G.R. No. L-26937 October 5, 1927 mercantile register of the Province of Iloilo.

The only anomaly

PHILIPPINE NATIONAL BANK, plaintiff-appellee, noted in its organization is that instead of adopting for their firm
vs. name the names of all of the partners, of several of them, or only
SEVERO EUGENIO LO, ET AL., defendants. one of them, to be followed in the last two cases, by the words
SEVERIO EUGENIO LO, NG KHEY LING and YEP "and to be followed in the last two cases, by the words "and
SENG, appellants. company" the partners agreed upon "Tai Sing & Co." as the firm
name.
FACTS: 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.,".

One of the partners, J. A. Say Lian Ping was

appointed general manager of the partnership, with the
powers specified in said articles of copartnership. As
general manager, he executed a Power-of-Attorney in
favor of A. Y. Kelam, authorizing him to act in his stead as
manager and administrator of "Tai Sing & Co.,", for which
the latter obtained several loans from plaintiff-appellee
PNB, through the mortgage of the companys properties.

Said loan was renewed several times until such

time that the firm was not able to sustain payment of its
obligation, hence a collection case was filed by PNB. The
trial court ruled against the defendants, hence, this
appeal.

PETITIONERS ARGUMENT: The commercial credit in

current account which "Tai Sing & Co. obtained from PNB
had not been authorized by the board of directors of the
company, nor was the person who subscribed said
contract authorized to make the same, under the article of
copartnership.

ISSUE: (1) WON the partnership as well as the

partners should be liable to third-parties with regard to
actions done by a third person authorized by the general
manager of the firm. (YES)

(2) WON the partnership formed was a

general partnership. (YES)

RULING: The judgment appealed from is in

accordance with the law, and must therefore be, as it is
hereby, affirmed with costs against the appellants. So
ordered.

HELD: (1) The judgment against the appellants

is in accordance with article 127 of the Code of
Commerce which provides that all the members of a
general partnership, be they managing partners thereof or
not, shall be personally and solidarily liable with all their
property, for the results of the transactions made in the
name and for the account of the partnership, under the
signature of the latter, and by a person authorized to use
it.

(2) Appellants admit, and it appears from the context

of Exhibit A, that the defendant association formed by the
defendants is a general partnership, as defined in article 126 of
the Code Commerce. This partnership was registered in the
G.R. No. L-3146 September 14, 1907
NICOLAS CO-PITCO, plaintiff-appellee,
vs.
PEDRO YULO, defendant-appellant.

FACTS: Florencio Yulo and Jaime Palacios were partners

in the operation of a sugar estate in Victorias, Island of
Negros, and had commercial dealings with a Chinaman
named Dy-Sianco, who furnished them with money and
goods, and used to buy their crop of sugar.
In 1903, the defendant, Pedro Yulo, father of the said
Florencio, took charge of the latter's interest in the
above-mentioned partnership, and he became a general
partner with the said Jaime Palacios in the same
business, and he continued as such partner until about
the end of 1904, dealing with Dy-Sianco in the same
manner as the old partnership had dealt with the latter.

Pedro Yulo failed to the balance due of 1,638.40 pesos

from the firm hence Dy-Sianco filed a case against Yulo.
The lower court ordered the defendant to pay the entire
amount with interest.

ISSUE: W/N Pedro Yulo shall pay the entire amount for
the partnership debt. (NO)

HELD: Being a civil partnership, 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 can not increase the liability of Pedro Yulo.

The judgment of the court below is reversed and

judgment is ordered in favor of the plaintiff and against
the defendant, Pedro Yulo, for the sum of P819.20 pesos,
Philippine Currency, with interest thereon at the rate of
6 per cent per annum from the 12th day of January, 1905,
and the costs of the Court of First Instance. No costs will
be allowed to either party in this court. So ordered.
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY, ET. AL defendants. BENJAMIN C. DACO,
defendant-appellant.
FACTS: Defendants-appellants Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc purchased a motor vehicle
from plaintiff-appellee Island Sales Inc. via their
partnership firm, United Pioneers General Construction
Company.
United Pioneers was not able to pay Island Sales
on the installment of the motor vehicle, hence, a case was
pursued by herein plaintiff against the firm United
Pioneers, and its five (5) partners above-mentioned were
included in their capacity as general partners.
For reasons not mentioned in the case, the
complaint against partner Romulo B. Lumauig was
dismissed upon motion of the plaintiff.
The Court adjudged United Pioneers to pay
Island Sales the remaining unpaid amortization with 12%
interest. The trial court likewise sentenced the individual
partners to pay Island Sales if the defendant company has
no more leviable properties with which to satisfy the
judgment against it.
The defendants Benjamin C. Daco and Noel C.
Sim moved to reconsider the decision claiming that since
there are five (5) general partners, the joint and subsidiary
liability of each partner should not exceed one-fifth ( 1/5 )
of the obligations of the defendant company. But the trial
court denied the said motion notwithstanding the
conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. Hence, this
appeal.
plaintiff merely condoned Lumauig's individual liability to
the plaintiff.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial
ones, shall be liable pro rata with all their property
and after all the partnership assets have been
exhausted, for the contracts which may be
entered into in the name and for the account of
the partnership, under its signature and by a
person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this
Court held:
The partnership of Yulo and Palacios was
engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership.
Being a civil partnership, by the express
provisions of articles l698 and 1137 of 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.

ISSUE: WON the dismissal of the complaint to

favor one of the general partners of a partnership
increases the joint and subsidiary liability of each of the
remaining partners for the obligations of the partnership.
(NO!)

RULING: WHEREFORE, the appealed decision as

thus clarified is hereby AFFIRMED, without
pronouncement as to costs.

HELD: There were five (5) general partners

when the promissory note in question was executed for
and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin
C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not unmake
the said Lumauig as a general partner in the defendant
company. In so moving to dismiss the complaint, the
G.R. No. L-3704 December 12, 1907 partners. They have a voice in the management of the
business, if no manager has been named in the articles;
LA COMPAIA MARITIMA, plaintiff-appellant,
they share in the profits and as to third persons it is no
vs.
more than right that they should share in the obligations.
FRANCISCO MUOZ, ET AL., defendants-appellees.
It is admitted that if in this case there had been a
capitalist partner who had contributed only P100 he
would be liable for this entire debt of P26,000.
FACTS: In 1905, Francisco Muoz, Emilio Muoz, and
Rafael Naval formed an ordinary general mercantile
partnership in accordance with the Code of Commerce.
Article 141 relates exclusively to the settlement of the
They named the partnership Francisco Muoz & Sons.
partnership affairs among the partners themselves and
Francisco was the capitalist partner while the other two
has nothing to do with the liability of the partners to third
were industrial partners. In the articles of partnership, it
persons; that each one of the industrial partners is liable
was agreed upon by the three that for profits, Francisco
to third persons for the debts of the firm; that if he has
shall have a 3/4th share while the other two would have
paid such debts out of his private property during the life
1/8th each. For losses, only Francisco shall bear it.
of the partnership, when its affairs are settled he is
Later, the partnership was sued by La Compaia entitled to credit for the amount so paid, and if it results
Martitama for collection of sum of money amounting to that there is not enough property in the partnership to
P26,828.30. The partnership lost the case and was pay him, then the capitalist partners must pay him.
ordered to make said payment; that in case the
partnership cant pay the debt, all the partners should be
liable for it. In relation to this, the Supreme Court noted that
partnerships under the Civil Code provides for a scenario
where all partners are industrial partners (like when it is
The ruling is in accordance with Article 127 of the Code a partnership for the exercise of a profession). In such
of Commerce which states: All the members of the case, if it is permitted that industrial partners are not
general copartnership, be they or be they not managing liable to third persons then such third persons would get
partners of the same, are liable personally and in solidum practically nothing from such partnerships if the latter is
with all their property for the results of the transactions indebted.
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.

Francisco now argues that the industrial partners should

NOT be liable pursuant to Article 141 of the Code of
Commerce which states: Losses shall be charged in the
same proportion among the partners who have
contributed capital, without including those who have
not, unless by special agreement the latter have been
constituted as participants therein.

ISSUE: Whether or not the industrial partners are liable

to third parties like La Compaia Martitama.

HELD: Yes. The controlling law is Article 127. There is no

injustice in imposing this liability upon the industrial
DIETRICH V. FREEMAN AND WHITCOMB
1911; Justice Trent
Digest by Christian Jay Millena
Topic: Joint Accounts
Quick Facts: Plaintiff sued to collect from the partners
of Manila Steam Laundry. The trial court held the
defendants jointly and severally liable. The Court
reversed holding that the business was a partnership of
cuentas en participacion and the liability of the partners
is pro-rata based on their interest in the business.
FACTS:
Plaintiff Dietrich was employed by defendants
Freeman, and Whitcomb as owners and operators of
Manila Steam Laundry (Whitcomb obtained his interest
in the business from Pierce who sold his interests to
him). He filed the action to collect from defendants the
balance due to him for the services he performed.
The trial court held Freeman and Whitcomb jointly and
severally liable to Dietrich.
Whitcomb appealed the decision insisting that he
should not be held jointly and severally liable with
Freeman. (Note: Freeman was the managing partner of
the laundry and Whitcomb barely had a hand on the
operations of the business).
To avoid liability it appears that the theory of Whitcomb
here is two layered. First, that the partnership was a
commercial partnership. Second that it is a partnership
of cuentas en participacion.
ISSUE:
WON Whitcomb is liable to Freeman.YES
What is the nature of liability? Pro rata based on his
interest in the business.
RATIO:
In determining the liability of Freeman, the Court first
identified the nature of the business.
Art 17 and 119 of the Code of Commerce then
applicable, provide the requirements for the
constitution of a commercial partnership (i.e. recording
of the business agreements in the commercial registry.)
The requirements were not complied with. The Court
therefore held that no formal partnership was entered
into between Freeman and Whitcomb. As such, the Civil
Code and not the Code of Commerce must govern in
determining the liability of the partners.
Insisting that he is not liable, Whitcomb posits that the
association was one of cuentas en participation. A
partnership of cuentas en participacion is constituted in
such a manner that its existence was only known to
those who had an interest in the same, there being no
mutual agreement between the partners, and without
a corporate name indicating to the public in some way
that there were other people besides the one who
ostensibly managed and conducted the business. under
the provisions of article 242 of the Code of Commerce,
those who contract with the person in whose name the
business of such a partnership was conducted shall
have only the right of action against such person and
not against other persons interested
However, a partnership of cuentas en participacion
does not have a corporate name. Here, the business is
known as Manila Steam Laundry and Dietrich was
employed by Manila steam Laundry and not Freeman
alone.
Since the artners were doing business under this name,
and since it is not a commercial partnership, Articles
1698 and 1137 of the Civil Code should govern and the
partners are not liable individually for the entire
amount due the plaintiff. The liability is pro rata and in
this case the appellant is responsible to the plaintiff for
only one-half of the debt.
DISPOSITIVE:
Judgment modified. Whitcomb liable only to half the
balance due plaintiff.
SANTIAGO SYJUCO INC VS CASTRO
175 SCRA 171 (1989)
FACTS: The Lims loaned from Syjuco 80k, secured by two
titles thereof. Lims defaulted despite numerous
demands issued by Syjuco. Syjuco then attempted to
extra-judicially foreclose the properties. Lims opposed
the moved and the legal battle for 20 years began.
Lims lawyers claimed that the mortgage was void, being
usurious for stipulating interest of 23% on top of 11 %
that they had been required to pay as "kickback." Also,
the mortgage which they, together with their mother,
had individually constituted (and thereafter amended
during the period from 1964 to 1967) over lands standing
in their names in the Property Registry as owners pro
indiviso, in fact no longer belonged to them at that time,
having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim", more precisely, on
March 30, 1959, hence, said mortgage was void because
executed by them without authority from the
partnership.
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, let alone 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.
Equally or even more preclusive of the respondent
partnership's claim to the mortgaged property is the last
paragraph of Article 1819 of the Civil Code, which
contemplates a situation duplicating the circumstances
that attended the execution of the mortgage in favor of
Syjuco and therefore applies foursquare thereto:
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.

Judge Castro issued a restrining order to the foreclosure
of the properties.
Syjuco, embattled, opposed the same claiming that judge
castro never acted on his motions!
Interpreting Sec. 10 of the Uniform Partnership Act, it has
been held that the right to mortgage is included in the
right to convey. This is different from the rule in agency
that a special power to sell excludes the power to
mortgage (Art. 1879).

Issue: won the partnership can shield the Lims from extra
judicial foreclosure n(no)

Held:The legal fiction of a separate juridical personality

and existence will not shield it from the conclusion of
having such knowledge which naturally and irresistibly
flows from the undenied facts. It would violate all
precepts of reason, ordinary experience and common
sense to propose that a partnership, as commonly known
to all the partners or of acts in which all of the latter,
without exception, have taken part, where such matters
or acts affect property claimed as its own by said
partnership.
G.R. No. L-12164 May 22, 1959
BENITO LIWANAG and MARIA LIWANAG REYES,
petitioners-appellants,
vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL.,
respondents-appellees.
FACTS: Petitioners-appellants Benito Liwanag
and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply. Their security guard was killed in the line of duty
and his widow and children claimed compensation from
herein respondents-appellees, Workmens
Compensation Commission.
The Commission granted the claim and ordered
the petitioners to pay jointly and severally the claimants
in lump sum.
Appellants do not question the right of appellees
to compensation nor the amount awarded. They only
claim that, under the Workmen's Compensation Act, the
compensation is divisible, hence the commission erred in
ordering appellants to pay jointly and severally the
amount awarded.
PETITIONERS ARGUMENT: 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 obligation of
the employers to pay compensation to the heirs of their
employee who died in line of duty, solidary or joint?
(SOLIDARY!!)
RULING: Wherefore, finding no error in the award
appealed from, the same is hereby affirmed, with costs
against appellants.
HELD: Ordinarily, the liability of the partners in
a partnership is not solidary; but 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 like the herein appellants,
there are other provisions of law (Arts. 1711 and 1712 of
the new Civil Code) from which it could be gathered that
their liability must be solidary.
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.
ART. 1711. Owners of enterprises and other employers
are obliged to pay compensation for the death of or
injuries to their laborers, workmen, mechanics or other
employees, even though the event may have been purely
accidental or entirely due to a fortuitous cause, if the
death or personal injury arose out of and in the course of
the employment. . . . .
ART. 1712. If the death or injury is due to the negligence
of a fellow-worker, the latter and the employer shall be
solidarily liable for compensation. . . . .
And section 2 of the Workmen's Compensation
Act, as amended reads in part as follows:
. . . The right to compensation as provided in this Act shall
not be defeated or impaired on the ground that the
death, injury or disease was due to the negligence of a
fellow servant or employee, without prejudice to the
right of the employer to proceed against the negligence
party.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Separate Opinions
REYES, A., J., dissenting:
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.

The injustice of the rule sought to be established

in the majority opinion may readily be made obvious
with an example. Suppose that one of two co-partners or
co-owners owns 99 percent of the business while his co-
partner or co-owners own only 1 percent. To hold that in
such case the latter's liability may run up to 100 percent
although his interest is only 1 percent would not only be
illogical but also inequitable.
For the foregoing reasons, I have no choice but
to dissent.
PARTNER BY ESTOPPEL
G.R. No. L-7991. May 21, 1956
PAUL MACDONALD, ET AL., Petitioners, vs. THE
NATIONAL CITY BANK OF NEW YORK, Respondent.
Facts: Alan W. Gorcey, Louis F. da Costa, Jr., William Kusik
and Emma Badong Gavino formed a partnership named
as STASIKINOCEY. STASIKINOCEY was denied registration
before the Securities and Exchange Commission. Despite
this, its partners thru another name CARDINAL
RATTAN were still conducting their business in behalf of
the STASIKINOCEY. Prior to June 3, 1949, Defendant
Stasikinocey had an overdraft account of P6,134.92 with
The National City Bank of New York, a foreign banking
association duly licensed to do business in the
Philippines. Failing to pay pay its debt, they mortgaged
some of its vehicles to the said bank in the name of
STASIKINOCEY. The mortgages were registered in the
Register of Deeds of Rizal.
However, during the existence of the debt obligation,
STASIKINOCEY sold the mortgaged vehicles to the
petitioner, Paul MacDonald. Despite of the knowledge of
the prior mortgages, the latter sold to one Benjamin
Gonzales the vehicles. Upon knowing of the said sale,
National Bank filed an action against Stasikinocey and its
alleged partners Gorcey and Da Costa, as well as Paul
McDonald and Benjamin Gonzales, to recover its credit
and to foreclose the corresponding chattel mortgage.
partners and the association is a partnership in so far as
it is a favorable to third persons, by reason of the
equitable principle of estoppel. In Jo Chung Chang vs.
Pacific Commercial Co., 45 Phil., 145, it was held that
although the partnership with the firm name of Teck
Seing and Co. Ltd., could not be regarded as a
partnership de jure, yet with respect to third persons it
will be considered a partnership with all the consequent
obligations for the purpose of enforcing the rights of
such third persons. Da Costa and Gorcey cannot deny
that they are partners of the partnership Stasikinocey,
because in all their transactions with the Respondent
they represented themselves as such. Petitioner
McDonald cannot disclaim knowledge of the partnership
Stasikinocey because he dealt with said entity in
purchasing two of the vehicles in question through
Gorcey and Da Costa. As was held in Behn Meyer & Co.
vs. Rosatzin, 5 Phil., 660, 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.
The sale of the vehicles in question being void as to
Petitioner McDonald, the transfer from the latter to
Petitioner Benjamin Gonzales is also void, as the buyer
cannot have a better right than the seller.

The CFI sentenced the partners of STASIKINOCEY,

Gonzales and MacDonald joint and severally liable to the
National Bank. MacDonald and Gonzales appealed on
certiorari before the Supreme Court.

Issue: Whther or not an unregistered partnership can

bind a third person in an obligation incurred against
another person. YES

Held: While an unregistered commercial partnership has

no juridical personality, nevertheless, where two or more
persons attempt to create a partnership failing to comply
with all the legal formalities, the law considers them as
LIABILITY AS GENERAL PARTNERS OF PERSONS WHO
ASSUME TO ACT AS A CORPORATION
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY CORPORATION,
petitioner, vs. THE HON. COURT OF APPEALS, BORDER
MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB
S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner, vs. COURT OF APPEALS,
PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,,
FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
Facts: Private respondent Jacob S. Lim was engaged in an
airline business as owner-operator of Southern Air Lines
as a single proprietor. Sometimes in 1965, he entered
into a contract with the Japan Domestic Airlines (JDA) to
purchase a necessary spare parts and aircrafts. The
petitioner Pioneer Insurance & Surety Corp. (Pioneer)
acted as the surety of Jacob Lim. It executed surety bond
in favor of JDA.
It appears that respondents Maglana and the
Cervanteses contributed certain amount of money for
the purchase of the aircraft and the spare parts. This is
under the understanding that Lim was planning to
establish another corporation to expand his airline
business. In this regard, they executed indemnity
agreements in favor of Pioneer. Under the agreement, in
case of default, Maglana and the Cervanteses will be
jointly liable with Lim. On the other hand, Lim executed
a chattel mortgage of the aircraft and the spare parts in
favor of Pioneer as security for its surety bond.
Lim failed to pay the aircraft and the spare parts to JDA.
In effect, Pioneer paid JDA. Pioneer thenceforth filed a
foreclosure of chattel mortgage against Lim. Maglana
and the Cervanteses filed a third-party complaint alleging
that they are co-owners of the mortgaged properties. As
result, Pioneer filed a foreclosure case against Lim,
Maglana, and the Cervanteses. The Trial Court found Lim
as the sole person to be liable with Pioneer.
Jacob Lims main proposition is that: Due to the failure of
him, Maglana and the Cevanteses to incorporate (that is
to register in the SEC), a a de facto partnership (with
regard to third person) among them was created, and
that as a consequence of such relationship all must share
in the losses and/or gains of the venture in proportion to
their contribution. This is in view of his protest that he
should reimburse the share of Maglana and the
Cervanteses for the intended corporation.
Issue: Whether or not in view of the failure of the parties
to incorporate, a de facto partnership was thus created
with respect with their dealing with third persons. What
is the liability of a general partner of persons who
assume to act as a corporation?
Held: NO.
While it has been held that as between themselves the
rights of the stockholders in a defectively incorporated
association should be governed by the supposed charter
and the laws of the state relating thereto and not by the
rules governing partners (Cannon v. Brush Electric Co., 54
A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held
that persons who attempt, but fail, to form a corporation
and who carry on business under the corporate name
occupy the position of partners inter se (Lynch v.
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A
1065). Thus, where persons associate themselves
together under articles to purchase property to carry on
a business, and their organization is so defective as to
come short of creating a corporation within the statute,
they become in legal effect partners inter se, and their
rights as members of the company to the property
acquired by the company will be recognized (Smith v.
Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555;
Whipple v. Parker, 29 Mich. 369). So, where certain
persons associated themselves as a corporation for the
development of land for irrigation purposes, and each
conveyed land to the corporation, and two of them
contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no
stock was ever issued in the corporation, it was treated
as a trustee for the associates in an action between them
for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed
among them in proportion to the value of the property
contributed by each (Shorb v. Beaudry, 56 Cal. 446).
However, such a relation does not necessarily exist, for
ordinarily persons cannot be made to assume the
relation of partners, as between themselves, when their
purpose is that no partnership shall exist (London Assur.
Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472,
29 L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one
who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does
not become a partner with other subscribers who engage
in business under the name of the pretended
corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution
(Ward v. Brigham, 127 Mass. 24). A partnership relation
between certain stockholders and other stockholders,
who were also directors, will not be implied in the
absence of an agreement, so as to make the former liable
to contribute for payment of debts illegally contracted by
the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23).
(Corpus Juris Secundum, Vol. 68, p. 464). (Italics
supplied).

It is therefore clear that the petitioner never had the

intention to form a corporation with the respondents
despite his representations to them. This gives credence
to the cross-claims of the respondents to the effect that
they were induced and lured by the petitioner to make
contributions to a proposed corporation which was
never formed because the petitioner reneged on their
agreement.

Applying therefore the principles of law earlier cited to

the facts of the case, necessarily, no de facto partnership
was created among the parties which would entitle the
petitioner to a reimbursement of the supposed losses of
the proposed corporation. The record shows that the
petitioner was acting on his own and not in behalf of his
other would-be incorporators in transacting the sale of
the airplanes and spare parts.
ARTICLE 1827
PREFERENCE OF PARTNERSHIP
PARTNERSHIP PROPERTY
Summers found that LLNC was only a fictitious
organization created for the purpose of deceiving the
CREDITOR IN
Bureau of Customs and enabling some of the partner-
relatives to come to the Philippines under the status of
merchants.

G.R. No. L-29182 October 24, 1928 Judge Francisco Zandueta, who temporarily replaced
Judge del Rosario, disapproved Summers
LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG recommendation, affirmed the suspension of Judge del
NAW) appellee, Rosarios previous order, dismissed the insolvency
vs. proceedings, ordered the return of all the properties of
JOSE S. Y. PENG, assignee, appellant. Vda. de Chan Diaco, and provided for leave of Peng to file
a new petition for insolvency against LLNC.

FACTS: ISSUE:

Leoncia Vda. de Chan Diaco (Lao Liong Naw), owner of a
grocery store (La Viuda de G. G. Chan Diaco), formed a
partnership (Lao Liong Naw & Co.) with her relatives
Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le,
and Juan Maquitan Chan.
San Miguel Brewery, Porta Pueco & Co., and Ruiz &
Rementaria S. en C. instituted insolvency proceedings
against Vda. de Chan Diaco, alleging that the latter was
indebted to them.
The court declared Vda. de Chan Diaco insolvent and
ordered the sheriff to take possession of her property,
consisting of some merchandise.
Judge Simplicio del Rosario appointed Ricardo Summers,
as referee, authorizing him to take further evidence.
WON Vda. de Chan Diaco may be held liable for
the debt allegedly contracted by LLNC.
HELD:
YES. LLNC has no visible assets. The partners,
individually, must jointly and severally respond for its
debts (Art. 127, Code of Commerce). As Vda. de Chan
Diaco is one of the partners and admits that she is
insolvent, there is no reason for the dismissal of the
proceedings against her. 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
(Comapnia Maritima vs. Munoz, 9 Phil., 326).

Summers recommended that Vda. de Chan Diaco deliver

to Jose S. Y. Peng, assignee of SMB, PPC and RRSC, a
certain sum of money, accounts receivable, and books of
account.

Judge del Rosario approved Summers recommendation

and ordered the merchants Cua Ico, Chan Keep, and
Simon A. Chan Bona to show cause why they should not
return the merchandise allegedly delivered to them by
Vda. de Chan Diaco, together with P5,000 in cash,
allegedly received from Vda. de Chan Diaco by Ico.

Attorney for Vda. de Chan Diaco filed a motion to dismiss

the proceedings, alleging that it should have been
brought against LLNC.

Judge del Rosario suspended his previous order,

appointing Summers as referee.
PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ
& CASTILLO."

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:hq
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 non-partners, 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 non-lawyers. Thus, Canon 34 of the
Canons of Professional Ethics "prohibits an agreement
for the payment to the widow and heirs of a deceased
lawyer of a percentage, either gross or net, of the fees
received from the future business of the deceased
lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will
not represent service or responsibility on the part of the
recipient. " Accordingly, neither the widow nor the heirs
can be held liable for transactions entered into after the
death of their lawyer-predecessor. There being no
benefits accruing, there ran be no corresponding liability.
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.
Carmen Liwanag v. CA and People

G.R. No. 114398 October 24, 1997

Romero, J.

Facts:

Liwanag asked Isidora Rosales to join her and Thelma

Tagbilaran in the business of buyingand selling
cigarettes. Under their agreement, Rosales would give
the money needed tobuy the cigarettes while Liwanag
and Tabligan would act as her agents, with
acorresponding 40% commission to her if the goods are
sold; otherwise the money wouldbe returned to Rosales.

Rosales gave several cash advances amounting to

633,650.

Money was misappropriated. Rosales files a complaint of

estafa against them.
Issue:

1. WON the parties entered into a partnership

agreement; 2. if in the negative, WONthe transaction is a
simple loan

Held:
1. No. Even assuming that a contract of partnership was
indeed entered into by andbetween the parties, when
money or property have been received by a partner for a
specificpurpose and he later misappropriated it, such
partner is guilty of estafa.2. No. In a contract of loan once
the money is received by the debtor, ownership over
thesame is transferred. Being the owner, the borrower
can dispose of it for whatever purposehe may deem
proper