Case Digests:

Partnership

Submitted to:
Atty.​ ​Augustin Laban III

Submitted by:
Section 3B
A. GENERAL PROVISIONS: ARTICLES 1767 TO 1783

1. COMMISSIONER OF INTERNAL REVENUE, vs. BURROUGHS LIMITED AND

THE COURT OF TAX APPEALS

FACTS:

The branch office of Burroughs Limited, a foreign corporation, applied with the Central
Bank for authority to remit its branch profit to its parent company abroad the amount of
P7,647,058.00. It paid the 15% branch profit remittance amounting to P1,147,058.70.
Claiming that the 15% profit remittance tax should have been computed on the basis of
the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax
(P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund
or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit
remittance tax.
Petitioner contends that respondent is no longer entitled to a refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had repealed the BIR ruling of January
21, 1980.
The memorandum provides that considering that the 15% branch profit remittance tax is imposed
and collected at source, necessarily the tax base should be the amount actually applied for by the
branch with the Central Bank of the Philippines as profit to be remitted abroad.

ISSUE:
Whether the branch office of Burroughs Limited can still be entitled to a refund.

RULING:
Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is
still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid
the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82
dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the
National Internal Revenue Code.
The prejudice that would result to private respondent Burroughs Limited by a retroactive
application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the
substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned,
admittedly, Burroughs Limited does not fall under any of them.

2. COMMISSIONER OF INTERNAL REVENUE VS. WILLIAM J. SUTER AND THE

COURT OF TAX APPEALS, G.R. NO. L-25532

FACTS:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and Julia Spirig
and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was
registered with the Securities and Exchange Commission. The firm engaged, among other
activities, in the importation, marketing, distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their parts and accessories. It had an office and
held itself out as a limited partnership, handling and carrying merchandise, using invoices, bills
and letterheads bearing its trade-name, maintaining its own books of accounts and bank
accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission on
20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the
latter, in an assessment, consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against
respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to secure a
reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered a
decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.

ISSUE:
Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.

RULING:
No.
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires either that the object of the
association be all the present property of the partners, as contributed by them to the common
fund, or else "all that the partners may acquire by their industry or work during the existence of
the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership,
since the contributions of the partners were fixed sums of money, P20,000.00 by William Suter
and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter
by Article 1677 of the Civil Code of 1889. Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of the causes provided for that purpose either
by the Spanish Civil Code or the Code of Commerce.
Where marriage of partners does not make the company a single proprietorship. The
capital contributions of respondents-partners were separately owned and contributed by them
before their marriage; and after they were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code.
Partnership has distinct and separate personality from that of its partners; Section 24 of
Internal Revenue Code is exception to the rule. The basic tenet of the Spanish and Philippine law
is that the partnership has a juridical personality of its own, distinct and separate from that of its
partners, the payer can only be done by ignoring or disregarding clear statutory mandates and
basic principles of our law. The limited partnership’s separate individually makes it impossible
to equate its income with that of the component members. True, section 24 of the Internal
Revenue Code merges registered general copartnerships with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet
of our partnership laws, and cannot be extended by mere implication to limited partnerships.

3. IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF FIRM NAME “SYCIP,
SALAZAR, ETC.” AND “OZAETA, ROMULO, ETC.”, 92 SCRA 1

FACTS:
Two separate petitions were filed before the Supreme Court, one is by the surviving
partners of the late Atty. Alexander Sycip and the other is by the surviving partners of the late
Atty. Herminio Ozaeta, praying that they be allowed to continue using, in the names of their
firms, the names of partners who had passed away.
Petitioners’ contentions are as follows:
1. Under the law, a partnership is not prohibited from continuing its business under a firm
name, which includes the name of a deceased partner;
2. In regulating other professions, such as accountancy and engineering, the legislature
has authorized the adoption of firm names without any restriction as to the use, in such firm
name, of the name of a deceased partner;
3. The Canons of Professional Ethics are not transgressed by the continued use of the
name of a deceased partner in the firm name of a law partnership pursuant to Canon 33 of the
Canons of Professional Ethics adopted by the American Bar Association; and
4. There is no possibility of imposition or deception because the deaths of their respective
deceased partners were well-publicized in all newspapers of general circulation for several days.

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

HELD:
No. First, the use in their partnership names of the names of deceased partners will run
counter to Article 1815 of the Civil Code which provides:

Art. 1815. Every partnership shall operate under a firm name, which may or may
not include the name of one or more of the partners.

Those who, not being members of the partnership, include their names in the firm name,
shall be subject to the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of a partnership must
either be those of living partners and, in the case of non-partners, should be living persons who
can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from
including his name in the firm name under pain of assuming the liability of a partner.
Second, a partnership for the practice of law cannot be likened to partnerships formed by
other professionals or for business. For one thing, the law on accountancy specifically allows the
use of a trade name in connection with the practice of accountancy.
A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. It is not a partnership formed for the purpose of carrying on
trade or business or of holding property. Thus, it has been stated that the use of assumed or trade
name in law practice is improper. The usual reason given for different standards of conduct being
applicable to the practice of law from those pertaining to business is that the law is a profession.
Third, while it is true that Canon 33 does not consider as unethical the continued use of
the name of a deceased or former partner in the firm name of a law partnership when such a
practice is permissible by local custom, it must be conceded that in the Philippines, no local
custom permits or allows the continued use of a deceased or former partner's name in the firm
names of law partnerships. Firm names, under our custom, identify the more active and/or more
senior members or partners of the law firm. A glimpse at the history of the firms of petitioners
and of other law firms in this country would show how their firm names have evolved and
changed from time to time as the composition of the partnership changed.
And finally, the possibility of deception upon the public, real or consequential, where the
name of a deceased partner continues to be used cannot be ruled out. A person in search of legal
counsel might be guided by the familiar ring of a distinguished name appearing in a firm title.

4. ORTEGA VS. CA, G.R. NO. 109248

FACTS:
Joaquin Misa, Jesus Bito and Mariano Lozada are senior partners of BITO, MISA &
LOZADA law firm. Gregorio Ortega, Tomas del Castillo and Benjamin Bacorro are junior
partners of the said law firm. On June 30. 1999, Misa filed with the SEC a petition for the
dissolution and liquidation of the partnership on the ground of his withdrawal that the same has
ceased to be mutually satisfactory because of the working conditions of their employees and
assistant attorneys, that the other partners have treated their employees in a manner depriving
them of their self-respect and have thwarted his efforts to improve their below subsistence pay.
The hearing officer denied the petition contending that his withdrawal did not dissolve the
partnership.
On appeal, the SEC en banc reversed the decision and held that Misa’s withdrawal had
dissolved the partnership. Being a partnership at will, the law firm could be dissolved by any
partner at any time regardless of good or bad faith since no partner can be forced to continue in
the partnership against his will.
In a separate appeal before the CA, the court affirmed the SEC’s decision, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties and inevitably
caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith.

ISSUES:
1. Whether the partnership is a partnership at will
2. Whether Misa’s withdrawal was acted upon bad faith
RULING:
1. Yes. A partnership that does not fix its term is a partnership at will. The
partnership agreement does not provide for a specific period of undertaking. It simply states:

“…[t]he partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners."

The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each partner's capability to give it, and the absence
of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate dissolution of the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the dissolution of the partnership, but that it can
result in a liability for damages.
Neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner. Among partners, mutual agency arises and the doctrine of delectus personae allows
them to have the power, although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a possible action for damages.
2. No. Misa’s withdrawal was not acted upon bad faith. It would not be right to let
any of the partners remain in the partnership under such an atmosphere of animosity; certainly,
not against their will. Indeed, for as long as the reason for withdrawal of a partner is not contrary
to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage
upon the partnership, bad faith cannot be said to characterize the act.

5. ESTANISLAO, JR. VS. COURT OF APPEALS, 160 SCRA 830

FACTS:
Eligio Estanislao, Jr. and Remedios Estanislao are brothers and sisters who co-owners of
a certain lot leased to the Shell Company of the Philippines Limited (Shell). The siblings agreed
to open and operate a gas station to be known as Estanislao Shell Service station with an initial
investment of 15,000 pesos to be taken from the advance rentals due to them from Shell. For
practical purposes and in order not to run counter to the company’s policy of appointing only one
dealer, it was agreed that Eligio would apply for the dealership. Remedios helped in managing
the business.
Thereafter, the siblings entered into an Additional Cash Pledge Agreement with Shell
wherein it was reiterated that the 15,000 pesos advance rental shall be deposited with Shell to
cover advances of fuel to Eligio with a provision that said agreement cancels and supersedes the
Joint Affidavit. After some time, Eligio failed to render accounting of the financial statement of
the business to his sister. The latter filed a complaint in the trial court for the former to execute a
public document embodying all the provisions of the partnership and to render formal
accounting. The temporary presiding judge dismissed the complaint but the newly appointed
presiding judge granted the motion for reconsideration. Eligio appealed to the Court of Appeals
contending that the Joint Affidavit was superseded by the Additional Cash Pledge Agreement.
ISSUE:
Whether or not a partnership exists between the siblings arising from their joint
ownership of the properties.

RULING:
Yes. The cancelling provision was necessary for the Joint Affidavit speaks of 15,000
pesos advance rentals while the additional Cash Pledge Agreement also refers to advance rentals
of the same amount. A duplication of reference to the 15,000 pesos is needed in the subsequent
document that it “cancels and supersedes” the previous ones. Moreover, record shows that Eligio
submitted to Remedios periodic accounting of the business and also gave a written authority to
the latter to examine and audit the books of their “common business”.
There is no doubt that the parties formed a partnership when they bound themselves to
contribute money to a common fund with the intention of dividing the profits among themselves.
The judgment rendered by the Court of Appeals is affirmed.

6. INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO. V. PACIFIC COMMERCIAL CO., ASIATIC
PETROLEUM CO., AND INTERNATIONAL BANKING CORPORATION

FACTS:
Campos Rueda & Co. was indebted to three different creditors- Pacific Commercial Co.,
Asiatic Petroleum Co., and International Banking Corporation. The partnership failed to pay its
obligation within the 30-day period prior to the creditors filing an application for involuntary
insolvency. Under the Insolvency Law, a limited partnership that fails to pay its creditors within
30 days is deemed to be bankrupt.
The trial court denied the application believing that the partners were not insolvent when
the petition was filed. The lower court ruled as such because, accordingly, a partnership cannot
be declared as insolvent as long as the partners were not found to be insolvent by themselves;
partners remain to be solidarily liable for the outcome of transactions ventured by the
partnership.

ISSUE:
Whether a limited partnership which failed to pay its obligation within the prescribed
period be declared insolvent against its will.

RULING:
Yes, a limited partnership that has failed to perform its obligations to its creditors within
the period prescribed by law may be declared insolvent against its will. The Supreme Court ruled
that the juridical personality of a limited partnership is different from that of its members, and
being a separate entity it must be able to answer for and suffer the consequences of its acts as
such entity. Hence, the partnership’s failure to comply with the requirements of the Insolvency
Law must be suffered by the partnership and it must be adjudged insolvent.
 The ruling of the trial court which was based on American jurisprudence where limited
partnerships are not vested with juridical personality independent from its members. Thus, it
does not apply in the given case.
Therefore, since it was proven by the creditors that Campos Rueda & Co., failed to pay
its obligation for more than 30 days, these three (creditors) were entitled to the right to a judicial
decree declaring involuntary insolvency of their debtor.

7. VARGAS AND CO. V. CHAN, G.R. NO. L-8576,

FACTS:
Plaintiff is a mercantile association duly organized under the laws of the Philippine Island
and presumably registered as required by law. On August 19, 1911, an action was begun by
Chan Hang Chiu (respondent) against the plaintiff for the recovery of a sum of money. The
sheriff certified on August 19, 1911 that he served the summons and complaint Vargas and Co.
by leaving with one Jose Macapinlac, the managing agent of Vargas and Co., true copies thereof.
On July 2, 1912, the justice’s court rendered judgment against Vargas and Co. for the sum of
372.28. Thereupon, plaintiff paid the amount of the judgment and costs under protest with notice
that it would sue to recover the amount paid.
Plaintiff claims that it being a partnership, it is necessary in bringing an action against it,
to serve the summons on all of the partners, delivering to each one of them personally a copy
thereof, and that the summons in this case having been served on the managing agent of the
company only, the service was of no effect as against the company and the members thereof and
hence the judgment entered was void. Plaintiff also contends that even admitting that service on
the managing agent is sufficient, as a matter of fact, no service was really made on the managing
agent of the company but, rather, on an employee or salesman of the company who had no
powers of management or supervision and who was not competent receive service on behalf of
the company.

ISSUE:
Whether or not there was valid service of summons on the plaintiffs.

HELD:
As to the first contention, it has been universal practice to treat companies of the class to
which the plaintiff belongs as legal or juridical entities and to permit them to sue and be sued in
the name of the company, the summons being served solely on the managing agent or other
official of the company specified by section 396 of the Code of Civil Procedure. If it is necessary
to serve the partners individually, they are entitled to be heard individually in the action and they
must, therefore, be made parties thereto so they can be heard. It would be idle to serve process on
individual members of a partnership if the litigation were to be conducted in the name of the
partnership itself and by the duly constituted officials of the partnership exclusively. From what
has been said, it is apparent that the plaintiff in this action us acting contrary to its own
contention by bringing the action in the name of the company be served with process, then the
action should be brought in the individual names of the partners and not in the name of the
company itself.
As to the second contention, the presumption is that a judgment rendered by a justice’s
court is a valid and enforceable judgment where the record discloses that all of the steps
necessary to confer jurisdiction on the court have been taken. In the case before us it
affirmatively appears that the service of process was made on the person the sheriff certified was
the managing agent of the defendant company. The sheriff's certificate serves as prima
facie evidence of the existence of the facts stated therein. The record, therefore, discloses, so far
as the fact of service is concerned, that it was duly made on the managing agent of the company
as required by section 396, paragraph 1, of the Code of Civil Procedure. In attacking the
judgement on the ground that service was not made on the managing agent of the company, it is
incumbent on the plaintiff to overcome the presumption arising from the sheriff's certificate
before the attack will succeed. Endeavoring to overcome the presumption referred to, plaintiff
offered as a witness one Tomas O. Segovia, an employee of the plaintiff company. He testified
that he was a bookkeeper and that as such he was well acquainted with the business of the
company and that the person Macapinlac referred to in the sheriff's certificate as managing agent
of the plaintiff company was an agent for the sale of plows, of which the plaintiff company was a
manufacturer; and that he had no other relations with the company than that stated. He does not
testify of his own knowledge to the essential facts necessary to controvert the statements
contained it the sheriff's certificate of service. His testimony is rather negative than positive, it
being at all times possible, in spite of his evidence, indeed, in strict accord therewith, that Vargas
& Co., of which the witness was neither official nor manager, could have appointed a managing
agent for the company or could have removed him without the personal knowledge of the
witness. The witness had no personal knowledge of the relation between the company and
Macapinlac. He never saw the contract existing between them. He did not hear the agreement
between them nor did he know of his own knowledge what the relations between the company
and Macapinlac were. His testimony besides being negative in character has in it many of the
elements of hearsay and is not at all satisfactory. The facts stated in the certificate of the sheriff
will not be considered as overcome and rebutted except on clear evidence showing the contrary.
The evidence of the bookkeeper, who is the only witness for the company, is not satisfactory in
any sense and is quite insufficient to overcome the presumption established by the sheriff's
certificate. In view of these considerations it is not necessary to consider the question presented
by the payment by the plaintiff company of the judgment.

8. NGO TIAN TEK AND NGO HAY VS. PHILIPPINE EDUCATION CO., INC, G.R. NO.
L-48113

FACTS:
The plaintiff instituted in the Court of First Instance of Manila an action against the
defendants, Vicente Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for
the recovery of some P16, 070.14, unpaid cost of merchandise purchased by Lee Guan Box
Factory from the plaintiff and five other corporate entities which, though not parties to the
action, had previously assigned their credits to the plaintiff, together with attorney's fees, interest
and costs.
Modern Box Factory was established at 603 Magdalena Street, Manila. It was at first
owned by Ngo Hay, who three years later was joined by Ngo Tian Tek as a junior partner. About
the year 1930, the Lee Guan Box Factory was established a few meters from the Modern Box
Factory, under the management of Vicente Tan. Vicente Tan, sought credit with the plaintiff and
its assignors, Ngo Hay, in conversations and interviews with their officers and employees,
represented that he was the principal owner of such factory, that the Lee Guan Box Factory and
the Modern Box Factory belonged to the same owner, and that the Lee Guan Box Factory was a
subsidiary of the Modern Box Factory.
There is evidence that many goods purchased in the name of the Lee Guan Box Factory
were delivered to the Modern Box Factory by the employees of the plaintiff and its assignors
upon the express direction of Vicente Tan.
ISSUE:
 Whether petitioner is the owner of Lee Guan Box Factory
HELD:
The Supreme Court held that, we must overrule petitioner's contention that the Court of
Appeals erred in holding that Lee Guan Box Factory was a subsidiary of the Modern Box
Factory and in disregarding the fact that the contracts evidencing the debts in question were
signed by Vicente Tan alias Chan Sy, without any indication that tended to involve the Modern
Box Factory or the petitioner. In the first place, we are concluded by the finding of the Court of
Appeals regarding the ownership by the petitioner of Lee Guan Box Factory. Secondly, the
circumstances that Vicente Tan alias Chan Sy acted in his own name cannot save the petitioner,
in view of said ownership, and because contracts entered into by a factor of a commercial
establishment known to belong to a well-known enterprise or association, shall be understood as
made for the account of the owner of such enterprise or association, even when the factor has not
so stated at the time of executing the same, provided that such contracts involve objects
comprised in the line and business of the establishment. (Article 286, Code of Commerce.) The
fact that Vicente Tan did not have any recorded power of attorney executed by the petitioner will
not operate to prejudice third persons, like the respondent Philippine Education Co., Inc., and its
assignors.

9. ANG PUE & COMPANY, ET AL., vs. SECRETARY OF COMMERCE AND

INDUSTRY,​ ​G.R. No. L-17295

FACTS:
On May 1, 1953, Ang Pue and Tan Siong, Chinese citizens, organized the partnership
Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual
consent. The purpose of the partnership was "to maintain the business of general merchandising,
buying and selling at wholesale and retail, particularly of lumber, hardware and other
construction materials for commerce, either native or foreign." The articles of partnership were
registered in the Office of the Securities & Exchange Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It
provided, among other things that, after its enactment, a partnership not wholly formed by
Filipinos could continue to engage in the retail business until the expiration of its term.
On April 15, 1958, prior to the expiration of the five-year term of the partnership Ang
Pue & Company, the partners amended the original articles of partnership so as to extend the
term of life of the partnership for another five years. When the amended articles were presented
for registration in the Office of the Securities & Exchange Commission on April 16, 1958,
registration was refused upon the ground that the extension was in violation of the aforesaid Act.

ISSUE:
Whether the original articles of partnership may be amended to extend the term of life of
the partnership for another five years

HELD:
To organize a corporation or a partnership that could claim a juridical personality of its
own and transact business as such, is not a matter of absolute right but a privilege which may be
enjoyed only under such terms as the State may deem necessary to impose.
 The provision in Republic Act No. 1180 that only Filipinos and concerns wholly owned
by Filipinos may engage in the retail business was clearly intended to apply to partnership
already existing at the time of the enactment of the law is clearly giving them the right to
continue engaging in their retail business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners could
extend the term of the partnership, the provisions of Republic Act 1180 cannot be adversely
affect appellants herein, is to erroneously assume that the aforesaid provision constitute a
property right of which the partners cannot be deprived without due process or without their
consent. The agreement contain therein must be deemed subject to the law existing at the time
when the partners came to agree regarding the extension.
When the partners amended the articles of partnership, the provisions of Republic Act
1180 were already in force, and there can be not the slightest doubt that the right claimed by
appellants to extend the original term of their partnership to another five years would be in
violation of the clear intent and purpose of the law.

10. PASCUAL VS COMMISSIONER ON INTERNAL REVENUE, 166 SCRA 560

FACTS:
Petitioners Dragon & Pascual bought two parcels of land on June 1965 and sold same for
a profit in 1968. Another 3 parcels of land were bought on May 1966 which were also sold in
1970 again for a considerable profit shared by both, with corresponding capital gains paid.
The respondent commissioner is requiring the petitioners to pay corporate income tax. He
claimed that as co-owners in the real estate transaction, they formed an unregistered partnership
or joint venture taxable as a corporation under Sect. 20 (2) and its income was subject to the
taxes prescribed under Sect. 24, both the National Internal Revenue Code.

ISSUE:
Whether or not petitioners formed an unregistered partnership subject to corporate
income tax.

RULING:
The sharing of returns does not in itself establish a partnership, whether or not the
persons sharing therein have a joint or common right or interest in the property. There must be a
clear intent to form a partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There
is no adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and sold the same a
few years thereafter did not thereby make them partners. They shared in the gross profits as
co-owners and paid their capital gains taxes on their net profits and availed of the tax amnesty
thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner
proposes.

11. ONA V. COMMISSIONER OF INTERNAL REVENUE

FACTS:
Julia Bunales died survived by her husband and 5 minor children. Husband Lorenzo was
appointed as administrator to estate and guardian of 5 minor children. The project of partition
was approved but no partition was made and the properties remained under the management of
Ona who used said properties in business by leasing or selling them and investing the income
derived therefrom and proceeds from the sales thereof in real properties and securities.
Respondent (Commissioner of Internal Revenue) decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income tax. Accordingly, he assessed against
the petitioners corporate income taxes for 1955 and 1956, respectively. Petitioners protested
against the assessment and asked for reconsideration of the ruling of respondent that they have
formed an unregistered partnership but Commissioner denied it.

ISSUE:
Whether the petitioners formed an unregistered partnership?

RULING:
Yes. Upon death of a decedent, income from inherited properties may be considered as
individual income of the respective heirs only so long as the inheritance or estate is not
distributed or, at least, partitioned, but the moment their respective known shares are used as part
of the common assets of the heirs to be used in making profits, it is but proper that the income of
such shares should be considered as the part of the taxable income of an unregistered partnership.
This, we hold, is the clear intent of the law. The approved project of partition was not
implemented, instead the estate remained undivided considering it as a common fund of the
business of leasing or selling. It is an unregistered partnership, therefore it is subject to tax.

12. GATCHALIAN, ET AL., v. THE COLLECTOR OF INTERNAL REVENUE, G.R. No.

L-45425

FACTS:
Jose Gatchalian and fourteen others (plaintiffs) contributed money to purchase one
sweepstakes ticket valued at P2.00. They purchased a ticket and such was registered in the name
of Jose Gatchalian and Company. The ticket that they purchased won the third prize in the
amount of P50,000 and that the corresponding check was cashed by the plaintiffs.
Thereafter, the CIR required the plaintiffs to pay the corresponding income tax return
covering the prize they won otherwise, their property will be levied. This is pursuant to Section
10 of Act No. 2833, as last amended by section 2 of Act No. 3761 which provides that every
corporation, joint-stock company, partnership, joint account (cuenta en participacion),
association or insurance company, organized in the Philippine Islands, no matter how created or
organized, must annually pay the total net income received in the preceding calendar.
The plaintiffs paid the income tax in two installments under protest because according to
them, they are not partners; they merely formed a community of property. Hence, they are not
required to pay income tax under the law or if required, the monetary burden must be prorated
among them and be paid individually.
ISSUE:
Whether or not the plaintiffs formed a partnership thus liable for the payment of income
tax.

HELD:
YES, the plaintiffs formed a partnership of a civil nature because each of them put up
money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they
may win, as they did in the amount of P50,000 (article 1665, Civil Code). The partnership was
not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian
personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as
co-partner for collection, and the office issued the check in favor of Jose Gatchalian and
company, and the said partner, in the same capacity, collected the said check. All these
circumstances repel the idea that the plaintiffs organized and formed a community of property
only.
Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected. There is no merit in plaintiff's
contention that the tax should be prorated among them and paid individually, resulting in their
exemption from the tax.

13. SARDANE, vs. THE COURT OF APPEALS, G.R. No. L-47045

FACTS:
Nobio Sardane executed promissory notes in the total amount of P 5, 217.25. Sardane
failed to pay despite repeated demands and that prompted Acojedo to bring an action for
collection of sum of money. During the scheduled day for trial, Sardane failed to appear and the
City Court of Dipolog rendered judgment by default in favor of Acojedo. Sardane then appealed
to the CFI which reversed the decision of the lower court. The CFI reasoned that the said amount
taken by Sardane from Acojedo was not his personal debt, but expenses of the partnership
between him and Acojedo. The Court also concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and upheld the claim that there was
ambiguity in the promissory note hence, parol evidence was allowable to contradict the terms of
the represented loan contract.

ISSUE:
Whether or not a partnership existed between Acojedo and Sardane
RULING: No.
The fact that Sardane had received 50% of the net profits does not conclusively establish
that he was a partner of the Acojedo. Article 1769(4) of the Civil Code is explicit that while the
receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, no such inference shall be drawn if such profits were received in payment
as wages of an employee. Furthermore, herein petitioner had no voice in the management of the
affairs of the basnig.

14. DELUAO v. CASTEEL, G.R. No. L-21906

FACTS:

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy

land, 178.76 hectares, in the then sitio of Malalag, municipality of Padada, Davao for 3
consecutive times because the Bureau of Fisheries did not act upon his previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon his
position by the other applicants who entered upon and spread themselves within the area, Casteel
realized the urgent necessity of expanding his occupation thereof by constructing dikes and
cultivating marketable fishes. But lacking financial resources at that time, he sought financial aid
from his uncle Felipe Deluao. Moreover, upon learning that portions of the area applied for by
him were already occupied by rival applicants, Casteel immediately filed a protest.
Consequently, two administrative cases ensued involving the area in question.
However, despite the finding made in the investigation of the above administrative cases,
the Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he had introduced on the land, and ordered
that the land be leased through public auction. On November 25, 1949 Inocencia Deluao (wife of
Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second part,
executed a contract — denominated a "contract of service". On the same date the above contract
was entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus
Donesa. On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the
same area in the two administrative cases and asked for reinvestigation of the application of
Nicanor Casteel over the subject fishpond.
The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel
to be reinstated in the area and that he shall pay for the improvement made thereupon. Sometime
in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises

ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution of the
partnership between him and Deluao

HELD:
Yes, the reinstatement of Casteel dissolved his partnership with Deluao. The Supreme
Court ruled that the arrangement under the so-called "contract of service" continued until the
decision both dated Sept. 15, 1950 were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the
dissolution of the partnership. Since the partnership had for its object the division into two equal
parts of the fishpond between the appellees and the appellant after it shall have been awarded to
the latter, and therefore it envisaged the unauthorized transfer of one half thereof to parties other
than the applicant Casteel, it was dissolved by the approval of his application and the award to
him of the fishpond. The approval was an event which made it unlawful for the members to carry
it on in partnership. Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the other.

15. ALBERT F. KIEL VS. ESTATE OF P. S. SABERT, G.R. NO. 21639

FACTS:
In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public
lands situated in the municipality of Parang, Province of Cotabato, known as Parang Plantation
Company. Kiel subsequently took over the interest of Milfeil. In 1910, Kiel and P. S. Sabert
entered into an agreement to develop the Parang Plantation Company. Sabert was to furnish the
capital to run the plantation and Kiel was to manage it. They were to share and share alike in the
property.
By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the
plantation. During the World War, he was deported from the Philippines.
On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan Plantation
Company, with a subscribed capital of P40,000. On April 10, 1922, P. S. Sabert transferred all of
his rights in two parcels of land situated in the municipality of Parang, Province of Cotabato to
the Nituan Plantation Company.
In this same period, Kiel appears to have tried to secure a settlement from Sabert. But
Sabert's death came before any amicable arrangement could be reached and before an action by
Kiel against Sabert could be decided. So these proceedings against the estate of Sabert.

ISSUE:
Whether or not the alleged verbal copartnership formed by Kiel and Sabert is valid.

HELD:
Yes.
The rule of partnership that the declarations of one partner, not made in the presence of
his copartner, are not competent to prove the existence of a partnership between them as against
such other partner, and that the existence of a partnership cannot be established by general
reputation, rumor, or hearsay.
The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves
the firm impression that Kiel and Sabert did enter into a partnership, and that they were to share
equally. Applying the tests as to the existence of partnership, there is competent evidence exists
establishing the partnership. Even more primary than any of the rules of partnership above
announced, is the injunction to seek out the intention of the parties, as gathered from the facts
and as ascertained from their language and conduct, and then to give this intention effect.
Kiel is not entitled to any share in the land itself, but he has clearly shown his right to
one-half of the value of the improvements and personal property on the land as to the date upon
which he left the plantation.

16. JO CHUNG CANG V. PACIFIC COMMERCIAL CO., 45 SCRA 142

FACTS:
Teck Seing and Co., Ltd was going on with the process of Insolvency application. In
order to escape liability, some partners claimed that the partnership is limited and not general
partnership. They claimed that Teck Seing and Co., Ltd failed to comply with the requirements
to register in the commercial registry.
ISSUE:
Whether Teck Seing and Co., Ltd is a limited partnership or general partnership?

HELD:
Teck Seing and Co., Ltd is a general partnership .Defects in the organization cannot
affect relations with third persons. The Court held that the object of Article 126 in requiring a
general partnership to transact business under the name of all its members, of several of them, or
of one only, was to protect the public from imposition and fraud; and that Article 126 was for the
protection of the creditors rather than of the partners themselves. The legal requirement as to
firm name must be construed as rendering contracts made in violation thereof unlawful and
unenforceable only as between the partners and at the instance of the violating party, but not in
the sense of depriving innocent parties of their rights who may have dealt with the offenders in
ignorance of the latter having violated the law. In essence the partners cannot avoid the
consequences of a partnership contract entered into by invoking in their defense the anomaly in
the firm name which they themselves adopted. The partners now are solidarily liable for
partnership debt in the event the partnership itself becomes insolvent.

17. MAURICIO AGAD VS. SEVERINO ​MABATO AND MABATO AND AGAD COMPANY,
G.R. NO. L-24193

FACTS:
Severino Mabato alleged that he was partners with Mauricio Agad in a fishpond business
as evidenced by a public instrument dated August 29, 1952, to which he contributed Php 1000.00
or 50% of the capital. Consequently, he is entitled to 50% of the profits. However, Mabato failed
and refused to render accounts from 1957 to 1963 regardless of Agad’s repeated demands. Agad
then filed a complaint against Mabato and the company for payment of his share in the profits,
attorney’s fees and the dissolution of the partnership. On the other hand, Mabato filed a motion
to dismiss stating that there is no cause of action since the contract of partnership is void because
the inventory of the fishpond referred in the instrument was not attached in the same – a
requirement under Article 1773 of the New Civil Code. The case was dismissed by the lower
courts and appealed to the Supreme Court.

ISSUE:
Whether immovable property or real rights have been contributed in the partnership.

HELD:
Articles 1771 and 1773 of said Code provide: Art. 1771. A partnership may be
constituted in any form, except where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary. Art. 1773. A contract of partnership is void,
whenever immovable property is contributed thereto, if inventory of said property is not made,
signed by the parties; and attached to the public instrument. The Court ruled that there was no
real property contributed since their contributions were only limited to Php1000.00 each by
Severino Mabato and Mauricio Agad. The purpose of the partnership was to operate the fishpond
and not to engage in the fishpond business. Even if a fishpond or real right could become part of
the assets, neither was contributed to the partnership or became capital in such. Therefore, there
is a contract of partnership between Agad and Mabato. The Court remanded the case to the Court
of First Instance of Davao.

18. TUASON VS. BOLANOS, GR. NO. L-4935

FACTS:
Plaintiff’s complaint against defendant was to recover possession of a registered land.
Inthe complaint, the plaintiff is represented by its Managing Partner, Gregorio Araneta, Inc.,
another corporation. Defendant, in his answer, sets up prescription and title in himself thru
"open, continuous, exclusive and public and notorious possession under claim of ownership,
adverse to the entire world by defendant and his predecessors in interest" from "time
immemorial". After trial, the lower court rendered judgment for plaintiff, declaring defendant to
be without any right to the land in question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent. Defendant appealed directly to the Supreme Court
and contended, among others, that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership

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

19. AUERBACH, ET AL., V. SANITARY WARES MANUFACTURING CORPORATION, G.R. NO. 75875
FACTS:
The 1962 agreement between Saniwares and the American corporation ASI designated
the Philippine business operations as an incorporated enterprise that went by the name of
“Sanitary Wares Manufacturing Corporation.” The Articles of Incorporation vested the
corporation’s management upon a Board of Directors that shall consist of nine individuals, three
of which shall be designated by ASI, and the remainder shall be designated by the other
stockholders of the Corporation. In addition, ASI’s capital stock was increased to 40%. The
Corporation, as a result, registered with the Board of Investments to avail the incentives given
for corporations whose 60% capital stocks are owned by Filipinos. The joint enterprise
prospered, but the harmonious business relations were strained due to the Filipino group’s desire
to expand the export operations of the company – a proposition that was objected to by ASI
because of its numerous joint venture groups in countries where Philippine exports are
contemplated. Baldwin Young, who presided the annual stockholder’s meeting, annulled the
nominations of Lagdameo and Chamsay advanced by the Filipino Group. His subsequent denial
of the latter’s appeal instigated protests, in turn, these incidents triggered off the filing of
separate petitions with the Securities and Exhange Commission.
The consolidated petitions were tried jointly. Thus, the Lagdameo’s election was upheld;
on the other hand, Salazar and Chamsay’s application for receivership was denied. Upon appeal,
the Intermediate Appellate Court remanded the case to the SEC, with the directive that the latter
shall supervise a new stockholder’s meeting. However, the same court granted the Lagdameo
group’s motion for reconsideration, which amended the decision in their favor. The petitioners
contended that the appellate court would sanction a deprivation of the property rights of
stockholders without due process of law in order that a favored group of stockholders may be
illegally benefitted.

ISSUE:
Whether the nature of business established by the parties was a joint venture or a
corporation.

RULING:
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual intention
which is determined in accordance with the rules governing the interpretation and construction of
contracts. In the instant cases, the examination of important provisions of the Agreement as well
as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties
agreed to establish a joint venture and not a corporation, as the agreement had shown that certain
provisions were included to protect the interests of ASI as the minority. The agreement requires a
vote of 7 out of 9 directors in certain enumerated corporate acts, as well as a 75% super majority
vote for the amendment of the articles and by-laws of Saniwares. Moreover, Young’s testimony
that “nothing herein contained shall be construed to constitute any of the parties hereto partners
or joint ventures in respect of any transaction hereunder” was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and liabilities to third parties. It would
seem therefore that under Philippine law, a joint venture is a form of partnership and should thus
be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others. The
Supreme Court has however recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it may however engage
in a joint venture with others.

B. OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES: ARTICLES 1784-1809

20. MAURO LOZANA VS. SERAFIN DEPAKAKIBO, G.R. NO. L-13680

FACTS:
On November 16, 1954 plaintiff Mauro Lozana entered into a contract with defendant
Serafin Depakakibo wherein they established a partnership capitalized at the sum of P30,000,
plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in the Municipality of Dumangas, Province of
Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate
of public necessity and convenience was cancelled and revoked by the Public Service
Commission on May 15, 1955. A temporary certificate of public convenience was issued in the
name of Olimpia D. Decolongon on December 22, 1955. Evidently because of the cancellation
of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a
generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia D.
Decolongon, by a deed dated October 30, 1955.
Plaintiff Mauro Lozana brought an action against the defendant, alleging that he is the
owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses supplied by electric current in the Municipality
of Dumangas, and that he is entitled to the possession thereof, but that the defendant has
wrongfully detained them as a consequence of which plaintiff suffered damages.
ISSUE:
Whether the partnership was illegal

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

21. SANCHO V. LIZARRAGA, 55 PHIL. 601

FACTS:
Plaintiff Sancho brought an action for the rescission of a partnership contract between
himself and the defendant Lizarraga, entered into on October 15, 1920, the reimbursement by the
latter of his P50,000 investment therein, with interest at 12% per annum from October 15, 1920,
with costs, and any other just and equitable remedy against said defendant.
Lizarraga denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter
and asking for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest,
one-half of said amount to be charged to the plaintiff. He also prays for any other just and
equitable remedy.
The CFI of Manila, having heard the cause, and finding it duly proved that the defendant
had not contributed all the capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the defendant, as managing
partner, to proceed without delay to liquidate it, submitting to the court the result of the
liquidation together with the accounts and vouchers within the period of 30 days from receipt of
notice of said judgment.

ISSUE:
Whether plaintiff acquired the right to demand rescission of the partnership contract according to
Art. 1124 of the Civil Code

HELD:
Owing to the defendant's failure to pay to the partnership the whole amount which he
bound himself to pay, he became indebted to it for the remainder, with interest and any damages
occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to Art. 1124. This article cannot be applied to the case in question,
because it refers to the resolution of obligations in general, whereas article 1681 and 1682
specifically refer to the contract of partnership in particular. And it is a well-known principle that
special provisions prevail over general provisions.

22. WILLIAM UY V BARTOLOME PUZON, GR NO. L-19819

FACTS:
Bartolome Puzon had a contract with the Republic of the Philippines for the construction
of the Ganyangan Bato Section of the Pagadian Zamboanga City Road, province of Zamboanga
del Sur and of five (5) bridges in the Malangas-Ganyangan Road. Finding difficulty in
accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff,
William Uy. It resulted in the formation of the "U.P. Construction Company" which was
subsequently engaged as subcontractor of the construction projects.
The partners agreed that the capital of the partnership would be P100,000.00 of which
each partner shall contribute the amount of P50,000.00 in cash. But, as heretofore stated, Puzon
was short of cash and he promised to contribute his share in the partnership capital as soon as his
application for a loan with the Philippine National Bank in the amount of P150,000.00 shall have
been approved. However, before his loan application could be acted upon, he had to clear his
collaterals of its incumbrances first. For this purpose, on October 24, 1956, William Uy gave
Bartolome Puzon the amount of P10,000.00 as advance contribution of his share in the
partnership to be organized between them under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by Puzon to pay his obligations with
the Philippine National Bank to effect the release of his mortgages with the said Bank. On
October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of his
obligation to the Rehabilitation Finance Corporation. Puzon promised William Uy that the
amount of P150,000.00 would be given to the partnership to be applied thusly: P40,000.00, as
reimbursement of the capital contribution of William Uy which the said Uy had advanced to
clear the title of Puzon's property; P50,000.00, as Puzon's contribution to the partnership; and the
balance of P60,000.00 as Puzon's personal loan to the partnership.
As time passed and the financial demands of the projects increased, William Uy, who
supervised the said projects, found difficulty in obtaining the necessary funds with which to
pursue the construction projects. William Uy correspondingly called on Bartolome Puzon to
comply with his obligations under the terms of their partnership agreement and to place, at least,
his capital contribution at the disposal of the partnership. Despite several promises, Puzon,
however, failed to do so. Realizing that his verbal demands were to no avail, William Uy
consequently wrote Bartolome Puzon formal letters of demand, to which Puzon replied that he is
unable to put in additional capital to continue with the projects.
Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of
the construction projects, wrote the subcontractor, U.P. Construction Company, on November
20, 1957, advising the partnership, of which he is also a partner, that unless they presented an
immediate solution and capacity to prosecute the work effectively, he would be constrained to
consider the sub-contract terminated and, thereafter, to assume all responsibilities in the
construction of the projects in accordance with his original contract with the Bureau of Public
Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the U.P.Construction
Company finally terminating their subcontract agreement as of December 1, 1957.

ISSUE:
Whether or not Puzon is liable to the partnership thus must reimburse Uy.

HELD:
Yes. The findings of the trial court that the appellant failed to contribute his share in the
capital of the partnership is clear incontrovertible. The record shows that after the appellant's
loan the amount of P150,000.00 was approved by the Philippine National Bank in November,
1956, he gave the amount P60,000.00 to the appellee who was then managing the construction
projects. Of this amount, P40,000.00 was to be applied a reimbursement of the appellee's
contribution to the partnership which was used to clear the title to the appellant's property, and
the balance of P20,000.00, as Puzon's contribution to the partnership. Thereafter, the appellant
failed to make any further contributions the partnership funds as shown in his letters to the
appellee wherein he confessed his inability to put in additional capital to continue with the
projects.
In view of the assignment made by Puzon to the Philippine National Bank, the latter
withheld and applied the amount of P332,539,60 in payment of the appellant's personal loan with
the said bank. The balance was deposited in Puzon's current account and only the amount of
P27,820.80 was deposited in the current account of the partnership. For sure, if the appellant
gave to the partnership all that were eamed and due it under the subcontract agreements, the
money would have been used as a safe reserve for the discharge of all obligations of the firm and
the partnership would have been able to successfully and profitably prosecute the projects it
subcontracted

23. THE UNITED STATES VS. EUSEBIO CLARIN. G.R. NO. 5840

FACTS:
Pedro Larin delivered to Pedro Tarug an amount of P172, in order that the latter, in
company with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes. Larin, being
the capitalist, agreed to contribute P172.00 to the partnership and the three others shall use said
fund to trade mangoes. Thereafter, Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in
fact trade in mangoes and obtained P203 from the business, however, they did not comply with
the terms of the contract by delivering to Larin his half of the profits.
Because of such act, Larin charged them with the crime of estafa, but the provincial fiscal
filed an information only against Eusebio Clarin in which Larin accused him of appropriating to
himself not only the P172 but also the share of the profits amounting to P15.50. Clarin was
eventually convicted.

ISSUE:
Whether or not a contract of partnership exist between the parties in order to defeat the
conviction of Clarin.

HELD:
In our Civil Code, When two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves, a contract is formed which is called partnership.
In the case at bar, when Larin put the P172 into the partnership which he formed with
Tarug, Clarin, and Guzman, he invested his capital in the risks or benefits of the business of the
purchase and sale of mangoes and even though he had reserved the capital and conveyed only the
usufruct of his money, it would not devolve upon of his three partners to return his capital to
him, but upon the partnership of which he himself formed part.
Therefore, the P172 having been received by the partnership, the business commenced
and profits accrued, the action that lies with the partner who furnished the capital for the
recovery of his money is not a criminal action for estafa, but a civil one arising from the
partnership contract for a liquidation of the partnership and a levy on its assets if there should be
any.

24. PEOPLE VS. CAMPOS, [C.A.] 54 O.G. 681

FACTS:
The complainant and the accused were partners in the farming of a 47-hectare land leased
by the complainant from one Juan Alonzo for the agreed rental of 75 cavans of palay. When the
palay had been harvested from the land and was ready for threshing, the accused so informed the
complainant. The complainant sent his nephew, Manuel Matias, to observe the threshing with
specific instructions to give the share of the tenants and the partners' respective shares, and then
segregate the 75 cavans of palay for the rentals. After the division of the produce, the share of the
complainant was deposited at the warehouse in Cabiao, while the share of the accused was
deposited in his house. Manuel Matias, as instructed by the complainant, delivered the 75 cavans
of palay set aside for the rentals (valued at P750) to the accused for the purpose of delivering the
same to the landowner, Juan Alonzo. Instead of making the delivery, the accused
misappropriated the 75 cavans of palay. Prosecuted for estafa, the accused raised the defense that
no accounting and liquidation had been effected between the partners and that a balance of more
than P 1,000 was still due him from the partnership.

ISSUE:
Whether there was a liquidation of the partnership insofar as the harvest in question was
concerned?

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

25. PEDRO MARTINEZ V. ONG PONG CO AND ONG LAY, G.R. NO. L-5236

FACTS:
Pedro Martinez delivered P1,500 to Ong Pong Co and Ong Lay who, in a private
document, acknowledged that they had received the same with the agreement that they were to
invest the amount in a store, the profits or losses of which were to be divided with Martinez in
equal shares.
Martinez filed a complaint in order to compel Co and Lay to render him an accounting of
the partnership as agreed to, or else to refund him the P1,500 that he had given them for the said
purpose. Ong Pong Co alone appeared to answer the complaint because Ong lay is already dead.
He admitted the fact of the agreement and the delivery to him and to Ong Lay of the P1,500 for
the purpose but he alleged that Ong Lay was the one who had managed the business, and that
nothing had resulted therefrom save the loss of the capital of P1,500, to which loss Martinez
agreed.

ISSUE:
Whether Ong Pong Co is liable to return the money Pedro Martinez gave to them as his
share in the business

RULING:
Where two partners receive from another a sum of money for the establishment of a
business, and agree to share with the latter the profits or losses that may result therefrom, the said
two persons, as the apparent administrators of the partnership, acted as agents for the capitalist
partner, and by virtue thereof are bound to fulfill the contract which implies the management of
the business.
The judgment appealed from is hereby affirmed, provided, however, that the defendant
Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest thereon at the
rate of 6 per cent per annum from the time of the filing of the complaint, and the costs, without
special ruling as to the costs of this instance.

26. RAMNANI vs. COURT OF APPEALS, 196 SCRA 731

FACTS:
 In 1965, spouses Ishwar Jethmal Ramnani and Sonya Jethmal Ramnani, both from New
York invested substantial amount of money for a profitable business venture in the
Philippines. Since they could not personally manage their investments, they appointed two of
Ishwars brothers, Choithram and Navalrai, as their attorneys-in-fact.
Choithram decided to invest in the real estate business. In his capacity as attorney-in-fact
of Ishwar, he bought two parcels of land from Ortigas & Company, Ltd. Partnership and had
buildings constructed thereon. Through the industry and genius of Choithram, Ishwars property
was developed and improved into a valuable asset worth millions of pesos.
Unfortunately, without spouses Ishwar’s knowledge, Choithram started to appropriate his
brothers property and other assets as his own by executing deeds of sale in favor of his
daughter-in-law, Nirmla, by donating 2,500 shares of stock in a garment corporation to his
children, and fraudulently mortgaging $3,000,000.00 worth of the spouses property to Overseas
Holding Co.
Spouses Ishwar learned what Choithram was doing and then revoked Choithrams general
power of attorney. Spouses Ishwar filed a complaint for reconveyance and damages against
Choithra. The CFI dismissed the complaint and recognized Choithrams full ownership of the
questioned two parcels of land.
On appeal, the Court of Appeals reversed the trial court’s decision, finding that spouses
Ishwar entrusted capital to Choithram to be invested in the Philippines. The appellate court held
the Choithram family and Ortigas jointly and severally liable to spouses Ishwar.
Subsequently, the Court of Appeals modified its earlier decision by dismissing the
case against Ortigas. In the meantime, Choithram continued to dissipate Ishwars assets.

ISSUE:
1. Whether Choithram has the right to receive a share from the business of his brother
Ishwar
2. Whether there is sufficient warning to Ortigas of the revocation of Choithrams general
power of attorney

HELD:
1. Yes. The Supreme Court held that Choithram violated the trust relationship between
him and Ishwar. Considering, however, that the two protagonists are brothers and that Choithram
made wise investments of spouses Ishwars money, the Court applied a Solomonic solution by
dividing equally between spouses Ishwar and the Choithram family the two parcels of land
subject of the litigation, including all the improvements thereon and income from 1967.
The instant case is a situation where two brothers engaged in a business venture. One
furnished the capital, the other contributed his industry and talent. Moreover, the Court ruled that
justice and equity dictate that the two share equally the fruit of their joint investment and efforts.
Perhaps this Solomonic solution may pave the way towards their reconciliation. Both would
stand to gain. No one would end up the loser. After all, blood is thicker than water.
However, in its Resolution dated February 26, 1992, the Supreme Court realized that
its Solomonic Decision, in effect, formulated a new contract for the parties. Thus, the Court
declared that the disputed lots are solely owned by spouses Ishwar. The motion for
reconsideration of the Choithram family was denied with finality.
 2. Yes. Evidence had been adduced that notice in writing had been served not only on
Choithram, but also on Ortigas, of the revocation of Choithram's power of attorney by Ishwar's
lawyer, on May 24, 1971. A publication of said notice was made in the issue of The Manila
Times for the information of the general public. Such notice, according to the Supreme Court, of
revocation in a newspaper of general circulation is sufficient warning to third persons including
Ortigas. Thus, the Court ruled that Ortigas is solidarily liable with Choithram family to spouses
Ishwar because of its bad faith in executing the deeds of sale in favor of Nirmla despite its
knowledge that Choithrams general power of attorney had been revoked by Ishwar.

27. MORAN JR. V CA

FACTS:
In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership
agreement where they agreed to contribute P15k each for the purpose of printing 95k posters of
the delegates to the then 1971 Constitutional Commission. Moran shall be in charge in managing
the printing of the posters. It was further agreed that Pecson will receive a commission of P1k a
month starting from April 1971 to December 1971; that the partnership is to be liquidated on
December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor of
the partnership. He gave the P10k to Moran as the managing partner. Moran however did not add
anything and, instead, he only used P4k out of the P10k in printing 2,000 posters. He only
printed 2,000 posters because he felt that printing all 95k posters is a losing venture because of
the delay by the COMELEC in announcing the full delegates. All the posters were sold for a total
of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of
Appeals affirmed the decision of the trial court but modified the same as it ordered Moran to pay
P47.5k for unrealized profit; P8k for Pecson’s monthly commissions; P7k as return of investment
because the venture never took off; plus interest.

ISSUE:
Whether or not the CA judgment is correct.

HELD:
No. The award of P47.5k for unrealized profit is speculative. There is no evidence
whatsoever that the partnership between the Moran and Pecson would have been a profitable
venture (because base on the circumstances then i.e. the delay of the COMELEC in proclaiming
the candidates, profit is highly unlikely). In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in favor of Pecson. Further, there is
mutual breach in this case, Pecson only gave P10k instead of P15k while Moran gave nothing at
all.
As for the P8k monthly commission, this is without basis. The agreement does not state
the basis of the commission. The payment of the commission could only have been predicated on
relatively extravagant profits. The parties could not have intended the giving of a commission in
spite of loss or failure of the venture. Since the venture was a failure, Pecson is not entitled to the
P8k commission.
 As for the P7k award as return for Pecson’s investment, the CA erred in his ruling too.
Though the venture failed, it did took off the ground as evidenced by the 2,000 posters printed.
Hence, return of investment is not proper in this case. There are risks in any business venture and
the failure of the undertaking cannot entirely be blamed on the managing partner alone,
especially if the latter exercised his best business judgment, which seems to be true in this case.
Moran must however return the unused P6k of Pecson’s contribution to the partnership
plus P3k representing Pecson’s profit share in the sale of the printed posters. Computation of P3k
profit share is as follows: (P10k profit from the sale of the 2,000 posters printed) – (P4k expense
in printing the 2k posters) = (P6k profit); Profit ÷ 2 = P3k each.

28. NG YA V. SUGBU COMMERCIAL CO.

FACTS:
Ng Ya, a Chinese merchant based in Surigao, Surigao ordered from Sugbu Commercial
(based in Cebu) 1,000 galvanized iron and aluminium sheets. It was agreed that the goods would
be delivered in a week’s time, or on or before January5, 1950. The amount of these goods is
P5,400, which appears to have been paid by Ng Ya in full.
However, the said goods were not delivered on the said date. And as Ng Ya kept on
inquiring from Sugbu Commercial Co. about the status of the goods, the latter failed to deliver
the same but kept promising that the said goods would be delivered at some future time.
Sugbu Commercial later found out that Ng Ya is also in need of cigarettes that she will
sell on resale in Surigao. The former then offered the latter cigarettes. Ng Ya was enticed by the
offer and then entered into another contract of sale with Sugbu.* She paid the amount of the
cigarettes worth P4,000 with the help of Lana Bakery, with whom she had an understanding of
splitting the profits she hoped to realize from the buy and sell of cigarettes.
However, after a couple of months, in July, neither the cigarettes nor the galvanized iron
and aluminium sheets reached Ng Ya. Consequently, Tan Chun Pia of Lana Bakery, from whom
she obtained the P4,000 got angry with her and, for this reason, Ng Ya was forced to reimburse
him of the amount.* She then kept coming back to Sugbu to demand either the delivery of the
goods she ordered or the payment of P 9,400. Unfortunately, every time she dropped there, poor
Ng Ya was challenged by Shih Tiong Chu to file a complaint, and she had to seek the help of the
Chinese Chamber of Commerce for the settlement of her claim. Ng Ya finally filed a complaint
with the CFI Cebu.
Sugbu Commercial then filed a 3rd-party complaint against Pow Sun Gee, alleging that
the latter received the amounts of P5,400 and P4,000 in his capacity as manager of Sugbu
Commercial when he was not authorized to issue official receipts and that only his co-partner
Shih Tiong Chu, who was most of the time in Manila, could do so. In this regard, Sugbu
Commercial prayed that Pow Sun gee be ordered to indemnify Sugbu Commercial for
whatever is adjudged against the latter in favor of plaintiff Ng Ya.* TC decided in favor of Ng
Ya and sentenced Sugbu to pay plaintiff the sum of P9,400 and condemning Pow Sun Gee
to reimburse Sugbu Commercial Company.* Sugbu Commercial appealed.

ISSUE:
Whether or not Sugbu Commercial should not be held liable because Pow Sun Gee, as
the one who received the payments and issued receipts to Ng Ya, is not authorized to do so.
HELD:
No. A manager of a partnership is presumed to have all the incidental powers to carry out
the object of the partnership in the transaction of the business. There is of course an exception to
the general rule: when the powers of a manager are specifically restricted, he could not exercise
the powers expressly limited of him.
But when the articles of association do not specify the powers of the manager, it is
admitted on principle that a manager has the powers of a general agent, and even more. When
the object of the company is determined, the manager has all the powers necessary for the
attainment of such object
Sugbu Commercial was not able to present articles of co-partnership that would show any
limitation upon the powers of the manager – an indication that there was none. For this reason,
we hold and declare that the minor power of issuing official receipt is included in the general
powers of the manager.

29. M. TEAGUE VS. H. MARTIN, J. T. MADDY AND L.H. GOLUCKE, G.R. NO. 30286

FACTS:
The parties formed a partnership for the conduct of a fish business. The defendants’
duties were catching and procuring fish while the plaintiff was in charge of selling the fish under
an agreement that he would account for the money.
The plaintiff later on purchased a lighter called Lapu-Lapu, a Ford truck, and an adding
machine using the money of the partnership and for the use of the partnership. He, however,
registered the equipment under his own name and not under the partnership.
Upon the dissolution of the partnership, plaintiff claims that the equipment is the property
of the partnership and not his own.

ISSUE:
Whether the equipment purchased is the property of the partnership.

HELD:
No it is not. It is the property of the plaintiff.
By the plaintiff’s own actions of taking the title in his own name, he is now estopped to
claim or assert that they are the property of the company.
Also, his authority was confined and limited to the selling of fish in Manila and the
purchase of supplies. His duties do not carry with it or imply the authority to purchase
the Lapu-Lapu, or the Ford truck, or the adding machine. From which it must follow that he had
no authority to purchase the said equipment as they cannot be construed as supplies for the
partnership business.
The plaintiff must return to and reimburse the partnership the sum taken from its funds
for the purchase of the aforementioned equipment
30. SANTOS V. VILLANUEVA, [C.A.] 50 O.G. 175

FACTS:
Plaintiff Gavino Santos sought to rescind the contract of the sale of tailoring shop under
the business name “esquire”, executed by and between defendants Emiliano del Rosario, as
vendor, and Cenon Villanueva and Corazon del Rosario, as vendees.
Plaintiff alleged in his complaint that the tailoring shop in question is owned in common
by three partners, namely, himself, Luisito del Rosario , and defendant Emilio del Rosario; that
the sale thereof of Emiliano del Rosario to his co- defendants was without the knowledge and
consent of the other partners; that under the Article 143 of the Code of Commerce, no partner
can transfer to another person or interest he may have in the co- partnership without; and that
therefore, the sale in question should be rescinded. At the trial, the plaintiff adduced the
following evidence; that he and his brother in- law, Luisito del Rosario and Emilio Rosario,
formed a partnership sometimes in 1947 for the purpose of operating a tailoring business at 723
Bambang Street, manila, but the contract of partnership was not reduced into writing because
partners are brothers; that each of them contributed P5,000 to the common fund; that all the
partners, Emilio del Rosario applied for the registration of the firm name “esquire” with the
Bureau of Commerce on June 4, 1947, and this firm name was duly registered on June 18, 1947;
that Emilio del Rosario managing the tailoring business since 1948 and had attended to the
keeping of the partnership books, the payment of licenses, etc; that there has been no dissolution
nor liquidation of the partnership up to the present time; and the sale of Emilio del Rosario to his
co- defendants of the entire partnership assets are without the knowledge and consent of the
other partners.
Defendant Emilio del Rosario failed to file his answer to the complaint and was declared
in default. Defendants Cenon Villanueva and Corazon del Rosario, in their answer, denied the
knowledge of the existence of the partnership alleged in the complaint, set up sole and absolute
ownership of the tailoring shop in question and counterclaimed for damages in the amount of
1,000Php. Defendant Cenon Villanueva claims to have taken all pre cautions to verify the title
and ownership of his vendor before he agreed to sign the deed of absolute sale, one of the
precautionary steps taken that he wnet to Bureau of Commerce to check whether a partnership
existed in the business. He found in the files of this office that under Application No. 151588
dated June 11, 1947, his vendor Emiliano applied for the registration of the business name
“Esquire” for use in the tailoring and haberdashery business owned by the partners Gavino
Santos, Luisito del Rosario, and Emiliano del Rosario.

ISSUE:
Whether the sale of tailoring shop operating in the name of Esquire is valid.

HELD:
In negative, the sale of tailoring shop in invalid and must be rescinded.
Under the law, Partnership property, cannot be sold or conveyed by any one of the
partners without the consent of all others partners forming the partnership. Nor could any of the
partners transfer to another person his interest in the partnership without previous consent of his
partners. (Article 143(I love you), Code of Commerce)
Having thus acted in bad faith, Cenon Villanueva stands in the shoes of, and acquires no
better right that, his vendor; and de Rosario not having the right nor to authority to dispose of the
partnership business, or even his interest therein, without the consent of the other partners, the
deed of sale is null and void.

31. BACHRACH V LA PROTECTORA, 37 PHIL 441

FACTS:
Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto Serrano (defendants)
formed a civil partnership called “La Protectora” for the purpose of engaging in the business of
transporting passengers and freight at Laoag, Ilocos Norte. Marcelo Barba, acting as manager,
negotiated for the purchase of 2 automobile trucks from E. M. Bachrach for P16,500. Barba paid
P3,000 in cash and for the balance executed promissory notes.
One of these promissory notes was signed in the following manner:
“P.P La Protectora, By Marcelo Barba”` The other 2 notes were signed in the same way
but the word “by” was omitted. It was obvious that in signing the notes, Barba intended to bind
both the partnership and himself.
The defendants executed a document in which they declared that they were members of
La Protectora and that they had granted to its president full authority to contract for the purchase
of the 2 automobiles. The document was delivered by Barba to Bachrach at the time the vehicles
were purchased.
Barba incurred a debt amounting to P2,617.57 and Bachrach foreclosed a chattel
mortgage on the trucks but there was still balance. To recover the balance, action was instituted
against the defendants. Judgment was rendered against the defendants.

ISSUE:
1. Whether or not the defendants are liable for the firm debts.
2. Whether or not Barba had authority to incur expenses for the partnership`

HELD:
a. Yes. Promissory notes constitute the obligation exclusively of La Protectora and Barba.
They do not constitute an obligation directly binding the defendants. Their liability is based on
the principles of partnership liability. A member is not liable in solidum with his fellows for the
entire indebtedness but is liable with them or his aliquot part.
SC obiter: the document was intended merely as an authority to enable Barba to bind the
partnership and that the parties to the instrument did not intend to confer upon Barba an authority
to bind them personally.
b. Yes. Under Art 1804, every partner may associate another person with him in his
share. All partners are considered agents of the partnership. Barba must be held to have authority
to incur these expenses. He is shown to have been in fact the president/manager, and there can be
no doubt that he had actual authority to incur obligation.

32. JOSE MACHUCA VS. CHUIDIAN, BUENAVENTURA & CO., 2 PHIL 210
FACTS:
CHUIDIAN, BUENAVENTURA & CO is a regular general partnership. The original
partners were D. Telesforo Chuidian, Doña Raymunda Chuidian, Doña 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
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 Machuca’s 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
Buenaventura’s share

ISSUE:
Whether or not Machuca is entitled to 25% of D. Vicente Buenaventura’s share in the
partnership.

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 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.

33. DAN FUE LEUNG, VS. HON. INTERMEDIATE APPELLATE COURT AND LEUNG
YIU,​ ​G.R. NO. 70926
FACTS:
This case originated from a complaint filed by respondent Leung Yiu with the then Court
of First Instance of Manila to recover the sum equivalent to 22% of the annual profits derived
from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single proprietorship
and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun
Wah Panciteria was actually a partnership and that he was one of the partners having contributed
P4,000.00 to its initial establishment.

Both the trial court and the appellate court found that the private respondent is a partner
of the petitioner in the setting up and operations of the panciteria. While the dispositive portions
merely ordered the payment of the respondents share, there is no question from the factual
findings that the respondent invested in the business as a partner. Hence, the two courts declared
that the private petitioner is entitled to a share of the annual profits of the restaurant.

ISSUES:
1. Whether the private respondent is a partner of the petitioner in the establishment of
Sun Wah Panciteria.
2. Whether Leung Yiu may demand an accounting of the partnership.

HELD:
1. Yes.
In essence, the private respondent alleged that when Sun Wah Panciteria was established,
he gave P4,000.00 to the petitioner with the understanding that he would be entitled to 22% of
the annual profit derived from the operation of the said panciteria. These allegations, which were
proved, make the private respondent and the petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership
two or more persons bind themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves".
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites
of a partnership which are — 1) two or more persons bind themselves to contribute money,
property, or industry to a common fund; and 2) intention on the part of the partners to divide the
profits among themselves -have been established.
2. Yes.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the person or
partnership continuing the business, at the date of dissolution, in the absence of any agreement to
the contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as
long as the partnership exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.

34. SERGIO V. SISON, VS. HELEN J. MCQUAID, G.R. NO. L-6304

FACTS:
Helen J. Mcquaid, the defendant, borrowed from Sergio V. Sison, the plaintiff, an amount
aggregating P2,210 for her to pay his debt and to add as capital to her lumber business. Unable to
pay her loan on the time promised, defendant proposed to take plaintiff as partner in her lumber
business, plaintiff to contribute P2,210 due him from defendant in addition to his personal
services. Plaintiff agreed and a partnership was formed.
Before the last world war, the partnership sold to US Army 230,000 board feet of lumber
amounting to P13,800. Despite the plaintiff’s repeated demands, the defendant persistently
refused to give him ½ of the proceeds or P6,900.Plaintiff brought an action in the CFI of Manila
against defendant to pay him the sum of P6,900 plus damages and cost. Defendant filed a motion
to dismiss. Court dismissed the case on the ground of prescription.

ISSUE:
Whether or not the plaintiff is entitled to the sum of P6,900.

HELD:
No. Court dismissal was affirmed, but on the ground that the complaint states no cause of
action.
The defense of prescription cannot be sustained. It is not clear from the allegations of the
complaint just when the plaintiff’s cause of action accrued. However, court dismissal is upheld
on the ground that complaint states no cause of action. Plaintiff seeks to recover from defendant
one-half of the purchase price of lumber sold by the partnership to the US 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.

35. ORNUM VS. LASALA

FACTS:
In 1908 Pedro Lasala, father of the respondents, and Emerenciano Ornum formed a
partnership. Lasala was the capitalist and Ornum is the industrial partner. Lasala delivered the
sum of P1,000 to Ornum who will conduct business at his place of residence in Romblon.
In 1912, the assets of the partnership had an outstanding account and old stock of
merchandise. Following his wife’s wishes, Ornum asked for the dissolution of the partnership.
Ornum looked for someone who could take his place and suggested the names of the petitioners
who then became the new partners.
Upon joining the business, the petitioners contributed P505.54 as their capital. The
partnership with Pedro Lasala had a capital of P1,000 appraised the value of the assets of the new
partners. The said P505.54 invested by the petitioners as industrial partners were to run the
business in Romblon.
After the death of Pedro Lasala, his children (the respondents) succeeded all his right and
interest in the partnership. The partners never knew each other personally. No formal partnership
agreement was executed. The petitioners, as managing partners, received one-half of the net
gains and the other half was to be divided between them and the Lasala Group in proportion to
the capital shared by each group.
In the decision of the Court of Appeals, the partners were to invest their respective shares
in such profits as additional capital. The petitioners invested a greater part of their profits as
additional investment in the partnership. After twenty years, the business had grown to such an
extent that the total value, including profits, amounted to P44,618.67.
Statements of accounts were periodically prepared by the petitioners and sent to the
respondents who did not make any objections thereto. Before the last statement of accounts was
made, the respondents received P5,387.29 by way of profits. The last and final statement of
accounts, dated May 27, 1932, was prepared by the petitioners after the respondents had
announced their desire to dissolve the partnership. Pursuant to the request contained in this letter,
the petitioners remitted and paid to the respondents the total amount corresponding to them in the
statement of accounts which, however, were not signed by the latter. Thereafter, a complaint was
filed by the respondents praying for an accounting and liquidation of the assets of the
partnership.
The CFI of Manila held that the last and final statement of accounts prepared by the
petitioners was tacitly approved and accepted by the respondents who, by virtue of the letter of
Father Mariano Lasala, lost their right to further accounting from the moment they received and
accepted their shares as itemized in the said statement. The judgment was reversed by the Court
of Appeals principally on the ground that the final statement of accounts remains unsigned by the
respondents, the same stands disapproved.

ISSUES:
1. Whether the accounting stated in the letter including the last and final statement of
accounts was tacitly accepted by the petitioners as the final liquidation and accounting of the
assets of the partnership.
2. Are there mistakes and misrepresentations made in the statement of accounts made?
HELD:
1. YES. The SC ruled that the last and final statement of accounts had been
approved by the respondents. By virtue of the letter of Father Mariano Lasala of July 19, 1932,
the approval resulted in the failure of the respondents to object to the statement and from their
promise to sign the same as soon as they received their shares as shown in said statement.
After such shares had been paid by the petitioners and accepted by the respondents
without any reservation, the approval of the statement of accounts was virtually confirmed and
its signing thereby became a mere formality to be complied with by the respondents exclusively.
Their refusal to sign, after receiving their shares, amounted to a waiver to that formality in favor
of the petitioners who had already performed their obligation.
This approval precludes any right on the part of the respondents to a further liquidation,
unless the latter can show that there was fraud, deceit, error or mistake in said approval. The
Court of appeals did not make any findings that there was fraud, and on the matter of error or
mistake it merely said.
2. The pronouncement that the evidence tends to prove that there were mistakes in
the petitioner’s statements of accounts, without specifying the mistakes, merely creates a
suspicion and is not such a positive and unmistakable finding of facts to justify a revision,
especially because the Court of Appeals has relied on the bare allegations of the parties.
Moreover, as the petitioners did not appeal from the decision of the Court abandoned such
allegation in the Court of Appeals. No justifiable reason (fraud, deceit, error or mistake) has been
positively and unmistakably found by the Court of Appeals so as to warrant the liquidations
sought by the respondents. It should be borne in mind that this case has been pending for nearly
nine years and that if another accounting is ordered, a costly action or proceeding may arise
which may not be disposed of within a similar period, it is not improbable that the intended relief
may in fact be the respondent’s funeral.

C. PROPERTY RIGHTS OF A PARTNER: ARTICLES 1810-1814

36​ ​CLEMENTE VS. GALVAN, 67 PHIL 565

FACTS:
Plaintiff and defendant organized a civil partnership which they named "Galvan y
Compañia" to engage in the manufacture and sale of paper and other stationery. Plaintiff ask for
dissolution which the defendant confirm but with a condition that having covered a deficit
incurred by the partnership amounting to P4,000 with his own money, plaintiff reimburse him of
one-half of said sum. Juan D. Mencarini, assigned as receiver and liquidator. Upon acting on his
duty, the court ordered him to deliver certain machines which were then at Nos. 705-707 Ylaya
Street. But before he could take actual possession of said machines, upon the strong opposition
of defendant, the court, on motion of the latter, suspended the effects of its order. In the
meantime the judgments rendered in cases Nos. 42794 and 43070 ordering Clemente to pay a
sum of money. He mortgaged the machines with his nephew, the intervenor (plaintiff in the
herein case.) For having expired the terms in the mortgage the intervenor commenced case No.
49629 to collect his mortgage credit.

ISSUE:
Whether or not the mortgage between Clemente and his nephew (intervenor, plaintiff in
the case) is valid

RULING
No. The machines in contention originally belonged to the defendant and from him were
transferred to the partnership Galvan y Compania .This being the case, said machines belong to
the partnership and not to him, and shall belong to it until partition is effected according to the
result thereof after the liquidation. Also, Clemente did not have actual possession of the
machines, he could not in any manner mortgage them

37. THE LEYTE-SAMAR SALES CO., AND RAYMUNDO TOMASSI, VS. SULPICIO V.
CEA AND OLEGARIO​ ​LASTRILLA,
FACTS:
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages
by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi against the
Far Eastern Lumber & Commercial Co.), Arnold Hall, Fred Brown and Jean Roxas, judgment
against defendants jointly and severally for the amount of P31,589.14 plus costs was rendered on
October 29, 1948. The Court of Appeals confirmed the award in November 1950, The decision
having become final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe and Pepito
Asturias "all the rights, interests, titles and participation" of the defendants in certain buildings
and properties described in the certificate, for a total price of eight thousand and one hundred
pesos. But on June 4, 1951 Olegario Lastrilla filed in the case a motion, wherein he claimed to be
the owner by purchase on September 29, 1949, of all the "shares and interests" of defendant Fred
Brown in the FELCO, and requested "under the law of preference of credits" that the sheriff be
required to retain in his possession so much of the deeds of the auction sale as may be necessary
"to pay his right". Over the plaintiffs' objection the judge in his order of June 13, 1951, granted
Lastrilla's motion by requiring the sheriff to retain 17 per cent of the money "for delivery to the
assignee, administrator or receiver" of the FELCO. And on motion of Lastrilla, the court on
August 14, 1951, modified its order of delivery and merely declared that Lastrilla was entitled to
17 per cent of the properties sold.

ISSUE:
Whether or not Lastrilla may get back the shares he bought from Brown to pay the
partnerships indebtedness.

RULING:
No. In this case, Lastrilla became a partner of FELCO when he bought Brown’s share in
1949.
The record is not very clear, but there are indications, and we shall assume for the
moment, that Fred Brown was a partner of the FELCO, was defendant in Civil Case No. 193 as
such partner, and that the properties sold at auction actually belonged to the FELCO partnership
and the partners. We shall also assume that the sale made to Lastrilla on September 29, 1949, of
all the shares of Fred Brown in the FELCO was valid. The result then, is that on June 9, 1951
when the sale was effected of the properties of FELCO to Roberto Dorfe and Pepito Asturias,
Lastilla was already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a
creditor of the FELCO, perhaps or maybe. But he was no. The partner of a partnership is not a
creditor of such partnership for the amount of his shares. That is too elementary to need
elaboration.

D. OBLIGATIONS OF A PARTNER TO THIRD PERSONS: ARTICLES 1815-1827

38. PHILIPPINE NATIONAL BANK, VS. SEVERO EUGENIO LO, ET AL., SEVERIO
EUGENIO LO, NG KHEY LING AND YEP SENG, G.R. NO. L-26937

FACTS:
 On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together
with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a
commercial partnership under the name of "Tai Sing and Co.," with a capital of P40,000
contributed by said partners. One of the partners, J. A. Say Lian Ping was appointed general
manager of the partnership, with the appointed general manager of the partnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney
(Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his stead as manager and
administrator of "Tai Sing & Co.," on July 26, 1918, for, and obtained a loan of P8,000 in current
account from the plaintiff bank. This credit was renew several times
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the
latter represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by
virtue of which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff
bank on January 7, 1921, executing a chattel mortgage on certain personal property belonging to
"Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the plaintiff
bank, from the year 1918, to May 22, 192120,239.00 is the sum claimed in the complaint,
together with interest on the P16,518.74 debt, at 9 per cent per annum from January 1, 1925 until
fully paid, with the costs of the trial.
Appellants admit, and it appears from the context of Exhibit A, that the defendant
association formed by the defendants is a general partnership, as defined in article 126 of the
Code Commerce. This partnership was registered in the mercantile register of the Province of
Iloilo. The only anomaly noted in its organization is that instead of adopting for their firm name
the names of all of the partners, of several of them, or only one of them, to be followed in the last
two cases, by the words "and to be followed in the last two cases, by the words "and company"
the partners agreed upon "Tai Sing & Co." as the firm name.

ISSUE:
Does the anomalous adoption of the firm name affect the liability of the general partners
as to third parties?
HELD:
The anomalous adoption of the firm name above noted does not affect the liability of the
general partners to third parties under article 127 of the Code of Commerce. And the Supreme
Court so held in the case ofJo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in which
it said that the object of article 126 of the Code of Commerce in requiring a general partnership
to transact business under the name of all its members, of several of them, or of one only, is to
protect the public from imposition and fraud; and that the provision of said article 126 is for the
protection of the creditors rather than of the partners themselves. And consequently the doctrine
was enunciated that the law must be unlawful and unenforceable only as between the partners
and at the instance of the violating party, but not in the sense of depriving innocent parties of
their rights who may have dealt with the offenders in ignorance of the latter having violated the
law; and that contracts entered into by commercial associations defectively organized are valid
when voluntarily executed by the parties, and the only question is whether or not they complied
with the agreement. Therefore, the defendants cannot invoke in their defense the anomaly in the
firm name which they themselves adopted.

39. CO-PITCO V. YULO, 8 PHIL 544

FACTS:
Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the operation
of a sugar estate in Victorias, Island of Negros, and had commercial dealings with a Chinaman
named Dy-Sianco, who furnished them with money and goods, and used to buy their crop of
sugar. In February, 1903, the defendant, Pedro Yulo, father of the said Florencio, took charge of
the latter's interest in the above-mentioned partnership, and he became a general partner with the
said Jaime Palacios in the same business, and he continued as such partner until about the end of
1904, dealing with Dy-Sianco in the same manner as the old partnership had dealt with the latter.
He then finds that the balance due from the firm Pedro Yulo and Jaime Palacios was
1,638.40 pesos, Philippine currency, and orders judgment against the defendant, Pedro Yulo, for
the entire amount, with interest.

ISSUE:
What is the extent of Pedro Yulo’s liability as to the payment of the debt of
Yulo-Palacios Partnership?

HELD:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore a civil partnership, as distinguished from a mercantile partnership.
Being a civil partnership, by the express provisions of articles 1698 and 1137 of the Civil Code,
the partners are not liable each for the whole debt of the partnership. The liability is pro rata and
in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the
other partner, Jaime Palacios, had left the country can not increase the liability of Pedro Yulo.
The judgment of the court below is reversed and judgment is ordered in favor of the
plaintiff and against the defendant, Pedro Yulo, for the sum of P819.20 pesos, Philippine
Currency, with interest thereon at the rate of 6 per cent per annum from the 12th day of January,
1905, and the costs of the Court of First Instance. No costs will be allowed to either party in this
court.

40. ISLAND SALES, INC., VS. UNITED PIONEERS GENERAL CONSTRUCTION

COMPANY, ET. AL

FACTS:
On April 22, 1961, the defendant company, a general partnership duly registered under
the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis
and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal
monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the
subsequent installments on the 22nd day of every month thereafter, until fully paid, with the
condition that failure to pay any of said installments as they fall due would render the whole
unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel
A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as
co-defendants in their capacity as general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in default.
 Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary liability of each
partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant company. But the
trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the
liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the
defendant company.

ISSUE:
Whether or not the dismissal of the complaint to favor one of the general partners of a
partnership increases the joint and subsidiary liability of each of the remaining partners for the
obligations of the partnership.

HELD:
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts which may be
entered into in the name and for the account of the partnership, under its signature and by a
person authorized to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership.
Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code,
the partners are not liable each for the whole debt of the partnership. The liability is pro rata and
in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the
other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the partners is
pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 )
of the obligations of the defendant company. The fact that the complaint against the defendant
Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said
Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint,
the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

41. LA COMPAÑIA MARITIMA, VS. FRANCISCO MUÑOZ, ET AL., G.R. NO. L-3704

FACTS:
On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz, and
Rafael Naval formed on ordinary general mercantile partnership under the name of Francisco
Muñoz & Sons for the purpose of carrying on the mercantile business in the Province of Albay
which had formerly been carried on by Francisco Muñoz. Francisco Muñoz was a capitalist
partner and Emilio Muñoz and Rafael Naval were industrial partners. In the articles of
partnership, it is expressly stated that they have agreed to form, and do form, an ordinary, general
mercantile partnership. The object of the partnership, as stated in the fourth paragraph of the
articles, is a purely mercantile one and all the requirements of the Code of Commerce in
reference to such partnership were complied with. The articles of partnership were recorded in
the mercantile registry in the Province of Albay.
They named the partnership “Francisco Muñoz & Sons”. Francisco was the capitalist
partner while the other two were industrial partners. In the articles of partnership, it was agreed
upon by the three that for profits, Francisco shall have a 3/4th share while the other two would
have 1/8th each. For losses, only Francisco shall bear it. Later, the partnership was sued by La
Compañia Martitama for collection of sum of money amounting to P26,828.30. The partnership
lost the case and was ordered to make said payment; that in case the partnership can’t pay the
debt, all the partners should be liable for it.

The ruling is in accordance with Article 127 of the Code of Commerce which states: All
the members of the general copartnership, be they or be they not managing partners of the same,
are liable personally and in solidum with all their property for the results of the transactions
made in the name and for the account of the partnership, under the signature of the latter, and by
a person authorized to make use thereof.
Francisco now argues that the industrial partners should NOT be liable pursuant to
Article 141 of the Code of Commerce which states: Losses shall be charged in the same
proportion among the partners who have contributed capital, without including those who have
not, unless by special agreement the latter have been constituted as participants therein.

ISSUE:
Whether or not the industrial partners are liable to third parties like La Compañia
Martitama.

HELD:
Yes. The Supreme Court held that in limited partnership, the Code of Commerce
recognizes a difference between general and special partners, but in a general partnership there is
no such distinction — all the members are general partners. The fact that some may be industrial
and some capitalist partners does not make the members of either of these classes alone such
general partners.
The controlling law is Article 127. There is no injustice in imposing this liability upon
the industrial partners. They have a voice in the management of the business, if no manager has
been named in the articles; they share in the profits and as to third persons it is no more than
right that they should share in the obligations. It is admitted that if in this case there had been a
capitalist partner who had contributed only P100 he would be liable for this entire debt of
P26,000.
Article 141 relates exclusively to the settlement of the partnership affairs among the
partners themselves and has nothing to do with the liability of the partners to third persons; that
each one of the industrial partners is liable to third persons for the debts of the firm; that if he has
paid such debts out of his private property during the life of the partnership, when its affairs are
settled he is entitled to credit for the amount so paid, and if it results that there is not enough
property in the partnership to pay him, then the capitalist partners must pay him.
In relation to this, the Supreme Court noted that partnerships under the Civil Code
provides for a scenario where all partners are industrial partners (like when it is a partnership for
the exercise of a profession). In such case, if it is permitted that industrial partners are not liable
to third persons then such third persons would get practically nothing from such partnerships if
the latter is indebted.

42. DIETRICH V. FREEMAN AND WHITCOMB, 18 Phil 341

FACTS:
Plaintiff Dietrich was employed by defendants Freeman, and Whitcomb as owners and
operators of Manila Steam Laundry He filed the action to collect from defendants the balance
due to him for the services he performed. The trial court held Freeman and Whitcomb jointly and
severally liable to Dietrich.
Whitcomb appealed the decision insisting that he should not be held jointly and severally
liable with Freeman. Freeman was the managing partner of the laundry and Whitcomb barely
had a hand on the operations of the business.

ISSUE:
Whether or not Whitcomb is liable to Freeman

RULING:
In determining the liability of Freeman, the Court first identified the nature of the
business. Art 17 and 119 of the Code of Commerce then applicable, provide the requirements for
the constitution of a commercial partnership. The requirements were not complied with. The
Court therefore held that no formal partnership was entered into between Freeman and
Whitcomb. As such, the Civil Code must govern in determining the liability of the partners.
Since the partners were doing business under Manila Steam Laundry, and since it is not a
commercial partnership, Articles 1698 and 1137 of the Civil Code should govern and the
partners are not liable individually for the entire amount due the plaintiff. The liability is pro rata
and in this case the appellant is responsible to the plaintiff for only one-half of the debt.

43. SANTIAGO SYJUCO, INC. VS. CASTRO, 175 SCRA 171

FACTS:
Eugenio Lim, along with his brothers, all hereinafter collectively called the Lims,
borrowed from petitioner Santiago Syjuco, Inc. the sum of 800,000.00. The loan was given on
the security of a first mortgage on property registered in the names of said borrowers as owners
in common. Thereafter, additional loans on the same security were obtained by the Lims from
Syjuco, so that the aggregate of the loans stood at 2,460,000.00, exclusive of interest.
When the obligation matured, the Lims failed to pay it despite demands therefor and
consequently, Syjuco caused extra-judicial proceedings for the foreclosure of the mortgage.
The attempt to foreclose triggered off a legal battle that has dragged on for 20 years, through 5
cases in the courts. Respondents advocated the theory that the mortgage, which they had
individually constituted, in fact no longer belonged to them, having been earlier deeded over by
them to the partnership, “Heirs of Hugo Lim”, making the said mortgage void because it was
executed by them without authority from the partnership.
ISSUE:
Whether or not the Lim’s are estopped from to asserting the existence of the partnership?

HELD:
Yes. The court holds that the respondent partnership was inescapably chargeable with
knowledge of the mortgage executed by all the partners thereof, and therefore its silence and
failure to impugn said mortgage within a reasonable time, let alone a space of more than 17
years, brought into play the doctrine of estoppel to preclude any attempt to avoid the mortgage as
allegedly unauthorized.
Also, Art. 1819 states that, “where the title to real property is in the names of all the
partners, a conveyance executed by all the partners passes all their rights in such property.”
Consequently, those members' acts, declarations and omissions cannot be deemed to be simply
the individual acts of said members, but in fact and in law, those of the partnership.

44. BENITO LIWANAG AND MARIA LIWANAG REYES, VS. WORKMEN’S

COMPENSATION COMMISSION, ET AL.

FACTS:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply, a commercial guard who while in line of duty, was skilled by criminal hands. His widow
Ciriaca Vda. de Balderama and minor children Genara, Carlos and Leogardo, all surnamed
Balderama, in due time filed a claim for compensation with the Workmen's Compensation
Commission.
Appellants do not question the right of appellees to compensation nor the amount
awarded. They only claim that, under the Workmen's Compensation Act, the compensation is
divisible, hence the commission erred in ordering appellants to pay jointly and severally the
amount awarded. They argue that there is nothing in the compensation Act which provides that
the obligation of an employer arising from compensable injury or death of an employee should
be solidary obligation, the same should have been specifically provided, and that, in absence of
such clear provision, the responsibility of appellants should not be solidary but merely joint.

ISSUE:
Whether or not partners in partnership are solidary liable in case an employee died in line
of duty

RULINGS:
Yes. Partners in partnership are solidary liable in case an employee died in line of duty.
The provisions of the new Civil Code taken together with those of Section 2 of the
Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of
business partners, like appellants, should be solidary; otherwise, the right of the employee may
be defeated, or at least crippled. If the responsibility of appellants were to be merely joint and
solidary, and one of them happens to be insolvent, the amount awarded to the appellees would
only be partially satisfied, which is evidently contrary to the intent and purposes of the Act. In
the previous cases we have already held that the Workmen's Compensation Act should be
construed fairly, reasonably and liberally in favor of and for the benefit of the employee and his
dependents; that all doubts as to the right of compensation resolved in his favor; and that it
should be interpreted to promote its purpose. Accordingly, the present controversy should be
decided in favor of the appellees.

45. PAUL MACDONALD, ET AL., VS. THE NATIONAL CITY BANK OF NEW YORK

FACTS:
STASIKINOCEY is a partnership by Alan W. Gorcey, Louis F. da Costa, Jr., William
Kusik and Emma Badong Gavino. As alleged in various instruments appearing of record, said
Cardinal Rattan is merely the business name or style used by the partnership Stasikinocey. Prior
to June 3, 1949, Defendant Stasikinocey had an overdraft account with The National City Bank
of New York, a foreign banking association duly licensed to do business in the Philippines. On
June 3, 1949, the overdraft showed a balance of P6,134.92 against theDefendant Stasikinocey
“While the said loan was still unpaid and the chattel mortgage
subsisting, Defendantpartnership, through Defendants Gorcey and Da Costa transferred
to Defendant McDonald the Fargo truck and Plymouth sedan on June 24, 1949 (Exhibit L). The
Fargo pickup was also sold on June 28, 1949, by William Shaeffer to Paul McDonald.
The National City Bank of New York, Respondent herein, upon learning of the transfers
made by the partnership Stasikinocey to William Shaeffer, from the latter to Paul McDonald, and
from Paul McDonald to Benjamin Gonzales, of the vehicles previously pledged by Stasikinocey
to the Respondent, filed an action against Stasikinocey and its alleged partners Gorcey and Da
Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its credit and to foreclose
the corresponding chattel mortgage. McDonald and Gonzales were made Defendants because
they claimed to have a better right over the pledged vehicle.

ISSUE:
Since an unregistered commercial partnership unquestionably has no juridical
personality, can it have a domicile so that the registration of a chattel mortgage therein is notice
to the world?
Does only one of several ‘partners’ of an unregistered commercial partnership have
authority, by himself alone, to execute a valid chattel mortgage over property owned by the
unregistered commercial partnership in order to guarantee a pre-existing overdraft previously
granted, without guaranty, by the bank?

HELD:
While an unregistered commercial partnership has no juridical personality, nevertheless,
where two or more persons attempt to create a partnership failing to comply with all the legal
formalities, the law considers them as partners and the association is a partnership in so far as it
is a favorable to third persons, by reason of the equitable principle of estoppel. Da Costa and
Gorcey cannot deny that they are partners of the partnership Stasikinocey, because in all their
transactions with the Respondent they represented themselves as such. Petitioner McDonald
cannot disclaim knowledge of the partnership Stasikinocey because he dealt with said entity in
purchasing two of the vehicles in question through Gorcey and Da Costa.
 In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa
appears as a co-manager in the letter of Gorcey to the Respondent and in the promissory note
executed by Da Costa, and that even the partners considered him as such, as stated in the
affidavit of April 21, 1948, to the effect that “That we as the majority partners hereby agree to
appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly approved managing
partner of the said firm,” the “partner” who executed the chattel mortgage in question must be
deemed to be so fully authorized. Section 6 of the Chattel Mortgage Law provides that when a
partnership is a party to the mortgage, the affidavit may be made and subscribed by one member
thereof. In this case the affidavit was executed and subscribed by Da Costa, not only as a partner
but as a managing partner.

46. PIONEER INSURANCE AND SECURITY CORPORATION V. CA, 175 SCRA 668

FACTS:
Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air
Lines (SAL) a single proprietorship. Japan Domestic Airlines (JDA) and Lim entered into a
contract of sale of two DC-3A Type aircrafts and 1 set of necessary spare parts for US
$109,000.00 to be paid in installments. Pioneer Insurance and Surety Corporation, as surety,
executed and issued its Surety Bond No. 6639 in favor of JDA, in behalf of its principal, Lim, for
the balance price of the aircrafts and spare parts.
Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline business. They
executed 2 separate indemnity agreements in favor of Pioneer, wherein they bound themselves
jointly and severally to indemnify Pioneer from and against any/all damages, losses, or costs
which Pioneer may incur in consequence of having become surety.
Later, Lim, in his capacity as the sole proprietor of SAL, executed in favor of Pioneer as
deed of chattel mortgage as security for the latter's suretyship in favor of the former. Lim
defaulted on his subsequent installment payments prompting JDA to request payments from the
surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage
before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party
claim alleging that they are co-owners of the aircrafts. Pioneer filed an action for judicial
foreclosure with an application for a writ of preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against
Lim alleging that they were not privies to the contracts signed by Lim and, by way of
counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of
money they advanced to Lim for the purchase of the aircrafts in question.

ISSUE:
Is there a de facto partnership that was created among the Lim, the Cervanteses,
Bormaheco, and Maglana which would entitle Lim to a reimbursement of the supposed losses of
the proposed corporation?
HELD:
No de facto partnership was created.
It is ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter se. However,
such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the
relation of partners, as between themselves, when their purpose is that no partnership shall exist.
No de facto partnership was created among the parties which would entitle the petitioner
to a reimbursement of the supposed losses of the proposed corporation. The record shows that
the petitioner was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.

47. LEONCIA VIUDA DE CHAN DIACO (ALIAS LAO LIONG NAW) VS. JOSE S. Y.
PENG, G.R. NO. L-29182

FACTS:
Leoncia Vda. de Chan Diaco (Lao Liong Naw), owner of a grocery store (La Viuda de G.
G. Chan Diaco), formed a partnership (Lao Liong Naw & Co.) with her relatives Chan Chiaco
Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan Chan.San Miguel Brewery,
Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted insolvency proceedings against
Vda. de Chan Diaco, alleging that the latter was indebted to them. The court declared Vda. de
Chan Diaco insolvent and ordered the sheriff to take possession of her property, consisting of
some merchandise. Judge Simplicio del Rosario appointed Ricardo Summers, as referee,
authorizing him to take further evidence. Summers recommended that Vda. de Chan Diaco
deliver to Jose S. Y. Peng, assignee of SMB, PPC and RRSC, a certain sum of money, accounts
receivable, and books of account. Judge del Rosario approved Summers’ recommendation and
ordered the merchants Cua Ico, Chan Keep, and Simon A. Chan Bona to show cause why they
should not return the merchandise allegedly delivered to them by Vda. de Chan Diaco, together
with P5,000 in cash, allegedly received from Vda. de Chan Diaco by Ico. Attorney for Vda de
Chan Diaco filed a motion to dismiss the proceedings, alleging that it should have been brought
against LLNC. Judge del Rosario suspended his previous order, appointing Summers as referee.
Summers found that LLNC was only a fictitious organization created for the purpose of
deceiving the Bureau of Customs and enabling some of the partner-relatives to come to the
Philippines under the status of merchants. Judge Francisco Zandueta, who temporarily replaced
Judge del Rosario, disapproved Summers’ recommendation, affirmed the suspension of Judge
del Rosario’s previous order, dismissed the insolvency proceedings, ordered the return of all the
properties of Vda. de Chan Diaco, and provided for leave of Peng to file a new petition for
insolvency against LLNC.

ISSUE:
Whether or not Vda. de Chan Diaco may be held liable for the debt allegedly contracted
by LLNC.

HELD:
YES. LLNC has no visible assets. The partners, individually, must jointly and
severally respond for its debts (Art. 127, Code of Commerce). As Vda. de Chan Diaco is one of
the partners and admits that she is insolvent, there is no reason for the dismissal of the
proceedings against her. Both the partnership and the separate partners thereof may be
joined in the same action, though the private property of the latter cannot be taken in
payment of the partnership debts until the common property of the concern is
exhausted (Comapnia Maritima vs. Munoz, 9 Phil., 326)

E. DISSOLUTION AND WINDING UP: ARTICLES 1828-1842

48. BENJAMIN YU, VS. NATIONAL LABOR RELATIONS COMMISSION, G.R. ​NO.
97212

FACTS
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name of "Jade
Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally
organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin
Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as
limited partners.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea
Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery
of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the main
that Benjamin Yu was never hired as an employee by the present or new partnership.
The basic contention of petitioner is that t the principle that a partnership has a juridical
personality separate and distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade
Mountain could not have been affected by changes in the latter's membership.

ISSUE:
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether
the partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta;
and (2) if indeed a new partnership had come into existence, whether petitioner Yu could
nonetheless assert his rights under his employment contract as against the new partnership.

HELD:
The Supreme Court decided on the affirmative in both issues. The occurrence of events
which precipitate the legal consequence of dissolution of a partnership do not, however,
automatically result in the termination of the legal personality of the old partnership. Article
1829 of the Civil Code states that:
 [o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists
for the limited purpose of winding up and closing of the affairs of the partnership. In the case at
bar, it is important to underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the procedures relating to
dissolution and winding up of its business affairs. In other words, the new partnership simply
took over the business enterprise owned by the preceding partnership, and continued using the
old name of Jade Mountain Products Company Limited, without winding up the business affairs
of the old partnership, paying off its debts, liquidating and distributing its net assets, and then
re-assembling the said assets or most of them and opening a new business enterprise.
Under Article 1840, creditors of the old Jade Mountain are also creditors of the new Jade
Mountain which continued the business of the old one without liquidation of the partnership
affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his
claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous
partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is not
necessary for the Court to determine under which one or more of the above six (6) paragraphs,
the case at bar would fall, if only because the facts on record are not detailed with sufficient
precision to permit such determination. It is, however, clear to the Court that under Article 1840
above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the new Jade Mountain.

49. TESTATE ESTATE OF LAZARO MOTA, ET AL., VS. SALVADOR SERRA, G.R. NO.
L-22825

FACTS:
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 ½ 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.

ISSUE:
Whether or not the dissolution of partnership extinguish liabilities.

RULING:
Serra is still liable to the partnership.
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.
The dissolution of a partnership does not extinguish its obligations already incurred, and
the partnership continues until they are liquidated, although it may not incur new obligations.

50. DOMINGO BEARNEZA V. BALBINO DEQUILLA, GR NO. 17024 (MARCH 24, 1922)

Facts:
Balbino Dequilla and Perpetua Bearneza formed a partnership for the purpose of
exploiting a fish pond in Talisay, Iloilo. Perpetua contributed to the payment of the business, and
both agreed to divide the profits between themselves, which they had been doing until the death
of Perpetua in 1912. When Perpetua died, she left a will and appointed Domingo Bearneza as her
heir to all the rights and interests in the fish pond. Domingo demanded the delivery of the part
belonging to Perpetua, however, Dequilla refused. Bearneza brought an action to recover
one-half of the profits received from the year 1913 to 1919 with damages amounting to P13,100.
Dequilla alleged that Perpetua Bearneza refused to defray the expenses of reconstruction and
exploitation of the fish pond. The lower court decided in favor of Bearneza, he is entitled to the
one-half of the fish pond but the court does not award him of any damages. Dequilla appealed
the case, hence this case.

ISSUE:
Whether or not Bearneza has any right to maintain an action for the recovery of the
one-half of the fish pond.

HELD:
None. The partnership formed by Perpetua Bearneza and Balbino Dequilla was a
particular partnership, as defined in Article 1678 of the Civil Code, it having had for its
subject-matter a specified thing which is the exploitation of the fish pond. Although Dequilla
addressed in his letters to Perpetua or her husband, 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 the land, and Dequilla has been
paying as the exclusive owner of the fish pond. The evidence showed that the land on which the
fish pond was constructed did not constitute a part of the subject-matter of the partnership. This
partnership not having been organized in the form of a mercantile partnership, 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
article 1700 of the Civil Code. It can’t 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 Dequilla. 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 were those resulting from the 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.
51. URBANO LOTA VS. BENIGNO TOLENTINO, G. R. N O. L-3518

FACTS:
In 1918, Urbano Lota and Benigno Tolentino agreed to enter into a partnership of general
business in Batangas.
In 1937, Lota filed an action against Tolentino to order him to render an accounting of his
management of the partnership and to deliver Lota’s share in the assets of the partnership after
court approval of liquidation.
In 1938, Urbano Lota died and the following year, Solomon Lota, his estate
administrator, substituted him. Tolentino died in 1939. The case was dismissed by the trial court
in 1941 for lack of prosecution. However, the order was reconsidered when it was shown that
Solomon Lota filed a petition requesting Tolentino’s wife to substitute for the deceased as
defendant. This petition was dismissed as well for failure of the wife to file a bond and take her
oath.
In 1949, Solomon Lota filed another petition for the purpose of substituting for the
deceased defendant, this time Lota was requesting the heirs be substituted for him as parties.

ISSUE:
Whether a deceased partner may be substituted by his heir as party to an action for
accounting and liquidation of a partnership

RULING:
No, the action for substitution filed by the plaintiff must be denied. The Supreme Court
ruled that the duty to account died with the defendant and was not transferred to his heirs. The
heirs of the defendant have never been partners in the partnership and they are hardly in the
position to effect an accounting of the partnership. As alleged by the heirs of Tolentino in their
answer, the nature of the action for accounting and liquidation of partnership is purely personal
in character and upon the death of the partner sued, it was already extinguished.
The Court also decided that when a member of a partnership dies, the duty of liquidating
its affairs devolves upon the surviving members not upon the legal representatives of the
deceased partner. In this case where plaintiff died prior to the defendant, it is the duty of the legal
representative to liquidate because he is the one seeking to establish a claim against the
defendant.

52. ANTONIO C. GOQUIOLAY, ET AL. VS. WASHINGTON Z. SYCIP, ET AL., G.R. NO.
L-11840

Facts:
Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our
holding, 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, in any event, the sale should be set aside because it was executed with the
intent to defraud appellant of his share in the properties sold. Three things must be always held in
mind in the discussion of this motion to reconsider, being basic and beyond controversy: (a) that
we are dealing here with the transfer of partnership property by one partner, acting in behalf of
the firm, to a stranger. (b) That partnership was expressly organized: "to engage in real estate
business, either by buying and selling real estate". (c) That the properties sold were not part of
the contributed capital (which was in cash) but land precisely acquired to be sold, although
subject to a mortgage in favor of the original owners, from whom the partnership had acquired
them.

ISSUE:
Whether Kong Chai Pin is a limited partner

HELD:
The Supreme Court held that, no, Kong Chai Pin is not a limited partner, It is argued that
the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property,
and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889.
What this argument 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. The reason is plain: Under
the law (Article 148, last paragraph, 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. (Emphasis
supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that
she desired to be considered a general partner. By authorizing the widow to manage partnership
property (which a limited partner could not be authorized to do), Goquiolay recognized her as
such partner, and is now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.

53. ANTONIO C. GOQUIOLAY, ET AL. VS. WASHINGTON Z. SYCIP, ​ET AL., G.R. NO.
L-11840 (RESOLUTION ON THE MOTION FOR RECONSIDERATION)

FACTS:
In the main decision, the Supreme Court upheld the validity of the sale of the lands
owned by the partnership Goquiolay & Tan Sin An, made by Kong Chai Pin, Tan Sin An’s
widow. The sale was executed in Kong Chai Pin’s dual capacity as Administratrix of her
husband’s estate and as partner in lieu of her husband.
In Goquiolay’s motion for reconsideration, he insisted that Kong Chai Pin never became
more than a limited partner. He also contended that she is incapacitated by law to manage the
affairs of the partnership 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 appellant admitted that he was asked if he can let Kong Chai Pin continue to manage
the properties as she had no other means of income. He said that “she could just do it and besides
I am not interested in agricultural lands. I allowed her to take care of the properties in order to
help her and because I believe in God and wanted to help her”. The appellant subsequently
ratified his testimony and stated that the plantation was being occupied at that time by the widow
and they are receiving quite a lot of benefit from the plantation.

ISSUE:
Did Kong Chai Pin have the authority to sell the disputed properties? Is the sale valid?

HELD:
The widow was not a mere agent , because she had become a partner upon her partner’s
death, as expressly provided in the articles of co-partnership. Even more, granting that by
succession to her husband, the widow only became a limited partner, Goquiolay’s authorization
to manage the partnership was proof that he considered and recognized her as general partner.
Under Article 148, last paragraph of the Code of Commerce, the 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.
By seeking authority to manage partnership property, Tan Sin An's widow showed that
she desired to be considered a general partner. By authorizing the widow to manage partnership
property (which a limited partner could not be authorized to do), Goquiolay recognized her as
such partner, and is now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.
In addition, Article XII of the Articles of Co-Partnership involved 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 partner; 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 assigns. 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 does actually contemplate that the heirs would become general
partners rather than limited ones.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage * * * in buying and selling real estate" as provided in Art IV, No. 1 of the
Articles of Copartnership, it cannot be maintained that the sale was made in excess of her powers
as general partner.

54. NG CHO CIO V. NG DIONG

FACTS:
A co-partnership in the name of NG CHIN BENG HERMANOS was formed for a 26
year lifetime ( end: 1941) and obtained a loan from National Loan and Investment Board (NLIB)
secured by a mortgage owned by the partnership. When the partnership was declared insolvent
upon the petition of the creditors, properties were assigned to Mr. Melocoton. There was a
composition agreement between the creditors and partners to enter into at the insolvency
proceeding however Julian Go already acquired rights of the creditors prior to the agreement.
NLIB assigned its rights to the loan of the partnership to Hodges for the sum of 80K together
with mortgage rights.
Because of nonpayment of the partnership, Hodges filed a complaint that assignee be
ordered to pay him the sum of 75K+ plus attorney fees in 1941. However, war broke and there
was continuance of the civil proceeding. In 1945, partners and Julian Go, a creditor of
partnership filed a petition to terminate insolvency proceedings because composition agreement
has been approved in 1940. Court then ordered that the properties be reconveyed to the
partnership by the assignee and the partnership regained its juridical personality. Because of the
indebtedness of the firm, Ng Diong sold properties mortgaged to Hodges for the fulfilment of the
partnership’s obligations to creditors to include Hodges. However the partnership was still
indebted to Julian Go pursuant to the composition agreement. Thus, Diong, in behalf of the
partnership, transferred the right to repurchase tne land from Hodges to Julian Go in full payment
for the debt.

ISSUE:
Whether the sale made by Ng Diong void after the termination of the insolvency
proceeding regarding the partnership because properties involved are in custodial legis?

RULING:
No. The actual reconveyance from the assignee to the partnership was done before the
sale of the parcel of lands. Because of the reconveyance, insolvency of the partnership ceased
and again acquired its personality as such with Ng Diong as its general manager. From that date,
its properties ceased to be in custodial legis vesting the rights to the properties in partnership. Ng
Diong made the sale in the exercise of the power granted by him in the partnership. By virtue of
the power vested in him by the articles of partnership, the sale after the termination of insolvency
proceeding was valid.

55. EUGENIA LICHAUCO V. FAUSTINO LICHAUCO, G.R. NO. L-10040

FACTS:
The parties organized a partnership for the purpose of carrying on a rice-cleaning
business at Dagupan and for the purchase and sale of "palay" and rice. The capital invested in the
enterprise was fixed at P100, 000. The defendant manager contributed a machinery worth
P60,000 while each plaintiff contributed cash in a varying proportion. One of their agreements
was that the association cannot be dissolved except by the consent and agreement of two-thirds
of its partners.
The business that they organized was carried on until May, 1904, when it was found to be
unprofitable, bankrupt, and discontinued by the defendant manager (gestor). Also, the machinery
of the rice mill was dismantled by his orders, and offered for sale.
The plaintiffs made repeated unsuccessful demands for the rendition of accounts and
return of their share of the capital invested in the enterprise. However, the defendant never made
an accounting to his associates or made an effort to turn over the amount due them on a proper
accounting. According to the defendant, there can be no accounting since there is no dissolution
of the partnership yet because the consent of two-thirds of its partners was not obtained.
ISSUES:
1. Whether or not the consent of two-thirds of the partners is necessary for the partnership
tobe extinguished
2. Does the defendant-manager have a duty to make accounting?

HELD:
1. NO. The agreement of the partners requiring that there be consent given by
two-thirds of them before the partnership can be extinguished, restricted the express mandate of
statutory law.
Aside from Art. 1700 of the Civil Code which enumerates the instances when partnership
can be extinguished, Articles 221 of the Code of Commerce also provides: the entire loss of the
capital and the failure of the association, among others, as some of the circumstances when
partnership can be extinguished.
It cannot be doubted that under these provisions of law, the association was totally
dissolved in the year 1904 when the rice mill for the operation was dismantled, the machinery
offered for sale, and the whole enterprise concluded and utterly abandoned.
2. YES. Upon the dissolution of the association in 1904, it became the duty of the
defendant to liquidate its affairs and account to his associates for their respective shares in the
capital invested — this not merely from the very nature of his relation to the enterprise and of his
duties to those associated with him as partners, but also by the express mandate of the law. Upon
his failure to perform that duty, all or any of the partners had a clear legal right to compel him to
fulfill it.

56. SONCUYA V. DE LUNA G.R. NO. L-45464,

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.

57. MANUEL G. SINGSONG VS. ISABELA SAWMILL, G.R. NO. L-27343

FACTS:
On January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo
Tubungbanua entered into a Contract of Partnership under the firm name "Isabela Sawmill". On
February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the
partnership Isabela Sawmill. The partnership was not able to pay whole amount even after the
demand was paid. Thereafter, Margarita who was one of the partners, withdrew from the
partnership. LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno entered into a
"Memorandum Agreement", stating that the remaining partners will constitute themselves as
“Isabela Sawmill”. The remaining partners did not terminate the business of the partnership.
Instead of winding up the business of the partnership, they continued the business still in the
name of said partnership.

ISSUE:
Whether the withdrawal of one of the partners dissolved the partnership.

HELD:
No, the withdrawal of Margarita Saldejeno did not dissolve the partnership. It is true that
the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying
on of the business. However, on dissolution, the partnership is not terminated but continuous
until the winding up to the business. The remaining partners did not terminate the business of
the partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they
continued the business still in the name of said partnership. It is expressly stipulated in the
memorandum-agreement that the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". There was no liquidation of the assets of the
partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing
the business of the partnership in the name of "Isabela Sawmill". They used the properties of said
partnership. Thus, there was no dissolution.

58. PO YENG CHEO, VS. LIM KA YAM, G.R. NO. L-18707

FACTS:
Po Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in
Manila under the style of Kwong Cheong Tay. This business existed as a mercantile partnership
with a capitalization of P160,000 and engaged in the import and export trade; after the death of
Po Gui Yao the following seven persons were interested therein as partners in the amounts set
opposite their respective names: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam,
P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000;
Lee Ho Yuen, P10,000. The manager of Kwong Cheong Tay was Lim Ka Yam.
 In 1910, Kwong Cheong Tay ceased to do business. Lim Ka Yam failed to submit to the
partners any formal liquidation of the business, though repeated demands have been made upon
him by the plaintiff.
The trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to recover of
the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the interest of the plaintiff in
the capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in shares in the the
properties and other assets of Kwong Cheong Tay.

ISSUE:
Whether or not the plaintiff can recover from defendant.

HELD:
No.
The managing partner of a mercantile enterprise is not a debtor to the shareholders for the
capital embarked by them in the business; and he can only be made liable for the capital when,
upon liquidation of the business, there are found to be assets in his hands applicable to capital
account.
It is elementary that one partner, suing alone, cannot recover of the managing partner the
value of such partner's individual interest; and a liquidation of the business is an essential
prerequisite. In the present case, the shares referred to--constituting the only assets of Kwong
Cheong Tay--have not been converted into ready money and doubtless still remain in the name
of Kwong Cheong Tay as owner. Under these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which would
be equivalent to allowing one of several coowners to recover from another, without process of
division, a part of an undivided property.
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. And the same rule must be equally
applicable to a civil partnership clothed with the form of a commercial association.
The judgment must be reversed and the defendant will be absolved from the complaint.

59. LAGUNA TRANSPORTATION CO., INC. V. SOCIAL SECURITY SYSTEM, 107 SCRA 833

FACTS:
Petitioner Laguna Transportation filed with the CFI of Laguna a petition praying that an
order be issued by the court declaring that it is not bound to register as a member of the SSS
and, therefore, not obliged to pay the latter contributions. Their reason is that they were not
covered by RA NO.1161 or the Social Security Act. They stated that they started operation only
on June 20,1956 and not April 1,1949.

ISSUE:
Whether Laguna Transportation Co.,Inc is covered by RA.no.1161?
RULING:
Sec.9 of the Social Security Act is clear. The petitioners belonged to the group subject of
compulsory coverage. They started to operate on April 1,1949. The convertion of the partnership
into a corporate entity does not remove them from the coverage. The corporation continued the
same business of the unregistered partnership, using the same lines and equipment. As a rule,
Courts will look to the substance and not to the form.

60. SERGIO V. SISON, VS. HELEN J. MCQUAID, G.R. NO. L-6304

FACTS:
Helen J. Mcquaid, the defendant, borrowed from Sergio V. Sison, the plaintiff, an amount
aggregating P2,210 for her to pay his debt and to add as capital to her lumber business. Unable to
pay her loan on the time promised, defendant proposed to take plaintiff as partner in her lumber
business, plaintiff to contribute P2,210 due him from defendant in addition to his personal
services. Plaintiff agreed and a partnership was formed.
Before the last world war, the partnership sold to US Army 230,000 board feet of lumber
amounting to P13,800. Despite the plaintiff’s repeated demands, the defendant persistently
refused to give him ½ of the proceeds or P6,900.Plaintiff brought an action in the CFI of Manila
against defendant to pay him the sum of P6,900 plus damages and cost. Defendant filed a motion
to dismiss. Court dismissed the case on the ground of prescription.

ISSUE:
Whether or not the plaintiff is entitled to the sum of P6,900.

HELD:
No. Court dismissal was affirmed, but on the ground that the complaint states no cause of
action.
The defense of prescription cannot be sustained. It is not clear from the allegations of the
complaint just when the plaintiff’s cause of action accrued. However, court dismissal is upheld
on the ground that complaint states no cause of action. Plaintiff seeks to recover from defendant
one-half of the purchase price of lumber sold by the partnership to the US 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.

61. DE LA ROSA V. ORTEGA GO – COTAY, G.R. NO. L-24243

FACTS:
Go-Lio and Vicente Go-Seng formed a society for the purchase and sale of articles of
commerce. The former eventually fled the country for China, and the latter died; thus, his son
Enrique Ortega Go-Cotay assumed responsibility over their business. Go-Lio’s heirs appointed
the plaintiff as the administrator of Go-Lio’s estate, and for this reason he had requested the
respondent to wind up the business and deliver to him the portion corresponding to the deceased.
The respondent retorted that the business was exclusively his. De la Rosa petitioned the CFI,
where he prayed that Cotay be ordered to deliver to him one-half of all the property belonging to
the partnership formed by the two chinamen.
On August 9, 1918, the defendant filed a bond woth P10,000, in order to prevent Justo
Cabo-Chan from assuming the office of a receiver.
On December 13, 1924, the trial court upheld the commissioner’s report which found that
the result of the liquidation showed liabilities to the amount of P89,690.45 in view of which
plaintiff had nothing to recover from defendant, as there was no profit to divide. In his appeal,
Cotay contended that the lower court had erred in holding that the partnership had incurred debts
and suffered losses.

ISSUE:
Whether the respondent is personally liable for the losses.

RULING:
Yes. On August 9, 1918, defendant 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. 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.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.

62. MAGDUSA, ET AL. VS. ALBARAN, ET AL, G.R. NO. L-17526

FACTS:
Appellant and appellees, together with various other persons, had verbally formed a
partnership de facto, for the sale of general merchandise to which appellant contributed P2,000
as capital, and the others contributed their labor, under the condition that out of the net profits of
the business, 25% would be added to the original capital, and the remaining 75% would be
divided among the members in proportion to the length of service of each. Sometime in 1953 and
1954, the appellees expressed their desire to withdraw from the partnership, and appellant
thereupon made a computation to determine the value of the partners' shares to that date. The
results of the computation were embodied in the document drawn in the handwriting of
appellant. Appellees thereafter made demands upon appellant for payment, but appellant having
refused, they filed the initial complaint. 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 can collect their shares in the partnership.

HELD:
No. A partner's share cannot be returned without first dissolving and liquidating the
partnership, for the return is dependent on the discharge of the creditors, whose claims enjoy
preference over those of the partners; and it is 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.

63. ANTONIO LIM TANHU, ET AL. V. HON JOSE RAMOLETE, GR NO. L-40098

FACTS:
Tan Put, the widow of Tee Hoon Lim Po Chuan, was a partner in the commercial
partnership, Glory Commercial Company with Antonio Lim Tanhu and Alfonso Ng Sua. After
the death of Chuan, without liquidation, Tanhu and Sua continued the business by purportedly
organizing a corporation which money and assets of the corporation are actually the assets of the
partnership which Tan has a share of one-third. Tanhu, through fraud and misrepresentation,
convince Tan Put to execute a quitclaim of all her rights and interests in the assets of the
partnership. Tanhu and others managed to use the funds of the partnership to purchase lands and
buildings in the cities and municipalities of Cebu. When Tan formally demanded the accounting
of real and personal properties of the Glory Commercial Company, Tanhu refused and stated that
they would not give the share of Tan. Tanhu alleged that Tan has no legal capacity to sue since
Po Chuan was legally married to Ang Siok Tin with 4 legitimate children residing in Hong
Kong, and proper liquidation had been regularly made of the business of the partnership and Po
Chuan used to receive his just share until his death, as a result of which the partnership was
dissolved and what corresponded to him were all given to his wife and children.
ISSUE:
Whether or not Tan Put is entitled to receive one-third of the share.

HELD:
No. There is no competent evidence showing the authenticity of the marriage of Tan and
Po Chuan. The income tax return of the deceased indicate Ang Siok Tin as his wife and a
quitclaim where Tan Put stated that she had been living with Po Chuan without the benefit of
marriage and she was his common-law wife are documents of great weight belying the pretended
marriage. Since the existence of quitclaim has been duly established, the court held that she was
bound by her admission and that she had renounced for valuable consideration whatever claim
she might have relative to the partnership Glory Commercial Co. Also, a document containing
the agreement of Tan Put and Po Chuan proved that the relation of Tan Put to Po Chuan was that
of a common-law wife but they had settled their property interests with the payment of P40,000.
The existence of the partnership has not been denied, Tanhu and Sua were partners in the name
but they were employees of Po Chuan and they had no means of livelihood at the time of their
employment with the Glory Commercial Co. Po Chuan was the one who actively managed the
business of the partnership, he was the one who made the final decisions and approved the
appointment of new personnel who were taken in by the partnership. The real properties together
with the improvements in the names of Tanhu and Sua were acquired with partnership funds as
they were only partners-employees of Po Chuan until the time of his death. Nothing showed that
Tanhu and Sua extracted money from the partnership in the fraudulent and illegal manner. The
tax declarations and land titles acquired by Tanhu and Sua with funds of the partnership appear
to have been transferred to their names only long after the partnership had been automatically
dissolved as a result of the death of Po Chuan. Accordingly, Tanhu and Sua 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.

64. CRISTOBAL BONNEVIE, ET AL VS. JAIME HERNANDEZ, G.R. NO. L-5837

FACTS:
Prior to January, 1947, plaintiffs with other associates formed a syndicate or secret
partnership for the purpose of acquiring the plants, franchises and other properties of the Manila
Electric Co. (Meralco) in Camarines Sur, Albay, and Sorsogon, with the idea of continuing that
company's business in that region. No formal articles were drawn.
Jaime Hernandez was taken in as a member of the partnership and using partnership
funds, he was able to buy the Meralco properties for P122,000, paying P40,000 upon the signing
of the deed of sale and agreeing to pay the balance in two equal installments and with a penalty
clause that nonpayment of that obligation would result in the partnership losing its entire
investment.
On April 10, 1947, plaintiffs and Judge Reyes withdrew from the partnership, reimbursed
their respective contributions to the partnership fund, and, as admitted by both parties, the
partnership was then dissolved.
Following the dissolution of the partnership, the members who preferred to remain in the
business went ahead with the formation of a new corporation named "Bicol Electric Company.
Though business was losing during the first year, the corporation later prospered and made
money.
 At that time, plaintiffs filed an action for the recovery of the sum of P115,312.50, with
interests, as their alleged share in the profits of a partnership.
The lower court dismissed the complaint. It found that the partnership had not realized
any profit out of the assignment of the Meralco properties to the corporation and that, even
supposing that profit had really been made, defendant would not be the one to answer to
plaintiffs for their share because he did not receive the consideration for the assignment which
consisted of the subscriptions of various persons to the capital stock of the corporation. Hence,
this case.

ISSUE:
Whether plaintiffs have the right to claim any share in the alleged profits, should there be
any, at the time of its dissolution

HELD:
No. The Court ruled that plaintiffs are precluded from claiming any share in the alleged
profits, should there be any, at the time of the dissolution.

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.
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.