Goquiolay v Sycip Facts: T a n S i n A n a n d G o q u i o l a y e n t e r e d i n t o a g e n e r a l c o m m e r c i a l partnership under the partnership name Tan Sin An and AntonioGoquiolay for the purpose

e of dealing in real estate. The agreement lodged upon Tan Sin An the sole management of the partnership affairs. The lifetime of the partnership was fixed at ten years and theArticles of Co-partnership stipulated that in the event of death of a n y o f t h e p a r t n e r s b e f o r e t h e e x p i r a t i o n o f t h e t e r m , t h e partnership will not be dissolved but will be continued by the heirsor assigns of the deceased partner. But the partnership could bedissolved upon mutual agreement in writing of the partners. Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff partnership purchased 3 parcels of land which wasmortgaged to La Urbana as payment of P25,000. Another 46parcels of land were purchased by Tan Sin An in his individualcapacity which he assumed payment of a mortgage debt for P35K. A downpayment and the amortization were advanced by Yutivoand Co. The two obligations were consolidated in an instrument executedby the partnership and Tan Sin An, whereby the entire 49 lots weremortgaged in favor of Banco Hipotecario Tan Sin An died leaving his widow, Kong Chai Pin and four minorchildren. The widow subsequently became the administratrix of theestate. R e p e a t e d d e m a n d s w e r e m a d e b y B a n c o H i p o t e c a r i o o n t h e partnership and on Tan Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons , paidthe remaining balance of the mortgage debt, the mortgage wascancelled Y u t i v o S o n s a n d S i n g Y e e f i l e d t h e i r c l a i m i n t h e i n t e s t a t e proceedings of Tan Sin An for advances, interest and taxes paid inamortizing and discharging their obligations to La Urbana andBanco Hipotecario Kong Chai Pin filed a petition with the probate court for authority tosell all the 49 parcels of land. She then sold it to Sycip and Lee inconsideration of P37K and of the vendees assuming payment of the claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed in favor of Insular Development adeed of transfer covering the 49 parcels of land. When Goquiolay learned about the sale to Sycip and Lee, he filed apetition in the intestate proceedings to set aside the order of theprobate court approving the sale in so far as his interest over theparcels of land sold was concerned. Probate court annulled the sale executed by the administratrix w/respect to the 60% interest of Goquiolay over the properties Administratrix appealed. The decision of probate court was set aside for failure to includethe indispensable parties. New pleadings were filed The second amended complaint prays for the annulment of thesale in favor of Sycip and Lee and their subsequent conveyance toInsular Development. The complaint was dismissed by the lower court hence this appeal.Issue:1 ) D i d t h e l o w e r c o u r t e r r i n h o l d i n g t h a t t h e w i d o w s u c c e e d e d h e r husband Tan Sin An in the sole management of the partnershipupon Tans death?2)WON the consent of the other partners was necessary to perfectthe sale of the partnership properties to Sycip and Lee?Held: 1)

Y e s . W h i l e i n t h e A r t i c l e s o f C o - P a r t n e r s h i p a n d t h e p o w e r o f attorney executed by Goquiolay conferred upon Tan the exclusivemanagement of the business, such power premised as it is upontrust and confidence, was a mere personal right that terminatedupon Tans demise. The provision in the articles stating that in theevent of death of any one of the partners within the 10 year termof the partnership, the deceased partner shall be represented byhis heirs could not have referred to the managerial right given to Tan. The heirs of the deceased, by never repudiating or refusing to bebound under the said provision in the articles became individualpartners with Goquiolay upon Tans demise. This is sanctionedunder Article 222 under the Code of Commerce. However, theminority of the heirs is not a bar to the application of that clause inthe articles of co-partnership.2)No. Strangers dealing with a partnership have the right to assume,i n t h e a b s e n c e o f r e s t r i c t i v e c l a u s e s i n t h e c o p a r t n e r s h i p a g r e e m e n t t h a t e v e r y g e n e r a l p a r t n e r h a s p o w e r t o b i n d t h e partnership specially those acting with ostensible authority. Also, inspite of the provision of Art 129 of the Code of Commerce to theeffect that if the management of the general partnership has notbeen limited by special agreement to any of the members, all shallhave the power to take part in the direction and management of the common business, and the members present shall come to anagreement for all contracts or obligations which may concern theassociation, such obligation is one imposed by law on the partnersamong themselves, that does not necessarily affect the validity of the acts of a partner while acting within the scope of the ordinarycourse of business of the partnership as regards third personsw i t h o u t n o t i c e . T h e l a t t e r m a y r i g h t f u l l y a s s u m e t h a t t h e contracting partner was duly authorized to contract for and inb e h a l f o f t h e f i r m a n d t h a t h e w o u l d n o t o r d i n a r i l y a c t t o t h e prejudice of his co-partners.A l s o , t h e r e c o r d s f a i l t o d i s c l o s e t h a t G o q u i o l a y m a d e a n y opposition to the sale of the partnership realty to Sycip and Lee.On the contrary, it appears that he only interposed his objectionsafter the deed of conveyance was executed and approved by theprobate court, and consequently, his opposition came too late tobe effetive (ii) Admission or representation made by any partner concerning partnership affairsis evidence against the partnership(iii) Notice to any partner of any matter relating to partnership affairs, and theknowledge of the partner acting in the particular matter, acquired while a partner orthen present to his mind, and the knowledge of any other partner who reasonablycould and should have communicated it to the acting partner, operate as notice toor knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner(iv) Where, by any wrongful act or omission of any partner acting in the ordinarycourse of the business of the partnership or with the authority of co-partners, loss orinjury is caused to any person, not being a partner in the partnership, or any penaltyis incurred, the partnership is liable therefor to the same extent as the partner soacting or omitting to act.(v) The partnership is bound to make good the loss:(1) Where one partner acting within the scope of his apparent authorityreceives money or property of a third person and misapplies it; and(2) Where the partnership in the course of its business receives money orproperty of a third person and the money or property so received ismisapplied by any partner while it is in the custody of the partnership

G.R. No. L-27343 February 28, 1979MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS,BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIOSALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFFOF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husbandCECILIO SALDAJENO, defendants-appellants. Facts: Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo. Saldajeno withdrewfrom the partnership and after dissolution; Leon and Timoteo continued the business still underthe name Isabela Sawmill. The partnership is indebted to various creditors and that Sheriff soldthe assets of Isabela Sawmill to Saldajeno and was subsequently sold to a separate company. Issue: Whether or not Isabela Sawmill ceased to be a partnership and that creditors could nolonger demand payment. Held: On dissolution, the partnership is not terminated but continues until the winding up of thebusiness. It does not appear that the withdrawal of Saldajeno from the partnership was publishedin the newspapers. The appellee and the public had a right to expect that whatever credit theyextended to Leon and Timoteo doing business in the name of Isabela Sawmill could be enforcedagainst the properties of said partnership. The judicial foreclosure of the chattel mortgagee x e c u t e d i n f a v o r o f S a l d a j e n o d i d n o t r e l i e v e h e r f r o m l i a b i l i t y t o t h e c r e d i t o r s o f t h e partnership.It may be presumed that Saldajeno acted in good faith, the appellees also acted in good faith inextending credit to the partnership. Where one of the 2 innocent persons must suffer, thatperson who gave occasion for the damages to be caused must bear the consequences

MORAN V. CA133 SCRA 98

1. Partner who promises to contribute topartnership becomes promissory debtor of latter.2. Essence of partnership is that partners sharein profits and losses.3. Partner entitled to recover shares of profitsand losses realized by venture.4. Where partnership venture is a failure, apartner is not entitled to any commission promised by co-partner where agreement doesnt state basis of commission

M A C D O N A L D v s . N A T I O N A C I T Y B A N K O F NEWYORKL 7 9 9 1 | m a y 2 1 , 1 9 5 6 | P a r a s | P e t f o r Review by CertiorariPetitioners:Paul MacDonald et al.Respondent: National City Bank of New York Quick Summary: Facts: Stasikinocey is a partnership formed by da Costa,Gorcey, Kusik and Gavino. It was denied registration by theSEC due to a confusion between the partnership and CardinalRattan. Cardinal Rattan is the business name or style used byStasikinocey. Da Costa and Gorcey are the general partners of Cardinal Rattan. Moreover, Da Costa is the managing partnerof Cardinal Rattan. Stasikinocey had an overdaft account withNationa City Bank, which was later converted into an ordinaryloan due the partnerships failure in paying its obligation. Theo r d i n a r y l o a n w a s s e c u r e d b y a c h a t t e l m o r t g a g e o v e r 3 vehicles. During the subsistence of the loan, the vehicles weresold to MacDonald and later on, MacDonald sold 2 of the 3vehicles to Gonzales. The bank brought an action for recoveryof its credit and foreclosure of the chattel mortgage uponlearning of these transactions. Held: While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more personsattempt to create a partnership failing to comply with all thelegal formalities, the law considers them as partners and theassociation is a partnership in so far as it is a favorable tothird persons, by reason of the equitable principle of estoppel.Where a partnership not duly organized has been recognizeda s s u c h i n i t s d e a l i n g s w i t h c e r t a i n p e r s o n s , i t s h a l l b e considered as partnership by estoppel and the personsdealing with it are estopped from denying its partnership existence. Facts: Stasikinocey is a partnership formedby Alan Gorcey, Louis Da Costa Jr., WilliamKusik and Emma Badong Gavino. It was denied registration in the SECd u e t o t h e c o n f u s i o n b e t w e e n t h i s p a r t n e r s h i p a n d t h e b u s i n e s s C a r d i n a l Rattan, which is treated as a co-partnershipwhere Gorcey and Da Costa are the generalpartners. It appears that Cardinal Rattan ismerely the business name or style used bythe partnership, Stasikinocey. Prior to June 3, 1949 - Stasikinoceyhad an overdraft account with the NationalC i t y B a n k o f N e w Y o r k , a f o r e i g n b a n k i n g association duly licensed to do business inthe Philippines. June 3, 1949 - said overdraftaccount has a P6,134.92 balance. Due to thefailure of Stasikinocey to make the requiredpayment, said balance was converted into anordinary loan for which a promissory jointnote, non-negotiable was executed on thesame day by Da Costa for and in the name of Cardinal Rattan, himself and Gorcey. June 7, 1949 - said promissory notewas secured by a chattel mortgage executedby Da Costa, general partner for and in thename of Stasikinocey. Said mortgage wasconstituted over the following: 1. F a r g o t r u c k w i t h m o t o r N o . T - 1 1 8 - 202839, Serial No. 81410206 and withplate No. T-7333 (1949)2.Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and withplate No. 10372 3. Fargo Pick-Up FKI-16, with motor No. T-112800032, Serial No. 8869225 and withplate No. T-7222 (1949) The mortgage deed was dulyregistered with the Office of the Register of D e e d s P a s i g , R i z a l . I t h a s t h e f o l l o w i n g stipulations:1 . m o r t g a g o r s h a l l n o t s e l l o r o t h e r w i s e dispose of the said chattels without themortgagees written consent 2.

mortgagee may foreclose the mortgageat any time, after breach of any conditionthereof, the mortgagor waiving the 30-day notice of foreclosure June 7, 1949 - Gorcey and Da Costaexecuted an agreement purporting to conveya n d t r a n s f e r a l l t h e i r r i g h t s , t i t l e a n d p a r t i c i p a t i o n i n S t a s i k i n o c e y t o S h a e f f e r , allege dly in consideration of the cancellationof an indebtedness of P25,000 owed by thema n d S t a s i k i n o c e y t o t h e l a t t e r . S a i d agreement is said to be in violation of theBulk Sales Law. June 24, 1949 - during thes u b s i s t e n c e o f t h e l o a n Gorcey andDa Costa transferred to MacDonald the Fargotruck and Plymouth sedan June 28, 1949 - Shaeffer sold theFargo pick-up to MacDonald July 19, 1944 [what the case statedb u t I g u e s s i t s h o u l d b e 1 9 4 9 ] P a u l M a c D o n a l d s o l d t h e F a r g o t r u c k a n d Plymouth sedan to Benjamin Gonzales W h e n t h e N a t i o n a l C i t y B a n k learned of these transactions, it filed ana c t i o n a g a i n s t S t a s i k i n o c e y , D a C o s t a , Gorcey, MacDonald and Gonzales to recoveri t s c r e d i t a n d t o f o r e c l o s e t h e c h a t t e l mortgage. C F I : a n n u l l e d t h e s a l e o f t h e vehicles to Gonzales; ordered Da Costa andGorcey to pay the Bank jointly and severallyP 6 , 1 3 2 . 9 2 w i t h l e g a l i n t e r e s t ; o r d e r e d Gonzales to deliver the vehicles to the Bankf o r s a l e at public auction if Da Costa a n d G o r c e y f a i l s t o p a y ; o r d e r e d D a C o s t a , G o r c e y a n d M a c D o n a l d t o p a y t h e B a n k jointly a nd severally any deficiency thatremains unpaid should the proceeds of theauction sale be insufficient MacDonald and Gonzales appealedto the CA. a n d c h a t t e l mortgage, Stasikinocey,, through

C A : m o d i f i e d t h e C F I d e c i s i o n b y r u l i n g t h a t M a c D o n a l d i s n o t j o i n t l y a n d severally liable with Gorcey and Da Costa topay any deficiency Issue: WON the partnership, Stasikinocey is estoppedf r o m a s s e r t i n g t h a t i t d o e s n o t h a v e j u r i d i c a l personality since it is an unregistered commercialpartnership [ YES]Ratio: While an unregistered commercialp a r t n e r s h i p h a s n o j u r i d i c a l p e r s o n a l i t y , nevertheless, where two or more persons attempt to create a partnership failing tocomply with all the legal formalities, the lawc o n s i d e r s t h e m a s p a r t n e r s a n d t h e association is a partnership in so far as it is afavorable to third persons, by reason of theequitable principle of estoppel. Da Costa and Gorcey cannot denyt h a t t h e y a r e p a r t n e r s o f t h e p a r t n e r s h i p S t a s i k i n o c e y , b e c a u s e i n a l l t h e i r transactions with the National City Bank theyrepresented themselves as such. McDonaldc a n n o t d i s c l a i m k n o w l e d g e o f t h e partnership Stasikinocey because he de altw i t h s a i d e n t i t y i n p u r c h a s i n g t w o o f t h e vehicles in question through Gorcey and DaCosta. The sale of the vehicles to MacDonaldbeing void, the sale to Gonzales is also voidsince a buyer cannot have a better right thanthe seller. As was held in Behn Meyer & Co. vs.R o s a t z i n , w h e r e a p a r t n e r s h i p n o t d u l y organized has been recognized as such in itsd e a l i n g s w i t h c e r t a i n p e r s o n s , i t s h a l l b e considered as partnership by estoppel andthe persons dealing with it are estopped fromdenying its partnership existence. If the law recognizes a defectivelyorganized partnership as de facto as far asthird persons are concerned, for purposes of its de facto existence it should have suchattribute of a partnership as domicile. On the Validity of the Chattel Mortgage

The chattel mortgage is in the formrequired by law, and there is therefore thep r e s u m p t i o n o f i t s d u e e x e c u t i o n w h i c h cannot be easily destroyed by the biasedtestimony of the one who executed it. The interested version of Da Costathat the affidavit of good faith appearing int h e c h a t t e l m o r t g a g e w a s e x e c u t e d i n Quezon City before a notary public for and inthe City of Manila was correctly rejected bythe trial court and the Court of Appeals. I n v i e w o f t h e c o n c l u s i o n t h a t Stasikinocey is a de facto partnership, andDa Costa appears as a comanager in theletter of Gorcey to the National City Bank andi n t h e p r o m i s s o r y n o t e e x e c u t e d b y D a Costa, and that even the partners consideredh i m a s s u c h 1 , the partner who executedthe chattel mortgage in question must bedeemed to be so fully authorized. Section 6 of the Chattel MortgageLaw provides that when a partnership is aparty to the mortgage, the affidavit may bem a d e a n d s u b s c r i b e d b y o n e m e m b e r thereof. In this case the affidavit managing partner. Dispositive: CA decision affirmed. w a s executed and subscribed by Da Costa, notonly as a partner but as a

Goguilay and Partnership vs. Sycip et. Al. GRN L-1184 July 26, 1960 Reyes J& L: & Facts: Tan Sin and Goguilay into a partnership in business of buying and selling real state properties. Partners stipulated that Tan Sin will be the managing partner and that heirs shall represent the deceased partnership incurred debts and Tan Sin died, he was represents the deceased partner should the 10 years lifetime of the partnership has not yet expired. When the partnership incurred debts and Tan Sin will be managing partnership has not yet expired. When the partnership incurred and Tan Sin died, he has represented by his widow. In order to satisfy the partnerships debts the widow sold the properties to defendant. Goquilay opposed the sail assailing that widow has no authority to do so, without his Kn. Issue: Whether or not the consent of the other partner way necessary to perfect the sale of the partnership properties. Riling: First, Goquilay is stopped from asserting that upon the death of Tan Sin, his management of partnership affairs had also been terminated. He was stopped in the same that after the death of Tan Sin, the partnership affairs from 1945 to 1949. It is only when the sale with the defendant that the authority of the widow was questioned. It is a well settled rule that third persons. Are not bound in entering into a contract with any of the two partners, the ascertain whether or not his partner with whom the transaction is made has the consent of the other partner. The public need not make inquiries as to the agreement had between the partners. Its knowledge has enough that it is contracting with the partnership which is represented by one of the managing partners. Business Organization

Singson vs. Isabela Sawmill GRN L- 27343 February 28, 1979 Fernadez, J Facts: Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo. Withdraw from the partnership and after dissolution, L and T continued the business still under the name Isbel Sawmill. The partnership is indebted to various creditors and that Sheriff sold the assets of Isabela Sawmill to s and was subsequently sold to a separate company. Issue: Whether or not Isabela Sawmill ceased to be a partnership and that creditors could no longer demand payment. Ruling: On dissolution, the partnership is not terminated but continues until the winding up of the business. It does not appear that the withdrawal of S from the partnership was published in the newspapers. The Apelles and the public had a right to expect the public had a right to expect that whatever credit they extended to L & T doing business. In the name of the partnership could be enforced against the partnership of said partnership. The judicial foreclosure of the chattel mortrage executed in the favor of S did not relieve her from liability to the creditors of the partnership. It may be presumed S acted in good faith, the Apelles also acted in good faith in extending credit to they partnership. Where one of the two innocent persons must suffer, that persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Eugenia Lichauco vs Faustino Lichauco 33 Phil 350 Business Organization Partnership, Agency, Trust Dissolution In 1901, F. Lichauco Hermanos partnership was formed. It was provided, among others, in the partnership agreement thatFaustino 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. HELD: 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 ofFaustino 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.

G.R. No. L-29182 October 24, 1928 LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) appellee, vs. JOSE S. Y. PENG, assignee, appellant.

FACTS:

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. 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. Summers found that LLNC was only a fictitious organization created for the purpose of deceiving the Bureau of Customs and enabling some of the partner-relatives to come to the Philippines under the status of merchants. Judge Francisco Zandueta, who temporarily replaced Judge del Rosario, disapproved Summers recommendation, affirmed the suspension of Judge del Rosarios previous order, dismissed the insolvency proceedings, ordered the return of all the properties of Vda. de Chan Diaco, and provided for leave of Peng to file a new petition for insolvency against LLNC.

ISSUE: 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). 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.

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 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.

G.R. No. L-29182 October 24, 1928 LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) appellee, vs. JOSE S. Y. PENG, assignee, appellant.

FACTS: 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. 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. Summers found that LLNC was only a fictitious organization created for the purpose of deceiving the Bureau of Customs and enabling some of the partner-relatives to come to the Philippines under the status of merchants. Judge Francisco Zandueta, who temporarily replaced Judge del Rosario, disapproved Summers recommendation, affirmed the suspension of Judge del Rosarios previous order, dismissed the insolvency proceedings, ordered the return of all the properties of Vda. de Chan Diaco, and provided for leave of Peng to file a new petition for insolvency against LLNC.

ISSUE: 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

G.R. No. L-10040 January 31, 1916 EUGENIA LICHAUCO, ET AL., plaintiffs-appellants, vs. FAUSTINO LICHAUCO, defendant-appellant.

Facts: This action was brought by two of the partners of an enterprise of which the defendant was manager (gestor), to secure an accounting of its affairs, and the payment to the plaintiffs of their respective shares of capital and profits.

A notarial instrument was executed in Manila, by the terms of which a partnership was duly organized for the purpose of carrying on a rice-cleaning business at Dagupan, and for the purchase and sale of palay and rice. The articles of association, which were not recorded in the mercantile registry, contain, among others, the following provisions: 2. The association will be named F. Lichauco Hermanos and will be domiciled in the center of its operations, that is, in the pueblo of Dagupan, Province of Pangasinan. 3. The association cannot be dissolved except by the consent and agreement of two-thirds of its partners and in the event of the death of any of the latter, the heirs of the deceased, if they be minors or otherwise incapacitated, shall be represented in the association by their legal representatives or if two-thirds of the surviving partners agree thereto, the participation of the deceased partner may be liquidated.

The business thus organized was carried on until when it was found to be unprofitable and discontinued by the defendant manager (gestor); and thereafter, the machinery of the rice mil was dismantled by his orders, and offered for sale. No accounting ever was made to his associates by the defendant until this action was instituted , although it appears that, Mariano Limjap, one of the participants in the venture, demanded a rendition of accounts; and that Eugenia Lichauco, one of the plaintiffs in this action, made repeated unsuccessful demands for the return of her share of the capital invested in the enterprise. And yet it further appears that during all that time the defendant manager of the defunct enterprise had in his possession not less than P20,000, the cash balance on hand, over and above all claims of indebtedness after suspending operations in ; and that since that time he received or should have received substantial sums of money from the sale of the machinery of the dismantled mill.

There is evidence in the record tending to show that the defendant informed some of his associates, a that the whole enterprise was bankrupt.

Counsel for defendant says in his brief: It is our contention, and we believe it to be unanswerable, that the dissolution and liquidation, either in whole or in part, of the association is absolutely prohibited by paragraph 10 of the articles of association, except by and with the conformity and agreement of two-thirds of the partners, and that as a consequence thereof the court, without allegations or proof of compliance with that paragraph and without making the other partners parties to the action, had no power to decree a distribution either in whole or in part of the capital or assets of the association.

It certainly cannot be seriously contended that part of the capital and assets of this association can be lawfully returned to and distributed between the plaintiffs who constitute one-fifth of the total number of partners, as required by paragraph 10 of the articles of association.

It is elementary that no lawful liquidation and distribution of capital and assets of any company or association can ever take place except upon dissolution thereof. Lower court ruled in favor of plaintiffs.

Issue :WON the trial court erred in rendering judgment against the defendant for any sum, without first decreeing a dissolution of the association and final liquidation of its assets in accordance with paragraph 10 of the articles of association, and because such judgment is not within the issues joined.

Ruling: No. These contentions of counsels for the defendant take no account of the provisions of both the Civil and Commercial Codes for the dissolution and liquidation of the different classes of partnerships and mercantile associations upon the occurrence of certain contingencies not within the control of the partners. The provisions of paragraph 10 of the articles of partnership prohibiting the dissolution of the association under review, except by the consent and agreement of two-thirds of its partners, denied the right to a less number of the partners to effect a dissolution of the partnership through judicial intervention or otherwise; but in no wise limited or restricted the rights of the individual partners in the event the dissolution of the association was effected, not by any act of theirs, but by the express mandate of statutory law. 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. G.R. No. L-22825 February 14, 1925

TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL.,plaintiffs-appellants, vs. SALVADOR SERRA, defendant-appellee.

VILLAMOR, J.: 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, choses in action and interests, including the sugar plantation of the harvest year of 1920 to 1921, covering all the property of the vendor. 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 saidhacienda.

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 therefor the document Exhibit 5. 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 Exhibit 5, 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. So it results that the "Hacienda Palma," with the entire railroad, the subject-matter of the contract of partnership between plaintiffs and defendant, became the property of Whitaker and Concepcion. Phil. C. Whitaker and Venancio Concepcion having failed to pay to the defendant a part of the purchase price, that is, P750,000, the vendor, the herein defendant, foreclosed the mortgage upon the saidhacienda, which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000, and the defendant put in possession thereof, including what was planted at the time, together with all the improvements made by Messrs. Phil. C. Whitaker and Venancio Concepcion. 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, Exhibit A.

ISSUES: 1. Whether there was a valid novation between the original debtor (Serra), new debtor (Whitaker and Luzuriaga) and the creditor(Mota and Vidaurrazaga, the old partners of Serra). (NONE, there was no valid novation!)

2. Whether the obligation of Serra to pay the agreed amount (1/2 of the cost of constructing the railroad) to the old partners was extinguished because of the subsequent dissolution made by the partners. (NO, it was not extinguished by mere dissolution of the partnership.) RULING: Taking for granted that the defendant was under obligation to pay the plaintiffs one-half of the cost of the construction of the railroad line in question, by virtue of the contract of partnership Exhibit A, the decisive point here to determine is whether 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. If so, it is clear that the obligation of the defendant was, in accordance with article 1156 of the same code, extinguished. 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. Neither can the letter, Exhibit 6, on page 87 of the record be considered as proof of the consent of the plaintiffs to the substitution of the debtor, because that exhibit is a letter written by plaintiffs to Phil. C. Whitaker and Venancio Concepcion for the very reason that the defendant had told them (plaintiffs) that after the sale of the "Hacienda Palma" to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter from then on would bear the cost of the repairs and maintenance of the railroad line and of the construction of whatever addition thereto might be necessary. It was but natural that the plaintiffs should have done this. Defendant transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio Concepcion and made it known to the plaintiffs that the new owners would hold themselves liable for the cost of constructing the said railroad line. Plaintiffs could not prevent the defendant from selling to Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma" with the rights that he had over the railroad in question. The defendant ceased to be a partner in said line and, therefore, the plaintiffs had to take the vendees as their new partners. Plaintiffs had to come to an understanding with the new owners of the "Hacienda Palma" in connection with the railroad line "Palma-San Isidro-Nandong." But in all of this, there was nothing to show the express consent, the manifest and deliberate intention of the plaintiffs to exempt the defendant from his obligation and to transfer it to his successors in interest, Messrs. Phil. C. Whitaker and Venancio Concepcion. 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. Notwithstanding the doctrines above quoted, defendant's counsel calls our attention to the decision of the supreme court of Spain of June 16, 1908, wherein it was held that the provisions of article 1205 of Code do not mean nor require that the consent of the creditor to the change of a debtor must be given just at the time when the debtors agree on the substitution, because its evident object being the full protection of the rights of the creditor, it is sufficient if the latter manifests his consent in any form and at any time as long as the agreement among the debtors holds good. And defendant insists that the acts performed by the plaintiffs after the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion constitute evidence of the consent of the creditor. By comparing the facts of that case with the defenses of the case at bar, it will be seen that, whereas in the former case the creditor sued the new debtor, in the instant case the creditor sues the original debtor. The supreme court of Spain in that case held that the fact that the creditor sued the new debtor was proof incontrovertible of his assent to the substitution of the debtor. This would seem evident because the judicial demand made on the new debtor to comply with the obligation of the first debtor is the best proof that the creditor accepts the change of the debtor. His complaint is an authentic document where his consent is given to the change of the debtor. We are not holding that the creditor's consent must necessarily be given in the same instrument between the first and the new debtor. The consent of the creditor may be given subsequently, but in either case it must be expressly manifested. In the

present case, however, the creditor makes judicial demand upon the first debtor for the fulfillment of his obligation, evidently showing by this act that he does not give his consent to the substitution of the new debtor. We are of the opinion that the decision of the supreme court of Spain of June 16, 1908, cannot be successfully invoked in support of defendant's contention. Wherefore, we hold that in accordance with article 1205 of the Civil Code, in the instant case, there was no novation of the contract, by the change of the person of the debtor. Appellants assign also as a ground of their appeal the holding of the court that by the termination of the partnership, as shown by the document Exhibit 5, no legal rights can be derived therefrom. Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any right arising out of that contract of partnership, which has been annulled, such as the right to claim now a part of the cost of the construction of the railroad line stipulated in that contract. Defendant's contention signifies that any person, who has contracted a valid obligation with a partnership, is exempt from complying with his obligation by the mere fact of the dissolution of the partnership. Defendant's contention is untenable. The dissolution of a partnership must not be understood in the absolute and strict sense so that at the termination of the object for which it was created the partnership is extinguished, pending the winding up of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising out of the contract are dissolved.

The dissolution of a firm does not relieve any of its members from liability for existing obligations, although it does save them from new obligations to which they have not expressly or impliedly assented, and any of them may be discharged from old obligations by novation of other form of release. It is often said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (30 Cyc., page 659.) For all of the foregoing, the judgment appealed from is reversed, and we hold that the defendant Salvador Serra is indebted to the plaintiffs, the Testate Estate of Lazaro Mota, et al., in the amount of P113,046.46, and said defendant is hereby sentenced to pay the plaintiffs the said amount, together with the agreed interest at the rate of 10 per cent per annum from the date of the filing of the complaint. Without special pronouncement as to costs, it is so ordered.

G.R. No. L-12371

March 23, 1918

LEOPOLDO CRIADO, plaintiff-appellant, vs. GUTIERREZ HERMANOS, defendant-appellant. Background: Leopoldo Criado filed a complaint against the firm of Gutierrez Hermanos for the recovery of a sum of money. Criado wanted to recover his share of the capital stock of the firm of Gutierrez Hermanos, since he began his connection therewith, on January 1, 1900, until his separation on December 31, 1911. Leopoldo Criado alleged that accounts presented by the defendant referring to his capital in that firm were based upon a false debit balance of P26,349.13 a balance which had been previously impeached by the affiant as well as the accounts from which said sum is sought to be derived. Wherefore he again assailed them in their totality on the grounds that some of the entries thereof were improper, other fraudulent, and still other false. Therefore Criados counsel moved that defendant be ordered to place immediately at the disposal of Commissioner Wicks all the books, accounts, bills, vouchers, and other documents that might be necessary, in order that said liquidation might be made by defendants counsel, by an order of September 2, 1915, the court ruled in conformity therewith, authorizing the firm of Gutierrez Hermanos to appoint another expert accountant who, together with the one already designated. After a rehearing of the case and an examination of George B. Wicks was made regarding the contents of the report that he submitted after studying for that purpose the books and other documents placed at his disposal by the defendant. In view of the result and the evidence adduced by the parties, and by the said commissioner's report duly supported by vouchers, the court rendered the judgment aforementioned, on September 11, 1916.

Counsel for the firm of Gutierrez Hermanos assails in general the judgment appealed from because the trial court did not determine the issues raised in the first, second, third, fourth, sixth, seventh, eighth, ninth, and tenth causes of action, and in defendant's crosscomplaint. Second Cause of Action: Facts: In the second cause of action Criado demands the payment of P43,410.86, and alleges that, pursuant to a notarial instrument of March 29, 1900, he became a partner of the firm of Gutierrez Hermanos; and that said document stipulated that the partnership should last for four years from January 1, 1900, and, among other conditions, it contained the following: Second. Therefore the partnership is organized among the parties to this instrument, Don Placido Gutierrez de Celis, Don Miguel Gutierrez de Celis, Don Miguel Alonso y Gutierrez, Don Daniel Perez y Alberto, and Don Leopoldo Criado y Garcia, the first three as capitalist partners, and the last two as industrial partners. Eighth. All earnings or profits that may be obtained shall be distributed among the partners in the following proportion: 37 per cent shall go to Don Placido Gutierrez de Celis; 37 per cent to Don Miguel Gutierrez de Celis; 16 per cent to Don Miguel Alfonso y Gutierrez; 5 per cent, to Don Daniel Perez y Alberto; and 5 per cent to Don Leopoldo Criado y Garcia. In the same proportion above established for the profits the capitalist partners shall be liable for all losses or damages that may be sustained. Plaintiff also alleged that his capital was P56,796.25 in 1902 and, according to the balance had on December 31, 1903, the profits obtained amounted to P256,025.31, 5 per cent of which, or P12,801.26, belonged to him, although the manager Miguel Gutierrez de Celis, by means of false and erroneous entries in the books, succeeded in concealing such profits, thereby injuring him in said amount of P43,410.86. Plaintiff testified that as soon as he learned of such entries, he at once protested, but that said manager assured him that as soon as the probate proceedings concerning the estate of the decedent Miguel Alfonso should be determined said amount would be refunded although in spite of his efforts said promise has not been fulfilled. In its answer the defendant firm admitted that plaintiff Criado was an industrial partner entitled to 5 per cent of the profits, but denied all the other averments of the complaint. In special defense it alleged that on December 31, 1903, there was made a liquidation and balance of the business of the firm operations which were approved by all the partners with no protest made by the plaintiff before or after said liquidation, but contrary, he gave his assent thereto and without reserve whatsoever he executed a new partnership contract, inasmuch as the sum shown by said liquidation and balance of the business of the firm at the end of December, 1903, formed the basis of the capital mentioned in the articles of partnership executed before a notary on May 9, 1904. In order to determine whether plaintiff still has a right to demand the sum that is the subject of his complaint in the second cause of action, it becomes necessary first too decide whether in fact the plaintiff is in estoppel and unable to oppose any valid objection against said liquidation and balance; inasmuch as, according to the inventory of the firm's business, made on December 31, 1903, which was signed by Leopoldo Criado, Miguel Gutierrez de Celis and Daniel Perez de Celis, plaintiff Criado's capital on that date was only P25,129.09 which were in force during the second period from January, 1904. From clause 7 of said contract, and according to said inventory of December 31, 1903, it appears that the firm's capital stock amounted to P1,605,497.30, of which the sum of P25,129.09 belonged to Leopoldo Criado. In an affidavit plaintiff stated that when he learned of the contents of the firm's books, he protested against the entries therein, but that the manager Guiterrez de Celis assured him that he would lose nothing by those entries made in connection with a serious matter then pending. Criado alleged that the reason why said false and erroneous entries were made in the firm's books by Gutierrez de Celis was to show the family of the deceased Miguel Alonso that the losses of the firm of Gutierrez Hermanos were due to his poor management of the firm's business Where there appears an entry which reads thus: P501,513.57, amount of the bills cancelled in the books in this date which should have been cancelled in previous years on account of difficulty in their collection, some of these bills being of such a nature that they should be charged to the account of the management as they are contrary to the provisions of the 5th and 10th clauses of the partnership contract . . . but, in view of the fact that the author of these irregularities is not living so that compliance with the contract may be demanded of him, we have distributed the losses equally among the three principal partners . . . and 5 per cent against each of the industrial partners, Leopoldo Criado's share of the losses being P25,080.68. Issue: WON the losses of the firm of Gutierrez Hermanos was duly deducted from the share of Criado. Ruling: No, without doubt this entry was made for the purpose of showing that Miguel Alonso, former manger of the partnership, was to blame for these losses. It is to be noted that, according to the contract that plaintiff Criado, as one of the industrial partners is not liable for the losses which the firm may have sustained according to the eighth clause of the notarial instrument of May 29, 1900. The allotment to the industrial partner Leopoldo Criado of the amount of P25,080.68 as losses suffered by the firm in its business during the years 1900 to 1903 was notoriously illegal, inasmuch as he, being merely an industrial partner, was not liable for any loss whatever.

For the practical application and the fulfillment of the stipulations made by the partners, in the second and eighth clauses of said articles of partnership of March 29, 1900, it should be understood that, for the purpose of determining the profits that correspond to an industrial partner who shares in the profits from the different transactions carried on by the firm must be added together from which sum must be subtracted that of the losses sustained in its business, and in the difference which represents the net profits if these are greater than the losses the industrial partner shares, i. e., in the sum total of the profits. But if, on the contrary, the losses are greater and exceed the profits in said difference the industrial partner should not be liable, for this constitutes a real loss to the firm. Wherefore, according to the articles of partnership, it follows that, at the termination of the partnership in 1903, plaintiff's assets were P56,793.25, and his liabilities P1,054.56, there being in his favor consequently a balance of P55,738.69; but as in the instrument of May, 1904, he was credited with only P25,129.09, as capital brought into the new company, the plaintiff is entitled to demand that the firm of Gutierrez Hermanos pay him in the sum of P30,609.60. Fifth Cause of Action: Facts: According to the document presented by the defendant, which appears to be a copy of plaintiff's stock account, certified as authentic by the defendant's bookkeeper, the capital stock of the plaintiff Leopoldo Criado, prior to December 29, 1911, was P73,147.87, an amount which also appears in the document and tends to prove that on December 31, 1911, plaintiff's capital was the amount stated, before the annotation of the entries assailed as false and fraudulent by plaintiff. The eighth and sixteenth clauses of the articles of partnership executed in May, 1904, which ratified and approved the transactions of the firm of Gutierrez Hermanos from January of that year state the following: Eighth. The earnings or profits which may be obtained shall be distributed among the partners in the following proportion: Forty per cent to D. Placido Gutierrez de Celis; Forty per cent to D. Miguel Gutierrez de Celis; Ten per cent to D. Daniel Perez Albertos; and Ten per cent to D. Leopoldo Criado Garcia. In the same proportion provided for the profits, the partners shall be liable for the losses that may be incurred. Sixteenth. In case the partnership business should incur such losses as to prevent a continuance of the business or to make a dissolution of the partnership advisable, same shall be liquidated, each capitalist partner bearing such loss in a pro rata proportion to the capital he represents, the expenses necessary for the prosecution of the business being chargeable to the firm as a whole. Notwithstanding these provisions the partners Don Placido and Don Miguel as principal capitalist partners may liquidate the partnership or alienate its rights whenever they deem proper so to do. By a notarial instrument of January 2, 1908, the life of the partnership was extended to another term of four years, upon the same bases and conditions (Exh. X, p. 100). Issue: WON Criado having a capital stock with the firm of Hermanos Gutierrez should be liable for the losses. Ruling: Yes, from the two preinstated clauses of the partnership contract it is deduced that the partners should be liable for all the losses incurred by the partnership in the proportion fixed in the 8th clause; but that, in case such losses should be of so great importance as to prevent a continuation of the partnership business, or to make advisable the dissolution of the partnership, then due action should be taken in conformity with the provisions of said clause 16, and the partners should be liable from the losses in a proportion pro rata to their share in the partnership assets. The firm of Hermanos Gutierrez shows a loss of P56,716.57. Consequently, there should be deducted from plaintiff's capital 10 per cent of this sum or P5,671.64 as his share of the loss.