Idos v. CA G.R. NO. 110782, September 25, 1998, Quisumbing, J.

Facts:

In 1985, Eddie Alarilla and Irma Idos formed a partnership which they decided to terminate
after a year. To pay Alarilla’s share of the asset, Idos issued 4 post dated checks. Alarilla was able
to encash the first, second and fourth checks but the third was dishonored for insufficiency of
funds. He demanded payment but Idos failed to pay. She claimed that the checks were issued as
assurance of Alarilla’s share in the assets of the partnership and that it was supposed to be
deposited until the stocks were sold. He filed an information for violation of BP blg. 22 against
Idos in which she was found guilty by the trial court.

Issue: Did the court confused and merged into one the legal concepts of dissolution, liquidation
and termination of a partnership?

Ruling: The partners agreement to terminate the partnership did not automatically dissolved
the partnership. They were in the process of winding-up when the check in question was issued.
The best evidenceof the existence of the partnership, which was not yet terminated were the
unsold goods and uncollected receivables which were presented to the trial court. Article 1829
of the Civil Code provides that “on dissolution the partnership is not terminated but continues
until the winding-up of partnership affairs is completed. Since the partnership has not been
terminated, Idos and Alarilla remained co-partners. The check was issued by petitioner to
respondent as would a partner to another and not as a payment by debtor to creditor. Thus,
absent the first element of the complained offense, the act is not punishable by the statute.

GREGORIO MAGDUSA v. GERUNDIO ALBARAN

Appeal from a decision of the Court of Appeals (R.G. No. 24248-R) reversing a judgment of the
Court of First Instance of Bohol and ordering appellant Gregorio Magdusa to pay to appellees,
by way of refund of their shares as partners, the following amounts: Gerundio Albaran,
P8,223.10; Pascual Albaran, P5,394,78; Zosimo Albaran, 11,979.28; and Telesforo Bebero,
P3,020.24, plus legal interests from the filing of the complaint, and costs. The Court of Appeals
found that appellant and appellees, together with various other persons, had verbally formed a
partnership de facto, for the sale of general merchandise in Surigao, Surigao, to which appellant
contributed P2,000 as capital, and the others contributed their labor, under the condition that
out of the net profits of the business 25% would be added to the original capital, and the
remaining 75% would be divided among the members in proportion to the length of service of
each. Sometime in 1953 and 1954, the appellees expressed their desire to withdraw from the
partnership, and appellant thereupon made a computation to determine the value of the
partners' shares to that date. The results of the computation were embodied in the document
Exhibit "C", drawn in the handwriting of appellant. Appellees thereafter made demands upon
appellant for payment, but appellant having refused, they filed the initial complaint in the court
below. Appellant defended by denying any partnership with appellees, whom he claimed to be
mere employees of his.
The Court of First Instance of Bohol refused to give credence to Exhibit "C" and dismissed the
complaint on the ground that the other partners were indispensable parties but had not been
impleaded. Upon appeal, the Court of Appeals reversed, with the result noted at the start of
this opinion.
Gregorio Magdusa then petitioned for a review of the decision, and we gave it due course.
The main argument of appellant is that the appellees' action can not be entertained, because in
the distribution of all or part of a partnership's assets, all the partners have an interest and are
indispensable parties without whose intervention no decree of distribution can be validly
entered. This argument was considered and answered by the Court of Appeals in the following,
words;
"We now come to the last issue involved. While finding that some amounts are due the
plaintiffs, the lower court "withheld ail award in their favor, reasoning that a judgment ordering
the defendant to pay might affect the rights of other partners who were not made parties in this
case. The reason cited by the lower court does not constitute a legal impediment to a judgment
for the plaintiffs in this case. This is not an action for a dissolution of a partnership and winding
up of its affairs or liquidation of its assets in which the interest of other partners who are not
brought into the case may be affected. The action of the plaintiffs is one for the recovery of a
sum of money with Gregorio Magdusa as the principal defendant. The partnership, with
Gregorio Magdusa as managing partner, was brought into the case as an alternative defendant
only. Plaintiffs' action was based on the allegation, substantiated in evidence, that Gregorio
Magdusa, having taken delivery of their shares, failed and refused and still fails and refuses to
pay them their claims. The liability, therefore, is personal to Gregorio Magdusa, and the
judgment should be against his sole interest, not against the partnership's although the
judgment creditors may satisfy the judgment against the interest of Gregorio Magdusa in the
partnership subject to the conditions imposed by Article 1814 of the Civil Code."
We do not find the preceding reasoning tenable. A partner's share can not be returned without
first dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 177), for
the return is dependent on the discharge of the creditors, whose claims enjoy preference over
those of the partners; and it is self-evident that all members of the partnership are interested in
its assets and business, and are entitled to be heard in the matter of the firm's liquidation and
the distribution of its property. The liquidation Exhibit "C" is not signed by the other members
of the partnership besides appellees and appellant; it does not appear that they have approved,
authorized, or ratified the same; and, therefore, it is not binding upon them. At the very least,
they are entitled to be heard upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is first had, the
capital shares of the appellees, as retiring partners, can not be repaid, for the firm's outside
creditors have preference over the assets of the enterprise (Civ. Code, Art. 1839), and the firm's
property can not be diminished to their prejudice. Finally, the appellant can not be held liable in
his personal capacity for the payment of partners' shares, for he does not hold them except as
manager of, or trustee for, the partnership. It is the latter that must refund their shares to the
retiring partners. Since not all the members of the partnership have been impleaded, no
judgment for refund can be rendered, and the action should have been dismissed.
In view of the foregoing, the decision of the Court of Appeals is reversed, and the action
ordered dismissed, without prejudice to a proper proceeding for the dissolution and liquidation
of the common enterprise. Costs against appellees.

VILLAREAL V. RAMIREZ

Facts:

In 1984, Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of
P750,000for the operation of a restaurant and catering business. Respondent Ramirez joined as
a partner in the business with the capital contribution of P250,000. In 1987, Jesus Jose
withdrew from the partnership and within the same time, Villareal and Carmelito Jose,
petitioners closed the business without prior knowledge of respondents In March 1987,
respondents wrote a letter to petitioners stating that they were no longer interested in
continuing the partnership and that they were accepting the latter’s offer to return their capital
contribution. This was left unheeded by the petitioners, and by reason of which respondents
filed a complaint in the RTC.RTC ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time, and this dissolution was showed by the fact
that petitioners stopped operating the restaurant. On appeal, CA upheld RTC’s decision that the
partnership was dissolved and it added that respondents had no right to demand the return of
their capital contribution. However since petitioners did not give the proper accounting for the
liquidation of the partnership, the CA took it upon itself to compute their liabilities and the
amount that is proper to the respondent. The computation of which was:(capital of the
partnership – outstanding obligation) / remaining partners =amount due to private respondent

Issue: W/N petitioners are liable to respondents for the latter’s share in the partnership?

Ruling:

No. Respondents have no right to demand from petitioner the return of their equity share. As
found by the court petitioners did not personally hold its equity or assets. “The partnership has
a juridical personality separate and distinct from that of each of the partners.” Since the capital
was contributed to the partnership, not to petitioners, it is the partnership that must refund the
equity of the retiring partners. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. Therefore, the exact amount of refund
equivalent to respondents’ one-third share in the partnership cannot be determined until all the
partnership assets will have been liquidated and all partnership creditors have been paid. CA’s
computation of the amount to be refunded to respondents as their share was thus erroneous.

Benjamin Yu vs. National Labor Relations Commission (NLRC)

FACTS:
Petitioner Yu was hired as the Assistant General Manager of Jade Mountain Products Company
Limited primarily responsible for the overall operations of marble quarrying and export business
of said partnership. He was hired by a virtue of a Partnership Resolution in 1985 with a monthly
salary of P4,000.00. Initially he received only half of his stipulated monthly salary and was
promised by the partners that the balance would be paid upon securing additional operating
funds from abroad. However, in 1988 without his knowledge the general partners as well as one
of the limited partners sold and transferred their interest to Willy Co and Emmanuel Zapanta.
Thus the new major partners decided to transfer the firm’s main office but opted to continue
the operation of the old partnership under its old firm name and with all its employees and
workers except for the petitioner. Upon knowing of the changes in the partnership, petitioner
went to the new main office to meet the new partners and demand the payment of his unpaid
salaries, but the latter refused to pay him and instead informed him that since he bought the
business from the original partners, it was for him to decide whether or not he was responsible
for the obligations of the old partnership including petitioners unpaid salaries. Hence, petitioner
was dismissed from said partnership.

ISSUES:
1. Whether the partnership which had hired the petitioner as Asst. General Manager had
been extinguished and replaced by a new partnership composed of Willy Co and Emmanuel
Zapanta.
2. Whether petitioner could assert his rights under his employment contract as against
the new partnership

HELD:
1. Yes. The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired the petitioner in 1984 and the emergence of
the new firm composed of Willy Co and Emmanuel Zapanta in 1988. This is based on the
following provisions:
Art. 1828. The dissolution of partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as a distinguished from the winding up
of the business.
Art. 1830. Dissolution is caused:
1. without violation of the agreement between the partners;
b. by the express will of any partner, who must act in good faith, when no definite term
or particular undertaking is specified.
 2. in contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will
of any partner at any time;

However, the legal consequence of dissolution of a partnership do not automatically result in

the termination of the legal personality of the old partnership as according to Art. 1829, “ on
dissolution of the partnership is not terminated, but continues until the winding up of the
partnership affairs is completed. The new partnership simply continued the operations of the
old partnership under its old firm name without winding up the business affairs of the old
partnership.

2. Yes. Under Art. 1840, creditors of the old partnership are also creditors of the new
partnership which continued the business of former without liquidation of the partnership
affairs. Thus, creditor of the old Jade Mountain, such as the petitioner is entitled to enforce his
claim for unpaid salaries, as well as other claims relating to his employment with the old
partnership against the new Jade Mountain.