Page 1 of 27

1. LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING

from Jesus Lim, brother of Petitioner Lim Tong Lim, to

finance the venture.

GEAR INDUSTRIES, INC., respondent.

A partnership may be deemed to exist among parties who

agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown
that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being
partners, they are all liable for debts incurred by or on behalf
of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that
contract.

They bought the boats from CMF Fishing Corporation,

which executed a Deed of Sale over these two (2) boats
in favor of Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim. Lim, Chua
and Yao agreed that the refurbishing, re-equipping,
repairing, dry docking and other expenses for the boats
would be shouldered by Chua and Yao.

Subsequently, they again borrowed money for the

purchase of fishing nets and other fishing equipments.
Yao and Chua represented themselves as acting in
behalf of Ocean Quest Fishing Corporation (their
alleged corporation) and they contracted with Philippine
Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k.

However, they were unable to pay PFGI and hence were

sued in their own names as Ocean Quest Fishing
Corporation is a non-existent corporation as shown by a
Certification from the SEC.

Chua admitted his liability while Lim Tong Lim refused

such liability alleging that Chua and Yao acted without
his knowledge and consent in representing themselves
as a corporation.

FACTS:
-

Petitioner Lim Tong Lim requested Peter Yao who was

engaged in commercial fishing to join him, while Antonio
Chua was already Yaos partner.
Lim, Chua, and Yao verbally agreed to acquire two
fishing boats, the FB Lourdes and the FB Nelson for the
sum of P3.35 million and they borrowed P3.25 million

Page 2 of 27

partnership for a specific undertaking, that is for

commercial
fishing. Obviously,
the
ultimate
undertaking of the defendants was to divide the
profits among themselves which is what a
partnership essentially is.

TRIAL COURT RULING:

A partnership among Lim, Chua and Yao existed based on
-

the testimonies of the witnesses presented

a Compromise Agreement executed by the three in

Civil Case which Chua and Yao had brought against
Lim
The Compromise Agreement had revealed their
intention to pay the loan with the proceeds of the
sale of the vessels and fishing nets and to
divide equally among them the excess or loss.

COURT OF APPEALS RULING:

-

Affirmed trial courts decision

petitioner was a partner of Chua and Yao in a fishing

business and may thus be held liable as a such for
the fishing nets and floats purchased by and for the
use of the partnership.

The evidence establishes that all the defendants

including herein appellant Lim Tong Lim undertook a

PETITIONERS CONTENTION:
-

the CA based its finding on the Compromise Agreement

alone.

disclaims any direct participation in the purchase of the

nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the
representatives of the respondent company.

he was a lessor, not a partner, of Chua and Yao, for the

"Contract of Lease"

ISSUE:
WON a partnership between Chua, Yao and
Lim exists. YES
WON Lim is liable as a partner. YES

Page 3 of 27

SUPREME COURT RULING:

From the factual findings of both lower courts, it is clear
that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under
the term common fund under Article 1767. The contribution
to such fund need not be cash or fixed assets; it could
be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and
operation of the boats would be divided equally among
them also shows that they had indeed formed a
partnership.
Moreover, it is clear that the partnership extended not
only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both essential
to fishing, were obviously acquired in furtherance of their
business. It would have been inconceivable for Lim to involve
himself so much in buying the boat but not in the acquisition
of the aforesaid equipment, without which the business could
not have proceeded.

Given the preceding facts, it is clear that there was,

among petitioner, Chua and Yao, a partnership engaged in the
fishing business. They purchased the boats, which constituted
the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be
divided among them.

TRIVIAL ISSUE:
Petitioners contention that he was not a partner,
only a lessor
In the Contract of Lease and the registration papers, he
was the owner of the boats.
His allegation defies logic. He would like the Court to
believe that he consented to the sale of his own boats to pay
a debt of Chua and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved
that there was a preexisting partnership among all three.
It is absurd for petitioner to sell his property to pay a debt
he did not incur, if the relationship among the three of them
was merely that of lessor-lessee, instead of partners.

Page 4 of 27

the loan not for the development of the subdivision, but in

furtherance of his own company, Universal Umbrella
Company.

1. ANTONIA TORRES, assisted by her husband,

ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs. COURT OF APPEALS and MANUEL
TORRES, respondents.
G.R. No. 134559. December 9, 1999
FACTS:
Sisters Antonia Torres and Emeteria Baring entered into a
"joint venture agreement" with Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to
the contract, they executed a Deed of Sale covering the said
parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40, 000
which, under the Joint Venture Agreement, was to be used for
the development of the subdivision. All three of them also
agreed to share the proceeds from the sale of the
subdivided lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
PETITIONER: The project failed because of respondents lack
of funds or means and skills. They add that respondent used

RESPONDENT: He used the loan to implement the

Agreement. The proceeds of which were used for the survey
and the subdivision of the land. He developed the roads, the
curbs and the gutters of the subdivision and entered into a
contract to construct low-cost housing units on the property.
Respondent claimed that the subdivision project failed
because petitioners and their relatives had separately caused
the adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests,
petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project.
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case which
was later dismissed by the trial court. On appeal, however,
the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed Decision
which was affirmed by the CA which held that:
Petitioners and respondent had formed a partnership for
the development of the subdivision. Thus, they must
bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the
contract. Disagreeing
with
the
trial
courts
pronouncement that losses as well as profits in a joint

Page 5 of 27

venture should be distributed equally, the CA invoked

Article 1797 of the Civil Code which provides:
The losses and profits shall be distributed in
conformity with the agreement. If only the share
of each partner in the profits has been agreed
upon, the share of each in the losses shall be in
the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner
in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be
just and equitable under the circumstances. If besides
his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital
Hence, this Petition
PETITIONERs contention:

That the Joint Venture Agreement and the earlier Deed

of Sale, both of which were the bases of the appellate
courts finding of a partnership, were void.

That under those very same contracts, respondent is

liable for his failure to implement the project. Because
the agreement entitled them to receive 60 percent of
the proceeds from the sale of the subdivision lots, they
pray that respondent pay them damages equivalent to
60 percent of the value of the property.

ISSUE:
WON CA erred in concluding that the transaction between the
petitioners
and
respondent
was
that
of
a
joint
venture/partnership, ignoring outright the provision of Article
1769, and other related provisions of the Civil Code of the
Philippines.
HELD:NO
The Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the New Civil Code,
which provides:
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.
Under the Agreement, petitioners would contribute property
to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in

Page 6 of 27

addition to his industry, the amount needed for general

expenses and other costs. Furthermore, the income from the
said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of
the parties to form a partnership
It should be stressed that the parties implemented the
contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other
hand, respondent caused the subject land to be mortgaged,
the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on
the property.

Petitioners Bound by Terms of Contract

Courts are not authorized to extricate parties from the

necessary consequences of their acts, and the fact that
the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to
their supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void

under Article 1773 of the Civil Code, which provides:
A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and
attached to the public instrument.

ART. 1315. Contracts are perfected by mere consent, and from

that moment the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law.

They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real
property contributed, the partnership is void. HOWEVER, court
held that:

It is undisputed that petitioners are educated thus presumed

to have understood the terms of the contract they voluntarily
signed. If it was not in consonance with their expectations,
they should have objected to it and insisted on the provisions
they wanted.

1. Article 1773 was intended primarily to protect third

persons. Under the provision which is a complement of
Article 1771, the execution of a public instrument would
be useless if there is no inventory of the property
contributed, because without its designation and

Page 7 of 27

description, they cannot be subject to inscription in the

Registry of Property, and their contribution cannot
prejudice third persons. Thus, the contract is declared
void by the law when no such inventory is made. The
case at bar does not involve third parties who may be
prejudiced.

Liability of the Parties

Claiming that respondent was solely responsible for the failure

of the subdivision project, petitioners maintain that he should
be made to pay damages equivalent to 60% of the value of
the property, which was their share in the profits under the
Joint Venture Agreement.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is

void under Article 1422 of the Civil Code, because it is the
direct result of an earlier illegal contract, which was for the
sale of the land without valid consideration.
This argument is trivial. The Joint Venture Agreement clearly
states that the consideration for the sale was the expectation
of profits from the subdivision project. Its first stipulation
states that petitioners did not actually receive payment for
the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such
as the prestation or promise of a thing or service by another.

We are not persuaded. True, the CA held that petitioners acts

were not the cause of the failure of the project. But it also
ruled that neither was respondent responsible therefor. In
imputing the blame solely to him, petitioners failed to give
any reason why we should disregard the factual findings of
the appellate court relieving him of fault.
COURT DECISION:
The
Petition
is
Decision AFFIRMED.

In this case, the cause of the contract of sale consisted not in

the stated peso value of the land, but in the expectation of
profits from the subdivision project, for which the land was
intended to be used.

hereby DENIED and

the

challenged

2. BENITO LIWANAG and MARIA LIWANAG REYES,

petitioners-appellants, vs. WORKMEN'S
COMPENSATION COMMISSION, ET AL.,
respondents-appellees
Facts

Page 8 of 27

The hired commercial guard of appellants, Benito

Liwanag and Maria Liwanag Reyes in their co-owned Liwanag
Auto Supply, was killed by criminal hands while at work. The
guards widow, Ciriaca Vda. de Balderama, and minor
children, in due time filed a claim for compensation with the
Workmen's Compensation Commission which was granted.
The award was the ordering of the appellants in this
case to pay jointly and severally the amount of three
thousand Four Hundred Ninety Four and 40/100 (P3,494.40)
Pesos to the claimants in lump sum, and to pay to the
Workmen's Compensation Funds the sum of P4.00 (including
P5.00 for this review) as fees, pursuant to Section 55 of the
Workmen's Compensation Act.
In appealing the case to this Tribunal, appellants
claimed that, under the Workmen's Compensation Act, the
compensation is divisible. Moreover, they argue that the Act
does not specifically provide that the obligation of an
employer arising from compensable injury or death of an
employee should be a solidary obligation. They conclude that
in the absence of such provision, the responsibility of
appellants should not be solidary but merely joint.
ISSUE
Whether or not the law governing the liability of
partners will apply in a case of a claim for compensation by
dependents of an employee who died in line of duty.
RULING
No. Their liability is solidary as the nature of the
obligation requires it.
According to Article 1207 of the Civil Code, there is
solidary liability not just when the obligation expressly so
states, but also when the nature of the obligation requires it.

The following laws reasonably indicate that in

compensation cases, the right to the employees dependents
should be given full protection:
1. Article 1711 of the New Civil Code provides that
owners of enterprises and other employers are
obliged to pay compensation for the death of or
injuries to their laborers, workmen, mechanics or
other employees, even though the event may have
been purely accidental or entirely due to a fortuitous
cause, if the death or personal injury arose out of and
in the course of the employment.
2. Article 1712 provides that if the death or injury is due
to the negligence of a fellow-worker, the latter and
the employer shall be solidarily liable for
compensation.
3. Section 2 of the Workmen's Compensation Act as
amended provides that the right to compensation as
provided in this Act shall not be defeated or impaired
on the ground that the death, injury or disease was
due to the negligence of a fellow servant or
employee, without prejudice to the right of the
employer to proceed against the negligence party.
Moreover, the Court ruled in its previous cases that
Workmen's Compensation Act should be construed liberally in
favor of the employee and his dependents and that doubts as
to the right of compensation should be resolved in his favor.
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 of the Law
which mandates the giving of full protection the employee
and his dependents.
Thus, the Court ruled in favor of the appellees.

Page 9 of 27

not
partners.
Moreover,
misappropriated the money.
4. ELMO MUASQUE vs. COURT OF APPEALS,
CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS, G.R. No. L-39780,
November 11, 1985

it

was

only

Galan

who

ISSUE:
WON Munasque and Galan are partners.
WON Munasque shall be liable to pay the intervenors.

FACTS:
Pet. filed a complaint for payment of sum of money and
damages against Resp. Galan. The checks issued by
Respondents Tropical and Pons for the remodelling of a portion
of Tropicalsbuilding fell into the hands of Resp. Galan
placingMunasque faced financial difficulties subjected him
from demands of creditors to pay construction materials.
Nevertheless, he undertook the construction and demanded
to be paid by Resp. Galan.
Respondent Pons succeeded in changing the payees name in
the check delivered from Elmo Muasqueto Galan and
Associates. Thus enabling Galan to cash the same at the
Cebu Branch of the Philippine Commercial and Industrial Bank
(PCIB)

SC DECISION: Yes, for both issues.

The records will show that Munasque entered into a contract
with Tropical for the renovation of the latters building on
behalf of the partnership of "Galan and Muasque". When
Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he
indorsed the check in favor of Galan. The liability of partners
under the law to third persons for contracts executed in
connection with partnership business is only pro rata under
Art. 1816, of the Civil Code.

Business firms Cebu Southern Hardware Company and Blue

Diamond Glass Palace were allowed to intervene, both having
legal interest in the matter in litigation.

While the liability of the partners are merely joint in

transactions entered into by the partnership, a third person
who transacted with said partnership can hold the partners
solidarily liable for the whole obligation in the case of the third
person.

RTC Decision: Both parties (Galan and Munasque) were

ordered to pay intervenorssolidarily. CA Decision: Changed
solidary to joint. Munasque contended that he and Galan are

As between the partners Muasque and Galan, justice also

dictates that Muasque be reimbursed by Galan for the
payments made by the former representing the liability of

Page 10 of 27

their partnership to herein intervenors, as it was satisfactorily

established that Galan acted in bad faith in his dealings with
Muasque as a partner.

5. LEONCIA VIUDA DE CHAN DIACO (ALIAS LAO

LIONG NAW) VS. JOSE S. Y. PENG, G.R. NO. L29182, OCTOBER 24, 1928 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 proceeding
sagainst Vda. de Chan Diaco, alleging that the latter was
indebted to them.
The court declared Vda. de Chan Diaco insolvent and
ordered the sheriff to take possession of her property,
consisting of some merchandise. Judge Simplicio del Rosario
appointed Ricardo Summers, as referee, authorizing him to
take further evidence. Summers recommended that Vda. de
Chan Diaco deliver to Jose S. Y. Peng, assignee of SMB, PPC
and RRSC, a certain sum of money, accounts receivable, and
books of account. Judge del Rosario approved Summers
recommendation and ordered the merchants Cua Ico, Chan
Keep, and Simon A. Chan Bona to show cause why they
should not return the merchandise allegedly delivered to them

by Vda. de Chan Diaco, together with P5,000 in cash,

allegedly received from Vda. de Chan Diaco by Ico.
Attorney for Vda. de Chan Diaco filed a motion to
dismiss the proceedings, alleging that it should have been
brought against LLNC. Judge del Rosario suspended his
previous order, appointing Summers as referee. Summers
found that LLNC was only a fictitious organization created for
the purpose of deceiving the Bureau of Customs and enabling
some of the partner-relatives to come to the Philippines under
the status of merchants. Judge Francisco Zandueta, who
temporarily replaced Judge del Rosario, disapproved
Summers recommendation, affirmed the suspension of Judge
del Rosarios previous order, dismissed the insolvency
proceedings, ordered the return of all the properties of Vda.
de Chan Diaco, and provided for leave of Peng to file a new
petition for insolvency against LLNC.
ISSUE:
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,

Page 11 of 27

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
We also call attention to the fact that the evidence
clearly shows that the business, alleged to have been
that of the partnership, was carried on under the name
"Leoncia Vda. de Chan Diaco" or "La Vda. de G. G. Chan
Diaco," both of which are names of the appellee, and
we think it can be safely held that a partnership may
be adjudged bankrupt in the name of an ostensible
partner, when such name is the name under which the
partnership did business.

6. EUFRACIO D. ROJAS VS. CONSTANCIO B.

MAGLANA, G.R. NO. 30616, DECEMBER 10,
1990
FACTS
On January 14, 1955, Maglana and Rojas executed their
Articles of Co-Partnership (Exhibit "A") called Eastcoast
Development Enterprises (EDE) with only the two of them as
partners. The partnership EDE with an indefinite term of
existence was duly registered on January 21, 1955 with the
Securities and Exchange Commission. One of the purposes of
the duly-registered partnership was to "apply or secure timber
and/or minor forests products licenses and concessions over
public and/or private forest lands and to operate, develop and
promote such forests rights and concessions."

Under the said Articles of Co-Partnership, appellee Maglana

shall manage the business affairs of the partnership, including
marketing and handling of cash and is authorized to sign all
papers and instruments relating to the partnership, while
appellant Rojas shall be the logging superintendent and shall
manage the logging operations of the partnership. It is also
provided in the said articles of co-partnership that all profits
and losses of the partnership shall be divided share and share
alike between the partners.
During the period from January 14, 1955 to April 30, 1956,
there was no operation of said partnership. Because of the
difficulties encountered, Rojas and Maglana decided to avail of
the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang
executed their Articles of Co-Partnership (Exhibit "B" and
Exhibit "C") under the firm name EASTCOAST DEVELOPMENT
ENTERPRISES (EDE). Aside from the slight difference in the
purpose of the second partnership which is to hold and secure
renewal of timber license instead of to secure the license as in
the first partnership and the term of the second partnership is
fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas
started operation on May 1, 1956. On October 25, 1956,
Pahamotang, Maglana and Rojas executed a document
entitled "CONDITIONAL SALE OF INTEREST IN THE
PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE"
(Exhibits "C" and "D") agreeing among themselves that
Maglana and Rojas shall purchase the interest, share and
participation in the Partnership of Pahamotang, the two
(Maglana and Rojas) shall become the owners of all
equipment contributed by Pahamotang and the EASTCOAST

Page 12 of 27

DEVELOPMENT ENTERPRISES, the name also given to the

second partnership, be dissolved.
After the withdrawal of Pahamotang, the partnership was
continued by Maglana and Rojas without the benefit of any
written agreement or reconstitution of their written Articles of
Partnership
On January 28, 1957, Rojas entered into a management
contract with another logging enterprise, the CMS Estate, Inc.
He left and abandoned the partnership.
On February 4, 1957, Rojas withdrew his equipment from the
partnership for use in the newly acquired area. The equipment
withdrawn were his supposed contributions to the first
partnership and was transferred to CMS Estate, Inc. by way of
chattel mortgage.
On March 17, 1957, Maglana wrote Rojas reminding the latter
of his obligation to contribute, either in cash or in equipment,
to the capital investments of the partnership as well as his
obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he
will not be able to comply with the promised contributions and
he will not work as logging superintendent. Meanwhile, Rojas
took funds from the partnership more than his contribution.
ISSUES
1. Whether or not the Second Partnership formed by Rojas,
Maglana
and
Pamatong
superseded
the
First
Partnership.

2. Whether or not after the dissolution of the Second

Partnership a de facto partnership was formed between
Maglana and Rojas.
3. Whether or not Maglana can unilaterally dissolve the
partnership.
(Please note that since the First Partnership was not
superseded, no de facto was formed and was still in
effect, so this 3rd question pertains only between
Maglana and Rojas)
HELD
1. No. The Second Partnership did not supersede the First
Partnership.
After a careful study of the records as against the
conflicting claims of Rojas and Maglana, it appears evident
that it was not the intention of the partners to
dissolve the first partnership, upon the constitution
of the second one. Except for the fact that they took in
one industrial partner; gave him an equal share in the
profits and fixed the term of the second partnership to
thirty (30) years, everything else was the same. Thus, they
adopted the same name, EASTCOAST DEVELOPMENT
ENTERPRISES, they pursued the same purposes and the
capital contributions of Rojas and Maglana as stipulated in
both partnerships call for the same amounts. Just as
important is the fact that all subsequent renewals of
Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and
purposes therefore, the First Articles of Partnership
were only amended, in the form of Supplementary
Articles of Co-Partnership (Exhibit "C") which was never
registered. Otherwise stated, even during the existence of

Page 13 of 27

the second partnership, all business transactions were

carried out under the duly registered articles (referring to
the First Partnership). As found by the trial court, it is an
admitted fact that even up to now, there are still subsisting
obligations and contracts of the first partnership. No
rights and obligations accrued in the name of the
second partnership except in favor of Pahamotang
which was fully paid by the duly registered
partnership. Duly registered partnership of Eastcoast
Development Enterprises (First Partnership) continued to
exist until liquidated and that the sharing basis of the
partners should be on share and share alike.
2. No. There was no formation of a de facto or at will
partnership between Maglana and Rojas after they
purchased the share of Pamatong leading to the second
partnerships dissolution.
The registered partnership under the firm name of
Eastcoast Development Enterprises (EDE) evidenced
by the Articles of Co-Partnership (Exhibit "A") has
not been novated, superseded and/or dissolved by
the unregistered articles of co-partnership among
appellant
Rojas,
appellee
Maglana
and
Agustin
Pahamotang, (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations between him and
Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally
constituted partnership EDE (Exhibit "A") continues
to govern the relations between them and it was
legal error to consider a de facto partnership
between said two partners or a partnership at will.

3. Yes. Maglana can unilaterally dissolve the partnership.

Hence, as there are only two parties when Maglana notified
Rojas that he dissolved the partnership, it is in effect a
notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if
there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the
expiration of the period, with or without justifiable cause.
Of course, if the cause is not justified or no cause was
given, the withdrawing partner is liable for damages but in
no case can he be compelled to remain in the firm. With his
withdrawal, the number of members is decreased, hence,
the dissolution. And in whatever way he may view the
situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles
of Co-Partnership; that is, all profits and losses of the
partnership shall be divided "share and share alike"
between the partners.
As to whether Maglana is liable for damages
because of such withdrawal, it will be recalled that
after the withdrawal of Pahamotang, Rojas entered
into a management contract with another logging
enterprise, the CMS Estate, Inc., a company
engaged in the same business as the partnership.
He withdrew his equipment, refused to contribute either in
cash or in equipment to the capital investment and to
perform his duties as logging superintendent, as stipulated
in their partnership agreement. The records also show that
Rojas not only abandoned the partnership but also took
funds in an amount more than his contribution. In the

Page 14 of 27

given situation Maglana cannot be said to be in bad

faith nor can he be liable for damages.

7. MARJORIE TOCAO and WILLIAM T. BELO v COURT OF

APPEALS and NENITA A. ANAY. G.R. No. 127405,
October 4, 2000
FACTS:

Tocao, Belo, and Anay entered into a joint venture

agreement for the importation and local distribution of
kitchen cookwares. Their business name Geminiesse
Enterprises was registered sole proprietorship under
Tocaos name
Belo was named capitalist, Tocao-President and General
Manager, while Anay as Head of Marketing Department.
Anay was later appointed as Vice-President for Sales.
They agreed that Belos name will not appear in their
transactions to West Bend Co. (their supplier). Instead,
they used Anays name in their transactions with West
Bend. Anay has a strong and established connection
with West Bend Co.
They agreed that Anay will be entitled to 10% of the net
profits of the business operations. The agreement was
not reduced to writing.
Anay was invited invited to a distributor/dealers
meeting with West Bend Co. Tocao consented and in her
letter to the Embassy, she declared that Anay is a
business partner of Geminesse Ents.

Later, Tacao signed a letter saying that no longer is VPSales of Geminesse Ents., and that she is no longer
allowed to hold office in their business.
Anay cannot contact Belo despite attempts. Anay
wanted to get her commission and share of profits. Belo
& Tacao contend that since their agreement was
reduced in writing, their agreement is unenforceable,
void, and inexistent. They considered that there was no
partnership between them and that Anay as only an
employee and not a partner in their joint venture
agreement.

ISSUE:
WON Anay was a mere employee or a partner in
Geminesse Ents.
RULING:
Partnership is a consensual contract and an oral
contract is as good as a written one.
Though the partnership was not registered with SEC, the
partnership is not nullified.
Anay was an industrial partner who contributed his
expertise to the partnership.
The business venture did not result to employeremployee relationship. While it is true that receipt of
percentage of net profits constitute only prima facie
evidence of being a partner, Anay has a voice in the
management of the business affairs. If Anay was only an
employee, it is difficult to believe that they all receive
same income.
Though Geminesse Ents. was registered as a sole
proprietorship in BDT, what was registered was only the

Page 15 of 27

name of the enterprise. Indubitably, the name was only

used for practical reasons.
Since it was Tacao who caused the dissolution of the
partnership, she and Belo are jointly and severally liable
for damages.

9. MAXIMO GUIDOTE vs. ROMANA BORJA, as

administratrix of the estate of Narciso Santos, G.R. No.
L-28920, October 24, 1928
FACTS:
Maximo Guidote and Narciso Santos formed in 1918 a
partnership business under the name of Taller Sinukuan, in
which Santos was the capitalist partner and Guidote
was the industrial partner. Santos died in 1920. Guidote
failed to liquidate the affairs of the partnership and to render
an account thereof to Borja, the administratrix of Santos
estate.
Guidote brought an action against Borja to
recover a sum of money [9k], a part of which was alleged
to be the net profits from the business due Guidote, and the
rest of the sum consisting of advances allegedly made by
Guidote. Borja admitted the partnerships existence and
prayed that Guidote be ordered to render an
accounting and to pay the estate 25k as net profits,
credits, and property pertaining to Santos.

Guidote called several witnesses and introduced a

so-called accounting and a mass of documentary
evidence, which was so hopelessly and inextricably confusing
that the court could not consider it of much probative value.
The court dismissed Guidotes complaint and absolved
Borja. Guidote was ordered to render a full and complete
accounting, verified by vouchers, of the partnership business.
Guidote rendered an account prepared by one
Tomas Alfonso, a public accountant. Numerous objections
were presented by Borja. The court disapproved the
account and ordered that Borja submit an accounting
from the date of the commencement of the partnershipup to
the time the business was closed.
Borja presented an account and liquidation
prepared by a public accountant, Santiago A. Lindaya,
showing a balance of P29k in Borjas [Santos estate]
favor. At the hearing, Borja introduced the public accountant
Jose Turiano Santiago to testify as to the results of an audit
made by him of the partnership accounts. Santiago testified
that he had prepared a separate accounting or liquidation
similar in results to that prepared by Lindaya, but with a few
differences in the sums total. [Computation: Santos is a
creditor of the Taller Sinukuan in the sum of P26k. Guidote is a
debtor to the Taller Sinukuan in the sum of P20k.]
In order to contradict the conclusions of the two
public accountants, Guidote presented Tomas Alfonso
and the bookkeeper, Pio Gaudier, as witnesses.The trial

Page 16 of 27

court judge said that the testimonies of these

witnesses are unreliable.

Tomas Alfonso is the same public accountant who

filed the liquidation Exhibit O on behalf of Guidote, in
relation to the partnership business, which liquidation
was disapproved by this court in a decision. The
judge did not believe Alfonsos proposition that
Guidote, a mere industrial partner, notwithstanding
his having received 21k on the various jobs and
contracts of the business had actually expended and
paid out 63k, of 44k in excess of the gross receipts of
the business. It materially contradicts Guidotes
allegations to the effect that the advances that he
[Guidote] made amounted only to 2k.
Pio Gaudier is the same bookkeeper who prepared
three entirely separate and distinct liquidation for the
same partnership business, and the court found that
the testimony given by him at the last hearing is
confusing, contradictory and unreliable.
Other witnesses were given scant
considerationChua Chak can neither read nor
write English, Spanish, or Tagalog; Claro Reyes was
forced to admit that a certain exhibit was not the
original.

The court gave credence to the conclusions

reached by the public accountants presented by Borja.
Guidote was ordered to pay P26k to Borja, with legal
interest, plus costs.

ISSUE & HOLDING: WON the trial court is correct in ordering

Guidote to pay P26k to Borja.
RATIO: YES. There may be some merit in Guidotes
contention that the dismissal of his complaint was premature.
The better practice would been to let the complaint stand
until the result of the liquidation of the partnership affairs was
known. But under the circumstances, no harm was done by
the dismissal of Guidotes complaint.
GUIDOTES ARGUMENT
Since Santos, up to the time of his death, generally took care
of the partnerships payments and collections, his legal
representatives were under the obligation to render accounts
of the operations, notwithstanding the fact that Guidote was
in charge of the business subsequent to the death of Santos.
GUIDOTES ARGUMENT IS UNAVAILING
Wahl v. Donaldson Sim& Co.
The death of one of the partners dissolves the partnership,
but that the liquidation of its affairs is by law entrusted, not to
the executors of the deceased partner, but to the surviving
partners or the liquidators appointed by them.
The rule for the conduct of a surviving partner
In equity, surviving partners are treated as trustees of the
representatives of the deceased partner, with regard to the

Page 17 of 27

interest of the deceased partner in the firm. As a consequence

of this trusteeship, surviving partners are held in their
dealings with the firm assets and the representatives of the
deceased to that nicety of dealing and that strictness of
accountability required of and incident to the position of one
occupying a confidential relation. It is the duty of surviving
partners to render an account of the performance of their
trust to the personal representatives of the deceased partner,
and to pay over to them the share of such deceased member
in the surplus of firm property, whether it consists of real or
personal assets.
Guidote failed to observe this rule, and he is not in position to
complain if his testimony and that of his witnesses is
discredited. The appealed judgment is AFFIRMED.

10. MANUEL G. SINGSONG ET AL v ISABELA SAWMILL

Facts:
* January 30, 1951 - the defendants entered into a Contract
of Partnership under the firm name "Isabela Sawmill."
* April 25, 1958 - an action to dissolve the partnership was
filed by the spouses Cecilio Saldajeno against Isabela Sawmill,
Leon Garibay, and Timoteo Tubungbanua
* April 27, 1958 - the defendants Leon Garibay, Timoteo
Tubungbanua and Margarita G. Saldajeno entered into a
"Memorandum of Agreement
* May 26, 1958 - the defendants Leon Garibay, Timoteo
Tubungbanua and Margarita G. Saldajeno executed a

document entitled "Assignment of Rights with Chattel

Mortgage" in favor of Sps. Saldejano
* The defendants Leon Garibay and Timoteo Tubungbanua did
not divide the partnerships assets between them, but they
continued the business under the same name "Isabela
Sawmill".
* The chattel mortgage was later foreclosed
* May 18, 1959 - the Provincial Sheriff of Negros Occidental
published two (2) notices that he would sell at public auction
on June 5, 1959 at Isabela, Negros Occidental certain trucks,
tractors, machinery, office equipment and other things* October 15, 1969 a Certificate of Sale was executed by the
Provincial Sheriff of Negros Occidental in favor of the
defendant Margarita G. Saldajeno
* October 20, 1959 - the defendant Margarita G. Saldajeno
executed a deed of sale in favor of the Pan Oriental Lumber
Company transferring to the latter for the sum of P45,000.00
the trucks, tractors, machinery, and other things that she had
purchased at a public auction- Plaintiffs herein are creditors of
the defendant partnership. They sued the defendants to
recover the sums of money they have advanced to the
partnership, and asked for the nullity of the chattel mortgage.
* CFI of Negros Occidental ruled in favor of plaintiffs, saying
that plaintiffs, as creditors of the defendant partnership, have
a preferred right over the assets of the said partnership, and
over the proceeds of their sale at the public auction.Saldejanos appealed- CA certified the case to SC considering
that the resolution of appeal involves purely questions of law

Page 18 of 27

ISSUE: Whether or not Isabela Sawmill ceased to be a

partnership and that creditors could no longer demand
payment.
RULING:
On dissolution, the partnership is not terminated but
continues until the winding up of the business. It does not
appear that the withdrawal of Saldajeno from the partnership
was published in the newspapers. The appellee and the
public had a right to expect that whatever credit they
extended to Leon Garibay and Tubongbanua doing
business in the name of Isabela Sawmill could be
enforced against the properties of said partnership.
The judicial foreclosure of the chattel mortgage executed in
favor of Saldajeno did not relieve her from liability to the
creditors of the partnership.
It may be presumed that Saldajeno acted in good faith,
the appellees also acted in good faith in extending credit to
the partnership. Where one of the 2 innocent persons must
suffer, that person who gave occasion for the damages to be
caused must bear the consequences.

G.R. No. 109248|July 3, 1995

FACTS: The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile Registry
on 4 January 1937 and reconstituted with the Securities and
Exchange Commission on 4 August 1948.
The SEC records show that there were several
subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to
ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on
18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to
DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to
BITO, MISA & LOZADA. On 19 December 1980, [Joaquin
L. Misa] appellees Jesus B. Bito and Mariano M. Lozada

11. GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR.,

and BENJAMIN T. BACORROvs. HON. COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA,

associated themselves together, as senior partners with

respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.

Page 19 of 27

On 1988, Atty. Joaquin L. Misa withdrew from the firm

Lozada." The Commission ruled that, being a partnership at

stating that the partnership has ceased to be mutually

will, the law firm could be dissolved by any partner at

satisfactory

the

anytime, such as by his withdrawal therefrom, regardless of

employees including the assistant attorneys. He filed with

good faith or bad faith, since no partner can be forced to

Commissions

continue in the partnership against his will.

beacuse

of

Securities

the

working

conditions

Investigation

and

of

Clearing

Department a petition for the dissolution and liquidation of

partnership.
On 13 July 1988, respondents-appellees filed their
opposition to the petition.

The Court of Appeals, finding no reversible error on the

part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's

On 13 July 1988, petitioner filed his Reply to the

withdrawal from the partnership had changed the relation of

Opposition. On 31 March 1989, the hearing officer rendered a

the parties and inevitably caused the dissolution of the

decision ruling that: "[P]etitioner's withdrawal from the law

partnership; (b) that such withdrawal was not in bad faith; (c)

firm Bito, Misa & Lozada did not dissolve the said law

that the liquidation should be to the extent of Attorney Misa's

partnership. Accordingly, the petitioner and respondents are

interest or participation in the partnership which could be

hereby enjoined to abide by the provisions of the Agreement

computed

relative to the matter governing the liquidation of the shares

partnership agreement; (d) that the case should be remanded

of any retiring or withdrawing partner in the partnership

to

interest."

determination of the value of Attorney Misa's share in the

the

and

SEC

paid

in

Hearing

the

manner

Officer

for

stipulated

the

in

the

corresponding

On appeal, the SEC en banc reversed the decision of the

partnership assets; and (e) that the appointment of a receiver

Hearing Officer and held that the withdrawal of Attorney

was unnecessary as no sufficient proof had been shown to

Joaquin L. Misa had dissolved the partnership of "Bito, Misa &

Page 20 of 27

indicate that the partnership assets were in any such danger

of being lost, removed or materially impaired.

SECOND ISSUE
YES, any one of the partners may, at his sole pleasure,

ISSUES:

dictate a dissolution of the partnership at will [Art.1830 (1)].

1. Whether or not the Court of Appeals has erred in holding

He must, however, act in good faith, not that the attendance

that the partnership of Bito, Misa & Lozada (now Bito, Lozada,

of bad faith can prevent the dissolution of the partnership but

Ortega & Castillo) is a partnership at will;

that it can result in a liability for damages [Art.19]. The birth

2. Whether or not the Court of Appeals has erred in holding

and life of a partnership at will is predicated on the mutual

that the withdrawal of private respondent dissolved the

desire and consent of the partners. The right to choose with

partnership regardless of his good or bad faith; and

whom a person wishes to associate himself is the very

3. Whether or not the Court of Appeals has erred in holding

foundation and essence of that partnership. Its continued

that private respondent's demand for the dissolution of the

existence is, in turn, dependent on the constancy of that

partnership so that he can get a physical partition of

mutual resolve, along with each partner's capability to give it,

partnership was not made in bad faith;

and the absence of a cause for dissolution provided by the law

RULING:

itself. Among partners, mutual agency arises and the doctrine

FIRST ISSUE

of delectus personae allows them to have the power, although

YES, the law firm is a partnership at will. A partnership that

not necessarily the right, to dissolve the partnership. An

does not fix its term is a partnership at will. The parthership

unjustified dissolution by the partner can subject him to a

agreement states that "the partnership shall continue so long

possible action for damages.

as mutually satisfactory and upon the death or legal

THIRD ISSUE

incapacity of one of the partners, shall be continued by the

surviving partners."

On the third and final issue, we accord due respect to

the appellate court and respondent Commission on their

Page 21 of 27

bad faith. Public respondents viewed his withdrawal to have

A share in a partnership can be returned only after the

completion of the latters dissolution, liquidation and winding
up of the business.

been spurred by "interpersonal conflict" among the partners.

FACTS:

common factual finding, i.e., that Attorney Misa did not act in

It would not be right, we agree, 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. Bad faith, in the
context here used, is no different from its normal concept of a
conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED.
No pronouncement on costs.

12. VILLAREAL V. RAMIREZ

G.R. No. 144214, July 14, 2003

Luzviminda J. Villareal, Carmelito Jose and Jesus Jose

formed a partnership with a capital of P750,000 to operate a
restaurant and catering business under the name Aquarius
Food House and Catering Services. Villareal was appointed
general manager and Carmelito Jose, operations manager.
Respondent Ramirez joined as a partner in the business.
His capital contribution of P250,000 was paid by his parents,
Respondents Cesar and Carmelita Ramirez.
After Jesus Jose withdrew from the partnership, his
capital contribution of P250,000 was refunded to him in cash
by agreement of the partners. In the same month, without
prior knowledge of respondents, petitioners closed down the
restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the
respondents house for storage
Respondent spouses wrote petitioners, saying that they
were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the
latters offer to return their capital contribution.
Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and
equipment stored in their house. She also reiterated the
request for the return of their one-third share in the
equity of the partnership. The repeated oral and written
requests were, however, left unheeded. Respondents
subsequently filed a Complaint for the collection of a sum of
money from petitioners.

Page 22 of 27

HELD:
PETITIONERS CONTENTION:
The Petition has merit.
1.) respondents had expressed a desire to withdraw from
the partnership and had called for its dissolution
2.) respondents had been paid, upon the turnover to them
of furniture and equipment worth over P400,000; and
3.) that respondents have no right to demand a
return of their equity because their share,
together with the rest of the capital of the
partnership, had been spent as a result of
irreversible business losses.
RESPONDENTS CONTENTION:
1.) They did not know of any loan encumbrance on the
restaurant. And if such were true, the loans incurred by
petitioners should be regarded as purely personal and
thus, not chargeable to the partnership.
2.) They had not received any regular report or accounting
from the latter, who had solely managed the business.
3.) They expected the equipment and the furniture stored
in their house to be removed by petitioners as soon as
the latter found a better location for the restaurant.
ISSUES:
(1) whether petitioners are liable to respondents for the
latters share in the partnership;
(2) whether the CAs computation of P253,114 as respondents
share is correct

First Issue:
Share in Partnership
Both courts found that a partnership had indeed existed
and was dissolved. Dissolution took place when respondents
informed petitioners of the intention to discontinue it because
of the formers dissatisfaction with, and loss of trust in, the
latters management of the partnership affairs.
We hold that respondents have no right to demand
from petitioners the return of their equity share. Except
as managers of the partnership, petitioners did not personally
hold its equity or assets. The partnership has a juridical
personality separate and distinct from that of each of the
partners. Since the capital was contributed to the partnership,
not to petitioners, it is the partnership that must refund the
equity of the retiring partners.
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and
distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily
limited to its total resources. In other words, it can only
pay out what it has in its coffers, which consists of all its
assets. However, before the partners can be paid their shares,
the creditors of the partnership must first be compensated.
After all the creditors have been paid, whatever is left of the
partnership assets becomes available for the payment of the
partners shares.

Page 23 of 27

In the present case, the exact amount of refund

equivalent to respondents one-third share in the partnership
cannot be determined until all the partnership assets will have
been liquidated and all partnership creditors are paid. The CAs
computation of the amount to be refunded to respondents as
their share was thus erroneous.
First, it seems that the appellate court misapprehend
that the total capital contribution was equivalent to the gross
assets to be distributed to the partners at the time of the
dissolution of the partnership. Generally its capital does not
remain static and unaffected by the changing fortunes of the
business. In the present case, there were omissions of any
provision for the depreciation of the furniture and the
equipment and amortization of the goodwill.Properly taking
these non-cash items into account will show that the
partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership. Lower
courts recognized the decrease of the partnership assets but
CA failed to recognize the corresponding decrease of the
capital.
Second, the CAs finding that the partnership had an
outstanding obligation was not supported by evidence.
Third, the CA failed to reduce the capitalization by
P250,000, which was the amount paid by the partnership to
Jesus Jose when he withdrew from the partnership.Because of
the above-mentioned transactions, the partnership capital
was actually reduced. The original amount of P250,000 which
they had invested could no longer be returned to them,
because one third of the partnership properties at the time of
dissolution did not amount to that much.
Petitioners argue that the turnover of the remaining
partnership assets to respondents was precisely the manner
of liquidating the partnership and fully settling the latters

share in the partnership.We disagree. The delivery of the

store furniture and equipment to private respondents
was for the purpose of storage. They were unaware that
the restaurant would no longer be reopened by petitioners.
Hence, the former cannot be faulted for not disposing of the
stored items to recover their capital investment.

13. Yu v. NLRC GR No. 97212, June 30, 1993

Original Partners - Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chan, as
limited partners
FACTS
Benjamin Yu used to be the Assistant General Manager of Jade
Mountain, a partnership(Jade Mountain Products Company
Limited) engaged in marble quarrying and export business.
The majority of the founding partners (Lea Bendal, Rhodora
Bendal and Mr. Yu Chang) sold their interests in said
partnership to Willy Co and Emmanuel Zapanta without Yus
knowledge. Said new partnership continued operating under
the same name and continued the businesss operations.
However, it transferred its main office from Makati to
Mandaluyong. Said new partnership did not anymore availed
of the services of Yu. Thus, he filed a complaint for illegal
dismissal, recovery of unpaid wages and damages.

Page 24 of 27

Benjamin Yu was hired by virtue of a Partnership Resolution,

as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually
received only half of his stipulated monthly salary, since he
had accepted the promise of the partners that the balance
would be paid when the firm shall have secured additional
operating funds from abroad. Benjamin Yu actually managed
the operations and finances of the business; he had overall
supervision of the workers at the marble quarry in Bulacan
and took charge of the preparation of papers relating to the
exportation of the firm's products.
ISSUE
(1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and
replaced by a new partnership 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.
RULING
1st court: Labor Arbiter Nieves Vivar-De Castro rendered a
decision holding that petitioner had been illegally dismissed.
The Labor Arbiter decreed his reinstatement and awarded him
his claim for unpaid salaries, backwages and attorney's fees.

On appeal, the National Labor Relations Commission

("NLRC") reversed the decision of the Labor Arbiter and
dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership
consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had
bought the Jade Mountain business, that the new partnership
had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law
requiring the new partnership to absorb the employees of the
old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined
to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for
unpaid wages should be asserted against the original
members of the preceding partnership, but these though
impleaded had, apparently, not been served with summons in
the proceedings before the Labor Arbiter. 6
Appeal napud - Certiorari on SC ruling:
(short version)
The legal effect of the changes in the membership of
the partnership was the dissolution of the old
partnership which had hired Yu in 1984 and the
emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987. The new partnership
simply took over the business enterprise owned by the
preceeding partnership, and continued using the old
name of Jade Mountain Products Company Limited,

Page 25 of 27

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. Not only the retiring partners but
also the new partnership itself which continued the
business of the old, dissolved, one, are liable for the
debts of the preceding partnership.
1st issue legal basis: The applicable law in this connection of
which the NLRC seemed quite unaware is found in the Civil
Code provisions relating to partnerships. Article 1828 of the
Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the
change in the relation of the partners caused by
any partner ceasing to be associated in the
carrying on as distinguished from the winding
up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between
the partners;
xxx xxx xxx

(b) by the express will of

any partner, who must act
in good faith, when no
definite term or particular
undertaking is specified;
xxx xxx xxx
(2) in contravention of the
agreement between the
partners, where the
circumstances do not
permit a dissolution under
any other provision of this
article, by the express will
of any partner at any
time;
2nd issue legal basis: In Singson, et al. v. Isabela Saw Mill, et
al, 8 the Court held that under facts very similar to those in the
case at bar, a withdrawing partner remains liable to a third
party creditor of the old partnership. 9 The liability of the new
partnership, upon the other hand, in the set of circumstances
obtaining in the case at bar, is established in Article 1840 of
the Civil Code
Under Article 1840 above, 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

Page 26 of 27

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 mare 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.
14. PHILIPPINE AIR LINES, INC., Petitioner, vs.
ANTONIO BALANGUIT, ET AL., (PUBLIC UTILITIES
EMPLOYEES ASSOCIATION [FEATI CHAPTER] and THE
COURT OF INDUSTRIAL RELATIONS,Respondents.
[G.R. No. L-8715. June 30, 1956.]
Facts:
1. May 21, 1947, the Philippine Air Lines, Inc. (referred to as
PAL) purchased and acquired a majority of the shares of the
Far Eastern Air Transport, Inc. (referred to as FEATI). The
purchase gave rise to the problem of what to do with the
FEATI employees. After some negotiations between the
representatives of the FEATI Employees Association and the
PAL, the parties finally reached an agreement on May 21,
1947, whereby the PAL agreed to absorb some 70 per cent of
the FEATI employees, and the said employees agreed to work

for PAL under the same terms and conditions as they worked
for the FEATI.
2. August 1, 1946, the Collective Bargaining Agreement with
the FEATI granted the said employees certain privileges,
among which were; the vacation and sick Leave. The
employees will be entitled to twelve (12) days vacation leave
and twelve (12) days sick leave with pay every year, which
may be cumulative.
3. On July 9, 1947, the PAL and the Public Utilities Employees
Association entered into an agreement cancelling the
agreements of May 21, 1947 and August 1, 1946, and
declaring them void and of no further force and effect. It also
provided for the laying off of all the FEATI employees as of
June 15, 1947 and the payment to them of one and a half
months separation pay which amounted, roughly to
P150,000.00.
Respondents Contention:
4. Almost 6 years from the time they were laid off, the Public
Utilities Employees Association filed a petition with the Court
of Industrial Relations (CIR) praying that the PAL be ordered to
pay them the twelve (12) days vacation leave and twelve (12)
days sick leave with pay, from August 1, 1946, which had
already accrued at the time they were laid off on June 15,
1947.
Petitioners Contention:
The PAL denied the liability, alleging that it was not a party to
the Agreement of August 1, 1946. The said employees were
absorbed by the PAL only on May 21, 1947 and were laid off
on June 15, 1947.
Decision of the CIR:

Page 27 of 27

The Court of Industrial Relations, through Associate Judge V.

Jimenez Yanson, issued an Order requiring the PAL to pay the
said employees the money value of whatever vacation and
sick leave might have accrued to the said employees from
August 1, 1946 to June 15, 1947.
ISSUE:
Whether or not the PAL is legally liable for the payment of the
money equivalent of the sick and vacation leave?
RULINGS:
The order of the CIR and the resolution of the CIR en banc are
set aside, and the complaint of the employees (Association)
against the PAL was dismissed. When one company buys out
another and continues the business of the latter company, the

buyer may be said to assume the obligations of the company

bought out when said obligations are not of considerable
amount or value, specially when incurred in the ordinary
course of trade, and when the business of the latter company
is continued. However, when said obligation is of
extraordinary value, as in this case, amounting to about
P100,000, and the FEATI was bought out not to continue its
business but to stop its operation in order to eliminate
competition, as shown by the fact that all the employees of
the FEATI were laid-off, we cannot say that the vendee
assumed all the obligations of the rival airline.