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(3) If the possessor should be absolved from the complaint.

C. OBLIGATIONS OF THE PARTNERS


a. Among themselves (Arts. 1784 to 1809)

O R G

In all these cases, the period of the interruption shall be counted for the
prescription. (1946a)

Sancho v Lizarraga
GR L-33580

February 6, 1931

By: Trina Faye Ladores


FACTS:
The plaintiff brought an action for the rescission of a partnership contract
between himself and the defendant, entered into on October 15, 1920,
the reimbursement by the latter of his 50,000 peso investment therein,
with interest at 12 per cent per annum form October 15, 1920, with costs,
and any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the
complaint which are incompatible with his special defenses, crosscomplaint 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.

Article 1681. Neither does the lessee have any right to a reduction of
the rent if the fruits are lost after they have been separated from their
stalk, root or trunk. (1576)
Article 1682. The lease of a piece of rural land, when its duration has
not been fixed, is understood to have been for all the time necessary
for the gathering of the fruits which the whole estate leased may yield
in one year, or which it may yield once, although two or more years
have to elapse for the purpose. (1577a)
SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendantappellant.
Penned by: CONCEPCION JR.
By: Earshad Banjal
FACTS:

CFI:
The Court of First Instance 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 thirty days from receipt of notice of said judgment, without costs.
(ISSUES) The plaintiff appealed from said decision making the following
assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract, Exhibit A, and that article
1124 of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to
the plaintiff with interest from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is
raised purporting to show that this appeal is premature and therefore will
not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts, have
not been made and submitted, the case cannot be deemed terminated
in said court and its ruling is not yet appealable. In support of this
contention counsel cites section 123 of the Code of Civil Procedure, and
the decision of this court in the case of Natividad vs. Villarica (31 Phil.,
172).
HELD:
This contention is well founded. Until the accounts have been rendered
as ordered by the trial court, and until they have been either approved
or disapproved, the litigation involved in this action cannot be considered
as completely decided; and, as it was held in said case of Natividad vs
.Villarica, also with reference to an appeal taken from a decision ordering
the rendition of accounts following the dissolution of partnership, the
appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court's
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682
of the Civil Code have been properly applied. 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 article 1124 of the Code. 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.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of
costs. So ordered.
NOTES:
Article 1124. Judicial summons shall be deemed not to have been
issued and shall not give rise to interruption:
(1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should
allow the proceedings to lapse;

This case is an appeal from the decision of the CFI of Manila,


dissolving the "U.P. Construction Company" and ordering the defendant
Bartolome Puzon (Puzon) to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of the
complaint until fully paid; (2) P200,000.00, as plaintiffs share in the
unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
The case stemmed from the following:
1. Puzon had a contract with the Republic of the Philippines for
the construction of a road in and of five bridges.
2. However, Puzon found difficulty in accomplishing both
projects, so he established a partnership with Uy as subcontractor of the projects for financial assistance and the
profits shall be divided equally between them; the resulting
partnership is U.P. Construction Company.
3. The partners agreed to contribute P50, 000 each as capital.
However, Puzon failed to pay but promised to contribute his
share as soon as his application of loan with the PNB shall be
approved. Uy gave Puzon advance contribution of his share
in partnership for Puzon top pay his obligations with PNB. Uy
was entrusted with the management of the project since
Puzon is busy with his other projects; whatever expense Uy
may incur shall be considered part of his contribution.
4. Upon approval of Puzons loan with the PNB, he gave Uy P60,
000 for reimbursement of Uys contribution and Puzons
contribution to the partnership capital. To guarantee the
payment of the loan, Puzon assigned to PNB all payments to
be received on account of the contracts with the Bureau of
Public Highways for the construction; this was done without
the knowledge and consent of Uy.
5. Financial demands of the project increased, thus, Uy called
on Puzon to place his capital contribution; Puzon failed to do
so. Uy thereafter sent letters of demand to which Puzon
replied that hes not capable of putting additional capital.
Puzon wrote UP Construction Company terminating their
subcontract agreement. Uy was then not allowed in the office
of UP Construction Company and his authority to deal with
BPH was revoked.
6. Hence, he instituted an action against Puzon seeking the
dissolution of the partnership and payment of damages for the
violation of the latter of the terms of their partnership
agreement.
Uys contention:
Uy claimed that Puzon had violated the terms of their
partnership agreement.
Puzons contention:
Puzon denied that he violated the terms of their agreement
claiming that it was the plaintiff, Uy, who violated the terms thereof. He
claimed that Uy is equally guilty of not contributing his share in the
partnership capital.
He, likewise, prayed for the dissolution of the partnership and for the
payment by the plaintiff of his, share in the losses suffered by the
partnership.
CFIs ruling:
The trial court found that defendant Puzon, contrary to the
terms of their partnership agreement, failed to contribute his share in the
capital of the partnership applied partnership funds to his personal use;
ousted the plaintiff from the management of the firm, and caused the
failure of the partnership to realize the expected profits of at least
P400,000.00. The court ordered the dissolution of the partnership and
Puzon to pay Uy a certain sum stated above in this appeal to the SC.

B U S

Franco Puzon substituted Bartolome Puzon on the appeal of the case


before the SC.
Puzon claimed before the SC that the award of P200,000.00 as his share
in the unrealized profits of the partnership is without any basis and is not
supported by the evidence. Hence, this petition.
ISSUES:
WON the amount of money the defendant Puzon has been order to pay
Uy by the trial court for the failure to contribute his share in the capital of
the partnership is proper.
HELD: Yes.
1. As to the appellants failure to contribute in the partnership:
The findings of the trial court that appellant Puzon failed
to contribute his share in the capital of the partnership is clear
incontrovertible. 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.
As to the claim of the appellant that the appellee is
equally guilty of not contributing his share in the partnership capital,
it is plainly untenable. The terms of the receipts signed by the
appellant are clear and unequivocal that the sums of money given
by the appellee are appellee's partial contributions to the
partnership capital.
The findings of the trial court that the appellant
misapplied partnership funds is, likewise, sustained by competent
evidence. It is of record that the appellant assigned to the PNB all
the payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the
aforementioned projects to guarantee the repayment of the bank.
2.

As to the award of unrealized profits:

The appellant maintains that the lower court, in making its


determination, did not take into consideration the great risks
involved in business operations involving as it does the completion
of the projects within a definite period of time, in the face of adverse
and often unpredictable circumstances, as well as the fact that the
appellee, who was in charge of the projects in the field, contributed
in a large measure to the failure of the partnership to realize such
profits by his field management.
This argument must be overruled in the light of the law and
evidence on the matter. Under Article 2200 of the Civil Code,
indemnification for damages shall comprehend not only the value
of the loss suffered, but also that of the profits which the obligee
failed to obtain. In other words lucrum cessans* is also a basis for
indemnification.
There is no doubt Uy failed to make profits because of Puzon's
breach of contract. The partnership showed some profits even
though the profit and loss statement showed net loss; it may be due
to error in accounting. Had the appellant not been remiss in his
obligations as partner and as prime contractor of the construction
projects in question as he was bound to perform pursuant to the
partnership and subcontract agreements, and considering the fact
that the total contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the partnership would
have earned much more than the P334,255.61. The Court has
hereinabove indicated. The award, therefore, made by the trial
court of the amount of P200,000.00, as compensatory damages, is
not speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said
decision is hereby affirmed with costs against the appellant.
* the interest or damages awarded for loss of reasonably expected
profits or for loss of use of property
Wala sa case but then:
*As cited in Moran vs. CA: The rule is, when a partner who has
undertaken to contribute a sum of money fails to do so, he becomes a
debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation (Art. 1788, Civil
Code).

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Moran vs. CA
By: Albert Bantan
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 Pecsons 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
inspite 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 Pecsons 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, specially if the latter exercised his best business
judgment, which seems to be true in this case.
Moran must however return the unused P6k of Pecsons contribution to
the partnership plus P3k representing Pecsons 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.
DAN FUE LEUNG, petitioner,vs.HON. INTERMEDIATE APPELLATE
COURT and LEUNG YIU, respondents.
G.R. No. 70926 January 31, 1989
By: Gladys Barretto
FACTS:
A complaint was filed by Leung Yiu with the then Court of
First Instance of Manila to recover the sum equivalent to twenty-two
percent (22%) of the annual profits derived from the operation of Sun
Wah Panciteria since October, 1955 against Dan Fue Leung.
The Sun Wah Panciteria, a restaurant and was registered
under the name of Dan Fue Leung as the sole proprietor.
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.
The petitioner denied having received from the private
respondent the amount of P4,000.00.
He argued that he used his savings from his salaries as an employee
at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was
the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by himself
alone.

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HELD:
As between the conflicting evidence of the parties, the trial
court gave credence to that of the plaintiffs. Hence, the court ruled
in favor of the private respondent.
The petitioner appealed the trial court's decision to the then
Intermediate Appellate Court.
Later, the appellate court affirmed the lower court's decision.
The petitioner filed a motion for reconsideration but was denied.
The petitioner now asks for the reversal of the decision of the
then Intermediate Appellate Court which affirmed the decision of the
then Court of First Instance of Manila declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun
Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.
He further argued that :"The complaint avers that private
respondent extended 'financial assistance' to herein petitioner at the
time of the establishment of the Sun Wah Panciteria, in return of which
private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a serious
error for the lower court and the Hon. Intermediate Appellate Court to
grant a relief not called for by the complaint. It was also error for the Hon.
Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a
partnership;"
ISSUE NO. 1
Whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
HELD:
The Court held that private respondent is a partner of the
petitioner in Sun Wah Panciteria.
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 twenty-two percent
(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".
Therefore, the lower courts did not err in construing the
complaint as one wherein the private respondent asserted his rights as
partner of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given
its ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes an
ex gratia dole out in favor of someone driven into a state of destitution.
But this circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.' The complaint explicitly stated
that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria.
The private respondent's cause of action is premised
upon the failure of the petitioner to give him the agreed profits in
the operation of Sun Wah Panciteria. In effect the private
respondent was asking for an accounting of his interests in the
partnership.
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 or any agreement to
the contrary.
ISSUE NO. 2
Whether or not the cause of action already prescribed.

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.
--------------------PETITIONERS ALLEGATION:
The alleged receipt is dated October 1, 1955 and the complaint was filed
only on July 13, 1978 or after the lapse of twenty-two (22) years, nine
(9) months and twelve (12) days. From October 1, 1955 to July 13, 1978,
no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by
the debtor.'
Ornum vs Lasala
By: Iona Casas
Jose Ornum and Emerenciana Ornum VS. Mariano, Lasala, et.al
Facts:
Father of respondents formed a partnership with Emerenciano Ornum,
whereby the former, as capitalist, delivered the sum of P1000 to the
latter who, as industrial partner, was to conduct business at his place of
residence in Romblon. When the assets of the partnership consisted of
outstanding accounts and old stock of merchandise, Emerenciano
asked for the dissolution of the partnership. Emerenciano looked for
someone who could take his place and suggested the names of the
petitioners who accordingly became the new partners. Upon joining,
petitioners contributed P505.54 as their capital, adding it to the former
capital of P1000. Pedro Lasala died and his children, now the
respondents, succeeded to all his rights and interest in the partnership.
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 put in by each group.
After 20 years, business has grown to such extent that its total value
amounted to P44,618.67. Statement of accounts were periodically
prepared by petitioners and sent to respondents who did not make any
objection thereto. Before the last statement of accounts was made,
respondents
announce
their
desire
to
dissolve
the
partnership. Respondents asked for another accounting and they be
paid the corresponding amount. Petitioners remitted and paid to the
respondents the amount of P5,387.29 under the statement of accounts
which, however, was not signed by the latter.
Respondents filed a complaint, praying for an accounting and final
liquidation of the assets of the partnership.
Court of first instance: 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 above-quoted letter of Father Mariano
Lasala, lost their right to a further accounting from the moment they
received and accepted their shares as itemized in said statement.
CA: reversed. Final statement of accounts remains unsigned by the
respondents, the same stands disapproved
Issue:
WON the final statement of accounts was approved by respondents.
Ruling:
Yes. We hold that the last and final statement of accounts hereinabove
quoted, had been approved by the respondents. 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 has 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.

B U S

The Court of Appeals did not make any findings that there was fraud.
The pronouncement that the evidence tends to prove that there were
mistakes in the petitioner's' statements of accounts, without specifying
the mistakes, merely intimates as suspicion and is not such a positive
and unmistakable finding of fact as to justify a revision, especially
because the Court of Appeals has relied on the bare allegations of the
parties, Even admitting that, as alleged by the petitioners in their
counterclaim, they overpaid the respondents in the sum of P575.12, this
error is essentially fatal to the latter's theory what the statement of
accounts shows, and is therefore not the kind of error that calls for
another accounting which will serve the purpose of the respondent's suit.
If the liquidation is ordered in the absence of any particular error, found
as a fact, simply because no damage will be suffered by the petitioners
in case the latter's final statement of the accounts proves to be correct,
we shall be assuming a fundamentally inconsistent position. If there is
not mistake, the only reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense that they will be required
to pay anything to the respondents, but they will have to go to the trouble
of itemizing accounts covering a period of twenty years mostly from
memory, its appearing that no regular books of accounts were kept.
Stated more emphatically, they will be told to do what seems to be hardly
possible. When it is 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 respondents' funeral.

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From June 27, 1900, up to the date when the partner Fitton died,
the latter failed to pay into the partnership funds, the remainder of
the price of the properties purchased by him in the amount of 3,000
pesos. Neither the administrator of the latter's estate (Feliciano
Velez) nor any other person had turned into the partnership or paid
to the plaintiff the aforesaid 3,000 pesos.
The properties in question had been entirely unproductive and
losses and damages had been occasioned to the plaintiff in the
sum of 2,000 pesos because of the failure of Fitton to comply with
his obligation.
Hence, plaintiff prayed for the rescission of the contract, the
dissolution of the partnership "A. M. Pabalan and Company," and
the annulment of the sale of the said properties.
Defendant alleged that the action prosecuted by the plaintiff had
prescribed and that the fact that the properties of the company
known as "A. M. Pabalan and Company" had been unproductive
was exclusively due to the great negligence of the plaintiff.
The court ordered a dissolution of the partnership formed between
the plaintiff and the deceased Walter A. Fitton and a recission of
the sale and contract of partnership executed between them.

ISSUE: Whether or not the partnership between plaintiff and Fitton be


rescinded on the ground that the latter failed to observe the
stipulation of their contract. YES
RULING:

We are reversing the appealed decision on the legal ground that the
petitioners' final statement of accounts had been approved by the
respondents and 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. In justice to the
petitioners, however, we may add that, considering that they ran the
business of the partnership for about twenty years at a place far from
the residence of the respondents and without the latter's intervention;
that the partners did not even know each other personally; that no formal
partnership agreement was entered into which bound the petitioners
under specific conditions; that the petitioners could have easily and
freely alleged that the business became partial, or even a total, loss for
any plausible reason which they could have concocted, it appearing that
the partnership engaged in such uncertain ventures as agriculture, cattle
raising and operation of rice mill, and the petitioners did not keep any
regular books of accounts; that the petitioners were still frank enough to
disclose that the original capital of P1,505.54 amounted, as of the date
of the dissolution of the partnership, to P44,618.67; and that the
respondents had received a total of P8,105.76 out of their capital of
P1,000, without any effort on their part, we are reluctant even to make
the conjecture that the petitioners had ever intended to, or actually did,
take undue advantage of the absence and confidence of the
respondents. Indeed, we feel justified in stating that the petitioners have
here given a remarkable demonstration of the legendary honesty, good
faith and industry with which the natives of Taal pursue business
arrangements similar to the partnership in question, and we would hate,
in the absence of any sufficient reason, to let such a beautiful legend
have a distasteful ending.

ANTONIO M. PABALAN vs. FELICIANO VELEZ, G.R. No. L-5953,


February 24, 1912
By: Gretchin Cinco

FACTS OF THE CASE:

The plaintiff, Antonio M. Pabalan, was the owner in fee simple of


a rural estate consisting of an hacienda known by the name of
"Pantayani," which was devoted to agricultural purposes, situated
on the roads leading from Mariquina to Antipolo, within the pueblos
of Cainta and Antipolo, Province of Rizal, and which covered an
area of 1,978,822 square meters and a parcel of land consisting of
a building lot situated on Calle Real, of Cainta, measuring 371.30
square meters.
Plaintiff, desiring to make use of the two properties entered into an
agreement with Walter A. Fitton whereby they formed a regular
mercantile partnership for the development of the said properties
and for the manufacture and sale of their products and other
business.
The sum of 9,000 pesos Mexican currency was fixed as the amount
of the capital stock of the partnership, of which 3,000 pesos, in
cash, were to be contributed by the plaintiff and 6,000 pesos, in
real property, by the said Fitton. To obtain 3,000 pesos, the
plaintiff sold his two aforementioned real properties to Walter A.
Fitton.
The plaintiff received from the purchaser the sum of 3,000 pesos
and the latter, Walter A. Fitton, bound himself to pay into the funds
of the said partnership, as the plaintiff's capital, the remaining 3,000
pesos of the selling price. It was furthermore agreed that the two
real properties should constitute the capital of Walter A. Fitton in
the partnership, which would be known by the name of "A. M.
Pabalan and Company" and should be equivalent of 6,000 pesos.

Article 116 of the Code of Commerce prescribes: Articles of


association by which two or more persons obligate themselves to
place in a common fund any property, industry, or any of these
things, in order to obtain profit, shall be commercial, no matter
what its class may be, provided it has been established in
accordance with the provisions of this code.
It was duly proved at the trial of this case, that the partner Walter
A. Fitton failed to observe the stipulations of the two aforesaid
contracts; that he did not pay any part of the price of the sale of the
two parcels of land which he had purchased from his partner,
Antonio M. Pabalan, and, consequently, did not turn into the
company funds, as capital of the said Pabalan, the sum of which
the said price consisted. It is therefore unquestionable that he did
not comply with his two principal obligations, assumed in the said
double contract wherein he expressly agreed that the said P3,000,
a part of the price of the two pieces of land that he purchased from
Pabalan, would be by him turned into the fund of the general
partnership which they had formed, as capital of the partner
Pabalan.
In case one of the parties to a contract does not fulfill his
obligation as stipulated therein, the other contracting party, by
the provisions of Article 1124 of the Civil Code, is entitled to
demand the rescission of the contract, as such obligations are
mutual, and the court must order the rescission demanded. The
partner, Walter A. Fitton, came within such a case, since he failed
to pay any part of the price of the two properties which he had
acquired and did not turn into the company fund, as capital of the
vendor partner, the sum representing such sale, and therefore
justice requires the dissolution of the aforementioned company and
the rescission of the said sale, in conformity with the finding
contained in the judgment appealed from the prayer rightfully and
lawfully made by the partner who did not violate his obligations as
set forth in the said contract.
With respect to the interest on the capital which belonged to
Pabalan, and which Fitton failed to turn into the company fund in
conformity with the agreement made, and in regard to the amount
of the losses and damages occasioned by the noncompliance, on
the part of the partner Fitton, with the stipulated provisions, both
such amounts should be considered as the company's losses and
computed pro rata, in proportion to the extent that each partner is
interested in the company and on the same basis as the profits.
(Arts. 140 and 141 of the Code of Commerce.)
Hence, the court ruled that the administrator of the estate of the
deceased Fitton shall deliver to the administrator of the estate of
Pabalan the two parcels of land, the sale of which was rescinded,
upon payment by the last named administrator to that of the estate
of Fitton, of the sum of P2,700, equivalent to P3,000 Mexican
pesos, the said administrator of the Pabalan estate being entitled
to deduct from the said sum that of P348.20, which is two-thirds of
the amount paid as land tax on the properties concerned.

B U S

MARTINEZ v. ONG PONG CO Arellano, CJ (1910)


By: Yanee Dapitanon
MARTINEZ delivered to Ong Pong Co and Ong Lay (ONGS) the sum of
P1,500. The ONGS, in a private document, acknowledged that they had
received the money with the agreement that they will invest it in a store,
and the profits or losses therefrom was tube divided with MARTINEZ in
equal shares.
Later, MARTINEZ filed a complaint in order to compel the ONGSto
render him an accounting of the partnership, or else to refund him the
P1, 500 that he had given them
Ong Pong Co alone appeared to answer the complaint. He admitted the
fact of the agreement, but he alleged that Ong Lay (deceased) was the
one who had managed the business, and that nothing had resulted
therefrom except the loss of the capital of P1,500, to which loss
MARTINEZ agreed to bear.
CFI rendered decision ordering Ong Pong Co to return to MARTINEZ
one-half of the capital of P1,500 (P750) plus P90 as one-half of the
profits, calculated at the rate of 12% per annumfor the six months that
the store was supposed to have been open(total of P840) with legal
interest of 6% until the full payment, with costs
Hence, this appeal by Ong Pong Co
ISSUE:

O R G

1 C a s e

Inasmuch as in this case nothing appears other than the failure to fulfill
an obligation on the part of a partner who acted as agent in receiving
money for a given purpose, for which he has rendered no accounting,
such agent is responsible only for the losses which, by a violation of the
provisions of the law, he incurred. This being an obligation to pay in
cash, there are no other losses than the legal interest, which interest is
not due except from the time of the judicial demand, or, in the present
case, from the filing of the complaint
Art. 1688 is NOT applicable in this case, in so far as it provides that the
partnership is liable to every partner for the amounts he may have
disbursed on account of the same and for the proper interest," for the
reason that no other money than that contributed as is involved Art.
1138, CC is also NOT applicable here as this deals with debts of a
partnership where the obligation is NOT joint. Likewise, Art 1723
regarding the liability of two or more agents with respect tithe return of
the money that they received from their principal is NOT applicable. No
showing of solidarity having been established, their liability is JOINT.
G.R. No. 30286

EN BANC
By: Jan Dela Cruz

YES. The ONGS failed to fulfill their obligation as partners who, acting
as MARTINEZs agents in receiving money, did not render proper
accounting therefor. Such renders them jointly liable for the losses;
solidarity not having been established.CFI decision is AFFRIMED in this
regard but REVERSED inasmuch as it found that the capital invested
earned profits. Thus, the CFIruling awarding MARTINEZ another P840
is DELETED. Ong PongCo is only liable to pay MARTINEZ half of the
capital, or P750, representing half of the loss which both ONGS
should jointly bear due to their omission, to earn legal interest of 6%
from time of filing this complaint, and costs.

[FROM CASE SYLLABUS:

To be sure, the whole action is based upon the fact that the
ONGSreceived capital from MARTINEZ for the purpose of organizing a
store. The ONGS, according to the agreement, were to handle the said
money and invest it in a store which was the object of the association.
The ONGS had no special agreement vesting in one sole person the
management of the business. Thus, both ONGS were the actual
administrators thereof; and as such administrators, they were the agents
of the company and incurred the liabilities peculiar to every agent,
among which is that of rendering account to the principal of their
transactions, and paying him everything they may have received by
virtue of the mandatum.
Since neither of them has rendered such account nor proven the losses,
they are therefore obliged to refund the money that they received for the
purpose of establishing the said store.
There is no evidence presented that the entire capital or any part thereof
was lost. Without proof, the allegation that the effects of the store were
ejected is, as earlier mentioned, of no moment. Even if we assume this
to be true, it could still not be inferred that the ejectment was due to the
fact that no rents were paid, and that the rent was not paid on account
of the loss of the capital belonging to the partnership.
With regard to the CFIs finding of profits, it appears that the same was
based on the statements of Ong Pong Co, to the effect that "there were
some profits, but not large ones."

September 12, 1929

M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendantsappellees.

HELD:

In his defense, Ong Pong Co raised the issue of the closure/failure of


the store by virtue of ejectment proceedings instituted against them.
THIS, however, has no real significance in the determination of the
merits of this case.

2 0 1 6 |5

This, however, was never proven. And even we admit the same; such
statement still does not make it possible to estimate the alleged profits.
As such, the CFI ruling on this point is REVERSED.

WON MARTINEZ is entitled to the capital he contributed to the


partnership

RATIO:

D i g e s t s / U M L a w

1. WHEN PARTNER MUST ACCOUNT Where one party to a


partnership, without any authority, takes and uses the money of the firm
in the purchase of property which he acquired and had registered in his
own name, in a suit for the dissolution of the partnership, he will be
required to account to his partners for the money which he used in such
purchase.
2. WHEN PARTNERSHIP SHOULD ACCOUNT When it appears that
such partnership had the use and benefit of such property, it will be
required to account to the owner for the reasonable value of its use. ]
On December 1926, Plaintiff and the defendants formed a partnership
for the operation of a fish business and similar commercial transactions,
which by mutual consent was called "Malangpaya Fish Co,"
Plaintiff asked for dissolution of the partnership and the appointment of
a receiver pendente lite.
--CASE ACCORDING TO
THE PLAINTIFF--

--CASE ACCORDING TO THE


DEFENDANTS--

Plaintiff alleges that:


(a) the plaintiff was named
the general manager to take
charge of the business, with
full power to do and perform
all acts necessary to carry
out of the purposes of the
partnership.
(b) plaintiff wants to dissolve
it, but that the defendants
refused to do so;
(c)
the
partnership
purchased and now owns a
lighter
called Lapu-Lapu,
and a motorship called
Barracuda,
and
other
properties;
(d) the lighter and the
motorship
are
in
the
possession
of
the
defendants who are making
use of them, to the damage
and prejudice of the plaintiff,
for any damage which
plaintiff may sustain;
(e) it is for the best interest of
the parties to have a receiver
appointed
pending
this

Defendants
allege
that
the
partnership was formed under a
written plan to which all agreed.
It is then alleged that the new
owners agree to duties as follows:
Capt. Maddy will have charger of
the Barracuda and the navigating of
the same. Salary P300 per month.
Mr. Martin will have charge of the
southern station, cold stores,
commissary and procuring fish.
Salary P300 per month.
Mr. Teague will have charge of
selling fish in Manila and
purchasing supplies. No salary until
business is on paying basis, then
the same as Maddy or Martin.
Defendant
Martin
specifically
denies the "plaintiff was named
general
manager
of
the
partnership," and alleged "that all
the duties and powers of the said
plaintiff were specifically set forth in
the
above
quoted
written
agreement and that no further or
additional powers were ever given
the said plaintiff."

B U S

litigation, to take possession


of the properties, and he
prays that the Philippine
Trust
Company
be
appointed receiver.

He prays that plaintiff's complaint


be dismissed, and that he be
ordered and required to render an
accounting.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |6

appointed on November 11, 1927, or a period of about six


months, and that the partnership has never paid anything for
its use. For such reason, in the interest of justice, plaintiff
should be compensated for the reasonable value of the time
which the partnership made use of the Lapu-Lapu. All things
considered, we are of the opinion that P2,000 is a reasonable,
amount which the plaintiff should receive for its use.

The defendants did not object to the dissolution of the partnership, but
prayed for an accounting with the plaintiff.

EN BANC

The lower court on April 30, 1928, rendered the following judgment:
G.R. No. 5840 September 17, 1910
That the partnership, existing among the parties in this suit, is
hereby declared dissolved;

THE UNITED STATES, plaintiff-appellee,

That the plaintiff immediately render a true and proper account of


all the money due to and received by him for the partnership.

vs.
EUSEBIO CLARIN, defendant-appellant.

That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and
adding machine belong exclusively to the plaintiff, M. Teague, but
the said plaintiff must return to and reimburse the partnership the
sum of P14,032.26 taken from its funds for the purchase and
equipment of the said barge Lapu-Lapu; and also to return the sum
of P1,230 and P228 used for buying the Ford truck and adding
machine, respectively:
x

x
x

On June 7, 1928, plaintiff filed a petition praying that the decision of the
court in the case be set aside. On June 28, 1928, the court denied
plaintiff's motion for a new trial.

By: Rohannah Dilangalen


Pedro Larin delivered to Pedro Tarug P172, in order that the latter,
in company with Eusebio Clarin and Carlos de Guzman, might buy
and sell mangoes, and, believing that he could make some money
in this business, the said Larin made an agreement with the three
men by which the profits were to be divided equally between him
and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact
trade in mangoes and obtained P203 from the business, but did not
comply with the terms of the contract by delivering to Larin his half
of the profits; neither did they render him any account of the capital.

Hence, this appeal.


ISSUES:
1. Whether or not appellant had authority to buy the Lapu-Lapu, the Ford
truck and the adding machine without the consent of his copartners, for
in accordance with article 131 of the Code of Commerce the managing
partner of a partnership can make purchases for the partnership without
the knowledge and/or consent of his copartners.
2. Whether or not the Lapu-Lapu, the Ford truck and the adding machine
purchased by appellant, as manager of the Malangpaya Fish Company,
for and with funds of the partnership, form part of the assets of the
partnership.
3. Whether or not the lower court erred in requiring the appellant to pay
to the partnership the sum of P14,032.26, purchase price, cost of repairs
and equipment of the barge Lapu-Lapu; P1,230 purchase price of the
adding machine, for these properties were purchased for and they form
part of the assets of the partnership.
HELD:
1. No authority. Under his powers and duties as specified in the tentative,
unsigned written agreement, his authority was confined and limited to
the "selling of fish in Manila and the purchase of supplies." It must be
conceded that, standing alone, the power to sell fish and purchase
supplies does 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 lighter Lapu-Lapu,
the Ford truck, or the adding machine, as neither of them can be
construed as supplies for the partnership business.
2. No, they belong to plaintiff. The proof is conclusive that they were
purchased by the plaintiff and paid for him from and out of the money of
the partnership. That at the time of their purchase, the Lapu-Lapu was
purchased in the name of the plaintiff, and that he personally had it
registered in the customs house in his own name, for which he made an
affidavit that he was its owner.
We agree with the trial court that the Lapu-Lapu, the Ford truck, and the
adding machine were purchased by the plaintiff and paid for out of the
funds of the partnership, and that by his own actions and conduct, and
the taking of the title in his own name, he is now estopped to claim or
assert that they are not his property or that they are the property of the
company.
3.

Plaintiff's case was tried on the theory that the partnership was
the owner of the property in question, and no claim was made
for the use of the Lapu-Lapu, and it appears that P14,032.26
of the partnership money was used in its purchase,
overhauling, expenses and repairs. In truth and in fact the
partnership had the use and benefit of the Lapu-Lapu in its
business from sometime in May until the receiver was

Larin charged them with the crime of estafa, but the provincial fiscal
filed an information only against Eusebio Clarin in which he
accused him of appropriating to himself not only the P172 but also
the share of the profits that belonged to Larin, amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as
witnesses and assumed that the facts presented concerned the
defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the
defendant, Eusebio Clarin, to six months' arresto mayor, to suffer
the accessory penalties, and to return to Pedro Larin P172, besides
P30.50 as his share of the profits, or to subsidiary imprisonment in
case of insolvency, and to pay the costs. The defendant appealed,
and in deciding his appeal we arrive at the following conclusions:
issue: WON a partnership can be held criminally liable for estafa?
Ruling: 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. (Art. 1665, Civil Code.)
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, or if it were to be done by one of the
three specifically, it would be Tarug, who, according to the
evidence, was the person who received the money directly from
Larin.
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.
No. 5 of article 535 of the Penal Code, according to which those
are guilty of estafa "who, to the prejudice of another, shall
appropriate or misapply any money, goods, or any kind of personal
property which they may have received as a deposit on commission
for administration or in any other character producing the obligation
to deliver or return the same," (as, for example, in commodatum,
precarium, and other unilateral contracts which require the return
of the same thing received) does not include money received for a
partnership; otherwise the result would be that, if the partnership,
instead of obtaining profits, suffered losses, as it could not be held
liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer

B U S

to the charge of estafa, for which it would be sufficient to argue that


the partnership had received the money under obligation to return
it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio.


The complaint for estafa is dismissed without prejudice to the
institution of a civil action.
JUAN AGUSTIN, ET AL. vs. BARTOLOME INOCENCIO
G.R. No. L-3745 (October 26, 1907)
By: Cathy Docdocil

FACTS: The parties are all industrial partners. They contributed from
the profits of their business the sum of P807.28 as a fund toward the
construction of a casco. Inocencio, being the managing partner,
borrowed P3,500.00 from his wife to complete the construction since the
estimated cost of the casco was around P4,300.00. Inocencio, however,
failed to notify his partners of the borrowing of money and payment of
the various items from time to time, but it was shown that the books were
at all times open for their inspection. Agustin, representing all the
partners, was also present at the construction of the casco, in charge of
the practical work and cognizant of its needs and its progress.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |7

prayed that it be made. Consequently, there is no reason or


cause for plaintiff to institute the action for damages which he
claims from the managing partner Carmen de Luna.
The facts alleged in the complaint are not sufficient to
constitute a cause of action on the part of plaintiff as member
of the partnership "Centro Escolar de Seoritas" to collect
damages from defendant as managing partner thereof,
without a previous liquidation. For a partner to be able to claim
from another partner who manages the general copartnership,
damages allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said
partnership is necessary.
With this finding, the SC deemed it unnecessary to discuss
the remaining question of whether or not the complaint is
ambiguous, unintelligible and vague. Judgment is affirmed.

GEORGE LITTON, petitioner-appellant,


vs.
HILL & CERON, ET AL., respondents-appellees.
G.R. No. L-45624

April 25, 1939

The note was passed into the hands of Inocencio by reason


of the successive deaths of his wife and their only child. The trial court
treated his claim as an addition to his capital in the firm, rather than as
a loan.

By: Charlotte Esuerte

ISSUE:
WON Inocencio, in borrowing money and
advancing funds, was acting within the scope of his authority as a
managing partner.

This is a petition to review on certiorari the decision of the Court of


Appeals. On February 14, 1934, Litton sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain
number of mining claims, and by virtue of said transaction, Ceron
delivered to plaintiff adocument (receipt) acknowledging that he received
from Litton certain share certificates of Big Wedge Mining Company
totaling P1870. Ceron paid to the plaintiff the sum or P1,150 leaving an
unpaid balance of P720, and unable to collect this sum either from Hill
& Ceron or from its surety Visayan Surety & Insurance Corporation,
Litton filed a complaint in the Court of First Instance of Manila against
the said defendants for the recovery of the said balance.

HELD:
Yes. The work done in the casco having been within
the scope of the association and necessary to carry out its express
object, the borrowing of the money required to carry it on, with the
acquiescence if not with the affirmative consent of his associates, was
not outside the powers of the managing partner and constitutes a debt
for which all the associates are liable.
For the amount loaned, Inocencio became a creditor, subject
to the deduction therefrom of his proportionate part of the indebtedness.
Considered as a loan, this sum would place Inocencio as a creditor in a
stronger position as against his associates than if regarded as a mere
contribution to capital.
RATIO: The nature of the transaction (construction of casco) was
within the scope of the business of the partnership. Inocencio, in
borrowing money and advancing funds, was acting within the scope of
his authority as a managing partner. All partners, therefore, are liable for
the debt.

Facts:

The lower court, after trial, ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill & Ceron, Robert Hill
and the Visayan Surety & Insurance Corporation. On appeal to the CA,
the latter affirmed the decision of the lower court, having reached the
conclusion that Ceron did not intend to represent and did not act for the
firm Hill & Ceron in the transaction involved in this litigation.
Issue: Whether or not Cerons act binds the partnership.
Held:

SONCUYA VS DE LUNA (GR No. L-45464, April 28, 1939)


By: Remle Estacio
Facts:

Plaintiff Josue Soncuya, defendant Carmen De Luna, and


Linrado Avelino were partners in the business Centro Escolar
de Seoritas. On September 11, 1936, plaintiff filed with CFI
Manila a complaint against defendant, De Luna, in her own
name and as co-administratrix of the intestate estate of their
deceased partner. Librada Avelino. He prayed that De Luna
be sentenced to pay him the sum of P700,432.00 as damage
and costs by defendants alleged fradulent administration of
the partnership, the defendant being the managerial partner.
Defendant interposed a demurrer based on the following
grounds: (1) That the complaint does not contain facts
sufficient to constitute a cause of action; and (2) that the
complaint is ambiguous, unintelligible and vague. The CFI
sustained defendants demurrer and ordered the plaintiff to
amend its complaint. Plaintiff manifested that he would not
amend his complaint. Upon motion of the defendant, the court
ordered the dismissal of the complaint. Hence, this appeal
from the plaintiff.

Issue: Whether or not CFI erred in dismissing the plaintiffs


complaint.

Yes, the Supreme Court reach the conclusion that the transaction made
by Ceron with the plaintiff should be understood in law as effected by
Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at
the trial that he and Ceron, during the partnership, had the same power
to buy and sell; that in said partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on the date of the transaction,
February 14, 1934, the partnership between Hill and Ceron was in
existence.
According to the articles of copartnership of Hill & Ceron, a written
contract of the firm can only be signed by one of the partners if the other
partner consented. Without the consent of one partner, the other cannot
bind the firm by a written contract. Now, assuming for the moment that
Ceron attempted to represent the firm in this contract with the plaintiff
(the plaintiff conceded that the firm name was not mentioned at that
time), the latter has failed to prove that Hill had consented to such
contract. Also, third persons, like the plaintiff, are not bound in entering
into a contract with any of the two partners, to ascertain whether or not
this partner with whom the transaction is made has the consent of the
other partner. The public need not make inquires as to the agreements
had between the partners. Its knowledge, is enough that it is contracting
with the partnership which is represented by one of the managing
partners.

Ruling: NO

For the purpose of adjudicating to plaintiff damages which he


alleges to have suffered as a partner by reason of the
supposed fraudulent management of he partnership referred
to, it is first necessary that a liquidation of the business thereof
be made to the end that the profits and losses may be known
and the causes of the latter and the responsibility of the
defendant as well as the damages which each partner may
have suffered, may be determined. It is not alleged in the
complaint that such a liquidation has been effected nor is it

The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the stock
brokerage business for engaging in other transactions different from
those of the partnership, as it happens in the present case, because the
transaction made by Ceron is a mere personal loan, and this argument,
so it is said, is corroborated by the Court of Appeals. The Supreme Court
do not find this alleged corroboration because the only finding of fact
made by the Court of Appeals is to the effect that the transaction made
by Ceron with the plaintiff was in his individual capacity.

B U S

The appealed decision is reversed and the defendants are ordered to


pay to the plaintiff, jointly and severally, the sum of P720, with legal
interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (%) from the original price of P1,870,
with the costs to the respondents. So ordered.
Bachrach v La Protectora (1918)
By: Iresha Generalao
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 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.

a. Whether or not the defendants are liable for the firm debts.
b. Whether or not Barba had authority to incur expenses for the
partnership (relevant issue)
Held:

b.

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.
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.

G.R. No. L-16318


October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-appellees,
vs.
LO SENG, defendant-appellant.
By: Geraldine Gruyal
FACTS:
1.

2.

3.
4.

5.

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |8

6.

Pang Lim sold all his interest in the distillery to his partner Lo
Seng, thus placing the latter in the position of sole owner.
7. Lo Shui, again as attorney in fact of Lo Yao, executed and
acknowledged before a notary public a deed purporting to
convey to Pang Lim and another Chinaman named Benito
Galvez, the entire distillery plant including the land used in
connection therewith.
8. The document also was never recorded in the registry of
property.
9. Pang Lim and Benito Galvez demanded possession from Lo
Seng, but the latter refused to yield.
10. An action of unlawful detainer was thereupon initiated by Pang
Lim and Benito Galvez.
11. The case for the plaintiffs is rested exclusively on the
provisions of article 1571 of the Civil Code, which reads in part
as follows: ART. 1571. The purchaser of a leased estate shall
be entitled to terminate any lease in force at the time of making
the sale, unless the contrary is stipulated, and subject to the
provisions of the Mortgage Law.
12. From the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant thereupon
appealed to the Supreme Court.
ISSUE:
Whether or not the plaintiffs herein, as purchasers of the estate, are at
liberty to terminate the lease, assuming that it was originally binding
upon all parties participating in it.
HELD:

Issue:

a.

O R G

Lo Seng and Pang Lim, Chinese residents of the City of


Manila, were partners, under the firm name of Lo Seng and
Co., in the business of running a distillery, known as "El
Progreso.
The land on which said distillery is located as well as the
buildings and improvements originally used in the business
were the property of another Chinaman, who resides in
Hongkong, named Lo Yao, who, in September, 1911, leased
the same to the firm of Lo Seng and Co. for the term of three
years.
The lease was extended for fifteen years.
In conformity with this understanding many thousands of
pesos were expended by Lo Seng and Co., and later by Lo
Seng alone, in enlarging and improving the plant.
Neither the original contract of lease nor the agreement
extending the same was inscribed in the property registry, for
the reason that the estate which is the subject of the lease has
never at any time been so inscribed.

Every competent person is by law bond to maintain in all good faith the
integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes
as regards any contract previously entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim participated
in the creation of this lease, and when he sold out his interest in that firm
to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest
in the firm assets, including the lease; and Pang Lim cannot now be
permitted, in the guise of a purchaser of the estate, to destroy an interest
derived from himself, and for which he has received full value.
On account of his status as partner in the firm of Lo Seng and Co., Pang
Lim knew that the original lease had been extended for fifteen years;
and he knew the extent of valuable improvements that had been made
thereon.
It would be shocking to the moral sense if the condition of the law were
found to be such that Pang Lim, after profiting by the sale of his interest
in a business, worthless without the lease, could intervene as purchaser
of the property and confiscate for his own benefit the property which he
had sold for a valuable consideration to Lo Seng.
Above all other persons in business relations, partners are required to
exhibit towards each other the highest degree of good faith. In fact the
relation between partners is essentially fiduciary, each being considered
in law, as he is in fact, the confidential agent of the other. It is therefore
accepted as fundamental in equity jurisprudence that one partner
cannot, to the detriment of another, apply exclusively to his own benefit
the results of the knowledge and information gained in the character of
partner.
It has been held that if one partner obtains in his own name and for his
own benefit the renewal of a lease on property used by the firm, to
commence at a date subsequent to the expiration of the firm's lease, the
partner obtaining the renewal is held to be a constructive trustee of the
firm as to such lease.

B U S

CATALAN vs. GATCHALIAN

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defendant. It is against this judgment that the defendant has


appealed.

G.R. No. L-11648

ISSUES:

April 22, 1959


By: Joanna Guilonsod

W/N the property contributed by the


plaintiff became a property of the
partnership. YES
W/N the partnership, as declared by the
lower court, null and void. NO

FACTS:
HELD:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr.
Marave together with the improvements thereon to secure a credit from
the latter. The partnership failed to pay the obligation. The properties
were sold to Dr. Marave at a public auction. Catalan redeemed the
property and he contends that title should be cancelled and a new one
must be issued in his name.

As it appears from the above stipulation of facts that


the plaintiff and the defendant entered into the contract of
partnership, plaintiff contributing the amount of P18,000, and
as it is not stated therein that there has been a liquidation of
the partnership assets at the time plaintiff sold the Buda Diesel
Engine and since the court below had found that the plaintiff
had actually contributed one engine and 70 posts to the
partnership, it necessarily follows that the Buda diesel engine
contributed by the plaintiff had become the property of the
partnership. As properties of the partnership, the same could
not be disposed of by the party contributing the same without
the consent or approval of the partnership or of the other
partner.

ISSUE:
Did Catalans redemption of the properties make him the absolute owner
of the lands?

The lower court declared that the contract of


partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the
owner of the franchise. The reason for this holding was the
admission by defendant when being cross-examined by the
court that he and the plaintiff are dummies.
The SC held that the admission by the defendant is
an error of law, not a statement of a fact. The Anti-Dummy law
has not been violated as parties plaintiff and defendant are not
aliens but Filipinos. The Anti-Dummy law refers to aliens only.
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.

HELD:
No. Under Article 1807 of the NCC every partner becomes a trustee for
his copartner with regard to any benefits or profits derived from his act
as a partner. Consequently, when Catalan redeemed the properties in
question, he became a trustee and held the same in trust for his
copartner Gatchalian, subject to his right to demand from the latter his
contribution to the amount of redemption.
G.R. No. L-13680
April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
By: Jana Lomala
FACTS:
Plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they established a
partnership, 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. Later on the franchise or certificate of
public necessity and convenience in favor of Buenaflor was
cancelled and revoked by the Public Service Commission.
The said decision of the Public Service Commission was
appealed to SC. Consequently, a temporary certificate of
public convenience was issued in the name of Olimpia D.
Decolongon. By reason of the cancellation of the franchise in
the name of Buenaflor, plaintiff herein sold a generator Buda
(diesel) to the new grantee Decolongon, by a deed. Defendant
Depakakibo, on the other hand, sold one Crossly Diesel
Engine to the spouses Felix Jimenea and Felina Harder, by a
deed.
Plaintiff Mauro Lozana subsequently 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.
Plaintiff prayed that said roperties be delivered back to him.
Judge Pelayo issued an order in said case authorizing the
sheriff to take possession of the generator and 70 wooden
posts, upon plaintiff's filing of a bond in favor of the defendant
(for subsequent delivery to the plaintiff).
Defendant filed an answer, denying that the
generator and the equipment mentioned in the complaint
belong to the plaintiff and alleging that the same had been
contributed by the plaintiff to the partnership entered into
between them in the same manner that defendant had
contributed equipments also, and therefore that he is not
unlawfully detaining them.
Defendant further filed a motion to declare plaintiff
in default on his counterclaim, but this was denied by the
court. Hearings on the case were conducted and the judge
entered a decision declaring plaintiff owner of the equipment
and entitled to the possession thereof, with costs against

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 therefore,
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.
b.

Property Rights of Partners (Arts. 1810 to 1814)


EN BANC
G.R. No. L-45662
April 26, 1939
ENRIQUE CLEMENTE, plaintiff-appellee,
vs.
DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.
DIAZ, J.:

By: Ana Nihara D. Magarang


FACTS:

On June 6, 1931, Clemente and Galvan organized a civil


partnership named "Galvan y Compaia" to engage in the
manufacture and sale of paper and other stationery with an
agreement to invest a capital of P100,000, but as a matter of fact,
each only contributed P10,000.
After a year, plaintiff filed a case to ask for the dissolution of the
partnership and to compel defendant to whom the management
thereof was entrusted to submit an accounting of his administration
and to deliver to him his share as such partner.
A receiver and liquidator, in the name of Juan D. Mencarini, was
appointed to take charge of the properties and business for the
partnership while the same was not yet definitely dissolved.
In May 24, 1933, by virtue of a petition ex parte of the plaintiff, the
RTC issued an order requiring the receiver to deliver to the plaintiff
certain machines at Ylaya St., Manila.
As compliance to the order, the receiver delivered to plaintiff the
keys to the place where the machines were found, which was the

B U S

same place where defendant had his home; 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 entitled
"Philippine Education Co., Inc. vs. Enrique Clemente", and "Jose
Echevarria vs. Enrique Clemente", all for the recovery of a sum of
money, were made executory; and in order to avoid the attachment
and subsequent sale of the machines by the sheriff for the
satisfaction from the proceeds thereof of the judgments rendered
in the two cases aforecited, plaintiff agreed with the intervenor Jose
Echevarria, who is his nephew, to execute a deed of mortgage
encumbering the machines described in said deed in which it is
stated that "they are situated on Singalong Street No. 1163", which
is a place entirely different from the house Nos. 705 and 707 on
Ylaya Street hereinbefore mentioned.
As the deed of mortgage expired, Echevarria commenced a case
to collect his mortgage credit. Echevarria obtained judgment in his
favor because the defendant did not interpose any defense or
objection, and, moreover, admitted being really indebted to the
intervenor in the amount set forth in the deed of mortgage.
However, the machines mortgaged were then in fact in custodia
legis, as they were under the control of the receiver and liquidator.
It was, therefore, useless for the intervenor to attach the same in
view of the receiver's opposition; and the question having been
brought to court, it decided that nothing could be done because the
receiver was not a party to the case which the intervenor instituted
to collect his aforesaid credit. The question ended thus because
the intervenor did not take any other step until he thought of joining
in this case as intervenor.
Hence, Echevarria appealed to the SC.

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the Far Eastern Lumber & Commercial Co. (unregistered commercial


partnership hereinafter called FELCO), Arnold Hall, Fred Brown and
Jean Roxas, judgment against defendants jointly and severally for the
amount of P31,589.14 on October 29, 1948. The CA 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. 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.
The judge in his order, 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: WON Lastrilla is entitled to any claim in the share of the proceeds
of the sale?
The record is not very clear, but there are indications, and we shall
assume for the moment, that Fred Brown (like Arnold Hall and Jean
Roxas) 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. (Remember that
judgment in this case was entered in the court of first instance a year
before.)

ISSUE/S
I. WON the court a quo erred in finding in the appealed decision that
plaintiff was unable to take possession of the machines subject of the
deed of mortgage Exhibit B either before or after the execution thereof.
II. WON the court a quo likewise erred in deciding the present case
against the intervenor-appellant, on the ground, among others, that
"plaintiff has not adduced any evidence nor has he testified to show that
the machines mortgaged by him to the intervenor have ever belonged to
him, notwithstanding that said intervenor is his close relative."
HELD:

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.
Lastrilla's theory, and the lower court's seems to be: inasmuch as
Lastrilla had acquired the shares of Brown is September,
1949, i.e., before the auction sale and he was not a party to the litigation,
such shares could not have been transferred to Dorfe and Asturias.

1. From the foregoing facts, it is clear that plaintiff could not obtain
possession of the machines in question. The constructive possession
deducible from the fact that he had the keys to the place where the
machines were found (Ylaya Street Nos. 705-707), as they had been
delivered to him by the receiver, does not help him any because the
lower court suspended the effects of the other whereby the keys were
delivered to him a few days after its issuance; and thereafter revoked it
entirely in the appealed decision. Furthermore, when he attempted to
take actual possession of the machines, the defendant did not allow him
to do so. Consequently, if he did not have actual possession of the
machines, he could not in any manner mortgage them, for while it is true
that the oft-mentioned deed of mortgage Exhibit B was annotated in the
registry of property, it is no less true the machines to which it refers are
not the same as those in question because the latter are on Ylaya Street
Nos. 705-707 and the former are on Singalong Street No. 1163. It cannot
be said that Exhibit B-1, allegedly a supplementary contract between the
plaintiff and the intervenor, shows that the machines referred to in the
deed of mortgage are the same as those in dispute and which are found
on Ylaya Street because said exhibit being merely a private document,
the same cannot vary or alter the terms of a public document which is
Exhibit B or the deed of mortgage.

Granting arguendo that the auction sale and not included the interest or
portion of the FELCO properties corresponding to the shares of Lastrilla
in the same partnership (17%), the resulting situation would be at
most that the purchasers Dorfe and Austrias will have to recognized
dominion of Lastrillas over 17 per cent of the properties awarded to
them.2 So Lastrilla acquired no right to demand any part of the money
paid by Dorfe and Austrias to the sheriff any part of the money paid by
Dorfe and Austrias to the sheriff for the benefit of FELCO and Tomassi,
the plaintiffs in that case, for the reason that, as he says, his shares
(acquired from Brown) could not have been and were not auctioned off
to Dorfe and Austrias.

2. The second error attributed to the lower court is baseless. The


evidence of record shows that 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.

By: Natasha Militar

THE LEYTE-SAMAR SALES CO., and RAYMUNDO


TOMASSI, petitioners,
vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First
Instance of Leyte and OLEGARIO LASTRILLA, respondents.
By: Cloydie Mark Marcos
Facts
Civil case No. 193 of the CFI is a suit for damages by the Leyte-Samar
Sales Co. (hereinafter called LESSCO) and Raymond Tomassi against

c.

Obligations & Dealings with Third Persons (Arts. 1815 to 1827)


PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.SEVERO
EUGENIO LO, ET AL., defendants. SEVERIO EUGENIO LO, NG
KHEY LING and YEP SENG,appellants.
G.R. No. L-26937 October 5, 1927
VILLAMOR, J.:

In September 1916, Severo Eugenio Lo and Ling, together with Ping,


Hun, Lam and Peng formed a commercial partnership under the name
of Tai Sing and Co., with a capital of P40,000 contributed by said
partners. The firm name was registered in the mercantile registrar in the
Province of Iloilo. Ping, in the articles of partnership, was assigned as
the general manager. However, in 1917, he executed a special power of
attorney in favor of Lam to act in his behalf as the manager of the firm.
Subsequently, Lam obtained a loan from PNB the loan was under the
firms name. In the same year, Ping died in China. From 1918 to 1920,
the firm, via GM Lam, incurred other loans from PNB. The loans were
not objected by any of the partners. Later, PNB sued the firm for nonpayment. Lo, in his defense, argued that he cannot be liable as a partner
because the partnership, according to him, is void; that it is void because
the firms name did not comply with the requirement of the Code of
Commerce that a firm name should contain the names of all of the
partners, of several of them, or only one of them. Lo also argued that
the acts of Lam after the death of Ping is not binding upon the other
partners because the special power of attorney shall have already
ceased.

B U S

Defendants defense:
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing &
Co. was not a general partnership, and that the commercial credit in
current account which "Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of the company, nor
was the person who subscribed said contract authorized to make the
same, under the article of copartnership. The other defendants, Yap
Sing and Ng Khey Ling, answered the complaint denying each and every
one of the allegations contained therein.
Trial Court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng
Peng indebted to plaintiff Philippine National Bank in sum of P22,595.26
to July 29, 1926, with a daily interest of P4.14 on the balance on account
of the partnership "Tai Sing & Co. for the sum of P16,518.74 until
September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August 31, 1926,
and from the date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the
action.
ISSUE: Whether or not Lo is correct in both arguments.
HELD: No. 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. The object 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; it is for the protection of the creditors rather
than of the partners themselves. It is unenforceable 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 a partnership firm defectively organized are
valid when voluntarily executed by the parties, and the only question is
whether or not they complied with the agreement. Therefore, Lo cannot
invoke in his defense the anomaly in the firm name which they
themselves adopted. Lo was not able to prove his second argument. But
even assuming arguendo, his second contention does not deserve merit
because (a) Lam, in acting as a GM, is also a partner and his actions
were never objected to by the partners, and (b) it also appeared from
the evidence that Lo, Lam and the other partners authorized some of the
loans.
NOTE: Under the New Civil Code, a firm name may or may not include
the name of one or more of the partners (Article 1815)
SHARRUF AND CO. VS. BALOISE FIRE INSURANCE CO
By: Gil Ontal
FACTS:
Plaintiffs Salomon Sharruf and Elias Eskenazi were doing business
under the firm name of Sharruf & Co. As they had applied to the
defendant companies for insurance of the merchandise they had in stock
On August 26, 1933, the plaintiffs executed a contract of partnership
between themselves wherein they substituted the name of Sharruf & Co.
with the Sharruf & Eskenazi, stating that Elias Eskenazi contributed to
the partnership, as his capital, goods valued at P26,299.94 listed in an
inventory. It was likewise stated in said contract that Salomon Sharruf
brought to said partnership, as his capital, goods valued at P24,205.10,
appearing in the inventories
A fire broke out and burned the the said goods.
Herein defendant questions the plaintiffs capacity to sue either as a
partnership or individually
ISSUE:
whether or not Salomon Sharruf and Elias Eskenazi had
juridical personality to bring this action, either individually or collectively.

HELD:
As already seen, Salomon Sharruf and Elias Eskenazi were doing
business under the firm name of Sharruf & Co. in whose name the
insurance policies were issued, Elias Eskenazi having paid the
corresponding premiums.
In the case of Lim Cuan Sy vs. Northern Assurance Co. (55 Phil., 248),
this court said:

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A policy insuring merchandise against fire is not invalidated by


the fact that the name of the insured in the policy is incorrectly
written "Lim Cuan Sy" instead of "Lim Cuan Sy & Co.", the
latter being the proper legal designation of the firm, where it
appears that the designation "Lim Cuan Sy" was commonly
used as the name of the firm in its business dealings and that
the error in the designation of the insured in the policy was not
due to any fraudulent intent on the part of the latter and did
not mislead the insurer as to the extent of the liability
assumed.
In the present case, while it is true that at the beginning the plaintiffs had
been doing business in said name of "Sharruf & Co.", insuring their
business in said name, and upon executing the contract of partnership
on August 26, 1933, they changed the title thereof to "Sharruf &
Eskenazi," the membership of the partnership in question remained
unchanged, the same and only members of the former, Salomon Sharruf
and Elias Eskenazi, being the ones composing the latter, and it does not
appear that in changing the title of the partnership they had the intention
of defrauding the herein defendant insurance companies. Therefore,
under the above-cited doctrine the responsibility of said defendants to
the plaintiffs by virtue of the respective insurance policies has not been
altered. If this is true, the plaintiffs have juridical personality to bring this
action.
La Compaia Martitama vs. Muoz
By: Sarah Porras
In 1905, Francisco Muoz, Emilio Muoz, and Rafael Naval formed an
ordinary general mercantile partnership in accordance with the Code of
Commerce. They named the partnership Francisco Muoz & 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 Compaia 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
cant 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 Compaia Martitama.
HELD: Yes. 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.
G.R. No. L-6252

January 28, 1911

GEORGE O. DIETRICH vs. O.K. FREEMAN and BURTON


WHITCOMB
TRENT, J.:
By: Cherry Tempongko

B U S

FACTS
When the plaintiff was first employed, this steam laundry was owned
and operated by Freeman and Pierce.
Pierce, sold all of his right, title, and interest in the said laundry to
Whitcomb, who, together with Freeman, then became the owners of
this laundry and continued to operate the same as long as the plaintiff
was employed.
An action was brought against O.K. Freeman, James L. Pierce, and
Burton Whitcomb, as owners and operators of the Manila Steam
Laundry, to recover the sum of P952 alleged to be the balance due
the plaintiff for services performed.
An action was brought against O.K. Freeman, James L. Pierce, and
Burton Whitcomb, as owners and operators of the Manila Steam
Laundry, to recover the balance due the plaintiff for services
performed.
Judgment was rendered in favor of the plaintiff and against Freeman
and Whitcomb, jointly and severally, for the sum of P752, with interest
at the rate of 6 per cent per annum from the 27th day of August, 1909,
and the costs of the cause. The complaint as to Pierce was dismissed,
Whitcomb alone appealing.
ISSUE
WON partners of a non-commercial partnership are individually liable for
the entire amount due to the plaintiff.
HELD: NO
Partners cannot make private agreements, but all must appear in the
articles of copartnership.
In the organization of this partnership by Freeman and Whitcomb the
provisions of law were not complied with; that is, no formal partnership
was ever entered into by them, notwithstanding the fact that they were
engaged in the operation of this laundry.
The purpose for which this partnership was entered into by Freeman
and Whitcomb show clearly that such partnership was not a
commercial one; hence the provisions of the Civil Code and not the
Code of Commerce must govern in determining the liability of the
partners.
Those partnerships, although commercial, were not organized in
accordance with the provisions of the Code of Commerce as
expressed in those articles. In determining the liability of the partners
in these cases the court, after making the finding of facts, was
governed by the provisions of article 120 of the Commercial Code.
"A partnership," quoting from the syllabus in this case, "constituted in
such a manner that its existence was only known to those who had
an interest in the same, there being no mutual agreement between
the partners, and without a corporate name indicating to the public in
some way that there were other people besides the one who
ostensibly managed and conducted the business, is exactly the
accidental partnership of cuentas en participacion defined in article
239 of the Code of Commerce."
In a partnership of cuentas en participacion, under the provisions of
article 242 of the Code of Commerce, those who contract with the
person in whose name the business of such a partnership was
conducted shall have only the right of action against such person and
not against other persons interested. So this case is easily
distinguished from the case at bar, in that the one did not have the
corporate name while the other was known as the Manila Steam
Laundry.
The plaintiff was employed by and performed services for the Manila
Steam Laundry and was not employed by nor did he perform services
for Freeman alone. The public did not deal with Freeman and
Whitcomb personally, but with the Manila Steam Laundry. These two
partners were doing business under this name and, as we have said,
it was not a commercial partnership. Therefore, by the express
provisions of articles 1698 and 1137 of the Civil Code 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.

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names of said borrowers as owners in common under Transfer


Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds
of Manila. Thereafter, additional loans on the same security were
obtained by the private respondents from Syjuco, so that as of May 8,
1967, the aggregate of the loans stood at P2,460,000.00, exclusive of
interest, and the security had been augmented by bringing into the
mortgage other property, also registered as owned pro indiviso by the
private respondents under two titles: TCT Nos. 75416 and 75418 of the
Manila Registry.
The private respondents failed to pay it despite demands therefore;
that Syjuco consequently caused extra-judicial proceedings for the
foreclosure of the mortgage to be commenced by the Sheriff of Manila;
and that the latter scheduled the auction sale of the mortgaged property
on December 27, 1968. The attempt to foreclose triggered off a legal
battle that has dragged on for more than twenty years now, fought
through five (5) cases in the trial courts, two (2) in the Court of
Appeals,
and three (3) more in the Supreme Court.
One of the complaints filed by the private respondents was filed not
in their individual names, but in the name of a partnership of which they
themselves were the only partners: "Heirs of Hugo Lim." The complaint
advocated the theory that the mortgage which they, together with their
mother, had individually constituted (and thereafter amended during the
period from 1964 to 1967) over lands standing in their names in the
Property Registry as owners pro indiviso, in fact no longer belonged to
them at that time, having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim," more precisely, on March 30, 1959,
hence, said mortgage was void because executed by them without
authority from the partnership. Syjuco filed an instant petition for
certiorari, prohibition and mandamus. It prays in its petition that the
default judgment rendered against it by Judge Castro be annulled on the
ground of, among others, estoppel, res judicata, and Article 1819 of the
Civil Code.
Issue:
Whether or not the private respondents are estopped to avoid the
aforementioned mortgage.
Whether or not the conveyance of real property belongs to the
partnership.
Held:
Yes. The Supreme Court ruled that the respondent partnership was
inescapably chargeable with knowledge of the mortgage executed by all
the partners thereof, its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than 17 years,
brought into play the doctrine of estoppel to preclude any attempt to
avoid the mortgage as allegedly unauthorized. Equally or even more
preclusive of the respondent partnerships claim to the mortgaged
property is the last paragraph of Art. 1819 of the Civil Code, which
contemplates a situation similar to the case at bar. It states that where
the title to real property is in the names of all the partners, a conveyance
executed by the entire partners pass 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. Finally, the Supreme Court
emphasizes that the right of the private respondents to assert the
existence of the partnership could have been stressed at the time they
instituted their first action, considering that the actions involved property
supposedly belonging to it, and therefore, the partnership was the real
party in interest. What was done by them was to split their cause of
action in violation of the well-known rule that only one suit may be
instituted for a single cause of action.
Robles vs. Rado y Robles Hermanos

Conveyance of real property belonging to the partnership


G.R. No. L-12164

May 22, 1959

SANTIAGO SYJUCO, INC. VS CASTRO

By: Roita Valles


Facts:
The private respondents, Eugenio Lim, et al., borrowed from
petitioner Santiago Syjuco, Inc., the sum of P800,000.00. The loan was
given on the security of a first mortgage on property registered in the

BENITO LIWANAG and MARIA LIWANAG REYES, petitionersappellants,


vs.
WORKMEN'S COMPENSATION COMMISSION, ET
AL., respondents-appellees.
ENDENCIA, J.:
By: Erwin Verano

B U S

Facts: Appellants Benito Liwanag and Maria Liwanag Reyes are coowners 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, which was granted in an
award worded as follows:
WHEREFORE, the order of the referee under consideration
should be, as it is hereby, affirmed and respondents Benito
Liwanag and Maria Liwanag Reyes, ordered.
1. 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 Act.
In appealing the case to this Tribunal, 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.
At first blush appellants' contention would seem to be well, for ordinarily,
the liability of the partners in a partnership is not solidary; but the law
governing the liability of partners is not applicable to the case at bar
wherein a claim for compensation by dependents of an employee who
died in line of duty is involved. And although the Workmen's
Compensation Act does not contain any provision expressly declaring
solidary obligation of business partners like the herein appellants, there
are other provisions of law from which it could be gathered that their
liability must be solidary. Arts. 1711 and 1712 of the new Civil Code
provide:
ART. 1711. Owners of enterprises and other employers are
obliged to pay compensation for the death of or injuries to their
laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely
due to a fortuitous cause, if the death or personal injury arose
out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a
fellow-worker, the latter and the employer shall be solidarily
liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads


in part as follows:
. . . The right to compensation as provided in this Act shall not
be defeated or impaired on the ground that the death, injury
or disease was due to the negligence of a fellow servant or
employee, without prejudice to the right of the employer to
proceed against the negligence party.
ISSUE: W/N the appellants should pay jointly the amount awarded to
the widow and children?
HELD: The provisions of the new Civil Code above quoted 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.
Moreover, Art. 1207 of the new Civil Code provides:

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. . . . There is solidary liability only when the obligation


expressly so states, or when the law or the nature of the
obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full
protection to the employee, reason demands that the nature of the
obligation of the employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary; otherwise, the
purpose of the law could not be attained.
Wherefore, finding no error in the award appealed from, the same is
hereby affirmed, with costs against appellants.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador,
and Concepcion, JJ., concur.
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere
co-owners, their liability for the indemnity due their deceased employee
would not be solidary but only pro rata (Arts. 485 and 1815, new Civil
Code). The Workmen's Compensation Act does not change the nature
of that liability either expressly or by intendment. To hold that it does, is
to read into the Act something that is not there. For this Court, therefore,
to declare that under the said Act the defendants herein are liable
solidarily is to play the role of legislator.
The injustice of the rule sought to be established in the majority opinion
may readily be made obvious with an example. Suppose that one of two
co-partners or co-owners owns 99 percent of the business while his copartner or co-owners own only 1 percent. To hold that in such case the
latter's liability may run up to 100 percent although his interest is only 1
percent would not only be illogical but also inequitable.
For the foregoing reasons, I have no choice but to dissent.
G.R. No. L-4776 March 18, 1909
MANUEL ORMACHEA TIN-CONGCO, deceased, represented by
the Chinaman Tiu Tusay, judicial administrator of his estate,
plaintiff-appellee, vs. SANTIAGO TRILLANA, defendant-appellant.
TORRES, J.:
By: Roxanne Lipoles
FACTS: Ormachea and Luis Vizmanos Ong Queco were engaged in
business in the pueblos of Hagonoy, Malolos, and other places in the
Province of Bulacan, and that in the course thereof the defendant
purchased from them merchandise to the value of 4,000 pesos, local
currency;
- two years prior to that date, the partnership was dissolved and the
business was divided up between the partners, all accounts and debts
of the defendant were alloted to the plaintiff, and became the individual
property of Ormachea Tin-Congco;
-the indebtedness is proven by the documents signed by the defendant
or his agents in favor of Ormachea or of Vizmanos Ong Queco or their
agent named Lawa in charge of the business. They aggregate 135
documents, some of which are written in Tagalog with corresponding
translations.
Contention: The defendant alleges that he had already settled his
accounts and obligations contracted in the business by means of
periodical payments in tuba or the liquor of the nipa palm, and that if any
accounts are still pending, the same should, owing to their character and
the manner in which they were constituted, be paid in kind and not in
money as the plaintiff claims in his complaint, and should be paid at the
time and under the circumstances which, as is customary in Hagonoy.
TRIAL COURT RULING: The trial judge, on February 27, 1907,
rendered judgment ordering the defendant, Santiago Trillana, to pay to
the Chinaman Florentino Tiu Tusay, the judicial administrator of the
estate of the deceased plaintiff, Ormachea Tin-Congco, the sum of
P2,832.22, in tuba, under the same conditions stipulated between the
debtor and the copartnership for the working of the distillery of Luis
Vizmanos and the late Chinaman Manuel Ormachea, with costs.
The representative of the defendant excepted to the above judgment,
and announced his intention to appeal by means of a bill of exceptions;
and by a writing dated March 22, 1907, he prayed the lower court to
revoke or amend its former decision of the 27th of February, and to order
a new trial as the evidence adduced at the hearing was not sufficient to
justify said decision, because some vales are not subscribed to the
defendant.
At the hearing, the trial judge, on the 7th of May, 1907, overruled the
motion to modify his former decision as far as it referred to the amount
of the indebtedness found against the defendant and the said judgment
was modified by adding the provision that the defendant should make
payment in tuba which he should deliver at the plaintiff's distillery in the
town of Hagonoy within the term of six months, but that, if said term
should expire without such payment, whatever might be the cause, he
should be obliged to pay his debt in cash.

B U S

As Manuel Ormachea Tin-Congco claimed from Santiago Trillana the


payment of the sum which, as capital and interest thereon, he owed the
former for amounts in cash and in goods which he took from the creditor
and his partner, Luis Vizmanos Ong Queco, as shown by the 135 vales
which are attached to the complaint and which were admitted as
authentic by the defendant, with the exception of eight of them signed
by the other persons, aggregating P173, the court below, in view of the
evidence, found that the debt which could be claimed from the
defendant, after deducting the said P173, amounted only to P2,832.22
4/8.
The amounts advanced to the debtor, most of which were addressed to
Lopez Lawa, and some to other persons, were delivered by the said
Lopez Lawa who, from the years 1894 or by 1895 to 1901, was the
manager of the distillery, and owned in partnership by Ormachea and
Vizmanos, but the money furnished by the manager to Trillana belonged
to the two owners of the same, not to the manager, Jose Lopez Lawa.
While this litigation was pending, the plaintiff, Manuel Ormachea, died,
and Florentino Tiu Tusay was appointed administrator of his estate;
letters of administration in favor of the latter were issued on the 9th of
October, 1905.
In evidence of his payment, while testifying under oath, he introduced
the following document marked "A" which appears at folio 248:
I, Jose R. Lopez (Lawa), a Christian Chinese, do hereby declare that
D. Santiago Trillana has no outstanding debt whatever with the
distillery situated in the barrio of San Sebastian in this town, which
in past times was under my management. What I have stated is the
truth. Hagonoy, November 19, 1903. Jose R. Lopez.
The debtor explained how and in what manner he obtained the foregoing
document from Lawa, and stated: That in November, 1903, he received
a letter from Mr. McGirr, the plaintiff's attorney, requesting him to settle
his account with Lawa, for which reason he called on the latter and asked
him whether he still owed him anything on account of the distillery in San
Sebastian; Lawa replied that he no longer owed anything; thereupon the
requested Lawa to issue the said document, and under Lawa's direction
the debtor wrote out the document, and the former, upon being informed
of its contents, signed it; for said reason the witness believed that he no
longer owed anything.
However, Lopez Lawa affirms that he gave the said document marked
as Exhibit A" to the debtor, Santiago Trillana, because the latter was not
indebted to him but to Manuel Ormachea, to whom the credits standing
against Trillana were transferred when Ormachea withdrew from the
above-mentioned partnership with Vizmanos Ong Queco. When
drawing up the preinserted document, it was not his intention to annul
and set aside the vales which represented the indebtedness of the
defendant, Trillana.
ISSUE: W/N the document Exhibit A executed by Lawa absolved
Trillana from his liability to the partnership
HELD: No.
If the business jointly carried on by Ormachea and Vizmanos was
dissolved, and its transactions ceased in 1901, Lawa also ceased to act
as such manager in said year, and for said reason the document Exhibit
A, which he issued to the debtor on the 19th of November, 1903, two
years after ceasing to be manager, can not serve to relieve the debtor
from paying what he owed by virtue of the documents or vales that he
had issued in order to obtain money from the owners of the said distillery;
that is to say, as agreed upon by them, the right to recover the debts of
the defendant still belonged to Ormachea when the business was
dissolved, as Lawa was not authorized by Ormachea to deliver to the
debtor an acquittance releasing him from the obligations that he had
contracted, to the prejudice of the real creditor, the only person entitled
to condone a debt in the event of waiving the right to recover the same.
He had no express authority to issue such a document, with the further
circumstance of its being written in Spanish, a language with which the
Chinaman who signed it was probably not well acquainted and the fact
that it was written by the defendant, Santiago Trillana himself; it is not
proper nor lawful to admit the said document as possessing a force and
effect that would fully exempt the defendant from the payment of his
obligation, and with greater reason if it is considered that it has not been
shown that Lawa was authorized to liquidate accounts, or issue an
acquittance releasing the debtor from the payment of his debt. (Arts.
1714 and 1719, Civil Code.)
Article 1162 of said code reads:
Payment must be made to the person in whose favor an obligation
is constituted, or to another authorized to receive it in his name.
Lawa was not authorized to sign the document marked "A," made out by
the debtor, by which the credit of Ormachea should be considered as
settled, and the obligation contracted by Santiago Trillana, as shown by
the vales which appear in the record, extinguished.
MACDONALD vs. NATIONAL CITY BANK OF NEW YORK
By: Stella Monette De Castro
Facts:
Stasikinocey is a partnership formed by da Costa,Gorcey, Kusik and
Gavino. It was denied registration by the SEC due to a confusion
between the partnership and Cardinal Rattan. Cardinal Rattan is the
business name or style used by Stasikinocey. Da Costa and Gorcey are
the general partners of Cardinal Rattan. Moreover, Da Costa is the

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managing partner of Cardinal Rattan. Stasikinocey had an overdaft


account with Nationa City Bank, which was later converted into an
ordinary loan due the partnerships failure in paying its obligation. The
ordinary loan was secured by a chattel mortgage over 3vehicles. During
the subsistence of the loan, the vehicles weresold to MacDonald and
later on, MacDonald sold 2 of the 3vehicles to Gonzales. The bank
brought an action for recovery of its credit and foreclosure of the chattel
mortgage upon learning of these transactions.
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. Where a partnership not duly organized has been
recognized as such in its dealings with certain persons, it shall be
considered as partnership by estoppel and the persons dealing with it
are estopped from denying its partnership existence.
E. Walch vs Lim Chai Seng
By: Chrissy Sabella
Facts:
A limited co-partnership was formed between Lim Hai Tao and
Lim Chai Seng doing business under the name of Guan Hoo. According
to its articles the general partner was Lim Hai Tao and the limited partner
was Lim Chai Seng. The term of the partnership was for an indefinite
period, but it could be dissolved by agreement of those parties.
On January 1930, one Liong Kee Ho proposed to buy Lim
Chay Sengs participation in the business of the partnership. So, on
January 6, 1930, a written agreement was entered into by and between
Lim Hai Tao and Lim Chay Seng by vurtue of which the latter retired and
separated from the partnership effective on the same date. Before the
execution of this agreementof separation, Liong Kee Ho delivered to Lim
Hai Tao the sum of 31,129.27 pesos to be paid to Lim Chay Seng as
purchase price of his participation in the business of the partnership.
However, at the time of the delivery, the deed of separation had not yet
formally executed.
Subsequently, an insolvency proceeding was instituted
against Lim Hai Tao by his creditors. Lim Hai Tao was duly adjudged
insolvent by the court and E. Walch was elected by the creditors as
assignee of the insolvent estate. In this capacity as assignee, Walch
sued Lim Chai Seng for the purpose of recovering part of the money
paid to him by Liong Kee Ho for participation in the business of the
partnership. Walch predicates his case on the theory that the payment
was in fraud of the creditors of both the partnership and Lim Hai Tao.
Issue:
Whether or not the money paid by Liong Kee Ho to Lim Hai
Tao was in fraud of the creditors of both the partnership and Lim Hai
Tao.
Ruling:
No. The co-partnership was never been declared insolvent.
The transactions of the present creditors were actually with the individual
Lim Hai Tao instead of with the co-partnership. Finally, the money which
the Lim Chay Seng received was paid in by a third party for Sengs
interest in the copartnership. Thus, the co-partnership suffered no
diminution and the creditors of the firm were not injuriously affected by
the transaction.
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
By: Eula Maye Celaine Perturbos
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondent filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing

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Corporation was a nonexistent corporation as shown by a Certification


from the Securities and Exchange Commission.

name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.

On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment
and that Chua, Yao and Lim, as general partners, were jointly liable to
pay respondent.

We stress that it is unreasonable indeed, 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.
Corporation by Estoppel

The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three which Chua and Yao had
brought against Lim in the RTC of Malabon, Branch 72, for (a) a
declaration of nullity of commercial documents; (b) a reformation of
contracts; (c) a declaration of ownership of fishing boats; (d) an
injunction and (e) damages.
The CA affirmed the trial court decision.
In arguing that he should not be held liable for the equipment purchased
from respondent, petitioner controverts the CA finding that a partnership
existed between him, Peter Yao and Antonio Chua. He asserts that the
CA based its finding on the Compromise Agreement alone. Furthermore,
he 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.
Petitioner further argues that he was a lessor, not a partner, of Chua and
Yao, for the "Contract of Lease" dated February 1, 1990, showed that
he had merely leased to the two the main asset of the purported
partnership -- the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross
catch of the boat.
Hence, petitioner brought this recourse before this Court.

Petitioner argues that under the doctrine of corporation by estoppel,


liability can be imputed only to Chua and Yao, and not to him. Again, we
disagree.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation. Thus, even if the ostensible corporate entity is proven to
be legally nonexistent, a party may be estopped from denying its
corporate existence.
There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who dealt
in the name of the ostensible corporation should be held liable. Since his
name does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be
held liable.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered
into by persons with whom he previously had an existing relationship, he
is deemed to be part of said association and is covered by the scope of
the doctrine of corporation by estoppel.

The Issue: Whether by their acts, Lim, Chua and Yao could be deemed
to have entered into a partnership.

Munasque v. CA
G.R. No. L-39780 November 11, 1985

Existence of a Partnership and Petitioner's Liability


By: Trina Faye Ladores
The facts as found by the two lower courts clearly showed that there
existed a partnership among Chua, Yao and him, pursuant to Article
1767 of the Civil Code which provides:
Article 1767 - 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.
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.
Compromise Agreement Not the Sole Basis of Partnership
The Agreement was but an embodiment of the relationship extant
among the parties prior to its execution. A proper adjudication of
claimants rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties.
Petitioner Was a Partner, Not a Lessor
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order
to finance the acquisition and the upgrading of the vessels which would
be used in their fishing business. The sale of the boats, as well as the
division among the three of the balance remaining after the payment of
their loans, proves beyond cavil that F/B Lourdes, though registered in
his name, was not his own property but an asset of the partnership. It is
not uncommon to register the properties acquired from a loan in the

FACTS:
Petitioner Elmo Munasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. and Ramon Pons. Petitioner alleged that he
entered into a contract with respondent Tropical for remodelling a portion
of its building without exchanging or expecting any consideration from
Galan. Galan was casually named as partner in the contract by virtue
of his having introduced the petitioner to Tropical.
Galan would receive some kind of compensation in the form of some
percentages or commission. Tropical agreed to give petitioner the
amount of P7,000.00 soon after the construction began and thereafter,
the amount of P6,000.00 every fifteen (15) days.
Tropical delivered a check for P7,000.00 to Galan who succeeded in
getting Munasques indorsement on the same check persuading the
latter that the same be deposited in a joint account. When the second
check for P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through later manipulations, changed the
payee's name from Elmo Muasque to Galan and Associates. Galan
encashed the same at the placing the petitioner in great financial
difficulty in his construction business and subjecting him to demands of
creditors to pay' for construction materials. Petitioner later on demanded
that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company.
TRIAL COURT
- ordered plaintiff Muasque and defendant Galan to pay intervenors
(suppliers of construction materials) jointly and severally
- absolved the defendants Tropical and Pons from any liability,
Petitioner and Intervenors filed MR. MR denied.
CA: affirmed the judgment of the trial court with the sole modification that
the liability imposed was changed from "jointly and severally" to "jointly."
ISSUES:
(1) WON a partnership existed between petitioner and respondent Galan
(2) WON Galan and Munasque are solidarily liable
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of P13,000.00
due to the petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the payment made
by Tropical to Galan was "good" payment when the same gave occasion
for the latter to misappropriate the proceeds of such payment.
HELD:
(1) YES.

B U S

The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muasque." Likewise, when Muasque
received the first payment of Tropical with a check made out in his name,
he indorsed the check in favor of Galan. Respondent Tropical therefore
had every right to presume that the petitioner and Galan were true
partners. If they were not partners as petitioner claims, then he has only
himself to blame for making the relationship appear otherwise, not only
to Tropical but to their other creditors as well. The payments made to
the partnership were, therefore, valid payments.
There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions. The presumption is sufficient
to permit third persons to hold the firm liable on transactions entered into
by one of members of the firm acting apparently in its behalf and within
the scope of his authority.
(2) YES.
While Article 1816 of the Civil Code states that,"All partners, including
industrial ones, shall be liable prorate with all their property and after all
the partnership assets have been exhausted...". this provision should be
construed together with
Article 1824: "All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823."
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
if the case of the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partner-ship or
with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and t he money or property so
received is misapplied by any partner while it is in the custody of the
partnership.
The obligation is solidary, because the law protects him, who in good
faith relied upon the authority of a partner, whether such authority is real
or apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
However. 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 their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad
faith in his dealings with Muasque as a partner.

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