held
to make an accounting since he personally knew nothing about the
said and was apparently unable to find any books or documents that
could shed any real light on its transaction. However, he did submit to
the court a paper written by Lim Ka Yam in life purporting to give, with
vague and uncertain details, a history of the formation of the Kwong
Cheong Tay and some account of its disruption and cessation from
business in 1910. To this narrative was appended a statement of assets
and liabilities, purporting to show that after the business was liquidate,
it was actually a debtor to Lim Ka Yam to the extent of several
thousand pesos. Appreciating the worthlessness of this so-called
statement, and all parties apparently realizing that nothing more was
likely to be discovered by further insisting on an accounting, the court
proceeded, on December 27, 1921, to render final judgment in favor of
the plaintiff.

ISSUE:

Whether or not the defendant is required to pay Po Yeng Cheo, the

plaintiff.

RULING:

Again, from the facts, the only property pertaining to Kwong Cheong
Tay at the time the action was brought consisted of shares in the two
concerns already mentioned of the total par value of P11, 000. Of
course, if these shares had been sold and converted into money, the
proceeds, if not needed to pay debts, would have been distributable
among the various persons in interest, that is, among the various
shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give judgment
in favor of the plaintiff for his aliquot part of the par value of said
shares. It is elementary that one partner, suing alone, cannot recover
of the managing partner the value of such partner's individual interest
and a liquidation of the business is an essential prerequisite. It is true
that in Lichauco vs. Lichauco, the court permitted one partner to
recover of the manager the plaintiff's aliquot part of the proceeds of
the business but in that case the affairs of the defunct concern had
been actually liquidate by the manager to the extent that he had
apparently converted all its properties into money and had pocketed
the same and nothing remained to be done except to compel him to
pay over the money to the persons in interest. In this case, the shares
referred to, constituting the only assets of Kwong Cheong Tay, have not
been converted into money and doubtless still remain in the name of
Kwong Cheong Tay as owner. Under these circumstances it is
impossible to sustain a judgment in favor of the plaintiff for his aliquot
part of the par value of said shares, which would be equivalent to
allowing one of several co-owners to recover from another, without
process of division, a part of an undivided property.

Also, the trial court committed an error when it allowed the action to
proceed against Lim Yock Tock, as administrator, and entered judgment
for a sum of money against said administrator as the accounting party.
In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affair devolves upon the
surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. The same rule must be equally
applicable to a civil partnership clothed with the form of a commercial
association. Upon the death of Lim Ka Yam it therefore became the
duty of his surviving associates to take the proper steps to settle the
affairs of the firm, and any claim against him, or his estate, for a sum
of money due to the partnership by reason of any misappropriation of
its funds by him, or for damages resulting from his wrongful acts as
manager, should be prosecuted against his estate in administration.
Moreover, when it appears, as here, that the property pertaining to
Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and
the Manila Electric Railroad and Light Company, are in the possession
of the deceased partner, the proper step for the surviving associates to
take would be to make application to the court having charge to the
administration to require the administrator to surrender such property.
Hence, the judgment must be reversed, and the defendant will be
absolved from the complaint but it will be without prejudice to any
proceeding which may be undertaken by the proper person or persons
in interest to settle the affairs of Kwong Cheong Tay and in connection
therewith to recover from the administrator of Lim Ka Yam the shares
in the two concerns mentioned above.
 LAGUNA TRANSPORTATION CO., INC vs. SOCIAL SECURITY
SYSTEM
107 PHIL 833

FACTS:

Sometime in 1949, the Bian Transportation Co., a corporation duly

registered with the Securities and Exchange Commission, sold part of
the lines and equipment it operates to Gonzalo Mercado, Artemio
Mercado, Florentino Mata and Dominador Vera Cruz. After the sale, the
said vendees formed an unregistered partnership under the name of
Laguna Transportation Company which continued to operate the lines
and equipment bought from the Bian Transportation Company, in
addition to new lines which it was able to secure from the Public
Service Commission. 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. The corporation continued the same transportation
business of the unregistered partnership. Prior to November 11, 1957,
plaintiff requested for exemption from coverage by the System on the
ground that it started operation only on June 20, 1956, when it was
registered with the Securities and Exchange Commission but on
November 11, 1957, the Social Security System notified plaintiff that it
was covered. On November 14, 1957, plaintiff through counsel sent a
letter to the Social Security System contesting the claim of the System
that plaintiff was covered and on November 27, 1957, Carlos Sanchez,
Manager of the Production Department of the respondent System for
and in behalf of the Acting Administrator, informed plaintiff that
plaintiff's business has been in actual operation for at least two years.

ISSUE:

Whether or not a partnership later converted to a corporation, which

continued the same line of business, is still liable to the debts and
liabilities of the partnership.

RULING:

Yes. The Supreme Court held that a corporation will be looked upon as
a legal entity as a general rule, and until sufficient reason to the
contrary appears; but, when the motion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the
law will regard the corporation as an association of persons. However,
where a corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its
business, in payment for which corporate capital stock was issued,
such corporation is presumed to have assumed partnership debts, and
is prima facie liable 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.

SERGIO V. SISON vs. HELEN J. MCQUAID

94 PHIL 201

FACTS:

On March 28, 1951, plaintiff brought an action in the Court of First

Instance of Manila against defendant, alleging that during the year
1938 the latter borrowed from him various sums of money,
aggregating P2,210, to enable her to pay her obligation to the Bureau
of Forestry and to add to her capital in her lumber business. The
defendant was not able to pay the loan in 1938, as she had promised,
she proposed to take in plaintiff as a partner in her lumber business,
plaintiff to contribute to the partnership the said sum of P2,210 due
him from defendant in addition to his personal services, plaintiff
agreed to defendants proposal and, as a result, there was formed
between them, under the provisions of the Civil Code, a partnership in
which they were to share alike in the income or profits of the business,
each to get one-half thereof.

Before the last World War, the partnership sold to the United States
Army 230,000 board feet of lumber for P13, 800, defendant has
persistently refused to deliver one-half of it, or P6, 900, to plaintiff
notwithstanding repeated demands, investing the whole sum of P13,
800 for her own benefit. Plaintiff, therefore, prays for judgment
declaring the existence of the alleged partnership and requiring
defendant to pay him the said sum of P6, 900, in addition to damages
and costs.

ISSUE:

Whether or not plaintiff is entitled to the sum he claims

RULING:

No. The Supreme Court held that the 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 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 a 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; 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.

DE LA ROSA V ORTEGA GOCOTAY

G.R. No. 2424315 January 1926

FACTS:

Go Lio and Vicente GoSengco formed a society for the purchase and
sale of articles of commerce and opened a store in San Isidro, Nueva
Ecija. Go Lio went to China and died there leaving a widow and 3
children, one of whom came to the Philippines and filed a petition for
the appointment of Ildefonso de la Rosa (PLAINTIFF) as administrator of
the intestate estate of his deceased father. The petition was granted by
the CFI of Nueva Ecija. Vicente GoSengco also died and his son
Enrique Ortega Go Catay (DEFENDANT) took charge of the business.
Enrique Ortega refused to wind up the business and deliver to De la
Rosa the portion corresponding to the deceased Go Lio. He alleged that
the business is his exclusively. This prompted De La Rosa to file a
complaint against Enrique Ortega. De La Rosa also prayed that he be
appointed as receiver for the property of the partnership. Defendant
opposed the prayer. The CFI appointed 3 commissioners to make an
inventory, liquidate and determine the half belonging to the plaintiff.
The commissioners submitted a report showing that the business
showed net profits from 19131917 amounting to P25, 038.70. August
3, 1918: In order to prevent Justo CaboChan (one of the
commissioners) from assuming the position of receiver pursuant to the
order of the court, the defendant filed a bond in the sum of P10, 000.
In view of the appeal taken by defendant, the parties agreed to
suspend the liquidation ordered by the lower court and the defendant
was authorized to continue in the possession of the property in
litigation after giving a P25, 000 bond cancelling the P10, 000 bond.
After trial, the lower court adopted the report made by Justo Cabo
Chan which showed that the business suffered a net loss amounting to
P89, 099.22 and rejected the report of the two other commissioners.
Because of the loss, the plaintiff had nothing to recover from defendant
as there was no profit to divide. The reports showed the status of the
business from 19191922 (Loses were incurred 1918 onwards)

ISSUE:

Whether or not the loss should be borne by the partnership NO. The
defendant alone should bear the loss.

RULING:

Defendant should pay the plaintiff P30, 299.14 as his share before
August 3, 1918. In August 3, 1918, the defendant assumed complete
responsibility for the business when he objected to the appointment of
a receiver and even giving a bond.

a) From that point forward, his acts were no longer that of a

managing partner binding against the partnership. He became a
receiver whose authority is provided for in Section 175 of the Code of
Civil Procedure
b) According to the Code, a receiver has no right to carry on and
conduct a business unless he is authorized or directed by the court to
do so. His role is to take and preserve the property.
c) Since he was not authorized by the court to continue the
business of the partnership in liquidation, he is personally liable for the
losses that the business had sustained after he became a receiver
d) The partnership therefore is not liable for the acts of the
defendant in connection with the management of the business after
August 3, 1918.
GREGORIO MAGDUSA, ET AL. vs. GERUNDIO ALBARAN, ET AL.
G.R. No. L-17526 June 30, 1962

FACTS:

Appellant and appellees, together with various other persons, had

verbally formed a partnership de facto, for the sale of general
merchandise 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. The results of the computation were
embodied in the document drawn in the handwriting of appellant.
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.
The Court of First Instance of Bohol dismissed the complaint on the
ground that the other were indispensable parties but had not been
impleaded. Upon appeal, the Court of Appeals reversed the decision,
ruling that it is not an action for a dissolution of a partnership and
winding up of its affairs or liquidation of its assets in which the interest
of other partners who are not brought into the case may be affected.
The action of the plaintiffs is one for the recovery of a sum of money
with Gregorio Magdusa as the principal defendant. The partnership,
with Gregorio Magdusa as managing partner, was brought into the
case as an alternative defendant only.

ISSUE:

Whether or not appellees' action can be entertained, because in the

distribution of all or part of a partnership's assets, all the partners have
no interest and are indispensable parties without whose intervention
no decree of distribution can be validly entered.

RULING:

It cannot be entertained. A partner's share cannot be returned without

first dissolving and liquidating the partnership, for the return is
dependent on the discharge of the creditors, whose claims enjoy
preference over those of the partners; and it is self-evident that all
members of the partnership are interested in his assets and business,
and are entitled to be heard in the matter of the firm's liquidation and
the distribution of its property. The liquidation drawn by appellant is
not signed by the other members of the partnership besides appellees
and appellant; it does not appear that they have approved, authorized,
or ratified the same, and, therefore, it is not binding upon them. At the
very least, they are entitled to be heard upon its correctness.

In addition, unless a proper accounting and liquidation of the

partnership affairs is first had, the capital shares of the appellees, as
retiring partners, cannot be repaid, for the firm's outside creditors have
preference over the assets of the enterprise, and the firm's property
cannot be diminished to their prejudice. Finally, the appellant cannot
be held liable in his personal capacity for the payment of partners'
shares for he does not hold them except as manager of, or trustee for,
the partnership. It is the latter that must refund their shares to the
retiring partners. Since not all the members of the partnership have
been impleaded, no judgment for refund can be rendered

ANTONIO LIM TANHU vs. HON. JOSE R. RAMOLETE

G.R. No. L-17526 June 30, 1962

FACTS:

Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was
a partner in the commercial partnership, Glory Commercial Company,
with Antonio Lim Tanhu and Alfonso Ng Sua. Accordingly, Antonio Lim
Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan
was the manager of Glory Commercial Company, they managed to use
the funds of the partnership to purchase lands and building's in the
cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay
and Minglanilla, some of which were hidden.

Tan alleged in her complaint that after the death of Tee Hoon Lim Po
Chuan, his partners, without liquidation, continued the business of
Glory Commercial Company, by purportedly organizing a corporation
known as the Glory Commercial Company, Incorporated with paid up
capital in the sum of P125, 000.00, which money and other assets are
actually the assets of the defunct Glory Commercial Company
partnership.

Sometime in the month of November, 1967, Antonio Lim Tanhu, by

means of fraud deceit and misrepresentations did then and there,
induce and convince the plaintiff to execute a quitclaim of all her rights
and interests, in the assets of the partnership of Glory Commercial
Company.

Tanhu and the other partners who had earlier promised to liquidate the
properties and assets of Glory Commercial Company in favor among
others of Tan refused to do so and until the middle of the year 1970
when the latter formally demanded from the defendants the
accounting of real and personal properties of the Glory Commercial
Company, they still refused and stated that they would not give the
share of the plaintiff.

ISSUE:

Whether or not Tan has a right over the liquidated properties of the
partnership.

RULING:

No, Tan has no right over the liquidated properties of the partnership.

The Supreme Court held that there is no alternative but to hold that
Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan
has not been satisfactorily established and that, on the contrary, the
evidence on record convincingly shows that her relation with said
deceased was that of a common-law wife.

Moreover, the Supreme Court said that the lower courts committed an
error by awarding 1/3 of the partnership properties to Tan because
there has been no liquidation proceedings yet. And if there has not yet
been any liquidation of the partnership, the only right plaintiff could
have would be to what might result after much liquidation to belong to
the deceased partner (her alleged husband) and before this is finished,
it is impossible to determine, what rights or interest, if any the
deceased had.

In other words, no specific amounts or properties may be adjudicated

to the heir or legal representative of the deceased partner without the
liquidation being first terminated.
CRISTOBAL BONNEVIE, ET AL. vs. JAIME HERNANDEZ
95 PHIL 175
FACTS:

Prior to January, 1947, plaintiffs with other associates formed a

syndicate or secret partnership for the purpose of acquiring the plants,
franchises and other properties of the Manila Electric Co. (Meralco) in
the provinces of Camarines Sur, Albay, and Sorsogon, with the idea of
continuing that company's business in that region. No formal articles
were drawn for it was the purpose of the members to incorporate once
the deal had been consummated.

Negotiation for the purchase was commenced, but as it made no

headway, defendant Jamie Hernandez was taken in as a member of the
partnership so that he could push the deal through, and to that end he
was given the necessary power of attorney. Using partnership funds,
defendant was able to buy the Meralco properties. Although defendant
was the one named vendee in the deed of sale, there is no question
that the transaction was in penalty made for the partnership so that
the latter assumed control of the business the day following the sale.

About the latter half of the following month, the members of the
partnership proceeded with the formation of the proposed corporation,
apportioning among themselves its shares of stock in proportion to
their respective contributions to the capital of the partnership and their
individual efforts in bringing about the acquisition of the Meralco
properties. But before the incorporation papers could be perfected,
several partners, not satisfied with the way matters were being run
and fearful that the venture might prove a failure because the business
was not going well expressed their desire to withdraw from the
partnership and get back the money they had invested therein. A
resolution was approved, with the herein plaintiffs voting affirmatively,
and on that same day plaintiffs and Judge Reyes withdrew from the
partnership, and, as admitted by both parties, the partnership was
then dissolved. In accordance with the terms of the resolution, the
withdrawing partners were, on the following day, reimbursed their
respective contributions to the partnership fund.

Following the dissolution of the partnership, the members who

preferred to remain in the business went ahead with the formation of
the corporation, taking in new associates as stockholders. And
defendant, on his part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer of the
corporation, giving them a book value of P365, 000, in return for which
the corporation issued, to the various subscribers to its capital stock,
shares of stock of the total face value of P225, 000 and assumed the
obligation of paying what was still due the Meralco on the purchase
price. The new corporation was named "Bicol Electric Company."

Two years from their withdrawal from the partnership, when the
corporate business was already in a prosperous condition, plaintiffs
brought the present suit against Jaime Hernandez, claiming a share in
the profit the latter is supposed to have made from the assignment of
the Meralco properties to the corporation, estimated by plaintiffs to be
P225, 000 and their share of it to be P115, 312.50.
Defendant's answer denies that he has made any profit out of the
assignment in question and alleges that in any event plaintiffs, after
their withdrawal from the partnership, ceased to have any further
interest in the subsequent transactions of the remaining members.

ISSUES:

1. Whether or not the partnership had realized profit out of the

Meralco properties made by the defendant corporation.
2. If there was indeed a profit, whether or not the plaintiffs are
entitled for their share of such profit.

RULING:

As to the first issue, the Supreme Court held that no, the profit alleged
to have been realized from the assignment of the Meralco properties to
the new corporation, the Bicol Electric Company, is more apparent than
real. It is true that the value set for those properties in the deed of
assignment was P365, 000 when the acquisition price was only P122,
000. But one should not jump to the conclusion that a profit, consisting
of the difference between the two sums was really made out of the
transaction, for the assignment was not made for cash but in payment
for subscriptions to shares of stock in the assignee, and while those
shares had a total face value of P225, 000, this is not necessarily their
real worth. Needless to say, the real value of the shares of stock of a
corporation depends upon the value of its assets over and above its
liabilities. It does not appear that the Bicol Electric Company had any
assets other than those acquired from the Meralco, and according to
the evidence the company, aside from owing the Meralco, P82,000
was, in the language of the court below, actually "in the red."

On the second issue, the Supreme Court ruled that assuming that the
assignment actually brought profit to the partnership, it is hard to see
how defendant could be made to answer for plaintiffs' alleged share
thereof.

As 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.

As testified to by Judge Reyes, one of the withdrawing partners, it was

clearly understood that upon their withdrawal and return to them of
their investment they would have nothing more to do with the
association. It must, therefore, have been the intention or
understanding of the parties that the withdrawing partners were
relinquishing all their rights and interest in the partnership upon the
return to them of their investment. That Judge Reyes did not join the
plaintiffs in this action is a clear indication that such was really the
understanding. Judge Reyes has testified that when he was invited to
join in the present claim he refused because he did not want to be a
"sin verguenza." And, indeed, if the agreement was that the
withdrawing partners were still to have participation in the subsequent
transactions of the partnership so that they would have a share not
only in the profits but also in the losses, it is not likely that their
investment would have been returned to them.

It is, therefore, our conclusion that the acceptance by the withdrawing

partners, including the plaintiffs, of their investment in the instant case
was understood and intended by all the parties as a final settlement of
whatever rights or claim the withdrawing partners might have in the
dissolved partnership. Such being the case they are now precluded
from claiming any share in the alleged profits, should there be any, at
the time of the dissolution.
 F) LIMITED PARTNERSHIP ARTICLES 1843-1867

III. AGENCY
A) GENERAL ARTICLES 1868-1883

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES v. COURT OF

APPEALS and AMERICAN AIR-LINES INCORPORATED
197 SCRA 645

FACTS:

American Airlines, Inc. (American Air), an air carrier offering passenger

and air cargo transportation in the Philippines, and Orient Air Services
and Hotel Representatives (Orient Air), entered into a General Sales
Agency Agreement (Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the Philippines
for the sale of air passenger transportation. In the agreement, Orient
Air shall remit in United States dollars to American the ticket stock or
exchange orders, less commissions to which Orient Air Services is
entitled, not less frequently than semi-monthly. On the other hand,
American will pay Orient Air Services commission on transportation
sold by Orient Air Services or its sub-agents. Thereafter, American
alleged that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for
the months of January to March 1981 in the amount of US $254,400.40,
American Air by itself undertook the collection of the proceeds of
tickets sold originally by Orient Air and terminated forthwith the
Agreement in accordance with paragraph 13 which authorize the
termination of the agreement thereof in case Orient Air is unable to
transfer to the United States the funds payable by Orient Air Services
to American. American Air instituted suit against Orient Air with the
Court of First Instance of Manila for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining
Order averring the aforesaid basis for the termination of the
Agreement as well as therein defendant's previous record of failures
"to promptly settle past outstanding refunds of which there were
available funds in the possession of the defendant, . . . to the damage
and prejudice of plaintiff."
Orient Air denied the material allegations of the complaint with respect
to plaintiff's entitlement to alleged unremitted amounts, contending
that after application thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the
actions taken by American Air in the course of terminating the
Agreement as well as the termination itself were untenable. The trial
court ruled in its favor which decision was affirmed with modification
by Court of Appeals. It held the termination made by the latter as
affecting the GSA agreement illegal and improper and ordered the
plaintiff to reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA
agreement.

ISSUE:

Whether the Court of Appeals erred in ordering the reinstatement of

the defendant as its general sales agent for passenger transportation
in the Philippines in accordance with said GSA Agreement.

RULING:

Yes. By affirming this ruling of the trial court, respondent appellate

court, in effect, compels American Air to extend its personality to
Orient Air. Such would be violative of the principles and essence of
agency, defined by law as a contract whereby "a person binds himself
to render some service or to do something in representation or on
behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER .In an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the
agent, by legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship can only
be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. The Agreement itself
between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable. We, therefore, set aside the portion of the ruling of
the respondent appellate court reinstating Orient Air as general sales
agent of American Air.
 RALLOS v FELIX GO CHAN & SONS REALTY CORP.
18 SCRA 251

FACTS:

Concepcion and Gerundia both surnamed Rallos were sisters and

registered co-owners of a parcel of land known as Lot No. 5983 of the
Cadastral Survey of Cebu covered by Transfer Certificate of Title No.
11116 of the Registry of Cebu. On April 21, 1954, the sisters executed
a special power of attorney in favor of their brother, Simeon Rallos,
authorizing him to sell for and in their behalf lot 5983. Then on March
3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon
Rallos sold the undivided shares of his sisters Concepcion and
Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the
sum of P10, 686.90. The deed of sale was registered in the Registry of
Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the names of the vendee.

On May 18, 1956, Ramon Rallos as administrator of the Intestate

Estate of Concepcion Rallos filed a complaint praying that:

1. Sale of the undivided share of the deceased Concepcion

Rallos in lot 5983 be unenforceable, and said share be
reconvened to her estate;
2. Certificate of title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate
estate of Concepcion Rallos" in equal undivided; and
3. Plaintiff be indemnified by way of attorney's fees and
payment of costs of suit.

The defendant Corporation's Answer contained a crossclaim against its

co-defendant, Simon Rallos while the latter filed a third-party complaint
against his sister, Gerundia Rallos. And while the case was pending in
the trial court, both Simon and his sister Gerundia died and they were
substituted by the respective administrators of their estates.

ISSUE:

Whether or not the sale fell within the exception to the general rule
that death extinguishes the authority of the agent.

RULING:

The sale is void. The court held that no one may contract in the name
of another without being authorized by the latter, or unless he has by
law a right to represent him (Article 1317, New Civil Code). Simons
authority as agent was extinguished upon Concepcions death. The
sale did not fall under the exceptions to the general rule that death
ipso jure extinguishes the authority of the agent. Article 1930 is
inapplicable since the SPA in favor of Simon was not coupled with
interest and Article 1931 is inapplicable because he knew of principal
Concepcions death. For Art. 1931 to apply, both requirements must be
present. The laws on agency, where the terms of which are clear and
unmistakable leaving no room for an interpretation contrary to its
tenor, should apply. The law provides that the death of the principal
ipso jure extinguishes the authority of the agent to sell rendering the
sale to a third person in good faith unenforceable unless the agent had
no knowledge of the principals death at that time.
AIR FRANCE vs. HONORABLE COURT OF APPEALS
G.R No. L-57339 December 29, 1983
FACTS:

Sometime in February, 1970, the late Jose G. Gana and his family,
numbering nine (the GANAS), purchased from AIR FRANCE through
Imperial Travels, Incorporated, a duly authorized travel agent, nine (9)
"open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila
route. On 24 April 1970, AIR FRANCE exchanged or substituted the
aforementioned tickets with other tickets for the same route. At this
time, the GANAS were booked for the Manila/Osaka segment on AIR
FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip
on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets were
valid until 8 May 1971, the date written under the printed words "Non
valuable apres de (meaning, "not valid after the").however, the GANAS
did not depart on 8 May 1970. In January, 1971, Jose Gana sought the
assistance of Teresita Manucdoc and Lee Ella Manager of the Philippine
Travel but the extension was impossible.

The GANAS departed from Manila in the afternoon of 7 May 1971 on

board AIR FRANCE Flight 184 for Osaka, Japan. However, for the
Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the
tickets because of their expiration, and the GANAS had to purchase
new tickets. They encountered the same difficulty with respect to their
return trip to Manila as AIR FRANCE also refused to honor their tickets.
They were able to return only after pre-payment in Manila, through
their relatives, of the readjusted rates. They finally flew back to Manila
on separate Air France Frights on 19 May 1971 for Jose Gana and 26
May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then Court of

First Instance of Manila, Branch III, Civil Case No. 84111 for damages
arising from breach of contract of carriage. AIR FRANCE traversed the
material allegations of the Complaint and alleged that the GANAS
brought upon themselves the predicament they found themselves in
and assumed the consequential risks; that travel agent Ella's affixing of
validating stickers on the tickets without the knowledge and consent of
AIR FRANCE, violated airline tariff rules and regulations and was
beyond the scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on

Partial and Additional Stipulations of Fact as wen as on the
documentary and testimonial evidence. On 15 December 1980,
respondent Appellate Court set aside and reversed the Trial Court's
judgment.

ISSUE:

Whether there was a breach of contract of carriage.

RULING:

None. AIR FRANCE cannot be faulted for breach of contract when it

dishonored the tickets of the GANAS after 8 May 1971 since those
tickets expired on said date; nor when it required the GANAS to buy
new tickets or have their tickets re-issued for the Tokyo/Manila
segment of their trip. Neither can it be said that, when upon sale of the
new tickets, it imposed additional charges representing fare
differentials, it was motivated by self-interest or unjust enrichment
considering that an increase of fares took effect, as authorized by the
Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in
accord with the IATA tariff rules.

The GANAS brought upon themselves the predicament they were in for
having insisted on using tickets that were due to expire in an effort,
perhaps, to beat the deadline and in the thought that by commencing
the trip the day before the expiry date, they could complete the trip
even thereafter. It should be recalled that AIR FRANCE was even
unaware of the validating SAS and JAL. stickers that Ella had affixed
spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted
within their contractual rights when they dishonored the tickets on the
remaining segments of the trip and when AIR FRANCE demanded
payment of the adjusted fare rates and travel taxes for the
Tokyo/Manila flight.
 SANTOS vs. BUENCONSEJO
G.R. No. L-20136 June 23, 1965

FACTS:

Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the

Court of First Instance of Albay, denying his petition, filed in Cadastral
Case No. M-2197, LRC Cad. Rec. No. 1035, for the cancellation of
original certificate of title no. RO-3848 (25322), issued in the name of
Anatolio Buenconsejo, Lorenzo Bon and Santiago Bon, and covering Lot
No. 1917 of the Cadastral Survey of Tabaco, Albay, and the issuance in
lieu thereof, of a separate transfer certificate of title in his name.
Santos had redeemed the aforementioned share of Anatolio
Buenconsejo, upon the authority of a special power of attorney
executed in his favor by the children of Anatolio Buenconsejo; that
relying upon this power of attorney and redemption made by him,
Santos now claims to have acquired the share of Anatolio Buenconsejo
in the aforementioned Lot No. 1917; that as the alleged present owner
of said share, Santos caused a subdivision plan of said Lot No. 1917 to
be made, in which the portion he claims as his share thereof has been
marked as Lot No. 1917-A; and that he wants said subdivision at No.
1917-A to be segregated from Lot No. 1917 and a certificate of title
issued in his name exclusively for said subdivision Lot No. 1917-
A.name, covering part of said Lot No. 1917, namely Lot No. 1917-A of
Subdivision Plan PSD-63379.

ISSUE:

Whether or not the SPA was valid.

RULING:

No. The petitioner's claim is clearly untenable, for: (1) said special
power of attorney authorized him to act on behalf of the children of
Anatolio Buenconsejo, and, hence, it could not have possibly vested in
him any property right in his own name; (2) the children of Anatolio
Buenconsejo had no authority to execute said power of attorney,
because their father is still alive and, in fact, he and his wife opposed
the petition of Santos; (3) in consequence of said power of attorney (if
valid) and redemption, Santos could have acquired no more than the
share pro indiviso of Anatolio Buenconsejo in Lot No. 1917, so that
petitioner cannot without the conformity of the other co-owners
(Lorenzo and Santiago Bon), or a judicial decree of partition issued
pursuant to the provisions of Rule 69 of the new Rules of Court (Rule 71
of the old Rules of Court) which have not been followed By Santos
adjudicate to himself in fee simple a determinate portion of said Lot
No. 1917, as his share therein, to the exclusion of the other co-owners.

ALBALADEJO Y CIA., vs. The PHILIPPINE REFINING CO., as

successor to The Visayan Refining Co.,
45 PHIL 556

FACTS:

Albaladejo y Cia (Albaladejo), a limited partnership having its principal

place of business at Legaspi, in the Province of Albay, engaged in the
buying and selling of the products of the country especially copra,
entered into a Memorandum of Agreement with Visayan Refining
Company (VRC), an organization engaged in the manufacture of
coconut oil.
On August 28, 1918, the plaintiff made a contract with the Visayan
Refining Co., said agreement contained the following stipulations:

1) VRC bound itself to but from Albaladejo all copra purchased by

Albaladejo in the province of Albay for a period of 1 year from the date
of MOA;
2) VRC bound itself to pay Albaladejo the Cebu market price of
copra deducting, however, price of the cost of transportation by sea to
VRC factory;
3) VRC will not appoint any other agent for the purchase of copra
in Legaspi nor buy copra from any vendor in Legaspi;
4) VRC will keep Albaladejo advised of the prevailing prices paid
for said copra in Cebu market;
5) VRC to provide transportation by sea to Opon, Cebu for the
delivery of copra by Albaladejo.

Both parties were satisfied with the arrangement and agreed to

continue with the arrangement even after the 1 year. During this time,
Cia expanded its business due to the large requirements/demand of
copra from VRC. However, VRC eventually closed down its factory in
Opon and withdrew from the copra market.

Upon the liquidation of their accounts, VRC rendered the last account
to Albaladejo y Cia amounting to a balance of P288 in favor of VRC as
of April 1921. This account was approved by Albaladejo. This time,
Philippine Refining Co. (PRC) succeeded to the rights and liabilities of
VRC. Six weeks after, Albaladejo alleged that VRC negligently failed to
provide opportune transportation for the copra it collected and
deposited for shipment at various places, pursuant to their agreement
that VRC obligated itself to provide transportation by sea to Opon,
Cebu. Due to VRCs failure, the copra diminished in weight and value
due to its shrinkage through excessive drying. The total value of these
copra was P201, 599.53, in which amount Albaladejo y Cia was
damaged and injured. However, the lower court ruled that VRC was not
negligent in the delay of the transportation but the occasional
irregularities were due at times to the condition of the weather as to
the transportation by sea. Albaladejo also sought to recover P110, 000,
the amount it expended in maintaining and extending its organization,
on the basis that VRC requested such, with repeated assurances that it
would resume its activity as a purchaser of copra.

ISSUE:

Whether VRC as principal is liable to the expenses incurred by the

agent Albaladejo y Cia in carrying out the agency which would entitle
the latter to reimbursement?

RULING:
No. Albaladejo y Cia presented several trade letters of VRC and PRC as
evidence that PRC hoped that it would soon re-enter the copra market.
But nothing in these letters held PRC liable for the expenses incurred
by Albaladejo y Cia in keeping its organization intact. The contract
between VRC/PRC and Albaladejo y Cia is one of purchase, and not of
agency. Although VRC/PRC used agents in its trade letters to refer to
Albaladejo y Cia and other suppliers, it was only used for convenience
and it is very clear that in its activities as a buyer, Albaladejo y Cia was
acting upon its own account and not as agent of VRC. When it turned
over the copra to VRC, a second sale was effected. Not having a
contract of agency with VRC, Albaladejo y Cia is not entitled to
reimbursement, as contemplated under Article 1913, for the
damages/expenses it incurred in maintaining and extending VRCs
organization.
 DAVID THOMAS vs HERMOGENES S. PINEDA
89 PHIL 312

FACTS:

On 1931, David Thomas (Thomas) bought the bar and restaurant

known as Silver Dollar Cafe located at Plaza Santa Cruz, Manila, from
one Dell Clark, paying P20,000 for its physical assets and good will.
Thereafter he employed the Hermogenes Pineda (Pineda), Clarks
former employee, as a bar-tender and in the course of time became
successively cashier and manager of the business. To prevent the
business and its property from falling into enemy hands, Thomas,
being a citizen of the United States, made a fictitious sale to the
defendant on December 28, 1941; and to clothe the sale with a
semblance of reality, the bill of sale was antedated November 29,
1941. Though this document was said to have been destroyed and no
copy was available, the fictitiousness and lack of consideration of the
conveyance was expressly admitted by both parties.

Thomas was interned at Santo Tomas during the greater part of the
war, and his business was operated by Pineda exclusively. On February
3, 1945, the building was destroyed by fire but the defendant had been
able to remove some of its furniture, the cash register, the piano, the
safe, and a considerable quantity of stocks to a place of safety.
According to the defendant, all of these goods were accounted for and
turned over to the plaintiff after the City of Manila had been retaken by
the American Forces. On May 8, 1945, a bar was opened on Calle
Bambang, district of Sta. Cruz, under the old name of Silver Dollar
Cafe. Housed in a makeshift structure, which was erected on a lot
belonging to Pineda, the Bambang shop was conducted for about four
months, i.e., until September of the same year, when it was transferred
to the original location of the Silver Dollar Cafe at No. 15 Plaza Sta.
Cruz. It is asserted and denied that the plaintiff as well as the
defendant took a more or less active part in the management of the
post-liberation business until about the middle of September of the
following year, when, it is also alleged, the plaintiff brought a certified
public accountant to the establishment in Sta. Cruz for the purpose of
examining the books of the business and the defendant threatened the
plaintiff and his companion with a gun if they persisted in their
purpose. As a result of that incident, the plaintiff forthwith filed the
present action, and set up a separate business under the same trade
name, Silver Dollar Cafe, on Echague Street. The defendant remained
with the Silver Dollar Cafe at Plaza Sta. Cruz, which was burned down
on December 15, 1946.

The controversy lies in the nature and scope of the defendants

obligation toward the plaintiff in relation to the business. The
defendant endeavored to prove that there was a third, verbal,
agreement, the import of which was that he was to operate the
business with no liability other than to turn it over to the plaintiff as the
plaintiff would find it after the war.

ISSUE:

Whether or not Pineda is obliged to render an accounting to Thomas?

RULING:

Yes. Based on conclusive evidence, both direct and circumstantial, the

plaintiff was the owner of the Silver Dollar Cafe at Plaza Sta. Cruz
during the enemy occupation and is of right entitled to have an
accounting of its administration by the defendant. As a legal
proposition and in good conscience, the defendants registration of the
trade-name Silver Dollar Cafe must be deemed to have been effected
for the benefit of its owner of whom he was a mere trustee or
employee. "The relations of an agent to his principal are fiduciary and
it is an elementary and very old rule that in regard to property forming
the subject matter of the agency, he is estopped from acquiring or
asserting a title adverse to that of the principal. His position is
analogous to that of a trustee and he cannot consistently, with the
principles of good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. A receiver,
trustee, attorney, agent, or any other person occupying fiduciary
relations respecting property or persons, is utterly disabled from
acquiring for his own benefit the property committed to his custody for
management. This rule is entirely independent of the fact whether any
fraud has intervened. No fraud in fact need be shown, and no excuse
will be heard from the trustee. It is to avoid the necessity of any such
inquiry that the rule takes so general a form. The rule stands on the
moral obligation to refrain from placing ones self in positions which
ordinarily excite conflicts between self- interest and integrity. It seeks
to remove the temptation that might arise out of such a relation to
serve ones self-interest at the expense of ones integrity and duty to
another, by making it impossible to profit by yielding to temptation."
(Barretto v. Tuason, 50 Phil. 888; Severino v. Severino, 44 Phil., 343.)
 PABLO D. PALMA VS EDUARDO REYES CRISTOBAL
77 PHIL 712

FACTS:

In 1909, after registration proceedings under the provisions of Act No.

496, original certificate of title No. 1627 was issued in the names of
petitioner and his wife Luisa Cristobal.

In 1923, said certificate was cancelled and substituted by certificate of

title No. 20968 by virtue of a decree issued by the Court of First
Instance of Manila in connection with Manila cadastre.

After Palmas wife death in 1922, a new certificate of title was issued in
1923 only in the name of Palma.

Petitioner sought, at first, to eject respondent Eduardo Cristobal Reyes

from the land in question in a complaint filed with the Municipal Court
of Manila. As respondent raised the question of ownership, the
complaint was dismissed, and petitioner filed with the Court of First
Instance of Manila the complaint which initiated this case, petitioner
praying that he be declared the owner of the land and that respondent
be ordered to restore its possession and to remove his house.

The CFI dismissed the case and brought to CA and similarly dismissed
the case.

The Court of Appeals, upon the evidence, concluded with the Court of
First Instance of Manila that the parcel of land in question is a
community property held by petitioner in trust for the real owners (the
respondent being an heir of one of them), the registration having been
made in accordance with an understanding between the co-owners, by
reason of the confidence they had in petitioner and his wife.

This confidence, close relationship, and the fact that the co-owners
were receiving their shares in the rentals, were the reasons why no
step had been taken for partition.

The CA, in dismissing the case, invoked SCs rulings which declared
that the registration of the property in the name of the trustees in
possession must be deemed to have been effected for the benefit of
the principal/cestui que trust.

ISSUE:
Whether or not CA erred in dismissing the case.

RULING:
No, the CA did not err. Palma contends that if he did not commit fraud,
Cristobal was in fact a part of it, but the SC held the fact that Cristobal
has been a party to the deception which resulted in Palmas securing in
his name the title to the property not belonging to him, is not a valid
reason for changing the legal relationship between the latter and its
true owners to such extent as to let them lose their ownership to a
person trying to usurp it.

Upon the premise that the registration in 1909 in the name of

petitioner and his wife, Luisa Cristobal, was in accordance with an
agreement among the co-owners, petitioner advances the theory that
when he, upon the death of his wife in 1922, caused the trust property
to be registered in his sole name in 1923, and subsequently partitioned
between himself and his daughter, Ildefonsa Cristobal Ditangco, as
heirs of the decedent, "he openly breached the agreement of 1909 as
well as the promise made to his dying wife of giving the co-owners
their respective shares," concluding that "that breach was an
assumption of ownership, and could be the basis of title by
prescription."

Palma avers that Cristobal is barred by prescription. Cristobal is not

barred because his appearance as attorney for petitioner was not
misrepresentation which would induce Palma to believe that he
recognized Palma as the sole owner of the property in controversy. The
misrepresentation could deceive the court and outsiders, because they
are not aware of the understanding between the co-owners that the
property be registered in the name of Palma.

Palma then avers that even granting the property was owned by
several co-owners he now owns it due to prescription. This theory
holds no water because, according to the pronouncement of the Court
of Appeals, upon the evidence, petitioner held the property and
secured its registration in his name in a fiduciary capacity, and it is
elementary that a trustee cannot acquire by prescription the ownership
of the property entrusted to him. The position of a trustee is of
representative nature. His position is the position of a cestui que trust.
It is logical that all benefits derived by the possession and acts of the
agent, as such agent, should accrue to the benefit of his principal.
 FEDERICO VALERA VS. MIGUEL VELASCO
51 PHIL 695

FACTS:

By virtue of the powers of attorney executed by Valera, the defendant

was appointed attorney-in-fact of the said plaintiff with authority to
manage his property in the Philippines, consisting of the usufruct of a
real property located of Echague Street, City of Manila.

The defendant (agent) accepted both powers of attorney, managed

plaintiff's property, reported his operations, and rendered accounts of
his administration and presented final account of his administration
and appears that there is balance in favour of Valera.

The liquidation of accounts revealed that Valera owed the Velasco P1,
100, and as misunderstanding arose between them, the Velasco
brought suit against Valera. Judgment was rendered in Velascos
favour.

Writ of execution was issued, the sheriff levied upon the Valera's right
of usufruct, sold it at public auction and adjudicated it to Velasco in
payment of all of his claim.

Subsequently, Valera sold his right of redemption to one Eduardo

Hernandez. On September 4, 1923, this purchaser conveyed the same
right of redemption to Valera

After Valera had recovered his right of redemption, one Salvador

Vallejo, who had an execution upon a judgment against Valera
rendered in a civil case against the latter, levied upon said right of
redemption which was sold by the sheriff at public auction to Salvador
Vallejo for P250 and was definitely adjudicated to him. Later, he
transferred said right of redemption to the defendant Velasco. This is
how the title to the right of usufruct to the aforementioned property
later came to vest Velasco.
Valera questions the validity of Velascos purchase when Velasco was
still agent of Valera.

Velasco avers that the purchase was valid for the agency relationship
was extinguished when he brought the suit against Valera.

ISSUE:

Whether or not the Acquisition of the usufructuary and the right of

redemption are valid because the agency between Valera and Velasco
has been extinguished by virtue of the suit.

RULING:

Yes, In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court said
laid down the following rule:

When the agent and administrator of property informs his principal by

letter that for reasons of health and medical treatment he is about to
depart from the place where he is executing his trust and wherein the
said property is situated, and abandons the property, turns it over to a
third party, renders accounts of its revenues up to the date on which
he ceases to hold his position and transmits to his principal statement
which summarizes and embraces all the balances of his accounts since
he began the administration to the date of the termination of his trust,
and, without stating when he may return to take charge of the
administration of the said property, asks his principal to execute a
power of attorney in due form in favor of a transmit the same to
another person who took charge of the administration of the said
property, it is but reasonable and just to conclude that the said agent
had expressly and definitely renounced his agency and that such
agency duly terminated, in accordance with the provisions of article
1732 of the Civil Code, and, although the agent in his aforementioned
letter did not use the words "renouncing the agency," yet such words,
were undoubtedly so understood and accepted by the principal,
because of the lapse of nearly nine years up to the time of the latter's
death, without his having interrogated either the renouncing agent,
disapproving what he had done, or the person who substituted the
latter.

The misunderstanding between the plaintiff and the defendant over

the payment of the balance of P1,000 due the latter, as a result of the
liquidation of the accounts between them arising from the collections
by virtue of the former's usufructuary right, who was the principal,
made by the latter as his agent, and the fact that the said defendant
brought suit against the said principal on March 28, 1928 for the
payment of said balance, more than prove the breach of the juridical
relation between them; for, although the agent has not expressly told
his principal that he renounced the agency, yet neither dignity nor
decorum permits the latter to continue representing a person who has
adopted such an antagonistic attitude towards him. When the agent
filed a complaint against his principal for recovery of a sum of money
arising from the liquidation of the accounts between them in
connection with the agency, Federico Valera could not have understood
otherwise than that Miguel Velasco renounced the agency; because his
act was more expressive than words and could not have caused any
doubt. (2 C. J., 543.) In order to terminate their relations by virtue of
the agency the defendant, as agent, rendered his final account on
March 31, 1923 to the plaintiff, as principal.

DOCTRINE:

The fact that an agent institutes an action against his principal for the
recovery of the balance in his favor resulting from the liquidation of the
accounts between them arising from the agency, and renders and final
account of his operations, is equivalent to an express renunciation of
the agency, and terminates the juridical relation between them.

CUI VS CUI 100

Phil 913

FACTS:

Jesus and Antonio are the legitimate children of Don Mariano Cui and
Doa Antonia Perales who died intestate in 1939. Jesus alleged that
during the marriage of Don Mariano and Dona Antonia, their parents
acquired certain properties in the City of Cebu, namely, Lots Nos. 2312,
2313 and 2319. Upon the death of their mother, the properties were
placed under the administration of their dad that while the latter was
84 years of age, Antonio by means of deceit, secured the transfer to
themselves the said lots without any pecuniary consideration; that in
the deed of sale executed on March 8, 1946, Rosario Cui appeared
as one of the vendees, but on learning of this fact she subsequently
renounced her rights under the sale and returned her portion to Don
Mariano Cui by executing a deed of resale in his favor on October 11,
1946; that defendants, fraudulently and with the desire of enriching
themselves unjustly at the expense of their father, Don Mariano Cui,
and of their brothers and co-heirs secured a loan of P130,000 from the
Rehabilitation properties, and with the loan thus obtained, defendants
constructed thereon an apartment building of strong materials
consisting of 14 doors, valued at approximately P130,000 and
another building on the same parcels of land, which buildings were
leased to some Chinese commercial firms a monthly rental of P7,600,
which defendants have collected and will continue to collect to the
prejudice of the plaintiffs.

Jesus alleged that the sale should be invalidated so far as the portion
of the property sold to Antonio Cui is concerned, for the reason that
when that sale was effected, Antonio was then acting as the agent or
administrator of the properties of Don Mariano Cui. Jesus lays stress on
the power of attorney Exhibit L which was executed by Don Mariano in
favor of Antonio Cui on March 2, 1946 wherein the former has
constituted the latter as his "true and lawful attorney" to perform in his
name and that of the intestate heirs of Doa Antonia Perales.

ISSUE:

Whether or not the sale of the property to Antonio was valid.

RULING:

Yes. While under article 1459 of the old Civil Code an agent or
administrator is disqualified from purchasing property in his hands for
sale or management, and, in this case, the property in question was
sold to Antonio Cui while he was already the agent or administrator of
the properties of Don Mariano Cui, we however believe that this
question cannot now be raised or invoked.

The prohibition of the law is contained in article 1459 of the old Civil
Code, but this prohibition has already been removed.

Under the provisions of article 1491, section 2, of the new Civil Code,
an agent may now buy property placed in his hands for sale or
administration, provided that the principal gives his consent thereto.
While the new Code came into effect only on August 30, 1950,
however, since this is a right that is declared for the first time, the
same may be given retroactive effect if no vested or acquired right is
impaired (Article 2253, new Civil Code). During the lifetime Don
Mariano and particularly on March 8, 1946, the herein appellants could
not claim any vested or acquired right in these properties, for as heirs,
the most they had was a mere expectancy. We may therefore, invoke
now this practical and liberal provision of our new Civil Code even if the
sale had taken place before its affectivity.
 ALLIED FREE WORKERS UNION (PLUM) vs. COMPANIA
MARITIMA
19 SCRA 258

FACTS:

MARITIMA is a local corporation engaged in the shipping business.

Teves is its branch manager in the port of Iligan City and AFWU is a
duly registered legitimate labor organization with 225 members.

On August 11, 1952, MARITIMA, through Teves, entered into a

CONTRACT with AFWU to do and perform all the work of stevedoring
and arrastre services of all its vessels or boats calling in the port of
Iligan City, beginning August12, 1952.
During the first month of the existence of the CONTRACT, AFWU
rendered satisfactory service. So, MARITIMA, through Teves, verbally
renewed the same. The harmonious relations between MARITIMA and
AFWU lasted up to the latter part of 1953 when the former complained
to the latter of unsatisfactory and inefficient service by the laborers
doing the arrastre and stevedoring work. This deteriorating situation
was admitted as a fact by AFWU's president.

To remedy the situation since MARITIMA's business was being

adversely affected -Teves was forced to hire extra laborers from among
"stand-by" workers not affiliated to any union to help in the
stevedoring and arrastre work. The wages of these extra laborers were
paid by MARITIMA through separate vouchers and not by AFWU.
Moreover said wages were not charged to the consignees or owners of
the cargoes.

On July 23, 1954, AFWU presented to MARITIMA a written proposal for a

collective bargaining agreement. This demand embodied certain terms
and conditions of employment different from the provisions of the
CONTRACT. No reply was made by MARITIMA.

AFWU sued MARITIMA for unfair labor practice saying that MARITIMA
refused to bargain collectively. CIR dismissed the case on the ground
that it has no jurisdiction over the case.

ISSUE:

Whether or not AFWU is an agent of Maritima.

RULING:

No. There is no any direct employment relationship between MARITIMA

and the laborers. The latter have no separate individual contracts with
MARITIMA. In fact, the court a quo found that it was AFWU that hired
them. Their only possible connection with MARITIMA is through AFWU
which contracted with the latter. Hence, they could not possibly be in a
better class than AFWU which dealt with MARITIMA.

Under the CONTRACT, AFWU was an independent contractor of

MARITIMA.
The petitioner union operated as a labor contractor under the so-called
"cabo" system has a complete set of officers and office personnel and
its organizational structure.
The payrolls where laborers are listed and paid were prepared by the
union itself without the intervention or control of the respondent
company and/or its agent at. The respondent never had any knowledge
of the individual names of laborers and/or workers listed in the union
payroll or in their roster of membership.
The union engaged the services of their members in undertaking the
work of arrastre and stevedoring either to haul shippers' goods from
their warehouses to the MARITIMA boat or from the boat to the
different consignees. The charges for such service were known by the
union and collected by them through their bill collector, who are
employees of the union and not of the respondent. The respondent had
no intervention whatsoever in the collection of those charges.
The union members who were hired by the union to perform arrastre
and stevedoring work on respondents' vessels at Iligan port were being
supervised and controlled by the general foreman of the petitioner
union or by any union assistant when performing arrastre and/or
stevedoring work aboard vessels of the Compaia MARITIMA. There
were no instances where offices and employees of the respondent
Compaia MARITIMA and/or its agent had interfered in the giving of
instructions to the laborers performing the arrastre and/or stevedoring
work.

It is true that MARITIMA admits that it did not answer AFWU's proposal
for a collective bargaining agreement. From this it does not necessarily
follow that it is guilty of unfair labor practice. Under the law the duty to
bargain collectively arises only between the "employer" and its
"employees". Where neither party is an ''employer" nor an "employee"
of the other, no such duty would exist. Needless to add, where there is
no duty to bargain collectively the refusal to bargain violates no right.
The facts as found by the court a quo strongly indicate that it is AFWU
itself who is the "employer" of those laborers. The facts very succinctly
show that it was AFWU, through its officers, which selected and hired
the laborers, (2) paid their wages, (3) exercised control and supervision
over them, and (4) had the power to discipline and dismiss them.

These are the very elements constituting an employer-employee

relationship.
An agent can not represent two conflicting interests that are
diametrically opposed. And that the cases sought to be relied upon
did not involve representatives of opposing interests.

FAR EASTERN EXPORT & IMPORT CO, vs. LIM TECK SUAN
G.R. No. L-7144 May 31, 1955
FACTS:

Ignacio Delizalde, an agent of the Far Eastern Export& Import

Company, went to the store of Lim TeckSuan in Manila and offered to
sell textile. Having arrived at an agreement with Bernardo Lim, General
Manager of Lim Teck Suan, Delizalde returned with a buyers
order. Suan established a letter of credit in favour of Frenkel
International Corporation through HSBC.

The textile arrived and was received by Suan, but complained to Far
Eastern of the inferior quality of the textile.

Upon the instruction of Far Eastern, Suan deposited the goods in a

warehouse and withdrew the same and was offered for sale. The net
direct loss is now being claimed against Far Eastern.

The defense set up is that Far Eastern only acted as a broker in

this transaction.
The lower court acquitted Far Eastern.
CA reversed the judgment, basing its decision of reversal on the case
of Jose Velasco v. Universal Trading where the transaction therein
involved was found by the court to be one of purchase and sale and
not of brokerage or agency.

ISSUE:

Was the transaction one of agency that will exonerate Far Eastern from
liability, or one of purchase and sale?

RULING:

One of purchase and sale. SC agreed with the CA that the facts in this
case are very similar to those in the Velasco case. In the Velasco case,
Universal Trading contends that it merely acted as agent for Velasco
and could not be held responsible for the substitution of Blended
Whisky for Bourbon Whisky.

The Court held that the transaction was purchase and sale and ordered
the defendant to refund his deposit with legal interest.
Where a foreign company has an agent here selling its goods and
merchandise, that same agent could not very well act as agent for
local buyers, because the interests of his foreign principal and those of
the buyer would be in direct conflict. He could not serve two masters at
the same time.

Far Eastern, being an agent of Frenkel, could not have acted as an

agent or broker for Suan. The transaction entered into by Far Eastern
with Suan is one of purchase and sale. Far Eastern acted as agent for
Frenkel International Corporation, presumably the supplier of the
textile sold. Suan according to the first part of the agreement is said
merely to be commissioning Far Eastern to procure for him the
merchandise in question. The price of the merchandise bought was
paid for by Suan by means of an irrevocable letter of credit opened in
favour of the supplier, Frenkel International Corporation. The
agreement speaks of the items involved as sold, and the sale was even
confirmed by Far Eastern. Far Eastern dealt directly with Suan without
expressly indicating or revealing the principal. There was no privity of
contract between the buyer and supplier.
No commission or monetary consideration was paid or agreed to be
paid by the buyer to export company proof that there was no agency
or brokerage, and that the profit of the latter was undoubtedly the
difference between the price listed to the buyer and the net or special
price quoted to the seller by the supplier.
 NIELSON & CO., INC. vs LEPANTO CONSOLIDATED MINING CO.
G.R. No. L-21601 December 28, 1968
FACTS:

Nielson & Company, Inc. and Lepanto Consolidated Mining Company entered
into a management contract. Nielson had agreed, for a period of five
years, with the right to renew for a like period, to explore, develop and
operate the mining claims of Lepanto, and to mine, or mine and mill,
such pay ore as may be found and to market the metallic products
recovered there from which may prove to be marketable, as well as to
render for Lepanto other services specified in the contract.

Nielson was to take complete charge, subject at all times to the

general control of the Board of Directors of Lepanto, of the exploration
and development of the mining claims, of the hiring of a sufficient and
competent staff and of sufficient and capable laborers, of the
prospecting and development of the mine, of the erection and
operation of the mill, and of the beneficiation and marketing of the
minerals found on the mining properties.

Nielson was also to act as purchasing agent of supplies, equipment and

other necessary purchases by Lepanto, but no purchase shall be made
without the prior approval of Lepanto and no commission shall be
claimed or retained by Nielson on such purchase.
The principal and paramount undertaking of Nielson under the
management contract was the operation and development of the mine
and the operation of the mill. All the other undertakings mentioned in
the contract are necessary or incidental to the principal. In the
performance of this principal undertaking, Nielson was not in any way
executing juridical acts for Lepanto.

Lepanto terminated the contract in 1945, 2 years before its expiration,

when it took over and assumed exclusive management of the work
previously entrusted to Nielson under the contract.

Lepanto finally maintains that Nielson as an agent is not entitled to

damages since the law gives to the principal the right to terminate the
agency at will.

ISSUE:

Was the management contract entered into by and between Nielson and
Lepanto a contract of agency such that it has the right to revoke and terminate
the contract at will, or a contract of lease of services?

RULING:

Contract of Lease of Services

The management contract was one of contract of lease of services and not a
contract of agency.
In both agency and lease of services, one of the parties binds himself
to render some service to the other party. Agency however is
distinguished from lease of work or services in that: the basis
of agency is representation, while in the lease of work or services, the
basis is employment.

THE SHELL COMPANY OF THE PHILIPPINES, LTD. vs. FIREMEN'S

INSURANCE COMPANY OF NEWARK
G.R. No. L-8169 January 29, 1957

FACTS:

In the afternoon of September 3, 1947, an automobile belonging to

Salvador Sison was brought by his son, Perlito Sison, to the gasoline
and service station at the corner of Marques de Comillas and Isaac
Peral Streets, City of Manila, Philippines, owned by The Shell Company
of the Philippine Islands, Limited, but operated by the defendant
Porfirio de la Fuente, for the purpose of having said car washed and
greased for a consideration of P8.00. Said car was insured against loss
or damage by Firemen's Insurance Company of Newark, New Jersey,
and Commercial Casualty Insurance Company jointly for the sum of
P10, 000.The job of washing and greasing was undertaken by Porfirio
de la Fuente through his two employees, Alfonso M. Adriano, as
greaseman and one surnamed de los Reyes, a helper and washer. To
perform the job the car was carefully and centrally placed on the
platform of the lifter in the gasoline and service station aforementioned
before raising up said platform to a height of about 5 feet and then the
servicing job was started. After more than one hour of washing and
greasing, the job was about to be completed except for an ungreased
portion underneath the vehicle which could not be reached by the
greasemen. So, the lifter was lowered a little by Alfonso M. Adriano and
while doing so, the car for unknown reason accidentally fell and
suffered damage to the value of P1, 651.38. The insurance companies
after paying the sum of P1, 651.38 for the damage and charging the
balance of P100.00 to Salvador Sison in accordance with the terms of
the insurance contract, have filed this action together with Salvador
Sison for the recovery of the total amount of the damage from The
Shell Company of the Philippine Islands, Limited on the ground of
negligence. The defendant Porfirio de la Fuente denied negligence in
the operation of the lifter in his separate answer and contended further
that the accidental fall of the car was caused by unforeseen event.

The trial Court dismissed the complaint prompting the insurance

companies to elevate the case to the Court of Appeals. The Court of
Appeals reversed the judgment and sentenced the defendant to pay
the amount sought to be recovered, legal interest and costs, as stated
at the beginning of this opinion.

ISSUE:

Whether or not Porfirio de la Fuente is an independent contractor of

Shell Company or merely an agent of the latter.

RULING:

The SC ruled that taking into consideration the fact that the operator
owed his position to the company and the latter could remove him or
terminate his services at will; that the service station belonged to the
company and bore its trade name and the operator sold only the
products of the company; that the equipment used by the operator
belonged to the company and were just loaned to the operator and the
company took charge of their repair and maintenance; that an
employee of the company supervised the operator and conducted
periodic inspection of the company's gasoline and service station; that
the price of the products sold by the operator was fixed by the
company and not by the operator; and that the receipt signed by the
operator indicated that he was a mere agent, Porfirio de la Fuente was
merely an agent of the company and not an independent contractor.

To determine the nature of a contract courts do not have or are not

bound to rely upon the name or title given it by the contracting parties,
should there be a controversy as to what they really had intended to
enter into, but the way the contracting parties do or perform their
respective obligation stipulated or agreed upon may be shown and
inquired into, and should such performance conflict with the name or
title given the contract by the parties, the former must prevail over the
latter.

As the act of the agent or his employees acting within the scope of his
authority is the act of the principal, the breach of the undertaking by
the agent is one for which the principal is answerable. Moreover, the
company undertook to "answer and see to it that the equipment are in
good running order and usable condition;" and the Court of Appeals
found that the Company's mechanic failed to make a thorough check
up of the hydraulic lifter and the checkup made by its mechanic was
"merely routine" by raising "the lifter once or twice and after observing
that the operator was satisfactory, he (the mechanic) left the place."
The latter was negligent and the company must answer for the
negligent act of its mechanic which was the cause of the fall of the car
from the hydraulic lifter.
In sum, since Porfirio de la Fuente as an agent of Shell Company was
negligent in performing his job and such negligence caused a damage
on Sisons car, the Shell Company therefore as the principal is also
liable for the simple reason that an act of an agent is the act of his
principal.

DR. CARLOS L. SEVILLA and LINA O. SEVILLA vs. THE COURT OF

APPEALS
G.R. No. L-41182-3 April 16, 1988

FACTS:

On October 19, 1960, Lina Sevilla (appellant) together with Tourist

World Service, Inc (private respondent) entered into a contract of lease
with Segundina Noguera (private respondent) to lease the premises
owned by the latter to be used by Lina Sevilla as a branch office of
Tourist World Service, Inc. Sevilla held herself solidarily liable with
Tourist World Service, Inc for the payment of monthly rentals. When the
branch office was opened, Sevilla run the office. In return, 4% was to
go to Lina Sevilla as a compensation and 3% was to be withheld by the
Tourist World Service, Inc.

On November 24, 1961, Tourist World Service, Inc was informed that
Sevilla was connected to a rival firm, Philippine Travel Bureau, and
since the branch office run by Sevilla was losing, Tourist World Service,
Inc considered closing it down. Indeed Tourist World Service, Inc
padlocked the premises of the branch office. In response, a complaint
was filed by Sevilla. Tourist World Service, Inc and Noguera answered
with counterclaims. For lack of interest of the parties, the case was
dismissed without prejudice. However it was later refiled by Sevilla.
The trial court later dismissed the case for lack of merit.
On appeal, the Court of Appeals ruled that Tourist World Service, Inc.,
being the true lessee, has the prerogative to terminate the lease and
padlock the premises. It likewise found Lina Sevilla, to be a mere
employee of Tourist World Service, Inc. and as such, she was bound by
the acts of her employer.

ISSUE:

Whether or not the relationship between Sevilla and Tourist World

Service, Inc is an employee-employer relationship, a partnership, a
joint venture or an agency.

RULING:

Sevilla argued that her relationship with Tourist World Service, Inc is of
a joint venture. The respondent however countered that Sevilla is just
their employee. The Supreme Court ruled that the relationship
between the two parties was not of a joint venture or a partnership and
likewise ruled that Sevilla is not an employee of the respondent.

The Supreme Court reasoned that Sevilla cannot be considered an

employee of Tourist World Service, Inc because the records will show
that Lina Sevilla, was not subject to control by Tourist World Service,
Inc., either as to the result of the enterprise or as to the means used in
connection therewith. In the first place, under the contract of lease
covering the Tourist Worlds Ermita office, she had bound herself in
solidum as and for rental payments, an arrangement that would be like
claims of a master-servant relationship. True the respondent Court
would later minimize her participation in the lease as one of mere
guaranty that does not make her an employee of Tourist World, since in
any case, a true employee cannot be made to part with his own money
in pursuance of his employer's business, or otherwise, assume any
liability thereof. In that event, the parties must be bound by some
other relation, but certainly not employment. It is further admitted that
Sevilla was not in the company's payroll. For her efforts, she retained
4% in commissions from airline bookings, the remaining 3% going to
Tourist World. Unlike an employee then, who earns a fixed salary
usually, she earned compensation in fluctuating amounts depending on
her booking successes. Thus Sevilla is not an employee of Tourist
World.

The Supreme Court also in ruling that the relationship of the parties is
not a joint venture nor a partnership reasoned that from the facts
given, the contract is one of agency. It is the essence of this contract
that the agent renders services in representation or on behalf of
another. In the case at bar, Sevilla solicited airline fares, but she did so
for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself based on her letter of
November 28, 1961, pre-assumed her principal's authority as owner of
the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the
ties had contemplated a principal agent relationship, rather than a joint
management or a partnership.

But unlike simple grants of a power of attorney, the agency that we

hereby declare to be compatible with the intent of the parties, cannot
be revoked at will. The reason is that it is one coupled with an interest,
the agency having been created for mutual interest, of the agent and
the principal. It appears that Lina Sevilla is a bona fide travel agent
herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation for
the operation thereof, holding herself solidarily liable for the payment
of rentals. She continued the business, using her own name, after
Tourist World had stopped further operations. Her interest, obviously, is
not to the commissions she earned as a result of her business
transactions, but one that extends to the very subject matter of the
power of management delegated to her. It is an agency that, as we
said, cannot be revoked at the pleasure of the principal. Accordingly,
the revocation complained of should entitle the petitioner, Lina Sevilla,
to damages

In sum, the contract between Sevilla and Tourist World Service, Inc.
was one of agency and as discussed above, its arbitrary revocation
entitles the aggrieved party for damages.

LOURDES VALERIO LIM, vs. PEOPLE OF THE PHILIPPINES

133 SCRA 333

FACTS:

On January 10, 1966, Lourdes Valerio Lim went to the house of Maria
Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the
proposition to sell her tobacco consisting of 615 kilos at P1.30 a kilo. In
the contract drawn by Salvador Bantug, the proceeds in the amount of
Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given
to Aryoso as soon as it was sold and in return Lim will receive the
overprice for which she could sell the tobacco.
This was signed by the appellant and witnessed by the complainant's
sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. Lim at that
time brought a jeep, where the tobacco was. Of the total value of
P799.50, Lim had paid to Ayroso only P240.00, and this was paid on
three different times. Demands for the payment of the balance of the
value of the tobacco were made upon him by Ayroso, and particularly
by her sister, Salud Bantug. Salud Bantug further testified that she had
gone to the house of the appellant several times, but the appellant
often eluded her; it was only on October 24, 1967 that Lim sent a
money order for P100.00.

For this reason, the trial court found Lourdes Valerio Lim guilty of the
crime of estafa and was sentenced "to suffer an imprisonment of four
(4) months and one (1) day as minimum to two (2) years and four (4)
months as maximum, to indemnify the offended party in the amount of
P559.50, with subsidize imprisonment in case of insolvency, and to pay
the costs. From this judgment, appeal was taken to the then Court of
Appeals which affirmed the decision of the lower court but modified the
penalty imposed by sentencing her "to suffer an indeterminate penalty
of one (1) month and one (1) day of arresto mayor as minimum to one
(1) year and one (1) day of prision correccional as maximum .

ISSUE:

Whether or not the contract that exist between the parties is a contract
of agency to sell or a contract of sale.

RULING:

The Supreme Court resolve affirmed the decision of the Court of

Appeals and pronounced that aside from the fact that Maria Ayroso
testified that the appellant asked her to be her agent in selling Ayroso's
tobacco, Lim admitted that there was an agreement that upon the sale
of the tobacco she would be given something.

The fact that Lim received the tobacco to be sold at P1.30 per kilo and
the proceeds to be given to complainant as soon as it was sold,
strongly negates transfer of ownership of the goods to the petitioner.
The agreement constituted her as an agent with the obligation to
return the tobacco if the same was not sold.

MOISES SAN DIEGO, SR vs. ADELO NOMBRE and PEDRO

ESCANLAR
11 SCRA 165

FACTS:
On May 1, 1960, Adelo Nombre as the duly constituted judicial
administrator in Special Proceedings No. 7279 of the CFI of Negros
Occidental, in his capacity was judicial administrator of the intestate
estate, leased one of the properties of the estate (a fishpond identified
as Lot No. 1617 of the cadastral survey of Kabankaban, Negros
Occidental), to Pedro Escanlar. The terms of the lease was for three (3)
years, with a yearly rental of P3, 000.00 to expire on May 1, 1963, the
transaction having been done, admittedly, without previous authority
or approval of the Court where the proceedings was pending.

On January 17, 1961, Nombre was removed as administrator by Order

of the court and one Sofronio Campillanos was appointed in his stead.
The appeal on the Order of Nombre's removal is supposedly pending
with the Court of Appeals. Escanlar was cited for contempt, allegedly
for his refusal to surrender the fishpond to the newly appointed
administrator. On March 20, 1961, Campillanos, the new administrator
filed a motion asking for authority to execute a lease contract of the
same fishpond, in favor of Moises San Diego, Sr., for 5 years from 1961,
at a yearly rental of P5,000.00. Escanlar was not notified of such
motion.

On April 11, 1964 Nombre presented a written opposition to the motion

of Campillanos, pointing out that the fishpond had been leased by him
to Escanlar for 3 years, the period of which was going to expire on May
1, 1963. In a supplemental opposition, he also invited the attention of
the Court that to grant the motion of the new administrator would in
effect nullify the contract in favor of Escanlar, a person on whom the
Court had no jurisdiction. He also intimated that the validity of the
lease contract entered into by a judicial administrator must be
recognized unless so declared void in a separate action. The opposition
notwithstanding, the Court on April 8, 1961, in effect declared that the
contract in favor of Escanlar was null and void, for want of judicial
authority. Nombre moved to reconsider the Order of April 8, stating
that Escanlar was willing to increase the rental of P5, 000.00, but only
after the termination of his original contract. The motion was denied
prompting Nombre to file a petition for Certiorari asking for the
annulment of the Orders of April 8 and A Writ of preliminary injunction
was likewise prayed for to restrain the new administrator Campillanos
from possessing the fishpond and from executing a new lease contract
covering it.

ISSUES:

A) Whether a judicial administrator can validly lease property of the

estate without prior judicial authority and approval.
B) Whether the provisions of the New Civil Code on Agency should
apply to judicial administrators.

RULING:

A) This contention is without merit. It has been held that even in the
absence of such special powers, a contract or lease for more
than 6 years is not entirely invalid; it is invalid only in so far as it
exceeds the six-year limit (Enrique v. Watson Company, et al., 6
Phil. 84).
 No such limitation on the power of a judicial administrator to
grant a lease of property placed under his custody is provided for
in the present law. Under Article 1647 of the present Civil Code, it
is only when the lease is to be recorded in the Registry of
Property that it cannot be instituted without special authority.
Thus, regardless of the period of lease, there is no need of
special authority unless the contract is to be recorded in the
Registry of Property.

On the contrary, Rule 85, Section 3, of the Rules of Court

authorizes a judicial administrator, among other things, to
administer the estate of the deceased not disposed of by will.
Commenting on this Section in the light of several Supreme
Court decisions (Jocson de Hilado v. Nava, 69 Phil. 1; Gamboa v.
Gamboa, 68 Phil. 304; Ferraris v. Rodas, 65 Phil. 732; Rodriguez
v. Borromeo, 43 Phil. 479), Moran says: "Under this provision, the
executor or administrator has the power of administering the
estate of the deceased for purposes of liquidation and
distribution. He may, therefore, exercise all acts of administration
without special authority of the Court. For instance, he may lease
the property without securing previously any permission from the
court. And where the lease has formally been entered into, the
court cannot, in the same proceeding, annul the same, to the
prejudice of the lessee, over whose person it had no jurisdiction.
The proper remedy would be a separate action by the
administrator or the heirs to annul the lease.

B) NO, the provisions of the New Civil Code on Agency do not apply
to judicial administrators.
While it may be admitted that the duties of a judicial
administrator and an agent (petitioner alleges that both act in
representative capacity), are in some respects, identical, the
provisions on agency (Art. 1878, C.C.), should not apply to a
judicial administrator. A judicial administrator is appointed by the
Court. He is not only the representative of said Court, but also
the heirs and creditors of the estate (Chua Tan v. Del Rosario, 57
Phil. 411). A judicial administrator before entering into his duties,
is required to file a bond. These circumstances are not true in
case of agency. The agent is only answerable to his principal. The
protection which the law gives the principal, in limiting the
powers and rights of an agent, stems from the fact that control
by the principal can only be thru agreements, whereas the acts
of a judicial administrator are subject to specific provisions of law
and orders of the appointing court
 JOSE DE LA PEA Y DE RAMON v. FEDERICO HIDALGO
GR No. No. L-5486 August 17, 1910

FACTS:

The parties to the case are Jose dela Pea y de Ramon, and Vicenta de
Ramon, in her own behalf and as the legal guardian of her son Roberto
de la Pea as plaintiff and Federico Hidalgo, an agent of Jose dela Pea
y Gomiz as the defendant.

Before Jose dela Pea y Gomiz went to Spain, he executed a power of

attorney to Federico Hidalgo and three other persons to represent him
and administer various properties in Manila which dela Pea owns. On
November 1887, Federico Hidalgo took charge of the said properties
and started fulfilling his duties and obligations as an agent of his
principal dela Pea y Gomiz.

After a few years, Federico Hidalgo wrote a letter addressed to dela

Pea which contains a request that dela Pea should assign a person
who shall substitute Federico Hidalgo in the event that he leaves the
Philippines because of some health issues.

Dela Pea did not answer the letter nor was there any approval,
objection or response to the request of appointing another person to
be a substitute of Federico. Due to the problems in Federicos health,
he decided to go to Spain, but before he departed, he sent a summary
of accounts to dela Pea which was then coupled with the information
that he will be leaving the Philippines and that he turned over to his
cousin Antonio the administration of dela Peas properties, thus being
the principal dela Pea must execute a new special power of attorney
designating Antonio as his new agent.

Now, the plaintiffs would like to collect and recover from Federico
Hidalgo all of the amount collected from the rents of dela Peas
property. However, Federico averred that they should no longer be held
liable on the ground that he has renounced his rights and obligations
as an agent of dela Pea y Gomiz.

ISSUE:

Whether Federico Hidalgo had renounced his rights and obligations as

an agent.

RULING:

Yes, Federico had definitely renounced his agency was duly terminated,
according to the provisions of article 1732 of the Civil Code, because,
although the word "renounce" was not employed in connection with
the agency or power of attorney executed in his favor, yet when the
agent informs his principal that for reasons of health and by medical
advice he is about to depart from the place where he is exercising his
trust and where the property subject to his administration is situated,
abandons the property, turns it over a third party, without stating when
he may return to take charge of the administration, renders accounts
of its revenues up to a certain date, December 31, 1893, and transmits
to his principal a general statement which summarizes and embraces
all the balances of his accounts since he began to exercise his agency
to the date when he ceased to hold his trust, and asks that a power of
attorney in due form in due form be executed and transmitted to
another person who substituted him and took charge of the
administration of the principal's property, it is then reasonable and just
to conclude that the said agent expressly and definitely renounced his
agency, and it may not be alleged that the designation of Antonio
Hidalgo to take charge of the said administration was that of a mere
proceed lasted for more than fifteen years, for such an allegation
would be in conflict with the nature of the agency.
In permitting Antonio Hidalgo to administer his property for years, it is
inferred that the deceased consented to have Antonio Hidalgo
administer his property, and in fact created in his favor an implied
agency, as the true and legitimate administrator.
Antonio Hidalgo administered the aforementioned property of dela
Pea y Gomiz, not in the character of business manager, but as agent
by virtue of an implied agency vested in him by its owner who was not
unaware of the fact, who knew perfectly well that the said Antonio
Hidalgo took charge of the administration of that property on account
of the obligatory absence of his previous agent for whom it was an
impossibility to continue in the discharge of his duties.
 DOMINGA CONDE v. THE HONORABLE COURT OF APPEALS
G.R. No. L-40242 December 15, 1982
FACTS:

Dominga Conde, together with her siblings sold a parcel of land located
in Buarauen Leyte, to Casimira Pasagui - the wife of Pio Altera, with a
right of repurchase within a span of ten (10) years from April 7, 1938.
The said sale with right to repurchase or pact de retro sale provided
that within ten years and the said parcel of land is not reacquired or
repurchased, a new agreement shall be made between the parties and
in no case shall title and ownership be vested in the hand of Alteras.

On a later date, Paciente Cordero, the son in law of Alteras signed a

document which provides that the original document containing the
agreement of the pact de retro sale was lost and even after diligent
effort to search and locate for the same, it cannot be found and that
the representative of Conde - Eusebio Amarillo, repurchased the
subject lot, and that Alteras and Pio Cordero received the payment for
the said redemption or repurchase.

The pacto de recto sale was eventually found.

On June 1965 Pio Altera sold the disputed lot to the spouses Ramon
Conde and Catalina T. Conde, whose relationship to Dominga Conde
did not appear from the records. Nor has the document of sale been
exhibited.

After 24 years, Dominga Conde filed with the CFI of Leyte a civil case
for quieting of title against the spouses Casimira and Pio Alteras
together spouses Ramon and Catalina Conde. Dominga contended that
Paciente Cordero signed the Memorandum in representation of the Pio
Aletra, who was very ill on that occasion.

The Alteras, on the other hand, contended that Pio was not their agent
and Pio signed because he has no objection to the repurchase.

The Court of First Instance (now, the Regional Trial Court) dismissed the
complaint which was affirmed by the Court of Appeals. Hence, this
petition.
ISSUE:

Whether Pio Cordero acted in representation of the Alteras when he

signed the memorandum.

RULING:

Yes, Pio Cordero acted in representation of the Alteras when he signed

the memorandum. The Supreme Court ruled that there was an implied
agency. The Alteras did not repudiate the deed that Pio Cordero had
signed. If, as alleged, Dominga never exerted any effort to procure the
signature of Pio Altera after he had recovered from his illness, neither
did the Alteras repudiate the deed that Pio executed. Thus, an implied
agency must be held to have been created from their silence or lack of
action, or their failure to repudiate the agency. Alteras must be held
bound by the clear terms of the Memorandum of Repurchase.
Moreover, if the contract is plain and unequivocal in its terms he is
ordinarily bound thereby.

Furthermore, the court also averred that the Alteras were guilty of
laches on the ground that for 24 years, they slept on their right to
institute an action for quieting of title against petitioner, Dominga
Conde. Lastly, the court also ruled that the spouses Conde were not
purchasers in good faith. They bought the disputed property despite
the notice of the condition in the title that the property was subject to
repurchase.
HARRY E. KEELER ELECTRIC CO., INC vs. DOMINGO RODRIGUEZ
G.R. No. L-19001 November 11, 1922

FACTS:

The plaintiff is a domestic corporation with its principal office in the city
of Manila and engaged in the electrical business, and among other
things in the sale of what is known as the "Matthews" electric plant,
and the defendant is a resident of Occidental Negros, and A. C.
Montelibano was a resident of Iloilo.

Having this information, Montelibano approached plaintiff at its Manila

office, claiming that he was from Iloilo and lived with Governor Yulo;
that he could find purchaser for the "Matthews" plant, and was told by
the plaintiff that for any plant that he could sell or any customer that
he could find he would be paid a commission of 10 per cent for his
services, if the sale was consummated. Among other persons.
Montelibano interviews the defendant, and, through his efforts, one of
the "Matthews" plants was sold by the plaintiff to the defendant, and
was shipped from Manila to Iloilo, and later installed on defendant's
premises after which, without the knowledge of the plaintiff, the
defendant paid the purchase price to Montelibano. As a result, plaintiff
commenced this action against the defendant, alleging that about
August 18, 1920, it sold and delivered to the defendant the electric
plant at the agreed price of P2, 513.55 no part of which has been paid,
the demands judgment for the amount with interest from October 20,
1920.

For answer, the defendant admits the corporation of the plaintiff, and
denies all other material allegations of the complaint, and, as an
affirmative defense, alleges "that on or about the 18th of August,
1920, the plaintiff sold and delivered to the defendant a certain electric
plant and that the defendant paid the plaintiff the value of said electric
plant, to wit: P2, 513.55."

Upon such issues the testimony was taken, and the lower court
rendered judgment for the defendant, from which the plaintiff appeals,
claiming that the court erred in holding that the payment to A. C.
Montelibano would discharge the debt of defendant, and in holding
that the bill was given to Montelibano for collection purposes, and that
the plaintiff had held out Montelibano to the defendant as an agent
authorized to collect, and in rendering judgment for the defendant, and
in not rendering judgment for the plaintiff.

In the final analysis, the plant was sold by the plaintiff to the
defendant, and was consigned by the plaintiff to the plaintiff at Iloilo
where it was installed by Cenar, acting for, and representing, the
plaintiff, whose expense for the trip is included in, and made a part of,
the bill which was receipted by Montelibano.

There is no evidence that the plaintiff ever delivered any statements to

Montelibano, or that he was authorized to receive or receipt for the
money, and defendant's own telegram shows that the plaintiff "did not
present bill" to defendant. He now claims that at the very time this
telegram was sent, he had the receipt of Montelibano for the money
upon the identical statement of account which it is admitted the
plaintiff did render to the defendant.

ISSUE:

Whether or not the plaintiff authorized Montelibano to receive

payments in the formers behalf thus the latter acting in the capacity
of an agent.

RULING:

No, the plaintiff had never its authority to Montelibano. The Court
ruled:

Article 1162 of the Civil Code provides:

Payment must be made to the persons in whose
favor the obligation is constituted, or to another authorized
to receive it in his name.
And article 1727 provides:
The principal shall be liable as to matters with
respect to which the agent has exceeded his authority only
when he ratifies the same expressly or by implication.
In the case of Ormachea Tin-Conco vs. Trillana (13 Phil.,
194), this court held:
The repayment of a debt must be made to the
person in whose favor the obligation is constituted, or to
another expressly authorized to receive the payment in his
name.
Mechem on Agency, volume I, section 743, says:

In approaching the consideration of the inquiry

whether an assumed authority exist in a given case, there
are certain fundamental principles which must not be
overlooked. Among these are, as has been seen, (1) that
the law indulges in no bare presumptions that an agency
exists: it must be proved or presumed from facts; (2) that
the agent cannot establish his own authority, either by his
representations or by assuming to exercise it; (3) that an
authority cannot be established by mere rumor or general
reputation; (4)that even a general authority is not an
unlimited one; and (5) that every authority must find its
ultimate source in some act or omission of the principal. An
assumption of authority to act as agent for another of itself
challenges inquiry. Like a railroad crossing, it should be in
itself a sign of danger and suggest the duty to "stop, look,
and listen." It is therefore declared to be a fundamental
rule, never to be lost sight of and not easily to be
overestimated, that persons dealing with an assumed
agent, whether the assumed agency be a general or
special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but
the nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to establish
it.
. . . It is, moreover, in any case entirely within the
power of the person dealing with the agent to satisfy
himself that the agent has the authority he assumes to
exercise, or to decline to enter into relations with him.
(Melchem on Agency, vol. I, sec. 746.)

The person dealing with the agent must also act with
ordinary prudence and reasonable diligence. Obviously, if
he knows or has good reason to believe that the agent is
exceeding his authority, he cannot claim protection. So if
the suggestions of probable limitations be of such a clear
and reasonable quality, or if the character assumed by the
agent is of such a suspicious or unreasonable nature, or if
the authority which he seeks to exercise is of such an
unusual or improbable character, as would suffice to put an
ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of the
case, but should either refuse to deal with the agent at all,
or should ascertain from the principal the true condition of
affairs. (Mechem on Agency, vol. I, sec 752.)
And not only must the person dealing with the agent
ascertain the existence of the conditions, but he must also,
 as in other cases, be able to trace the source of his reliance
to some word or act of the principal himself if the latter is
to be held responsible. As has often been pointed out, the
agent alone cannot enlarge or extend his authority by his
own acts or statements, nor can he alone remove
limitations or waive conditions imposed by his principal. To
charge the principal in such a case, the principal's consent
or concurrence must be shown. (Mechem on Agency, vol. I,
section 757.)

Applying the above rules, the testimony is conclusive that the plaintiff
never authorized Montelibano to receive or receipt for money in its
behalf, and that the defendant had no right to assume by any act or
deed of the plaintiff that Montelibano was authorized to receive the
money, and that the defendant made the payment at his own risk and
on the sole representations of Montelibano that he was authorized to
receipt for the money.
 FLORENTINO RALLOS, ET AL. vs. TEODORO R. YANGCO
G.R. No. 6906 September 27, 1911

FACTS:

Yangco, on the 27th day of November, 1907, sent Rallos a letter

inviting the latter to be the consignor in the buying and selling leaf
tobacco and other native products. Terms and conditions were also
contained in the letter.

Accepting the invitation, Rallos proceeded to do a considerable

business with Yangco through the said Collantes, as his factor, sending
to him as agent for Yangco a good deal of products to be sold on
commission.

Rallos sent to the said Collantes, as agent for Yangco, 218 bundles of
tobacco in the leaf to be sold on commission, as had been other
produce previously.

The said Collantes received said tobacco and sold it for the sum of P1,
744. The charges for such sale were P206.96, leaving in the hands of
said Collantes the sum of P1, 537.08 belonging to Rallos. This sum was,
apparently converted to his own use by said agent.

It appears, however, that prior to the sending of said tobacco Yangco

had severed his relations with Collantes and that the latter was no
longer acting as his factor. This fact was not known to Rallos and it is
conceded in the case that no notice of any kind was given by Yangco of
the termination of the relations between Yangco and Collantes.

Yangco thus refused to pay the said sum upon demand of Rallos,
placing such refusal upon the ground that at the time the said tobacco
was received and sold by Collantes, he was acting in his personal
capacity and not an agent by Yangco.

ISSUE:

Whether or not Yangco is liable being the principal.

RULING:

Yes, Yangco is liable. Having advertised the fact that Collantes was his
agent and having given special notice to Rallos of the fact and having
given them a special invitation to deal with such agent, it was the duty
of Yangco on the termination of the relationship of the principal and
agent to give due and timely notice to Rallos. In addition, having
advertised the fact that Collantes was his agent and having given them
a special invitation to deal with such agent, it was the duty of the
defendant on the termination of the relationship of principal and agent
to give due and timely notice thereof to the plaintiffs. Failing to do so,
he is responsible to them for whatever goods may have been in good
faith and without negligence sent to the agent without knowledge,
actual or constructive, of the termination of such relationship.

--------------------NOTHING FOLLOWS--------------------