Benjamin Yu vs. National Labor Relations Commission (NLRC) 2. Yes. Under Art.
2. Yes. Under Art. 1840, creditors of the old partnership are also creditors
FACTS:
Petitioner Yu was hired as the Assistant General Manager of Jade Mountain
Products Company Limited primarily responsible for the overall operations of
marble quarrying and export business of said partnership. He was hired by a
virtue of a Partnership Resolution in 1985 with a monthly salary of P4,000.00.
Initially he received only half of his stipulated monthly salary and was
promised by the partners that the balance would be paid upon securing
additional operating funds from abroad. However, in 1988 without his
knowledge the general partners as well as one of the limited partners sold
and transferred their interest to Willy Co and Emmanuel Zapanta. Thus the
new major partners decided to transfer the firms main office but opted to
continue the operation of the old partnership under its old firm name and with
all its employees and workers except for the petitioner. Upon knowing of the
changes in the partnership, petitioner went to the new main office to meet the
new partners and demand the payment of his unpaid salaries, but the latter
refused to pay him and instead informed him that since he bought the
business from the original partners, it was for him to decide whether or not he
was responsible for the obligations of the old partnership including petitioners
unpaid salaries. Hence, petitioner was dismissed from said partnership.
ISSUES:
1. Whether the partnership which had hired the petitioner as Asst.
General Manager had been extinguished and replaced by a new partnership
composed of Willy Co and Emmanuel Zapanta.
2. Whether petitioner could assert his rights under his employment
contract as against the new partnership
HELD:
1. Yes. The legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired the
petitioner in 1984 and the emergence of the new firm composed of Willy Co
and Emmanuel Zapanta in 1988. This is based on the following provisions:
Art. 1828. The dissolution of partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on
as a distinguished from the winding up of the business.
Art. 1830. Dissolution is caused:
1. without violation of the agreement between the partners;
b. by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified.
2. in contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any time;
However, the legal consequence of dissolution of a partnership do not
automatically result in the termination of the legal personality of the old
partnership as according to Art. 1829, on dissolution of the partnership is
not terminated, but continues until the winding up of the partnership affairs is
completed. The new partnership simply continued the operations of the old
partnership under its old firm name without winding up the business affairs of
the old partnership.
o The expenses until the termination of which shall be for
of the new partnership which continued the business of former without
liquidation of the partnership affairs. Thus, creditor of the old Jade Mountain,
such as the petitioner is entitled to enforce his claim for unpaid salaries, as
well as other claims relating to his employment with the old partnership
against the new Jade Mountain.
TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs-
appellants,
vs.
SALVADOR SERRA, defendant-appellee.
VILLAMOR, J.:
SUMMARY: Serra, as owner of Palma Central, entered into a contract of
partnership with Mota et al, as owners of San Isidro Central, for the
construction of a railroad line. In said agreement, they stipulated that
expenses will be borne by both parties 50-50 although expenses will be
initially for the account of Mota et. al. Subsequently however, Serra sold
Palma to Whitaker & Concepcion, the latter expressing awareness of above
contract and willingness to subrogate themselves into the obligations
therefor. Thereafter, Concepcion & Whitaker also bought from Mota et al. the
of the railroad line and they agreed that the partnership "Palma" and "San
Isidro," formed between Serra & Mota et al, should be dissolved upon the
execution of the contract. Serra being unable to pay his obligation under the
contract of partnership (1/2 of the expenses), Mota et. al. instituted an action
for collection. As defense, Serra alleged that at the termination of the
partnership between them, his obligation therein has been extinguished.
HELD: Serra is still liable to the partnership.
DOCTRINE: The dissolution of a firm does not relieve any of its members
from liability for existing obligations, although it does save them from new
obligations to which they have not expressly or impliedly assented, and any
of them may be discharged from old obligations by novation or other form of
release. A partnership continues, even after dissolution, for the
purpose of winding up its affairs. 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. A partnership cannot be considered as
extinguished until all the obligations pertaining to it are fulfilled.
FACTS:
Feb. 1, 1919: Defendant Salvador Serra, Lazaro Mota, now deceased,
and Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix
and Dionisio Vidaurrazaga, entered into a contract of partnership for
the construction and exploitation of a railroad line of about 10 kms.
from the "San Isidro" and "Palma" centrals to the place known as
"Nandong."
o Original capital stipulated: P150,000 to be paid by parties
in equal parts
o Mota et. al. were entrusted with the administration of the
partnership.
o Mota et al owns "San Isidro" Central while Serra owns
Palma Central
the account of the "San Isidro" Central (Mota et al)
o of expenses shall be borne by the "Palma" Central
(Serra) with the obligation to reimburse Mota et al within 5
years with interest at the rate of 10% p.a.
The agreed capital (P150k) however, did not prove sufficient, as the
expenses up to May 15, 1920, had reached P226,092.92
Jan. 29, 1920: Serra entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
o Serra sold 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
his property
o They were willing to assume the Serra's obligation to Mota
et al
o Contract, par. 5: xxx The vendee hereby obligates
himself to respect the aforesaid contract (Contract of
Partnership) and all obligations arising therefrom.
Before the delivery to the purchasers of the hacienda thus sold,
Luzuriaga renounced all his rights under the contract of sale in favor of
Concepcion & Whitaker.
July 17, 1920: Thus, Concepcion, Whitaker & Serra executed another
deed of absolute sale of the said "Palma" Estate for P1,695,961.90.
o Serra received at the time of executing the deed and the
balance was payable by installments in the form and
manner stipulated in the contract.
o Purchasers guaranteed the unpaid balance of the
purchase price by a first and special mortgage in favor of
Serra upon the hacienda and the central with all the
improvements, buildings, machineries, and appurtenances
then existing on the said hacienda.
o Clause 6 of the deed: Whitaker & Concepcion state that
they are aware of the contract that Serra has with the
proprietors of the "San Isidro" Central and hereby
obligate themselves to respect the said contract and
subrogate themselves into the rights and obligations
thereunder. They also bind themselves to comply with all
the contracts heretofore entered by the vendor with the
customers, coparceners on shares and employees.
Jan. 8, 1921: Concepcion & Whitaker bought from Mota et al. the of
the railroad line pertaining to the latter, executing a Contract of Sale.
o Price: P237,722.15, excluding any amount which Serra
might be owing to Mota et al.
o Of the purchase price, Concepcion & Whitaker paid
P47,544.43 only.
 o They agreed that the partnership "Palma" and "San
Isidro," formed by the agreement of Feb. 1, 1919
should be dissolved upon the execution of the
contract, and that the said partnership agreement
should be totally cancelled and of no force and
effect whatever.
Thus, "Hacienda Palma," with the entire railroad, the subject-matter of
the contract of partnership between Mota et al. and Serra, became the
property of Whitaker & Concepcion.
Whitaker & Concepcion having failed to pay to Serra a part of the
purchase price (P750,000), Serra, foreclosed the mortgage upon the
said hacienda.
o It was adjudicated to him at the public sale for P500,000.
He was put in possession including what was planted at
the time, together with all the improvements made by
Whitaker & Concepcion.
Since Serra failed to pay of the amount expended by Mota et al.
upon the construction of the railroad line (P113,046.46), as well as
Whitaker & Concepcion, Mota et al. instituted the present action.
PRAYER:
o (1) That the deed of Feb. 1, 1919 (Contract of Partnership)
be declared valid and binding;
o (2) That after the execution of the said document, Serra
improved economically so as to be able to pay Mota et al.
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
o (3) Serra be sentenced to pay Mota et al. P113,046.46,
with the stipulated interest at 10% p.a.
Serra set up three special defenses:
o (1) The novation of the contract by the substitution of the
debtor with the conformity of the creditors;
o (2) the confusion of the rights of the creditor and debtor;
and
o (3) the extinguishment of the contract (Contract of
partnership)
TC: Absolved Serra from the complaint.
o There was a novation of the contract by the substitution of
the debtor. Whitaker & Concepcion, upon purchasing the
"Palma" Central, were subrogated in the place of the Serra
in all his rights and obligations under the contract relating
to the railroad line existing between "Palma" and "San
Isidro" centrals and Mota et al. agreed to this subrogation
o As to the prayer that contract of partnership be declared
valid and binding, there was no way of reviving the
contract which the parties themselves in interest had
spontaneously and voluntarily extinguished thru the
Contract of Sale bet. Concepcion, Whitaker & Mota et al.
on of the railroad
Mota et al. appealed to SC.
ISSUE: Whether Serra cannot be held liable to pay Mota et. al. a part of the
cost of the construction of the railroad line stipulated in the contract of
partnership by reason of the dissolution of the partnership? (NO, Serra is
liable)
RATIO:
NOVATION
Serra: By the substitution of the debtor with the consent of the
creditor, the obligation of Serra to pay his obligation under the contract
of partnership was extinguished since there was a novation of the
contract
SC: There was no novation. There was none intended; Mota et. al
have not expressly consented to the substitution of Serra.
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
The fact that Phil. C. Whitaker and Venancio Concepcion were willing
to assume the Serra's obligation to Mota et al. is of no avail, if the latter
have not expressly consented to the substitution of the first debtor.
Letter presented as proof of alleged consent of Mota et. al to the
substitution of Whitaker & Concepcion only shows that they asked the
two to be their new partners (not substituted). It is natural that Mota et
al. should have done this. Still, there was nothing to show the express
consent, the manifest and deliberate intention of Estate of Mota et al.
to exempt Serra from his obligation and to transfer it to his successors
in interest, Whitaker & Concepcion.
o Serra transferred his hacienda to C. Whitaker &
Concepcion and made it known to Mota et al. that the new
TERMINATION OF PARTNERSHIP
owners would hold themselves liable for the cost of
constructing the said railroad line. Mota et al. could not
prevent the Serra from selling to them his "Hacienda
Palma" with the rights that he had over the railroad in
question.
o Serra ceased to be a partner in said line and,
therefore, Mota et al. had to take the vendees as
their new partners.
o Mota et al. had to come to an understanding with the new
owners of the "Hacienda Palma" in connection with the
railroad line "Palma-San Isidro-Nandong."
Mota et al. were not a party to the Contract of Sale between Serra,
Whittaker, Concepcion & Luzuriaga. No stipulation whereby the
obligation of the Serra was novated with the consent of the creditor
MERGING OF DEBTOR & CREDITOR
Serra: There was a merger of the rights of debtor and creditor,
whereby the fulfillment of the obligation became extinguished.
o Debt of Serra was transferred to Whitaker & Concepcion
by the Contract of Sale bet. Serra, Whittaker, Concepcion
& Luzuriaga.
o These in turn acquired the credit of the Testate Estate of
Lazaro Mota et al. by virtue of the debt (Contract of Sale
on of the railroad); thus the rights of the debtor and
creditor were merged in one person.
SC: No. The rights and titles which Mota et al. sold to Whitaker &
Concepcion refer only to one-half of the railroad line. The credit which
they had against Serra for of the cost of construction of the said line
was not included in the sale contained in the Contract of Sale on of
the railroad.
That Mota et al. sold their rights and titles over of the line, is evident
from the very Contract of Sale. The purchasers, Whitaker and
Concepcion, to secure the payment of the price, executed a mortgage
in favor of Mota et al. on the same rights and titles that they had bought
and also upon what they had purchased from Serra.
In other words, Whitaker & Concepcion mortgaged unto Mota et al.
what they had bought from Mota et al. and also what they had bought
from Serra.
The rights and titles transferred by Mota et al. to Whitaker &
Concepcion were only those they had over the other half of the railroad
line.
No novation of the contract between Mota et al. and Serra, as regards
the obligation of the latter to pay the former of the cost of the
construction of the said railroad line, and since Mota et al. did not
include in the sale, evidenced by Contract of Sale, the credit that they
had against the Serra.
That the obligation of the Serra became extinguished by the merger of
the rights of creditor and debtor by the purchase of Whitaker and
Concepcion is wholly untenable.
By virtue of the Contract of Sale on of the railroad, the Testate
Estate of Lazaro Mota et al. and Phil. C. Whitaker and Venancio
Concepcion, by common consent, decided to dissolve the partnership
between "Hacienda Palma" and "Hacienda San Isidro," thus cancelling
the contract of partnership of February 1, 1919.
TC: By the termination of the partnership, as shown by the Contract of
Sale bet. Concepcion, Whitaker & Mota et al, no legal rights can be
derived therefrom.
Serra: Mota et al. 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.
SC: Serra'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. Serra'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.
SC of Spain (Feb. 6, 1903): Upheld this doctrine
FACTS: There was a partnership formed between several persons to
purchase some lands sold by the state. The partnership paid the
purchase price and distributed among its members the lands so
acquired.
o After the lapse of some time, one of the partners instituted
an action in the court of Badajoz, praying that he be
accepted as a partner with the same rights and obligations
as the others, for the reason that he had not been allowed
all that he had a right to.
o The court granted the petition, which judgment was
affirmed by the Audiencia de Caceres.
o From that decision, the other partner sued out a writ of
error
There is infringement of the Civil Code since
all contracts are reputed consummated
and therefore extinguished, when the
contracting parties fulfill all the
obligations arising therefrom
By the payment of the money and the granting
and distribution of the lands without any
opposition, the juridical relations between the
contracting parties become extinguished
and none of the parties has any right of
action under the contract.
HELD: Denied the writ. Some corrections and liquidations asked by
the actor were still pending. The articles cited were not infringed
because a partnership cannot be considered as extinguished
until all the obligations pertaining to it are fulfilled. (11 Manresa,
page 312.)
30 Cyc., page 659: 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
INTEREST
Serra: As in the articles of partnership on Feb. 1, 1919, it was agreed
that Serra would put up of the cost of the railroad line within 5 years
from Feb. 1, 1919, with interest at 10% p.a. Present action is
premature since, from the execution of the contract until the date of the
complaint (Oct. 25, 1922), the 5 years, within which the Serra could
pay his part of the cost of the construction of the line, had not yet
elapsed.
SC: Mora et.al and the successors in interest of the Serra, by
mutual consent, dissolved the partnership on June 16, 1920,
cancelling the contract of partnership to all of which Serra
consented as evidenced by his allegations in his answer. Thus, there is
no reason for waiting for the expiration of 5 years which the parties
themselves had seen fit to stipulate. The provisions of Art. 113,
regarding the fulfillment of pure obligations, must be applied in this
case.
DISPOSITIVE: Judgment appealed from Reversed. Serra is indebted to
Testate Estate of Lazaro Mota, et al., for P113,046.46 with the agreed
interest @ 10% p.a. from the date of the filing of the complaint.
DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
C. Lozano and Cecilio I. Lim for appellant.
Montinola, Montinola & Hontiveros for appellee.
ROMUALDEZ, J.:
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua
Bearneza formed a partnership for the purpose of exploiting a fish pond
situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of
Iloilo, Perpetua obligating herself to contribute to the payment of the
expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed
Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her rights
and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for
the delivery of the part of the fish pond belonging to his decedent, Perpetua,
and delivery having been refused, Domingo Bearneza brought this action to
recover said part of the fish pond belonging to his decedent, Perpetua, and
delivery having been refused, Domingo Bearneza brought this action recover
said part of the fish pond and one-half of the profits received by the
defendant from the fish pond from the year 1913 to 1919, as damages (the
amended complaint was filed on April 12, 1920), amounting, according to
plaintiff, to the sum of thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations
of the complaint, and alleges, as special defense, that "the formation of the
supposed partnership between the plaintiff and the defendant for the
exploitation of the aforesaid fish pond was not carried into effect, on account
of the plaintiff having refused to defray the expenses of reconstruction and
exploitation of said fish pond." As another special defense, the defendant
alleges "that in the event that the court should hold the plaintiff to be entitled
to the undivided one-half of the fish pond, claimed in the complaint, the
plaintiff's action has prescribed, the time for bringing the same having
elapsed."
Proceedings having been held as usual, the court below rendered judgment,
declaring the plaintiff owner of one-half of the fish pond, which was
composed of the portions known as "Alimango" and "Dalusan," but without
awarding him any of the damages claimed by him, the same not having been
proven, in the opinion of the court, and ordering the defendant to pay the
costs.
From this judgment the defendant appeals, making various assignments of
error. The plaintiff did not appeal from that part of the judgment denying his
claim for damages; hence the only question we are called upon to decide is
whether or not the plaintiff has any right to maintain an action for the recovery
of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to
the existence of which the proof contained in the record is conclusive and
there is no dispute, was of a civil nature. It was a particular partnership, as
defined in article 1678 of the Civil Code, it having had for its subject-matter a
specified thing, to with, the exploitation of the aforementioned fish pond.
Although, as the trial court says in its decision, the defendant, in his letters to
Perpetua or her husband, makes reference to the fish pond, calling it "our," or
"your fish pond," this reference cannot be held to include the land on which
the said fish pond was built. It has not been proven that Perpetua Bearneza
participated in the ownership of said land, and Exhibits 2 and 3 of the
defendant show that he has been paying, as exclusive owner of the fish
pond, the land tax thereon, although in Exhibit X he says that the said land
belongs to the State. The conclusion, therefore, from the evidence is that the
land on which the fish pond was constructed did not constitute a part of the
subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile
partnership, and, therefore, the provisions of the Code of Commerce not
being applicable thereto (article 1670 of the Civil Code), it was dissolved by
the death of Perpetua Bearneza, and falls under the provisions of article
1700, subsection 3, of the same Code, and not under the exception
established in the last paragraph of said article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after the
death of Perpetua, inasmuch as it does not appear that any stipulation to that
effect has ever been made by her and the defendant, pursuant to the
provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza,
its subsequent legal status was that of a partnership in liquidation, and the
only rights inherited by her testamentary heir, the herein plaintiff, were those
resulting from the said liquidation in favor of the deceased partner, and
nothing more. Before this liquidation is made, which up to the present has not
been effected, it is impossible to determine what rights or interests, if any, the
deceased had, the partnership bond having been dissolved.
There is no sufficient ground for holding that a community of property existed
between the plaintiff and the defendant, it not being known whether the
deceased still had any interest in the partnership property which could have
been transmitted by will to the plaintiff. There being no community of
property, article 395 of the Civil Code cited by the plaintiff in support of his
contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and
the defendant. It is true that the latter's act in requiring the heirs of Perpetua
to contribute to the payment of the expenses of exploitation of the aforesaid
fishing industry was an attempt to continue the partnership, but it is also true
that neither the said heirs collectively, nor the plaintiff individually, took any
action in response to that requirement, nor made any promise to that effect,
and therefore no new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as
it denies the plaintiff's claim for damages, and reversed insofar as it declares
the said plaintiff owner of one-half of the fish pond, "Alimango" and
"Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as
Administrator of the Estate of URBANO LOTA), plaintiff-appellant,
vs.
BENIGNO TOLENTINO, defendant-appellee.
Manuel P. Calanog and Jose A. Buendia for appellant.
Potenciano Villegas for appellee.
PARAS, C.J. :
This is an appeal from a resolution of the Court of First Instance of Batangas
of May 4, 1949, worded in full as follows:
On April 6, 1949, counsel for plaintiff filed a motion praying that
deceased defendant be substituted by his heirs, Marta Sadiasa and
Efigenia, Resurreccion and Mercedes, all surnamed Tolentino, as
parties defendant in this case. To said motion counsel for defendant
interposed an opposition upon the following grounds:
I. That the nature of the action for accounting and liquidation of the
partnership filed by plaintiff since March 3, 1937, is purely personal in
character and, upon the death of the defendant on November 22,
1939, the claim was already extinguished. II. Assuming that the action
for accounting and liquidation of the partnership is not purely personal
in character and that such claim is not yet extinguished, the case
should now be dismissed in view of the failure of the plaintiff to
prosecute his action for an unreasonable length of time. III. Assuming
further that the plaintiff's claim was not yet extinguished upon the death
of the defendant on November 22, 1939, the rights, if any, sought to be
enforced by the plaintiff in the complaint have already been lost by
claches.
The question before the Court therefore is whether the motion for
substitution should be granted and the case allowed to go to trial on
the merits, or whether the defendant's opposition should be sustained
and the case dismissed. The following factual background appears of
record:
On March 3, 1937, plaintiff filed an action against defendant to order
the latter (a) to render an accounting of his management of their
partnership, and (b) to deliver the plaintiff whatever share he may have
in the assets of the partnership after the liquidation has been approved
by the Court.
The partnership above-mentioned was entered into by and between
plaintiff and defendant in the year 1918, whereby they agreed to
engage in general business in the municipality of Alabat, province of
Batangas, both to divide the profits and losses share alike, and
defendant to be manager of the partnership. Plaintiff alleges that from
1918 until 1928 defendant had rendered an annual accounting, but has
refused to do so from 1929 to 1937, hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer, alleging that
defendant was the industrial partner in said partnership; that he
rendered a yearly accounting and liquidation thereof from 1918 to
1932, and that in the latter year, 1932, the partnership was dissolved
and defendant delivered all its properties and assets to the plaintiff.
Hence, defendant prays for the dismissal of plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939, he was
substituted by the administrator of his estate, Solomon Lota.
On December 8, 1939, defendant's counsel made a suggestion upon
the record that defendant died on November 26, 1939. On January 9,
1940, the Court gave plaintiff 30 days to amend the complaint by
substituting for the deceased defendant the administrator of his estate
or his legal representative.
On January 28, 1941, the Court ordered the dismissal of the case for
lack of prosecution. This order was reconsidered and set aside upon a
showing by plaintiff that on March 28, 1941, he had filed a petition for
the issuance of letters of administration to deceased defendant's
surviving spouse, Marta Sadiasa, for the purpose of substituting her for
the deceased defendant, said petition being Special Proceedings No.
3859 of this Court entitled "Intestate Estate of the late Benigno
Tolentino, Solomon Lota, petitioner." This special proceedings was,
however, dismissed for failure of the administratrix to file a bond and to
take her oath.
It will thus be seen that from defendant's death on November 26, 1939,
to the present, or almost ten years, no administrator or legal
representative had been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another try
to substitute said deceased by filing his motion, referred to in the first
paragraph of this resolution, praying that defendant's heirs be
substituted for him as parties defendant.
The following considerations stand in the way of plaintiff's motion for
substitution:
1. It being undisputed that defendant was the manager of the
partnership formed by and between him and the plaintiff, and that said
defendant died on November 26, 1939, during the pendency of the
present for accounting and liquidation against defendant, the said
action should have been discontinued as it could no longer be
maintained against deceased defendant. Under these circumstances,
the remedy and duty of the plaintiff are as set out in the following ruling
of the Supreme Court in Po Yeng Cheo vs. Lim Ka Yam, (44 Phil. 172,
178):
In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members of the firm, not upon the legal
representative of the deceased partner. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744). And the
same rule must be equally applicable to a civil partnership clothed with
the form of the commercial association (ART. 1670, Civil Code;
Lichauco vs. Lichauco, 33 Phil., 350).
If, as it appears of record, plaintiff died prior to defendant's death, the
duty to liquidate devolved upon the legal representative of the plaintiff
because it was the latter who sought to establish a claim against the
defendant.
2. If after such liquidation, there should be found money or property
due the partnership from the deceased defendant, a claim therefor
should be filed against the latter's estate in administration. Again, this
is the procedure marked out in the case just cited:
Upon the death of Lim Ka Yam it therefore become the duty of his
surviving associates to take the proper steps to settle the affairs of the
firms, and any claim against him, or his estate, for a sum of money due
to the partnership by reason of any misappropriation of its funds by him
or damages resulting from his wrongful acts as a manager, should be
prosecuted against his estate in administration in the manner pointed
out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
Moreover, when it appears, as here, that the property pertaining to
Kwong Cheong Tay, like the shares in the Ya sieng Chyip Konski and
Manila Electric Railroad and Light Company, are in the possession of
the deceased partner, the proper step for the surviving associates to
take would be to make application to the court having charge of the
administration to require the administration to surrender such property.
(Po Yeng Cheo vs. Lim Ka Yam, supra.)
This procedure was not also followed in the case at bar because
plaintiff, or his legal representative, did not procure the appointment
and qualification of an administrator of the estate of deceased
defendant, altho he had already filed a petition looking towards such
administration. This plaintiff was under a duty to do if he considered
himself a creditor with a legitimate claim enforceable against the estate
of deceased defendant.
3. What plaintiff, or his legal representative, insisted on doing in the
present case is to continue and press his action for accounting and
liquidation against the heirs of deceased defendant, a procedure
which, as above stated, runs counter to that set out in the Po Yeng
Cheo vs. Lim Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he only filed a
petition for the appointment of an administrator for the estate of
deceased defendant, but did not see to it that administrator filed a bond
and qualify as such. Hence, the said petition for administration was
dismissed.
4. Also, conceding, without admitting, that the present action for
accounting would lie against defendant, it is this Court's opinion that
such a duty to account died with the defendant, was extinguished upon
his death, and was not shifted upon his heirs. The heirs of the
defendant have never been partners in the partnership formed by and
between plaintiff and defendant, and said heirs are hardly in a position
and hardly called upon to effect an accounting of said partnership.
5. Finally, it will be recalled that the partnership in question was
organized in 1918 and dissolved in 1932. The action for accounting
was commenced on March 3, 1937. And the present motion for
substitution was filed on April 6, 1949, only. Trial on the merits at this
late date might prove futile and fruitless if no partnership property is
found in the possession of defendant's heirs, let alone the allegation of
said defendant in his answer to the complaint back in 1937 that he had
already delivered all the properties and assets of the partnership to the
 plaintiff. If the principle of laches is ever to be applied, it should be
applied to this case.
Wherefore, the plaintiff's action for substitution is denied and
defendant's prayer for the dismissal for this case against the plaintiff.
The present appellant is Solomon Lota, in his capacity as administrator of the
estate of Urbano Lota, original plaintiff, who died in l938. The decisive
question that arises is whether or not, after the death of the defendant
Benigno Tolentino on November 22, 1939, plaintiff's action for accounting and
liquidation of the partnership formed in l918 between Urbano Lota and
Benigno Tolentino, of which the latter was the industrial and managing
partner, may be continued against the heirs of Benigno Tolentino. This
question was decided adversely to the appellant by the lower court and, in
our opinion, correctly. The applicable authority is the case of Po Yeng
Cheo vs. Lim Ka Yam, 44 Phil. 172, in which the following pronouncements
were made:
In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744.) And the
same rule must be equally applicable to a civil partnership clothed with
the form of a commercial association (art. 1670, Civil Code:
Lichauco vs. Licahuco, 33 Phil., 350). Upon the death of Lim Ka Yam it
therefore become the duty of his surviving associates to take the
proper steps to settle the affairs of the firm, and any claim against him,
or his state, for a sum of money due to the partnership by reason of
any misappropriation of its funds by him, or for damages resulting from
his wrongful acts as manager, should be prosecuted against his estate
in administration in the manner pointed out in sections 686 to 701,
inclusive, of the Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong Tay, like the
shares in the Yut Siong Chyip Konski and Manila Electric Railroad and
Light Company, are in the possession of the partner, the proper step
for the surviving associates to take would be to make application to the
court having charge of the administration to require the administrator to
surrender such property.
But in the second place, as already indicated, the proceedings in this
cause, considered in the character of an action for an accounting, were
futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the
supposed liability of his intestate to respond for the plaintiffs
proportionate share of the capital and assets. But of course the action
was not maintenable in this aspect after the death of the defendant;
and the motion to discontinue the action against the administrator
should have been granted. (pp. 178-179.)
Another ground equally decisive against the appellant correctly
advanced by the lower court in dismissing the present action for accounting,
is lack of prosecution on the part of the appellant. It may be fittingly recalled
that the action for accounting and liquidation was filed on March 3, l937. No
sooner had the defendant Benigno Tolentino died on November 22, l939,
than said fact was made record by his attorney. On January 9, 1940, the
lower court gave the plaintiff (who had then died and was substituted on
September 28, 1939, by the administrator of his estate, Solomon Lota), 30
days to amend the complaint by substituting the administrator or legal
representative of the deceased defendant Benigno Tolentino. On January 28,
1941, the lower court dismissed the case for lack of prosecution on the part
of the plaintiff, but the order of dismissal was reconsidered, upon a showing
by the plaintiff that on March 28, 1941, an administration proceeding for the
estate of Benigno Tolentino was instituted by the plaintiff. On August 8, 1941
the lower court issued, at the instance of the plaintiff, letters of administration
to Tolentino's surviving spouse, Marta Sadiasa, who however failed to qualify.
Accordingly, the court dismissed the administration proceeding on January 3,
1949, for lack of interest. It was only as late as April 6, l949, that the plaintiff
filed the motion to substitute, not even the legal representative of Benigno
Tolentino but his heirs.
If the plaintiff was genuinely interested in substituting the proper party,
assuming that plaintiff's action may still be pursued after Tolentino's death, he
should have taken timely measures to have the administratrix appointed on
August 8, 1941, qualify or, in case of her failure or refusal, to procure the
appointment of another administrator; because the plaintiff could have
availed himself of section 6, Rule 80, of the Rules of Court, providing that
"letters of administration may be granted to any qualified applicant, though it
appears that there are other competent persons having better right to the
administration, if such persons fail to appear when notified and claim the
issuance of letters to themselves." Certainly, inaction for almost eight years
(after the issuance of letters of administration) on the part of the appellant,
sufficiently implies indifference to or desistance from its suit.
The theory of the appellant is that the heirs may properly be substituted for
the deceased Benigno Tolentino, because they are in possession of property
allegedly belonging to the partnership in question, and the appellant seeks
the recovery thereof. Apart from the fact that said allegation seems to refer to
cause of action foreign to the claim for accounting and liquidation against
Tolentino, and should have been made in proper pleading to duly admitted by
the lower court, the filing of appellant's motion for substitution more than
twelve years after the institution of the complaint came too late and already
called for the prosecution. It is immaterial that, before the appealed resolution
was issued by the lower court, the appellant attempted to have the deceased
defendant had not yet been properly substituted.
The resolution herein complained of will therefore be as it is hereby affirmed,
with costs against the appellant. So ordered.
GOQUIOLAY, ET. AL V. SYCIP, ET. AL. 108 PHIL 947
The right of exclusive management conferred upon a partner is a personal
right and is premised on trust and confidence. It terminates upon the death of
the partner.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO.
L-11840, December 10, 1963
FACTS:
Tan Sin An and Goquiolay entered into a general commercial partnership
under the partnership name Tan Sin An and Antonio Goquiolay for the
purpose 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 the Articles of Co-partnership stipulated that in the
event of death of any of the partners before the expiration of the term, the
partnership will not be dissolved but will be continued by the heirs or assigns
of the deceased partner. But the partnership could be dissolved 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 was
mortgaged to La Urbana as payment of P25,000. Another 46 parcels of land
were purchased by Tan Sin An in his individual capacity which he assumed
payment of a mortgage debt for P35K. A downpayment and the amortization
were advanced by Yutivo and Co. The two obligations were consolidated in
an instrument executed by the partnership and Tan Sin An, whereby the
entire 49 lots were mortgaged in favor of Banco HipotecarioTan Sin An died
leaving his widow, Kong Chai Pin and four minor children. The widow
subsequently became the administratrix of the estate. Repeated demands
were made by Banco Hipotecario on the partnership and on Tan Sin An.
Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the
remaining balance of the mortgage debt, the mortgage was cancelled Yutivo
Sons and Sing Yee filed their claim in the intestate proceedings of Tan Sin An
for advances, interest and taxes paid in amortizing and discharging their
obligations to La Urbana and Banco Hipotecario. Kong Chai Pin filed a
petition with the probate court for authority to sell all the 49 parcels of land.
She then sold it to Sycip and Lee in consideration 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 a deed of
transfer covering the 49 parcels of land.When Goquiolay learned about the
sale to Sycip and Lee, he filed a petition in the intestate proceedings to set
aside the order of the probate court approving the sale in so far as his
interest over the parcels of land sold was concerned. 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 include the indispensable parties.
New pleadings were filed. The second amended complaint prays for the
annulment of the sale in favor of Sycip and Lee and their subsequent
conveyance to Insular Development. The complaint was dismissed by the
lower court hence this appeal.
ISSUE/S: Whether or not a widow or substitute become also a general
partner or only a limited partner. Whether or not the lower court err in holding
that the widow succeeded her husband Tan Sin An in the sole management
of the partnership upon Tans death Whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties to
Sycip and Lee?
HELD:
Kong Chai Pin became a mere general partner. By seeking authority to
manage partnership property, Tan Sin Ans widow showed that she desired to
be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do),
Goqulay recognized her as such partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate
partnership property. The articles did not provide that the heirs of the
deceased would be merely limited partners; on the contrary, they expressly
stipulated that in case of death of either partner, the co partnership will have
to be continued with the heirs or assignees. It certainly could not be
continued if it were to be converted from a general partnership into a limited
partnership since the difference between the two kinds of associations is
fundamental, and specially because the conversion into a limited association
would leave the heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation actually contemplated that
the heirs would become general partners rather than limited ones.
GOQUIOLAY ET AL (Appellant) vs. SYCIP ET AL (Resolution of Motion for
Reconsideration)
FACTS: In SCs previous decision, the court upheld the validity of the sale of
the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949
by the widow (Kong Cha Pin) of the managing partner - Tan Sin An (Executed
in her dual capacity as (1) Administratrix of the husband's estate and as (2)
partner in lieu of the husband), in favor of the buyers Washington Sycip and
Betty Lee for P153,726.04 Appellant Goquiolay insist that Kong Chai Pin,
widow of the deceased partner Tan Sin An, never became more than a
limited partner, incapacitated by law to manage the affairs of partnership ;
that the testimony of her witness Young and Lim belies that she took over the
administration of the partnership property; and that the sale should be set
aside because it was executed with the intent to defraud appellant of his
share in the properties sold. The dispute herein is with the transfer of
partnership property by one partner, acting in behalf of the firm, to a stranger.
There is no question between partners inter se, and this aspect to the case
was expressly reserved in the main decision of 26 July 1960. The partnership
was expressly organized: " to engage in real estate business, either by
buying and selling real estate". Appellant insists that there is "not one iota of
evidence" that Kong Chai Pin managed and possessed partnership
properties. Suffice it to point out that Goquiolay himself admitted that he
allowed Kong Chai Pin to take care of the properties in order to help her as
she had no other means of income. The appellant ratified this testimony in
his deposition wherein he stated: that plantation was being occupied at
that time by the widow, Mrs. Tan Sin An, and of course they are receiving
quiet a lot benefit from the plantation. With regard to Young and Lim's
testimonies, it did not contradict Goquiolay's admission that he told Mr. Yu
Eng Lai that the widow "could just do it" (continue to manage the properties).
Witnesses Lim and Young referred to the period of Japanese occupation; but
Goquiolay's authority was given to the widow in 1945,after the occupation.
The disputed sale by the widow took place in 1949. Kong Chai Pin carried
out no acts of management during the Japanese occupation (1942-1944) but
it does not mean that she did not do so from 1945 to 1949. The Court found
that Goquiolay did not merely rely on reports from Lim and Young; he actually
manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question
between her and the appellant, and is not here involved. But the authority
was given, and she did have it when she made the sale, because it was
never revoked.
ISSUE#1: W/N Goquiolay only gave authority to manage the property w/c
does not include the power to alienate to Kong Cha Pin
HELD: NO. What the argument of Goquiolay overlooks is that the widow was
not a mere agent, because she had become a partner upon her husband's
death, as expressly provided by the articles of copartnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow only
became a limited partner, Goquiolay's authorization to manage the
partnership property was proof that he considered and recognized her as
general partner, at least since 1945. Under the law (Code of Commerce),
appellant could not empower the widow, if she were only a limited partner, to
administer the properties of the firm, even as a mere agent: Limited
partners may not perform any act of administration with respect to the
interests of the copartnership, not even in the capacity of agents of the
managing partners . By seeking authority to manage partnership property,
Kong Cha Pin showed that she desired to be considered a general partner.
By authorizing her to manage partnership property (w/c a limited partner
cannot do), Goquiolay recognized her as such partner, and is now in estoppel
to deny her as a general partner, with authority to administer and alienate
property. An heir ordinarily becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability in excess of the value
of the estate inherited so as not to jeopardize his personal assets. But this
statutory limitation of responsibility being designed to protect the heir, the
latter may disregard it and instead elect to become a collective or general
partner , with all the rights and privileges of one, and answering for the debts
of the firm not only with the inheritance but also with the heir's personal
fortune. This choice pertains exclusively to the heir, and does not require the
assent of the surviving partner. Furthermore, the articles of co-partnership
expressly stipulated that: In the event of the death of any of the partners at
any time before the expiration of said term, the co-partnership shall not be
dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership.
The Articles did not provide that the heirs of the deceased would be merely
limited partners. It could NOT be continued if it were to be converted from a
general partnership into a limited partnership , since the difference between
the two kinds of associations is fundamental; and because the conversion
into a limited association would have the heirs of the deceased partner
without a share in the management. Hence, the contractual stipulation does
actually contemplate that the heirs would become general partners rather
than limited ones. The stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited responsibility
for the obligations of the firm. The heirs, in other words, cannot be compelled
approved by the court, and its approval is now final. #2 With regard to the
to become general partners against their wishes. But because they are not
so compellable, it does not legitimately follow that they may not voluntarily
choose to become general partners, waiving the protective mantle of the
general laws of succession. It is pointless to discuss the legality of any
conversion of a limited partner into a general one. The heir never was a
limited partner, but chose to be, and became, a general partner right at the
start. Furthermore , It is immaterial that the heir's name is included in the firm
name since no conversion of status is involved, and the articles of co-
partnership expressly contemplated the admission of the partner's heirs into
the partnership. Knowing that by law a limited partner is barred from
managing the partnership, third parties who found the widow managing the
firm property with the acquiescence of the surviving partners were perfectly
justified in assuming that she had become a general partner, and, therefore,
in negotiating with her as a partner, having authority to in behalf of the firm.
Note that for seven long years, from partner Tan Sin An's death in 1942 to the
sale in 1949, there was enough time for Goquiolay to take up the
management of these properties, or at least ascertain how its affairs stood.
For seven years Goquiolay could have asserted his alleged rights, and by
suitable notice in the commercial registry could have warned strangers that
they must deal with him alone, as sole general partner. But he did nothing of
the sort, because he was not interested, and he did not even take steps to
pay, or settle the firm debts that were overdue since before the outbreak of
the last war. He did not take steps, after Tan Sin An died, to cancel, or modify,
the provisions of the partnership articles that he (Goquiolay) would have no
intervention in the management of the partnership. Laches certainly
contributed to confirm the view that the widow of Tan Sin An was given,
authority to manage and deal with the firm's properties apart from the
presumption that a general partner dealing with partnership property has to
requisite authority from his co-partners The stipulation in the articles of
partnership that any of the two managing partners may contract and sign in
the name of the partnership with the consent of the other, undoubtedly
creates on obligation between the two partners, which consists in asking the
other's consent before contracting for the partnership. A third person may and
has a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary is acting
in accordance therewith.
ISSUE#2: W/N the widow had authority to sell the real estate of the firm.
HELD: YES. Generally, where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its real property is
not within the ordinary powers of a partner, because it is not in line with the
normal business of the firm. But where the express purpose of the
partnership is to buy and sell real estate, the immovable, thus acquired by
the firm from part of its stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the partner. Since
the sale by the widow was in conformity with the express objective of the
partnership, "to engage in buying and selling real estate" it cannot be
maintained that the sale was made in excess of her power as general
partner. ISSUE#3: W/N the sale was executed to defraud Goquiolay HELD:
No direct evidence of it exists. Goquiolay points out, as indicia thereof, the
allegedly low price paid for the property, and the relationship between the
buyers, the creditors of the partnership, and the widow of Tan Sin An. #1 As
to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership
debts assumed by the purchaser. These debts are not questioned; they were
relationship between the parties, suffice it to say that the Supreme Court has
ruled that relationship alone is not a badge of fraud. There is no evidence
that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property.
NG CHO CIO ET AL., plaintiffs-appellants,
vs.
NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
BAUTISTA, ANGELO, J.:
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio
Ng Sian King and Ng Due King to recover their three-fourths (3/4) pro-
indiviso share on seven (7) parcels of land situated in the City of Iloilo which
were sold by Ng Diong as manager of the commercial firm NG CHIN BENG
HERMANOS in favor of C.N. Hodges. The latter had sold four of those
parcels of land to Jose C. Tayengco and the other three parcels to Julian Go,
and for that reason these two were included as party defendants. As the
original plaintiffs sold their rights, title and interest in said partnership to Ng
Be Chuat and Ng Feng Tuan, the latter two were allowed to intervene as
plaintiffs. Since Jose C. Tayengco had mortgaged three of the lands which he
purchased from C. N. Hodges in favor of the Bank of the Philippine Islands,
the complaint was amended so as to include the Bank also as party
defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died,
whereupon his heirs were order to substitute him parties defendants.
Defendants C. N. Hodges, Ng Diong and Jose C. Tayengco answered the
complaint separately setting up certain special defenses and counterclaims.
In substance, they refuted the allegations set forth in the complaint and
prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by
the pleadings thus simplifying the trial of the case while at the same time they
introduced additional evidence in amplification of the fact stipulated,
Thereupon, the trial court, after a thorough evaluation of the evidence,
rendered decision dismissing the complaint with costs. Plaintiffs interposed
the present appeal on purely questions of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng
Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King
and Ng Due King entered into a contract of general co-partnership under the
name NG CHIN BENG HERMANOS. The partnership was to exist for a
period of 10 years from May 23, 1925 and Ng Diong was named as
managing partner. On May 10, 1935, the articles of co-partnership were
amended by extending its life to 16 years more to be counted from May 23,
1925, or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan and
Investment Board a loan in the amount of P30,000.00, and to guarantee its
payment it executed in its favor a mortgage on Lots Nos. 236-B, 317-A, 233
and 540 of the cadastral survey of Iloilo. On the same date, the partnership
also obtained from the same entity another loan in the amount of P50,000.00
to secure which it also executed in its favor a mortgage on Lots Nos. 386,
829 and 237 of the same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its
creditors in, Special Proceedings No. 2419 of the Court of First Instance of
Iloilo wherein one Crispino Melocoton was elected as assignee. As a
consequence, on June 21, 1939, the titles to the seven parcels of land
abovementioned were issued in his name as assignee. In due time, the
creditors filed their claims in said proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to
P139,704.81, and the partners of the firm, acting thru counsel, entered into a
composition agreement whereby it was agreed that said creditors would
receive 20% of the amount of their claims in full payment thereof. Prior to this
agreement, however, defendant Julian Go had already acquired the rights of
24 of the creditors of the insolvent whose total claims amounted to
P139,323.10. Said composition agreement was approved by the insolvency
court.
On January 30, 1941, the Agricultural and Industrial Bank which had
succeeded the National Loan and Investment Board assigned its rights and
interests in the loans obtained from it by the partnership in the aggregate
amount of P80,000.00 in favor of C.N. Hodges, together with the right and
interest in the mortgage executed to secure the loans. Since said loans
became due and no payment was forthcoming, Hodges asked permission
from the insolvency court to file a complaint against the assignee to foreclose
he mortgage executed to secure the same in a separate proceeding, and
permission having been granted, Hodges filed a complaint for that purpose
on May 13, 1941. In his complaint, Hodges prayed that the assignee be
ordered to pay him the sum of P75,622.90, with interest at 8% per annum
thereon from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of
costs and charges. Meanwhile, war broke out and nothing appears to have
been done in the insolvency proceedings. The court records were destroyed.
However, they were reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who
acquired most of the claims of the creditors, filed a petition with the
insolvency court praying at the insolvency proceedings be closed or
terminated cause the composition agreement the creditors had submitted
relative to the settlement of the claims had already been approved on
October 10, 1940. And on October 6, 1946, the court, acting favorably on the
petition, ordered, closure of the proceedings directing the assignee to turn
and reconvey all the properties of the partnership back to the latter as
required by law. In accordance with this order of the court, the assignee
executed a deed of reconveyance of the properties to the partnership on April
2, 1946 and by virtue thereof, the register of deeds cancelled the titles issued
in the name of the assignee and issued new ones in lieu thereof in the name
of the partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N.
Hodges which was the subject of the foreclosure proceedings in a separate
case was P103,883.34. In order to pay off the same and raise necessary
funds to pay the other obligations of the partnership, it was deemed proper
and wise by Ng Diong, who continued to be the manager of the partnership,
to sell all its properties mortgaged to Hodges in order that the excess may be
applied to the Payment of said other obligations, and to that effect Ng Diong
executed on April 2, 1946 a deed of sale thereof in favor of Hodges for the
sum of P124,580.00. Out of this price; the sum of P103,883.34 was applied
to the payment of the debt of the partnership to Hodges and the balance was
paid to the other creditors of the partnership. On the same date, Hodges
executed another contract giving the partnership the right to repurchase Lots
Nos. 237, 386 and 829 in installments for the sum of P26,000.00 within three
years with interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian
Go in he amount of P24,864.62 under the composition agreement, nor did it
have any money to repurchase Lots Nos. 237, 386 and 829 and so Ng
Diong, in behalf of the partnership, transferred the right of the latter to
repurchase the same from Hodges to Julian Go in full payment of the
partnership's indebtedness to him. And having Julian Go exercised the option
January 6, 1948, Hodges executed a deed of sale of the properties in his
favor, and pursuant thereto the register of deeds issued new titles' in his
name covering said lots. On May 29, 1948, Hodges executed another deed
of sale covering Lots Nos. 317-A, 236-B, 233 and 540 for the sum of
P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948,
Tayengco mortgaged said lots, together with three other lots of his, to the
Bank of the Philippine Islands to secure a loan of P126,000.00 to be used in
the construction of a commercial building on said lots.
Appellants make in their brief six assignments of errors, which, reduced to
bare essentials, may be boiled down to the following points: (1) the sale
made by Ng Diong in behalf of the partnership NG CHIN BENG HERMANOS
of the seven lots belonging to it in favor of C. N. Hodges on April 2, 1946 is
null and void because at that time said parcels were still in the custody of the
assignee of the insolvency proceedings, or in custodia legis, and, hence, the
same is null and void; (2) said sale is also null and void "because of the
disparity, irrationality and unreasonableness between the consideration and
the real value of the properties when sold"; and (3) the lower court erred in
not finding that the two deeds of mortgage executed by he partnership in
favor of the National Loan and Investment Board which were later assigned
to C. N. Hodges can no longer be enforced because the action to foreclose
the same has already prescribed.
Anent the first issue, it would be well to state the following facts by way of
clarification: It should be recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the representatives of the latter,
submitted to the court taking cognizance of the insolvency proceedings
a composition agreement whereby it was agreed that said creditors would
receive 20% of the amount of their claims in full payment thereof. This
agreement was approved on October 10, 1940 which, in contemplation of
law, has the effect of putting an end to the insolvency proceedings. However,
no further step was taken thereon because of the outbreak of the war. Later,
the record of the case was reconstituted and the parties on August 15, 1945
filed a petition with the court praying for the dismissal and closure of the
proceedings in view of the approval of the aforesaid composition agreement,
and acting favorably thereon, the court on October 6, 1945, issued an order
declaring the proceedings terminated and ordering the assignee to return and
reconvey the properties the partnership. The actual reconveyance was done
by a assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the
insolvency ended on said date. Since then partnership became, restored to
its status quo. It again reacquired its personality as such with Ng Diong as its
general manager. From that date on its properties ceased to be in custodia
legis. Such being the case, it is obvious that when Ng Diong as manager of
the partnership sold the seven parcels of land to C. N. Hodges on April 2,
1946 by virtue of a deed of sale acknowledged before a notary public on April
6, 1946, the properties were already was at liberty to do what it may deem
convenient and proper to protect its interest. And acting accordingly, Ng
Diong made the sale in the exercise of the power granted to him by the
partnership in its articles of co-partnership. We do not, therefore, find
anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired,
the question may be fixed: Who shall wind up it business affairs? May its
manager still execute the sale of its properties to C. N. Hodges as was done
by Ng Diong? The answer to this question cannot but be in the affirmative
because Ng Diong was still the managing partner of the partnership and he
had the necessary authority to liquidate its affairs under its articles of co-
partnership. And considering that war had intervened and the affairs of the
partnership were placed under receivership up to October 6, 1945, we are of
the opinion that Ng Diong could still exercise his power as liquidator when he
executed the sale in question in favor of C. N. Hodges. This is sanctioned by
Article 228 of the Code of Commerce which was the law in force at the time. 1
With regard to the second issue, it is contended that the trial court should
have declared the sale of the lots made to C. N. Hodges null and void
"because of the disparity, irrationality and unreasonableness between the
consideration and real value of the properties when sold." In stressing his
point, counsel contends that the lands in question, which are located in a
commercial section of the City of Iloilo, were frittered away only for a
"pittance of P124,580.00" when, borrowing his words they could have been
sold like hot cakes to any resident of the city of regular financial standing
upon proper approaches and representations, because at that time those
properties were fairly worth one-half of a million pesos."
This claim may be true, but the same is unsupported. Appellants have failed
to introduce any evidence to show that they could have secured better offers
for the properties if given a chance to do so and that they advance now is a
mere speculation or conjecture which had no place in our judicial system.
Since every claim must be substantiated by sufficient evidence, and this
appellants have failed to do, their pretense cannot be entertained.
Neither can we give any value to the claim that the action for the foreclosure
of the mortgage executed by the partnership in favor of C. N. Hodges has
already prescribed not only because the same is immaterial but because it is
an issue that appellants are raising for the first time in this appeal. Such issue
has never been raised in their pleadings, nor in the trial court. Verily, this
claim has no merit.
With regard to the appeal taken by the heirs of defendant Ng Diong whose
main claim is that the trial court failed to adjudicate to the partnership the
properties which were bought by Julian Go from C. N. Hodges, suffice it to
say that the same could not be done, firstly, because no such claim was
made by them in their pleadings in the trial court, and, secondly, because the
evidence shows that said properties were bought by Julian Go by virtue of
the option given to him by the partnership for a valuable consideration in full
payment of the credits assigned to him by a good number of creditors of said
partnership. There is no evidence that he promised to reconvey the same to
the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against
appellants.
Lichauco vs. 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 that Faustino Lichauco will be
the managing partner; and that the firm cannot be dissolved except upon the
2/3 vote of all the partners. In 1904, the firm wasnt performing well and was
unprofitable and so its machineries were dismantled. In 1905, Eugenia and
one other partner demanded Faustino to make an accounting of the firms
assets but Faustino refused to do so. Belatedly in 1912, Eugenia et al filed a
civil suit against Faustino to compel the latter to perform ac accounting.
Faustino, in his defense, argued that the firm was not dissolved pursuant to
the partnership agreement there being no 2/3 vote from all the members
(Faustino et al are only 1/5 of the firm).
ISSUE: Whether or not Eugenia et al can demand an accounting.
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 of Faustino to liquidate the assets and inform his partners. The
provision which requires a 2/3 votes of all the partners to dissolve the firm
cannot be given effect because the same denied the right of a less number of
partners to effect the dissolution especially where the firm has already
sustained huge losses. It would be absurd and unreasonable to hold that
such an association could never be dissolved and liquidated without the
consent and agreement of two-thirds of its partners, notwithstanding that it
had lost all its capital, or had become bankrupt, or that the enterprise for
which it had been organized had been concluded or utterly abandoned.
Soncuya v. de Luna G.R. No. L-45464, April 28, 1939, Villa-Real, J.
Facts: Petitioner filed a complaint against respondent for damages as a
result of the fraudulent administration of the partnership, Centro Escolar de
Senoritas of which petitioner and the deceased Avelino Librada were
members. For the purpose of adjudicating to plaintiff damages which he
alleges to have suffered as a partner, it is necessary that a liquidation of the
business be made that the end profits and losses maybe known and the
causes of the latter and the responsibility of the defendant as well as the
damages in which each partner may have suffered, maybe determined.
Issue: Whether the petitioner is entitled to damages.
Ruling:
According to the Supreme Court the complaint is not sufficient to constitute a
cause of action on the part of the plaintiff as member of the partnership to
collect damages from defendant as managing partner thereof, without
previous liquidation. Thus, for a partner to be able to claim from another
partner who manages the general co-partnership, allegedly suffered by him
by reason of the fraudulent administration of the latter, a previous liquidation
of said partnership is necessary.
Singsong v. Isabela Sawmill G.R. No. L-27343, February 28, 1979,
Fernandez, J.
Facts: In 1951, defendants entered into a contract of partnership under the
firm name Isabela Sawmill. In 1956 the plaintiff sold to the partnership a
motor truck and two tractors. The partnership was not able to pay their whole
balance even after demand was made. One of the partners withdrew from
the partnership but instead of terminating the said partnership it was
continued by the two remaining partners under the same firm name. Plaintiffs
also seek the annulment of the assignment of right with chattel mortgage
entered into by the withdrawing partner and the remaining partners. The
appellants contend that the chattel mortgage may no longer be nullified
because it had been judicially approved and said chattel mortgage had been
judicially foreclosed.
Issue: Whether the withdrawal of one of the partners dissolved the
partnership.
Ruling: It does not appear that the withdrawal of the partner was not
published in the newspapers. The appellees and the public in general had a
right to expect that whatever, credit they extended to the remaining partners
could be enforced against the properties of the partnership. The withdrawing
RULINGS: No.
partner cannot be relieved from her liability to the creditor of the partnership
due to her own fault by not insisting on the liquidation of the partnership.
Though she had acted in good faith, the appellees also acted in good faith in
extending credit to the partnership. Where one of two innocent persons must
suffer, that person who gave occasion for the damages to be caused must
bear the consequences. Technically, the partnership was dissolved by the
withdrawal of one of the partners. Through her acts of entering into a
memorandum with the remaining partners misled the creditors that they were
doing business with the partnership. Hence, from the order of the lower court
ordering the withdrawing partner to pay the plaintiffs, she is thus entitled for
reimbursement from the remaining partners.
PO YENG CHEO vs. LIM KA YAM
FACTS:
Po Yeng Cheo, alleged sole owner of a business formerly
conducted in the City of Manila under the style of Kwong
Cheong, as managing partner in said business and to recover
from him its properties and assets.
The defendant having died during the pendency of the cause in
the court below and the death suggested of record, his
administrator, one Lim Yock Tock, was required to appear and
make defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial,
presiding in the court below, found that the plaintiff was entitled
to an accounting from Lim Ka Yam, the original defendant, as
manager of the business already reffered to, and he accordingly
required Lim Yock Tock, as administrator, to present a liquidation
of said business within a stated time.
This order bore no substantial fruit, for the reason that Lim Yock
Tock personally knew nothing about the aforesaid business
(which had ceased operation more than ten years previously)
and was apparently unable to find any books or documents that
could shed any real light on its transaction.
However, he did submit to the court a paper written by Lim Ka
Yam in life purporting to give, with vague and uncertain details, a
history of the formation of the Kwong Cheong Tay and some
account of its disruption and cessation from business in 1910.
To this narrative was appended a statement of assets and
liabilities, purporting to show that after the business was
liquidate, it was actually debtor to Lim Ka Yam to the extent of
several thousand pesos.
Appreciating the worthlessness of this so-called statement, and
all parties apparently realizing that nothing more was likely to be
discovered by further insisting on an accounting, the court
proceeded, on December 27, 1921, to render final judgment in
favor of the plaintiff.
ISSUE: Whether or not Lim Yock Tock has a right to interfere with the right
the rights and deceased partner.
In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affair devolves upon the surviving
member, or members, of the firm, not upon the legal representative of the
deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and
Shibata vs. Green, 6 Phil., 744) And the same rule must be equally
applicable to a civil partnership clothed with the form of a commercial
association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon
the death of Lim Ka Yam it therefore became the duty of his surviving
associates to take the proper steps to settle the affairs of the firm, and any
claim against him, or his estate, for a sum of money due to the partnership by
reason of any misappropriation of its funds by him, or for damages resulting
from his wrongful acts as manager, should be prosecuted against his estate
in administration in the manner pointed out in sections 686 to 701, inclusive,
of the Code of Civil Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong
Chyip Konski and the Manila Electric Railroad and Light Company, are in the
possession of the deceased partner, the proper step for the surviving
associates to take would be to make application to the court having charge to
the administration to require the administrator to surrender such property.
But, in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and
the court, abandoning entirely the effort to obtain an accounting, gave
judgment against the administrator upon the supposed liability of his intestate
to respond for the plaintiff's proportionate share of the capital and assets. But
of course the action was not maintainable in this aspect after the death of the
defendant; and the motion to discontinue the action as against the
administrator should have been granted.
LAGUNA TRANSPORTATION vs SSS
GR L-14606 / 28 April 1960 / J. Barrera
Appeal from a Judgement of CFI Laguna
FACTS
SSS required Petitioner to register as a member and to remit the premiums
and contributions
due from all the employees.
Bian Transportation Co., sold part of the lines and equipment it operates to
Mercado et al.
After the sale, the vendees formed an unregistered partnership under the
name of Laguna
Transportation Company which continued to operate the lines and equipment
bought from Bian
Transpo in addition to the new lines it was able to secure from Public Service
Commission.
The original partners with 2 new members organized Laguna Transport
Company. They requested to be exempted from coverage by the System on
the ground that it started operation only on June 20, 1956 and registered w
the SEC on Nov 11, 1957.
Petitioner filed a petition praying that an order be issued declaring that it is
not bound to register as a member of SSS and therefore, not required to pay
the contributions required under theSocial Security Act.
SSS filed an answer praying for its dismissal due to petitioners failure to
exhaust administrativeremedies and for a declaration that petitioner is
covered by the said act since the petitionersbusiness has been in operation
for at least 2 years prior to Sept 1, 1957.
Trial Court declared that the petitioner was an employer had been in actual
operation for at least
2 years, and hence, subject to compulsory coverage under the law.
ISSUE: WON Petitioner is covered by the SS Law YES.
DISPOSITIVE: Judgment is hereby Affirmed.
RATIO:
Although a corporation once formed is conferred a juridical personality
separate and distinct fromthe persons composing it, it is but a legal fiction
introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot be extended to a point
beyond its reasons andpolicy, and when invoked in support of an end
subversive of this policy, will be disregarded bythe courts.
The weight of authority supports the view that where a corporation was
formed by, and consistedof members of a partnership whose business and
property was conveyed and transferred to thecorporation for the purpose of
continuing its business, in payment for which corporate capitalstock was
issued, such corporation is presumed to have assumed partnership debts,
and isprima facie liable therefor.
The reason for the rule is that the members of the partnership may be said
to have simply put
on a new coat, or taken on a corporate cloak, and the corporation is a mere
continuation of the
partnership.
SERGIO V. SISON, plaintiff-appellant,
vs.
HELEN J. MCQUAID, defendant-appellee.
On March 28, 1951, plaintiff brought an action in the Court of First Instance of
Manila against defendant, alleging that during the year 1938 the latter
borrowed from him various sums of money, aggregating P2,210, to enable
her to pay her obligation to the Bureau of Forestry and to add to her capital in
her lumber business, receipt of the amounts advanced being acknowledged
in a document, Exhibit A, executed by her on November 10, 1938 and
attached to the complaint; that as defendant was not able to pay the loan in
1938, as she had promised, she proposed to take in plaintiff as a partner in
her lumber business, plaintiff to contribute to the partnership the said sum of
P2,210 due him from defendant in addition to his personal services; that
plaintiff agreed to defendant's proposal and, as a result, there was formed
between them, under the provisions of the Civil Code, a partnership in which
they were to share alike in the income or profits of the business, each to get
one-half thereof; that in accordance with said contract, plaintiff, together with
defendant, rendered services to the partnership without compensation from
June 15, 1938 to December, 1941; that before the last World War, the
partnership sold to the United States Army 230,000 board feet of lumber for
P13,800, for the collection of which sum defendant, as manager of the
partnership, filed the corresponding claim with the said army after the war;
that the claim was "finally" approved and the full amount paid the
complaint does not say when but defendant has persistently refused to
deliver one-half of it, or P6,900, to plaintiff notwithstanding repeated
demands, investing the whole sum of P13,800 for her own benefit. Plaintiff,
therefore, prays for judgment declaring the existence of the alleged
partnership and requiring the defendant to pay him the said sum of P6,900, in
addition to damages and costs.
Notified of the action, defendant filed a motion to dismiss on the grounds that
plaintiff's action had already prescribed, that plaintiff's claim was not provable
under the Statute of Frauds, and that the complaint stated no cause of action.
Sustaining the first ground, the court dismissed the case, whereupon, plaintiff
appealed to the Court of Appeals; but that court has certified the case here
on the ground that the appeal involved only questions of law.
It is not clear from the allegations of the complaint just when plaintiff's cause
of action accrued. Consequently, it cannot be determined with certainty
whether that action has already prescribed or not. Such being the case, the
defense of prescription can not be sustained on a mere motion to dismiss
based on what appears on the face of the complaint.
But though the reason given for the order of dismissal be untenable, we find
that the said order should be upheld on the ground that the complaint states
no cause of action, which is also one of the grounds on which defendant's
motion to dismiss was based. Plaintiff seeks to recover from defendant one-
half of the purchase price of lumber sold by the partnership to the United
States Army. But his complaint does not show why he should be entitled to
the sum he claims. It does not allege that there has been a liquidation of the
partnership business and the said sum has been found to be due him as his
share of the profits. The proceeds from the sale of a certain amount of lumber
cannot be considered profits until costs and expenses have been deducted.
Moreover, the profits of the business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions
had. Hence, the need for a general liquidation before a member of a
partnership may claim a specific sum as his share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the ground
that the complaint states no cause of action and without prejudice to the filing
of an action for accounting or liquidation should that be what plaintiff really
wants. Without costs in this instance.1awphil.net
ILDEFONSO DE LA ROSA vs. ENRIQUE ORTEGA GO-COTAY
G.R. No. L-24243, January 15, 1926
Art. 1818
Chinamen Go-Lio and Vicente Go-Sengco formed a society for
the purchase and sale of articles of commerce, and they opened a store for
this purpose. Later Go-Lio went to China. Vicenyte Go-Sengco died and his
son Enrique Ortega Go-Cotay took charge of the businesses. Go-Lio died in
China in October, 1916, Ildefonso de la Rosa was administrator by the CFI
for the intestate estate of his deceased father.
de la Rosa requested Go-Cotay to wind up the business and to
deliver to him the portion corresponding to the deceased Go-Lio. Go-Cotay
denied the petition, alleging that the business was his exclusively. In view of
this denial, de la Rosa filed with the CFI a complaint against Co-Cotay in
which he prayed that the defendant be sentenced to deliver to the plaintiff
one-half of all the property of the partnership. The assets of the partnership,
as well as the value of its property, could not be determined when making the
liquidation because there was no inventory and for this reason it was not
possible to determine the capital of the partnership. The plaintiff, however,
seems to be agreeable to considering the initial partnership capital as the
capital at the time of the winding up of the business.
ISSUE: Should the partnership bear the losses incurred under the
management of defendant?
RULING: NO. Go-Cotay assumed complete responsibility for the business by
objecting to the appointment of a receiver as prayed for by plaintiff, and
giving a bond therefor. Until that date his acts were those of a managing
partner, binding against the partnership; but thereafter his acts were those of
a receiver whose authority is contained in section 175 of the Code of Civil
Procedure.
A receiver has no right to carry on and conduct a business unless he is
authorized or directed by the court to do some, and such authority is not
derived from an order of appointment to take and preserve the property (34
Cyc., 283; 23 R. C. L., 73). It does not appear that the defendant as a
receiver was authorized by the court to continue the business of the
partnership in liquidation. This being so, he is personally liable for the losses
that the business may have sustained. (34 Cyc., 296.) The partnership must
not, therefore, be liable for the acts of the defendant in connection with the
management of the business until August 3, 1918, the date when he ceased
to be a member and manager in order to become receiver.
NOTES:
PARTNERSHIPS; LIQUIDATION OF THEIR BUSINESS; DETERMINING
PROFITSWhen in liquidating a partnership the profits for a given period of
time cannot be exactly determined for lack of evidence, but the profits for
certain periods prior and subsequent thereto are known, the profits
corresponding to the said given time may be determined by finding the
average of those profits already known and multiplying it by the length of the
time included between said periods.
MANAGING PARTNER; His AUTHORITY; RECEIVER.When to prevent a
receiver from taking charge of a business in dissolution, the managing
partner gives a bond and continues the business, he ceases to be managing
partner from that time in order to become receiver; and while before that date
the property was liable for his acts, yet that is not the case with his
subsequent acts, which are regulated by the provisions of section 175 of the
Code of Civil Procedure, and without express judicial authority he cannot
continue the business of the partnership, being personally liable for the
losses should he do so. (34 Cyc., 296.)
GREGORIO MAGDUSA, ET AL., petitioners,
vs.
GERUNDIO ALBARAN, ET AL., respondents.
Appellant and appellees, together with various other persons, had verbally
formed a partnership de facto, for the sale of general merchandise to which
appellant contributed P2,000 as capital, and the others contributed their
labor, under the condition that out of the net profits of the business, 25%
would be added to the original capital, and the remaining 75% would be
divided among the members in proportion to the length of service of each.
Sometime in 1953 and 1954, the appellees expressed their desire to
withdraw from the partnership, and appellant thereupon made a computation
to determine the value of the partners' shares to that date. The results of the
computation were embodied in the document drawn in the handwriting of
appellant. Appellees thereafter made demands upon appellant for payment,
but appellant having refused, they filed the initial complaint in the court below.
Appellant defended by denying any partnership with appellees, whom he
claimed to be mere employees of his.
The Court of First Instance of Bohol dismissed the complaint on the ground
that the other were indispensable parties but had not been impleaded. Upon
appeal, the Court of Appeals reversed the decision, ruling that it is not an
action for a dissolution of a partnership and winding up of its affairs or
liquidation of its assets in which the interest of other partners who are not
brought into the case may be affected. The action of the plaintiffs is one for
the recovery of a sum of money with Gregorio Magdusa as the principal
defendant. The partnership, with Gregorio Magdusa as managing partner,
was brought into the case as an alternative defendant only.
Issue: Whether or not appellees' action can be entertained, because in the
distribution of all or part of a partnership's assets, all the partners have no
interest and are indispensable parties without whose intervention no decree
of distribution can be validly entered.
Held:
It cannot be entertained. A partner's share cannot be returned without first
dissolving and liquidating the partnership, for the return is dependent on the
discharge of the creditors, whose claims enjoy preference over those of the
partners; and it is self-evident that all members of the partnership are
interested in his assets and business, and are entitled to be heard in the
matter of the firm's liquidation and the distribution of its property. The
liquidation drawn by appellant is not signed by the other members of the
partnership besides appellees and appellant; it does not appear that they
have approved, authorized, or ratified the same, and, therefore, it is not
binding upon them. At the very least, they are entitled to be heard upon its
correctness.
In addition, unless a proper accounting and liquidation of the partnership
affairs is first had, the capital shares of the appellees, as retiring partners,
cannot be repaid, for the firm's outside creditors have preference over the
assets of the enterprise, and the firm's property can not be diminished to their
prejudice. Finally, the appellant cannot be held liable in his personal capacity
for the payment of partners' shares for he does not hold them except as
manager of, or trustee for, the partnership. It is the latter that must refund
their shares to the retiring partners. Since not all the members of the
partnership have been impleaded, no judgment for refund can be rendered.
Lim Tanhu v. Ramolete
(August 29, 1975)
DOCTRINE: Since Po Chuan was in control of the affairs of the partnership,
the more logical inference is that if defendants had obtained any portion of
the funds of the partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no accounting could
be demanded from them therefor, considering that Article 1807 of the Civil
Code refers only to what is taken by a partner without the consent of the
other partner or partners.
Even assuming there has not yet been any liquidation of the partnership,
contrary to the allegation of the defendants, then Glory Commercial Co.
would have the status of a partnership in liquidation and the only right plaintiff
could have would be to what might result after such liquidation to belong to
the deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had. In other words,
no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first
terminated.
NATURE: Petition for certiorari and prohibition
PONENTE: Barredo
FACTS:
Private respondent Tan Put alleged that she is the widow of Tee Hoon Lim Po
Chuan, who was a partner and practically the owner who has controlling
interest of Glory Commercial Company and a Chinese Citizen until his
death. Defendant Antonio Lim Tanhu and Alfonso Leonardo Ng Sua were
partners of Po Chuan. Tan Put filed complaint against spouses-petitoner Lim
Tanhu and Dy Ochay including their son Tech Chuan and the other spouses-
petitoner Ng Sua and Co Oyo including also their son Eng Chong Leonardo,
that through fraud and machination took actual and active management of
the partnership and that she alleged entitlement to share not only in the
capital and profits of the partnership but also in the other assets, both real
and personal, acquired by the partnership with funds of the latter during its
lifetime." ( Basically, her allegations were that she actually gave some of her
money to Po Chuan to help launch the partnership business; that the assets
of the business were never liquidated after her common-law-husbands
death; that the partners used the partnership funds to acquire several
properties and to also launch the new business of Glory Commercial
Company, Inc. [as opposed to the older one which was Glory Commercial
Company Partnership]; that she was entitled to accounting and share in
profits of the partnership as wife of Po Chuan; that she was fraudulently
made to sign a quitclaim for 25,000 pesos which she said she did not actually
receive)
According to the petitioners, Ang Siok Tin is the legitimate wife, still living,
and with whom Tee Hoon had four legitimate children, a twin born in 1942,
and two others born in 1949 and 1965, all presently residing in Hong Kong.
Tee Hoon died in 1966 and as a result of which the partnership was dissolved
and what corresponded to him were all given to his legitimate wife and
children.
Tan Put prior of her alleged marriage with Tee Hoon on 1949, was engaged in
the drugstore business; that not long after her marriage, upon the suggestion
of the latter sold her drugstore for P125,000.00 which amount she gave to
her husband as investment in Glory Commercial Co. sometime in 1950; that
after the investment of the above-stated amount in the partnership its
business flourished and it embarked in the import business and also engaged
in the wholesale and retail trade of cement and GI sheets and under huge
profits.
Defendants interpose that Tan Put knew and was are that she was merely the
common-law wife of Tee Hoon. Tan Put and Tee Hoon were childless but the
former had a foster child, Antonio Nunez. Defendants also said that the
defendant knew she was not entitled to the profits of the partnership but out
of the goodness of their hearts, they gave her 25,000 as evidenced by the
quitclaim she signed.

ISSUES: Whether Tan Put, as she alleged being married with Tee Hoon, can
claim from the company of the latters share.
HELD: No
RATIO/RULING: Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and wife "shall be
set forth in an instrument" signed by the parties as well as by their witnesses
and the person solemnizing the marriage. Accordingly, the primary evidence
of a marriage must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence, the absence of
the contract must first be satisfactorily explained. Surely, the certification of
the person who allegedly solemnized a marriage is not admissible evidence
of such marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court. In the
case at bar, the purported certification issued by a Mons. Jose M. Recoleto,
Bishop, Philippine Independent Church, Cebu City, is not, therefore,
competent evidence, there being absolutely no showing as to unavailability of
the marriage contract and, indeed, as to the authenticity of the signature of
said certifier, the jurat allegedly signed by a second assistant provincial fiscal
not being authorized by law, since it is not part of the functions of his office.
Besides, inasmuch as the bishop did not testify, the same is hearsay.
An agreement with Tee Hoon was shown and signed by Tan Put that she
received P40,000 for her subsistence when they terminated their relationship
of common-law marriage and promised not to interfere with each others
affairs since they are incompatible and not in the position to keep living
together permanently. Hence, this document not only proves that her relation
was that of a common-law wife but had also settled property interests in the
payment of P40,000.
We find no alternative but to hold that plaintiff Tan Put's allegation that she is
the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established
and that, on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife and furthermore,
that all her claims against the company and its surviving partners as well as
those against the estate of the deceased have already been settled and paid.
If, as We have seen, plaintiff's evidence of her alleged status as legitimate
wife of Po Chuan is not only unconvincing but has been actually overcome by
the more competent and weighty evidence in favor of the defendants, her
attempt to substantiate her main cause of action that defendants Lim Tanhu
and Ng Sua have defrauded the partnership Glory Commercial Co. and
converted its properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in question, it is clear that
not an iota of reliable proof exists of such alleged misdeeds.
If Po Chuan was in control of the affairs and the running of the partnership,
how could the defendants have defrauded him of such huge amounts as
plaintiff had made his Honor believe? Upon the other hand, since Po Chuan
was in control of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of the partnership for
themselves, it must have been with the knowledge and consent of Po Chuan,
for which reason no accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to what is taken by
a partner without the consent of the other partner or partners. Incidentally
again, this theory about Po Chuan having been actively managing the
partnership up to his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud
and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial
Co., defendants managed to use the funds of the partnership to purchase
lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of
petition) and should not have been permitted to be proven by the hearing
officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and
land titles listed in the decision, most if not all of the properties supposed to
have been acquired by the defendants Lim Tanhu and Ng Sua with funds of
the partnership appear to have been transferred to their names only in 1969
or later, that is, long after the partnership had been automatically dissolved
as a result of the death of Po Chuan. Accordingly, defendants have no
obligation to account to anyone for such acquisitions in the absence of clear
proof that they had violated the trust of Po Chuan during the existence of the
partnership.
Besides, assuming there has not yet been any liquidation of the partnership,
contrary to the allegation of the defendants, then Glory Commercial Co.
would have the status of a partnership in liquidation and the only right plaintiff
could have would be to what might result after such liquidation to belong to
the deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had. In other words,
no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first
terminated.
Bonnevie vs. Hernandez
Facts:
Plaintiffs with other associates formed a syndicate or secret
partnership for the purpose of acquiring the plants, franchises and
other properties of the Manila Electric Co. hereinafter called the
Meralco.
No formal articles were drawn for it was the purpose of the members to
incorporate once the deal had been consummated.
Negotiation for the purchase was commenced, but as it made no
headway, defendant was taken in as a member of the partnership so
that he could push the deal through, and to that end he was given the
necessary power of attorney.
Using partnership funds, defendant was able to buy the Meralco
properties.
Although defendant was the one named vendee in the deed of sale,
there is no question that the transaction was in penalty made for the
partnership so that the latter assumed control of the business the day
following the sale
About the latter half of the following month the members of the
partnership proceeded with the formation of the proposed corporation,
apportioning among themselves its shares of stock in proportion to
their respective contributions to the capital of the partnership and their
individual efforts in bringing about the acquisition of the Meralco
properties.
But before the incorporation, judge Reyes and the plaintiffs withdrew
from the partnership for the reason that the business was not going
well, and, as admitted by both parties, the partnership was then
dissolved. In accordance with the terms of the resolution, the
withdrawing partners
Following the dissolution of the partnership, the members who
preferred to remain in the business went ahead with the formation of
the corporation, taking in new associates as stockholders.
And defendant, on his part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer of the
corporation, giving them a book value of P365,000, in return for which
the corporation issued, to the various subscribers to its capital stock,
shares of stock of the total face value of P225,000 and assumed the
obligation of paying what was still due the Meralco on the purchase
price.
Two years from their withdrawal from the partnership, when the
corporate business was already in a prosperous condition, plaintiffs
brought the present suit against Jaime Hernandez, claiming a share in
the profit the latter is supposed to have made from the assignment of
the Meralco properties to the corporation, estimated by plaintiffs to be
P225,000 and their share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of the
assignment in question and alleges that in any event plaintiffs, after
their withdrawal from the partnership, ceased to have any further
interest in the subsequent transactions of the remaining members.
Issues:
1. WON the partnership had realized profit out of the Meralco properties
made by the defendant to the corporation. No.
2. If there was indeed a profit, WON the plaintiffs are entitled for their
share out of such profit. No.
Held:
1. No. the profit alleged to have been realized from the assignment of the
Meralco properties to the new corporation, the Bicol Electric Company,
is more apparent than real. It is true that the value set for those
properties in the deed of assignment was P365,000 when the
acquisition price was only P122,000. But one should not jump to the
conclusion that a profit, consisting of the difference between the two
sums was really made out of the transaction, for the assignment was
not made for cash but in payment for subscriptions to shares of stock
in the assignee, and while those shares had a total face value of
P225,000, this is not necessarily their real worth.
2. No. Assuming that the assignment actually brought profit to the
partnership, it is hard to see how defendant could be made to answer
for plaintiffs' alleged share thereof.
In the case at bar, the defendant did not receive the consideration for
the assignment for, as already stated, the assignment was made in
payment for subscriptions of various persons to the capital stock of the
new corporation.
 Plaintiffs, in order to give color of legality to their claim against
defendant, maintain that the latter should be held liable for damages
caused to them, consisting of the loss of their share of the profits, due
to defendant's failure properly to perform his duty as a liquidator of the
dissolved partnership, this on the theory that as managing partner of
the partnership, it was defendant's duty to liquidate its affairs upon its
dissolutions.
However, it does not appear that plaintiffs have ever asked for a
liquidation, and as will presently be explained no liquidation was called
for because when plaintiffs withdrew from the partnership the
understanding was that after they had been reimbursed their
investment, they were no longer to have any further interest in the
partnership or its assets and liabilities.
As a general rule, when a partner retires from the firm, he is entitled to
the payment of what may be due him after a liquidation. But certainly
no liquidation is necessary where there is already a settlement or an
agreement as to what the retiring partner shall receive.
In the instant case, it appears that a settlement was agreed upon on
the very day the partnership was dissolved. For when plaintiffs and
Judge Jaime Reyes withdrew from the partnership on that day they did
so as agreed to by all the partners, subject to the only condition that
they were to be repaid their contributions or investments within three
days from said date. And this condition was fulfilled when on the
following day they were reimbursed the respective amounts due them
pursuant to the agreement.
The SC therefore, found that, the acceptance by the withdrawing
partners, including the plaintiffs, of their investment in the instant case
was understood and intended by all the parties as a final settlement of
whatever rights or claim the withdrawing partners might have in the
dissolved partnership. Such being the case they are now precluded
from claiming any share in the alleged profits, should there be any, at
the time of the dissolution.
Ortega vs. CA
FACTS:
On December 19, 1980, respondent Misa associated himself together, as
senior partner with petitioners Ortega, del Castillo, Jr., and Bacorro, as junior
partners. On Feb. 17, 1988, respondent Misa wrote a letter stating that he is
withdrawing and retiring from the firm and asking for a meeting with the
petitioners to discuss the mechanics of the liquidation. On June 30, 1988,
petitioner filed a petition to the Commision's Securities Investigation and
Clearing Department for the formal dissolution and liquidation of the
partnership. On March 31, 1989, the hearing officer rendered a decision
ruling that the withdrawal of the petitioner has not dissolved the partnership.
On appeal, the SEC en banc reversed the decision and was affirmed by the
Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the Court of Appeals has erred in holding that the partnership
is a partnership at will and whether or not the Court of Appeals has erred in
holding that the withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith
HELD:
No. The SC upheld the ruling of the CA regarding the nature of the
partnership. The SC further stated that a partnership that does not fix its term
is a partnership at will. The birth and life of a partnership at will is predicated
on the mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that
it can result in a liability for damages.
Idos v. CA G.R. NO. 110782, September 25, 1998, Quisumbing, J.
Facts: In 1985, Eddie Alarilla and Irma Idos formed a partnership which they
decided to terminate after a year. To pay Alarillas share of the asset, Idos
issued 4 post dated checks. Alarilla was able to encash the first, second and
fourth checks but the third was dishonored for insufficiency of funds. He
demanded payment but Idos failed to pay. She claimed that the checks were
issued as assurance of Alarillas share in the assets of the partnership and
that it was supposed to be deposited until the stocks were sold. He filed an
information for violation of BP blg. 22 against Idos in which she was found
guilty by the trial court.
Issue: Did the court confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership?
Ruling: The partners agreement to terminate the partnership did not
automatically dissolved the partnership. They were in the process of winding-
up when the check in question was issued. The best evidenceof the
existence of the partnership, which was not yet terminated were the unsold
goods and uncollected receivables which were presented to the trial court.
Article 1829 of the Civil Code provides that on dissolution the partnership is
not terminated but continues until the winding-up of partnership affairs is
completed. Since the partnership has not been terminated, Idos and Alarilla
remained co-partners. The check was issued by petitioner to respondent as
would a partner to another and not as a payment by debtor to creditor. Thus,
absent the first element of the complained offense, the act is not punishable
by the statute.
SY vs. COURT OF APPEALS
Facts: Sy Yong Hu & Sons is a partnership. In September, 1977, Keng
Sian, Sy Yong Hus common-law wife sued the partnership for the
reconveyance of of its properties and the fruits thereof.
During the pendency of the suit, one of the partners. Marciano Sy,
filed a petition against his partners with the SEC asking that he be appointed
managing partner to replace Jose Sy who earlier died. SC hearing officer
Sison dismissed the petition and declared the partnership dissolved and
named one of the remaining partners as the managing partner.
The SEC en banc affirmed Sisons decision, ordering the distribution
and partition of partnership assets.
However, before the same can be implemented, Keng Sians children
with Sy Yong Hu were allowed by the SEC to intervene. The intervenors
contend that their civil suit against the partnership is still pending and that no
petition for distribution should be commenced.
SEC Hearing Officer Tongco who replaced Sison placed the
partnership under receivership thereby preventing the partition and
distribution of partnership assets. This was affirmed by the SEC en banc.
The remaining partners of the firm appealed.
The CA ultimately affirmed the Tongco ruling.
Issue: Is the preservation of the partnership assets through receivership
inconsistent with the earlier decision declaring the partnerships dissolution?
Held: The Sison decision declaring the partnerships dissolution did not
pose any obstacle to the hearing officer to issue orders not inconsistent
therewith. From the time the dissolution is ordered until the actual
termination of the partnership the SEC retained jurisdiction to adjudicate all
incidents relative thereto. Thus, the Tongco order cannot be said to have
varied the final order of dissolution. Neither did it suspend the dissolution of
the partnership. It only suspended the partition and distribution of the
partnership assets. Further, the dissolution of a partnership is the change in
relation of the parties caused by any partner ceasing to be associated in the
carrying on, as might be distinguished from the winding up, of its business.
Upon its dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business culminating in its
termination.
The dissolution of the partnership did not mean that the juridical entity
was immediately terminated and that the distribution of the assets to its
partners should perfunctorily follow. On the contrary, the dissolution simply
effected a change in the relationship among the partners. The partnership,
although dissolved, continues to exist until its termination, at which time the
winding up of its affairs should have been completed and the net partnership
assets are partitioned and distributed to the partners.
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
vs.
LAMBERTO T. CHUA, respondent.
FACTS:
Lamberto T. Chua verbally entered into a partnership with Jacinto L. Sunga in
the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila.
For business convenience, respondent and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE GAS APPLIANCE
CENTER (hereafter Shellite), under the name of Jacinto as a sole
proprietorship.
Respondent allegedly delivered his initial capital contribution of P100,000.00
to Jacinto while the latter in turn produced P100,000.00 as his counterpart
contribution, with the intention that the profits would be equally divided
between them.
Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner
Cecilia and particularly his daughter, petitioner Lilibeth, took over the
operations, control, custody, disposition and management of Shellite without
respondent's consent.
ISSUE:Whether or not a partnership existed between respondent and Jacinto
from 1977 until Jacinto's death.
HELD:
A partnership existed between respondent and Jacinto.
A partnership may be constituted in any form, except where immovable
property of real rights are contributed thereto, in which case a public
instrument shall necessary. A verbal contract of partnership may arise.
The essential profits that must be proven to that a partnership was agreed
upon are (1) mutual contribution to a common stock, and (2) a joint interest in
the profits.
Article 1772 of the Civil Code requires that partnerships with a capital of
P3,000.00 or more must register with the SEC, however, registration
requirement is not mandatory. Article 1768 of the Civil Code25 explicitly
provides that the partnership retains its juridical personality even if it fails to
register. The failure to register the contract of partnership does not invalidate
the same as among the partners, so long as the contract has the essential
requisites, because the main purpose of registration is to give notice to third
parties, and it can be assumed that the members themselves knew of the
contents of their contract.
Re: laches and/or prescription
The Civil Code provides that an action to enforce an oral contract prescribes
in six (6) years, while the right to demand an accounting for a partner's
interest as against the person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement.
It was Jacinto's death that respondent as the surviving partner had the right
to an account of his interest as against petitioners.
The Civil Code expressly provides that upon dissolution, the partnership
continues and its legal personality is retained until the complete winding up of
its business, culminating in its termination.
JOSE MACHUCA, plaintiff-appellee, vs. CHUIDIAN,
BUENAVENTURA & CO., defendants-appellants.
FACTS:
CHUIDIAN, BUENAVENTURA & CO (defendants) is a regular general
partnership. The original partners were D. Telesforo Chuidian, Doa
Raymunda Chuidian, Doa Candelaria Chuidian, and D. Mariano
Buenaventura. The partners each contributed a certain amount of money to
the partnership.
Dona Raymunda retired from the partnership on November 1885. The
partnership subsequently went into liquidation (it does not appear that the
liquidation has been terminated when this action was brought).
On January 1894, D. Mariano Buenaventura died, his estate passing by
will to his children, including D. Vicente Buenaventura. In 1898, D.
Vicente Buenaventura executed a public instrument in which for a valuable
consideration he assigns to D. Jose Gervasio Garcia . . . a 25 per cent
share in all that may be obtained by whatever right in whatever form from the
liquidation of the partnership of Chuidian, Buenaventura & Co., in the part
pertaining to him in said partnership.
A subsequent assignment was made by Garcia in favor of Jose Machuca
(now plaintiff), which has been notified to the liquidator of the partnership.
The liquidator, however, declined to record in the books of the partnership
Machucas claim under the assignment as a credit due to him. Hence,
Machuca filed an action to compel such record to be made, and he further
asks that he be adjudicated to be a creditor of the partnership in an amount
equal to 25% of D. Vicente Buenaventuras share (that he be immediately
given the 25% share).
ISSUE: WON Machuca is entitled to 25% of D. Vicente Buenaventuras
share in the partnership NO
HELD:
According to clause 19 of the partnership agreement: "upon the dissolution of
the company, the pending obligations in favor of outside parties should be
satisfied, the funds of the minors Jose and Francisco Chuidian should be
taken out, and afterwards the resulting balance of the account-current of
each one of those who had put in money should be paid."
Our construction of this clause is that it establishes a a basis for the final
adjustment of the affairs of the partnership; that that basis is that the liabilities
to noncompartners are to be first discharged; that the claims of the Chuidian
minors are to be next satisfied; and that what is due to the respective
partners on account of their advances to the firm is to be paid last of all,
leaving the ultimate residue, of course, if there be any, to be distributed,
among the partners in the proportions in which they may be entitled thereto.
Hence, it follows that D. Vicente Buenaventura, whose rights are those of his
father, is in no case entitled to receive any part of the assets until the
creditors, who are nonpartners, and the Chuidian minors are paid. Whatever
rights he had, he could only transfer subject to this condition. It is clear, from
the language of the instrument under which plaintiff claims, that this
conditional interest was all that Vicente ever intended to transfer.
VILLAREAL V. RAMIREZ
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners , vs . DONALDO EFREN C.
RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, respondents .
The Facts
L. Villareal, C. Jose and J. Jose formed a partnership with a capital
of P750,000 for the operation of a restaurant and catering business. Villareal
was appointed general manager and C. Jose, operations manager.
Respondent D. Ramirez joined as a partner in the business with contribution
of P250,000. J. Jose withdrew from the partnership whereby his capital
contribution of P250,000 was refunded to him in cash by agreement of the
partners.
In the same month following J. Joses withdrawal, without prior
knowledge of respondents, petitioners closed down the restaurant, allegedly
because of increased rental. The restaurant furniture and equipment were
deposited in the respondents house for storage.
On March 1, 1987, respondent spouses wrote petitioners, saying that
they were no longer interested in continuing their partnership or in reopening
the restaurant, and that they were accepting the latters offer to return their
capital contribution. Despite repeated oral and written requests were,
however, left unheeded. Hence a complaint for a collection of a sum of
money was filed in the RTC where it ruled in favor of respondents. An appeal
to the CA was filed and the higher court ruled that respondents be refunded
the amount of P253,114. Hence the appeal to the SC.
Issues:
Whether petitioners are liable to respondents for the latters share in the
partnership.
Whether the CAs computation of respondents share is correct.
Ruling:
First Issue: Share in Partnership
The dissolution took place when respondents informed petitioners of
their intention to discontinue it because of the formers dissatisfaction with,
and loss of trust in, the latters management of the partnership affairs. These
findings were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-third equity in
the partnership.
We hold that respondents have no right to demand from petitioners
the return of their equity share. Except as managers of the partnership,
petitioners did not personally hold its equity or assets. The partnership has
a juridical personality separate and distinct from that of each of the
partners. Since the capital was contributed to the partnership, not to
petitioners, it is the partnership that must refund the equity of the retiring
partners.
Second Issue: What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must
refund the shares of the partners, the amount to be refunded is necessarily
limited to its total resources. In other words, it can only pay out what it has in
its coffers, which consists of all its assets. However, before the partners can
be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the
partnership assets becomes available for the payment of the partners
shares.