Bachrach v La Protectora
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.
Issue:
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:
a. Yes. Promissory notes constitute the
obligation exclusively of La Protectora and
Barba. They do not constitute an obligation
directly binding the defendants. Their
liability is based on the principles of
partnership liability. A member is not liable
in solidum with his fellows for the entire
indebtedness but is liable with them or his
aliquot part.
SC obiter: the document was intended
merely as an authority to enable Barba to
bind the partnership and that the parties to
the instrument did not intend to confer upon
Barba an authority to bind them personally.
b. Yes. Under Art 1804, every partner may
associate another person with him in his
share. All partners are considered agents of
the partnership. Barba must be held to have
authority to incur these expenses. He is
shown to have been in fact the
president/manager, and there can be no
doubt that he had actual authority to incur
obligation.
Council Red Men vs. Veterans Army
Facts:
 This case involves the Veteran Army of the
Philippines.
 Their Constitution provides for the
organization of posts. Among the posts thus
organized is the General Henry W. Lawton
Post, No. 1.
 March 1, 1903: a contract of lease of parts of
a certain buildings in the city of Manila was
signed by Lewis, Stovall, and Hayes (as
trustees of the Apache Tribe, No. 1,
Improved Order of Red Men) as lessors, and
McCabe (citing for and on behalf of Lawton
Post, Veteran Army of the Philippines) as
lessee.
 The lease was for the term of two years
commencing February 1, 903, and ending
February 28, 1905.
 The Lawton Post occupied the premises in
controversy for thirteen months, and paid the
rent for that time. Thereafter, it abandoned
the premises.
 Council Red Men then filed an action to
recover the rent for the unexpired term of
the lease.
 Judgment was rendered in the court below
on favor of the defendant McCabe,
acquitting him of the complaint.
 Judgment was rendered also against the
Veteran Army of the Philippines for
P1,738.50, and the costs.
 It is claimed by the Veterans Army that the
action cannot be maintained by the Council
Red Men as this organization did not make
the contract of lease.
 It is also claimed that the action cannot be
maintained against the Veteran Army of the
Philippines because it never contradicted,
either with the Council Red Men or with
Apach Tribe, No. 1, and never authorized
 anyone to so contract in its name.
Issue:
Whether or not Article 1695 of the Civil Code is
applicable to the Veteran Army of the Philippines.
NO
Held:
 Council Red Men must show that the
contract of lease was authorized by the
Veterans Army
 The view most favorable to the appellee
(Council Red Men) is the one that makes the
appellant (Veterans Army) a civil
partnership. Assuming that is such, and is
covered by the provisions of title 8, book 4
of the Civil Code, it is necessary for the
appellee (Council Red Men) to prove that
the contract in question was executed by
some authorized to so by the Veteran Army
of the Philippines.
 Article 1695 of the Civil Code is not
applicable in this case
 Article 1695 of the Civil Code provides as
follows:
"Should no agreement have been
made with regard to the form of
management, the following rules shall be
observed:
All the partners shall be considered
as agents, and whatever any one of them
may do by himself shall bind the
partnership; but each one may oppose the act
of the others before they may have produced
any legal effect."
 One partner, therefore, is empowered to
contract in the name of the partnership only
when the articles of partnership make no
provision for the management of the
partnership business.
 The constitution of the Veteran Army of the
Philippines makes provision for the
management of its affairs, so that article
1695 of the Civil Code, making each
member an agent of the partnership in the
absence of such provision, is not applicable
to that organization.
 In the case at bar we think that the articles of
the Veteran Army of the Philippines do so
provide. It is true that an express disposition
to that effect is not found therein, but we
think one may be fairly deduced from the
contents of those articles. They declare what
the duties of the several officers are. In these
various provisions there is nothing said
about the power of making contracts, and
that faculty is not expressly given to any
officer.
We think that it was, therefore, reserved to
the department as a whole; that is, that in
any case not covered expressly by the rules
prescribing the duties of the officers, the
department were present. It is hardly
conceivable that the members who formed
this organization should have had the
intention of giving to any one of the sixteen
or more persons who composed the
department the power to make any contract
relating to the society which that particular
officer saw fit to make, or that a contract
when so made without consultation with, or
knowledge of the other members of the
department should bind it.
 The contract of lease is not binding on the
Veterans Army absent showing that it was
authorized in a meeting of the department in
question, is binding on the Veteran Army of
the Philippines unless it was authorized at a
meeting of the department. No evidence was
offered to show that the department had
never taken any such action.
 In fact, the proof shows that the transaction
in question was entirely between Apache
Tribe, No. 1, and the Lawton Post, and there
is nothing to show that any member of the
department ever knew anything about it, or
had anything to do with it.
 Judgment against the appellant is reversed,
and the Veteran Army of the Philippines is
acquitted of the complaint. No costs will be
allowed to either party in this court.

NOTE: Whether a fraternal society, such as the
Veteran Army of the Philippines, is a civil
partnership is not decided
JOSE MACHUCA, plaintiff-appellee, vs.
CHUIDIAN, BUENAVENTURA & CO.,
defendants-appellants.
FACTS:
CHUIDIAN, BUENAVENTURA & CO (defendants)
is a regular general partnership. The original partners
were D. Telesforo Chuidian, Doña Raymunda
Chuidian, Doña Candelaria Chuidian, and D.
Mariano Buenaventura. The partners each
contributed a certain amount of money to the
partnership.
Dona Raymunda retired from the partnership on
November 1885. The partnership subsequently went
into liquidation (it does not appear that the liquidation
has been terminated when this action was brought).
On January 1894, D. Mariano Buenaventura died,
his estate passing by will to his children, including D.
Vicente Buenaventura. In 1898, D. Vicente
Buenaventura executed a public instrument in which
for a valuable consideration he “assigns to D. Jose
Gervasio Garcia . . . a 25 per cent share in all that
may be obtained by whatever right in whatever form
from the liquidation of the partnership of Chuidian,
Buenaventura & Co., in the part pertaining to him in
said partnership.
A subsequent assignment was made by Garcia in
favor of Jose Machuca (now plaintiff), which has
been notified to the liquidator of the partnership. The
liquidator, however, declined to record in the books
of the partnership Machuca’s claim under the
assignment as a credit due to him. Hence, Machuca
filed an action to compel such record to be made, and
he further asks that he be adjudicated to be a creditor
of the partnership in an amount equal to 25% of D.
Vicente Buenaventura’s share (that he be
immediately given the 25% share).
ISSUE: WON Machuca is entitled to 25% of D.
Vicente Buenaventura’s share in the partnership NO
HELD:
According to clause 19 of the partnership agreement:
"upon the dissolution of the company, the pending
obligations in favor of outside parties should be
satisfied, the funds of the minors Jose and Francisco
Chuidian should be taken out, and afterwards the
resulting balance of the account-current of each one
of those who had put in money should be paid."
Our construction of this clause is that it establishes a
a basis for the final adjustment of the affairs of the
partnership; that basis is that the liabilities to
noncompartners are to be first discharged; that the
claims of the Chuidian minors are to be next
satisfied; and that what is due to the respective
partners on account of their advances to the firm is to
be paid last of all, leaving the ultimate residue, of
course, if there be any, to be distributed, among the
partners in the proportions in which they may be
entitled thereto.
Hence, it follows that D. Vicente Buenaventura,
whose rights are those of his father, is in no case
entitled to receive any part of the assets until the
creditors, who are nonpartners, and the Chuidian
minors are paid. Whatever rights he had, he could
only transfer subject to this condition. It is clear, from
the language of the instrument under which plaintiff
claims, that this conditional interest was all that
Vicente ever intended to transfer.
ANTONIO PARDO v. THE HERCULES
LUMBER and IGNACIO FERRER
1924 / Street / Rights and obligations of the partners
among themselves > Books, information, accounts
FACTS
Antonio Pardo [Hercules Lumber Company
stockholder] seeks to obtain a writ of mandamus to
compel the company and its acting secretary Ignacio
Ferrer to permit him [Pardo] and his duly authorized
agent and representative to examine the company’s
records and business transactions.
The main ground upon which the defense of the
company appears to be rested has reference to the
time, or times, within which the right of inspection
may be exercised.
 Article 10 of the By-laws of the company
o "Every shareholder may examine
the books of the company and other
documents pertaining to the same
upon the days which the board of
directors shall annually fix."
 Board Resolution passed at the directors'
meeting held on 16 February 1924
o The board also resolved to call the
usual general (meeting of
shareholders) for March 30 of the
present year, with notice to the
shareholders that the books of the
company are at their disposition
from the 15th to 25th of the same
month for examination, in
appropriate hours.
ISSUES & HOLDING
  WON the board resolution constitutes a
lawful restriction on the right conferred by
statute. NO
 WON Pardo lost his right to inspection and
examination for the year, since he has not
availed himself of the permission [to inspect
the company’s books and transactions within
the 10 days defined in the board resolution.
NO
 WON the shareholder’s motive in exercising
this right is material. NO
RATIO
The basis of right of inspection is Sec. 51 of Act No.
1459 [Corporation Law].1 In Philpotts v. Philippine
Manufacturing Co., and Berry, it was held that the
right of examination there conceded to the stockholder
may be exercised either by a stockholder in person or
by any duly authorized agent or representative.
It may be admitted that the officials in charge of a
corporation may deny inspection when sought at
unusual hours or under other improper conditions;
but neither the executive officers nor the board of
directors have the power to deprive a stockholder
of the right altogether. A by-law unduly restricting
the right of inspection is undoubtedly invalid.
Under a statute similar to our own it has been held that
the statutory right of inspection is not affected by the
adoption by the board of directors of a resolution
providing for the closing of transfer books thirty days
before an election.
Our statute declares that the right of inspection can be
exercised "at reasonable hours." This means at
reasonable hours on business days throughout the
year, and not merely during some arbitrary period
of a few days chosen by the directors.
Additional issue: The motives that prompted Pardo
to make inspection
It is alleged that the information which Pardo seeks is
desired for ulterior purposes in connection with a
competitive firm with which Pardo is alleged to be
connected. It is also insisted that one of Pardo’s
purposes is to obtain evidence preparatory to the
1
Section 51. All business corporations shall keep and
carefully preserve a record of all business transactions, and a
minute of all meetings of directors, members, or stockholders,
in which shall be set forth in detail the time and place of
holding the meeting, how authorized, the notice given,
whether the meeting was regular or special, if special its
object, those present and absent, and every act done or
ordered done at the meeting. On the demand of any director,
member, or stockholder, the time when any director, member,
or stockholder entered or left the meeting must be noted on
institution of an action, which he means to bring
against the company re: a contract of employment
which once existed between the corporation and
himself. These suggestions are entirely apart from
the issue—the motive of the shareholder exercising
the right is immaterial.
Writ of mandamus will issue
PANG LIM and BENITO GALVEZ vs. LO SENG
Facts:
_Lo Seng and Pang Lim were partners in the
business of running a distillery, known as "El
Progreso”
_The land on which said distillery is located was to
the firm of Lo Seng and Co. for the term of three
years.
_Upon the expiration of this lease a new written
contract, in the making of which Lo Yao was
represented by one Lo Shui as attorney in fact,
became effective whereby the lease was extended for
fifteen years.
_Pang Lim sold all his interest in the distillery to
his partner Lo Seng, thus placing the latter in the
position of sole owner
_Lo Shui, again acting 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. But this document was never
recorded in the registry of property.
_Thereafter, Pang Lim and Benito Galvez
demanded possession from Lo Seng, but the latter
refused to yield; and the present action of unlawful
detainer was thereupon initiated by Pang Lim and
Benito Galvez in the court of the justice of the peace
of Paombong to recover possession of the premises.
_Plaintiff Pang Lim has occupied a double role in
the transactions which gave rise to this litigation,
namely, first, as one of the lessees; and secondly, as
one of the purchasers now seeking to terminate the
lease. These two positions are essentially antagonistic
and incompatible. 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
the minutes, and on a similar demand, the yeas and nays must
be taken on any motion or proposition and a record thereof
carefully made. The protest of any director, member, or
stockholder on any action or proposed action must be
recorded in full on his demand.
The record of all business transactions of the
corporation and the minutes of any meeting shall be open to
the inspection of any director, member, or stockholder of the
corporation at reasonable hours.
respect the rights of any person whom he has placed
in his own shoes as regards any contract previously
entered into by himself.
Issue: WON Pang Lim, having been a participant in
the contract of lease now in question, is in a position
to terminate it: and this is a fatal obstacle to the
maintenance of the action of unlawful detainer by
him.
Held: NO. 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.
Ratio:
_The bad faith of the plaintiffs in seeking to
deprive the defendant of this lease is strikingly
revealed in the circumstance that prior to the
acquisition of this property Pang Lim had been
partner with Lo Seng and Benito Galvez an
employee. Both therefore had been in relations of
confidence with Lo Seng and in that position had
acquired knowledge of the possibilities of the
property and possibly an experience which would
have enabled them, in case they had acquired
possession, to exploit the distillery with profit.
_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.
_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.
_as Lo Seng is vested with the possessory right as
against Pang Lim, he cannot be ousted either by Pang
Lim or Benito Galvez. Having lawful possession as
against one cotenant, he is entitled to retain it against
both.
Catalan Vs. Gatchalian G.R. No. L-11648 April
22, 1959 From
http://subaylawco23.weebly.com/mercantile-law.html
Facts: 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.
Issue: Did Catalan’s redemption of the properties
make him the absolute owner of the lands?
Ruling: No. The right of redemption pertains to the
owner of the property; as it was the partnership which
owned the property, in this case, it was only the
partnership which could properly exercise the right of
redemption. 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.
Hanlon vs. Haussermann and Beam
Facts: This action was originally instituted by R. Y.
Hanlon to compel the defendants, John W.
Haussermann and A. W. Beam, to account for a share
of the profits gained by them in rehabilitating the
plant of the Benguet Consolidated Mining Company
and in particular to compel them to surrender to the
plaintiff 50,000 shares of the stock of said company,
with dividends paid thereon.
It was initially agreed by Hanlon, Haussermann,
Beam and Sellner that P75,000.00 was needed to
rehabilitate the mine; P50,000.00 would come from
Hanlon by securing and obtaining subscriptions for
the company’s stocks, P25,000.00 would come from
Haussermann and Beam. They were to receive
compensation in the form of shares of stock for the
services rendered in the flotation of this proposition.
The funds were needed on a certain date. It was also
stated in the contract that Haussermann and Beam
would be discharged if Sellner could not provide the
amount due from him within the time frame
stipulated.
Hanlon was unable to raise the P75,000.00, so that
Haussermann and Beam made arrangements to
finance the rehabilitation of the mine. Because of this
new arrangement, the company became profitable
that it was able to pay dividends. Because of this, the
value of the company’s stocks appreciated.
Held: Hanlon is not entitled to an accounting for his
share in the profits of the company; Haussermann and
Beam are absolved.
Under the equitable doctrine, if the contracting
parties have treated time as of the essence of the
contract, the delinquency will not be excused and
specific performance will not be granted; but on the
other hand, if it appears that time has not been made
of the essence of the contract, equity will relieve from
the delinquency and specific performance may be
granted, due compensation being made for the
damage caused by the delay.
Time is of the essence of the contract for the sale of
an option on mining property, or a contract for the
sale thereof, even though there is no express
stipulation to that effect. The same idea is clearly
applicable to a contract like that now under
consideration which provides for the rehabilitation of
a mining plant with funds to be supplied by the
contractor within a limited period.
1.) DAN FUE LEUNG, petitioner, vs. HON.
INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
G.R. No. 70926 January 31, 1989
GUTIERREZ, JR., J.:
FACTS:
The petitioner asks for the reversal of the decision of
the then Intermediate Appellate Court in AC-G.R.
No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in
Civil Case No. 116725 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.
This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II 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 from petitioner Dan
Fue Leung.
The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was
registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the
case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners
having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as
follows:
About the time the Sun Wah Panciteria started to
become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This
is evidenced by a receipt wherein the petitioner
acknowledged his acceptance of the P4,000.00 by
affixing his signature thereto. Furthermore, the
private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's
Equitable Banking Corporation Check from the
profits of the operation of the restaurant for the year
1974
The petitioner denied having received from the
private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the
receipt. His evidence is summarized as follows:
The petitioner did not receive any contribution at the
time he started the Sun Wah Panciteria. 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. 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. Fue Leung also flatly
denied having issued to the private respondent the
receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount
of P12,000.00 (Exhibit B).
ISSUE: WON Private respondent is a partner of
the petitioner in Sun Wah Panciteria?
HELD:
The private respondent is a partner of the petitioner in
Sun Wah Panciteria. The requisites of a partnership
which are — 1) two or more persons bind themselves
to contribute money, property, or industry to a
common fund; and 2) intention on the part of the
partners to divide the profits among themselves
(Article 1767, Civil Code; Yulo v. Yang Chiao
Cheng, 106 Phil. 110)-have been established. As
stated by the respondent, a partner shares not only in
profits but also in the losses of the firm. If excellent
relations exist among the partners at the start of
business and all the partners are more interested in
seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is
perfectly plausible. It would be incorrect to state that
if a partner does not assert his rights anytime within
ten years from the start of operations, such rights are
irretrievably lost. 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.
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.
Considering the facts of this case, the Court may
decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for
a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of
such conduct as tends to affect
prejudicially the carrying on of the
business;
(4) A partner willfully or
persistently commits a breach of
the partnership agreement, or
otherwise so conducts himself in
matters relating to the partnership
business that it is not reasonably
practicable to carry on the business
in partnership with him;
xxx xxx xxx
(6) Other circumstances render a
dissolution equitable.
There shall be a liquidation and winding up of
partnership affairs, return of capital, and other
incidents of dissolution because the continuation of
the partnership has become inequitable.
Sison v. Helen McQuaid
December 29, 1953
Principle: Liquidation shall happen before a partner
may claim his share of profit from the partnership.
Facts:
Plaintiff brought an action in the CFI against
defendant. Defendant borrowed from him money (P
2,210) to enable her to pay her obligations and to add
to her capital in her lumber business. She could not
pay so she proposed to take plaintiff as a partner in her
business, plaintiff to contribute the P 2,210 due him
from defendant.
Before the last World War, the partnership sold
230,000‐board ft. of lumbe rto the US Army for P
13,800.00. Defendant refused to deliver ½ of it (P
6,900.00) to plaintiff despite his repeated demands.
Plaintiff filed an action to compel defendant to pay him
his half of the profit from the partnership.
The case was dismissed upon the ground of
prescription.
Issue: Whether or not plaintiff is entitled to the sum he
claims
Held:NO. Order of dismissal was affirmed, but on the
ground that the complaint states no cause of action.
Ratio: It is not clear from the complaint just when the
cause of action accrued. Thus the dismissal of the case
is erroneous. However order should be retained on the
ground that the complaint has no cause of
action. Plaintiff seeks to recover from defendant one-
half of the purchase price of lumber sold by the
partnership to the United States Army. But his
complaint does not show why he should be entitled to
the sum he claims. It does not allege that there has been
a liquidation of the partnership business and the said
sum has been found to be due him as his share of the
profits. The proceeds from the sale of a certain amount
of lumber cannot be considered profits until costs and
expenses have been deducted. Moreover, the profits of
the business cannot be determined by taking into
account the result of one particular transaction instead
of all the transactions had. Hence, the need for a
general liquidation before a member of a partnership
may claim a specific sum as his share of the profits.
FERNANDEZ vs. DE LA ROSA
G.R. No. 413
February 2, 1903
FACTS: Fernandez alleges that in January, 1900, he
entered into a verbal agreement with Dela Rosa to
form a partnership for the purchase of cascoes and the
carrying on of the business of letting the same for
hire in Manila, and Dela Rosa is to buy the cascoes
and each partner to furnish for that purpose such
amount of money as he could, the profits to be
divided proportionately; Fernandez furnished Dela
Rosa sums to purchase and repair cascoes, the latter
taking the titles in his own name; that in April the
parties undertook to draw up articles of partnership
for the purpose of embodying the same in an
authentic document, but that the defendant having
proposed a draft of such articles which differed
materially from the terms of the earlier verbal
agreement, and being unwillingly to include the 2nd
casco in the partnership, they were unable to come to
any understanding and no written agreement was
executed; that the defendant having in the meantime
had the control and management of the two cascoes,
the plaintiff made a demand for an accounting upon
him, which the defendant refused to render, denying
the existence of the partnership altogether.
Dela Rosa admits that the project of forming a
partnership in the casco business in which he was
already engaged to some extent individually was
discussed between himself and the plaintiff in
January, 1900, but he denies that any agreement was
ever consummated. He denies that the plaintiff
furnished any money in January, 1900, for the
purchase of the first casco, or for repairs on the same,
but claims that he borrowed 300 pesos on his
individual account in January from the bakery firm,
consisting of the plaintiff, Marcos Angulo, and
Antonio Angulo. The 825 pesos, which he admits he
received from the Fernandez March 5, he claims was
for the purchase of the first casco, which he alleged
was bought March 12, and he alleges that he never
received anything from the defendant toward the
purchase of the 2nd casco. He claims to have paid,
exclusive of repairs, 1,200 pesos for the first casco
and 2,000 pesos for the second one.
ISSUE:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a
result of the act of the defendant in receiving back the
1,125 pesos?
HELD:
(1) “Partnership is a contract by which 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.”
(Civil Code, art. 1665.)
The essential points upon which the minds of the
parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock,
and (2) a joint interest in the profits. If the contract
contains these two elements the partnership relation
results, and the law itself fixes the incidents of this
relation if the parties fail to do so. (Civil Code, secs.
1689, 1695.)
We have found as a fact that money was furnished by
the plaintiff and received by the defendant with the
understanding that it was to be used for the purchase
of the cascoes in question. This establishes the first
element of the contract, namely, mutual contribution
to a common stock. The second element, namely, the
intention to share profits, appears to be an
unavoidable deduction from the fact of the purchase
of the cascoes in common, in the absence of any
other explanation of the object of the parties in
making the purchase in that form, and, it may be
added, in view of the admitted fact that prior to the
purchase of the first casco the formation of a
partnership had been a subject of negotiation between
them.
It is thus apparent that a complete and perfect
contract of partnership was entered into by the
parties. This contract, it is true, might have been
subject to a suspensive condition, postponing its
operation until an agreement was reached as to the
respective participation of the partners in the profits,
the character of the partnership as collective or en
comandita, and other details, but although it is
asserted by counsel for the defendant that such was
the case, there is little or nothing in the record to
support this claim, and that fact that the defendant did
actually go on and purchase the boat, as it would
seem, before any attempt had been made to formulate
partnership articles, strongly discountenances the
theory.
The execution of a written agreement was not
necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the
contributions of the partners not having been in the
form of immovables or rights in immovables. (Civil
Code, art. 1667.) The special provision cited,
requiring the execution of a public writing in the
single case mentioned and dispensing with all formal
requirements in other cases, renders inapplicable to
this species of contract the general provisions of
article 1280 of the Civil Code.
2) The remaining question is as to the legal effect of
the acceptance by the plaintiff of the money returned
to him by the defendant after the definitive failure of
the attempt to agree upon partnership articles. The
amount returned fell short, in our view of the facts, of
that which the plaintiff had contributed to the capital
of the partnership, since it did not include the sum
which he had furnished for the repairs of casco No.
1515. Moreover, it is quite possible, as claimed by
the plaintiff, that a profit may have been realized
from the business during the period in which the
defendant have been administering it prior to the
return of the money, and if so he still retained that
sum in his hands. For these reasons the acceptance of
the money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by
converting it into a societas leonina, as claimed by
counsel for the defendant.
The result is that we hold and declare that a
partnership was formed between the parties in
January, 1900, the existence of which the defendant
is bound to recognize; that cascoes No. 1515 and
2089 constitute partnership property, and that the
plaintiff is entitled to an accounting of the
defendant’s administration of such property, and of
the profits derived therefrom. This declaration does
not involve an adjudication as to any disputed items
of the partnership account.
Jose Garrido v. Agustin Asencio (partners books
of account)
GR No. L-4281. March 30, 1908 (10 Phil 691)
Facts: Garrido and Asencio were members of a
partnership doing business under the firm name of
Asencio y Cia. The business of the partnership did
not prosper and it was dissolved by mutual agreement
of the members. Garrido brings this action to recover
from Asencio, who appears to have been left in
charge of the books and the funds of the firm, the
amount of the capital which he had invested in the
business. Asencio, alleging that there had been
considerable losses in the conduct of the business of
the partnership, denied that there was anything due
for Garrido as claimed, and filed a cross complaint
wherein he prayed for a judgment against Garrido for
a certain amount which he alleged to be due by
Garrido under the articles of partnership on account
of Garrido's share of these losses.
The trial court found that the evidence substantially
sustains the claim of Asencio as to the alleged losses
in the business of the partnership and gave judgment
in his favor.
ISSUES:
1. The trial court erred in holding the statement of
account of the partnership of Asencio y Cia submitted
by Asencio as competent and sufficient evidence in
this case.
2. The trial court erred in holding that evidence of
record proved the existence of losses in the business
of the said partnership.
3. The trial court erred in refusing to give judgment
in favor of Garrido.
HELD:
Garrido had equal rights with Asencio, and
that during the existence of the partnership they were
equally responsible for the mode in which the books
were kept and that the entries made by one had the
same effect as if they had been made by the other.
The testimony of record presenting Garrido jointly
with Asencio kept these books, made entries therein,
and was responsible with him shows the correctness
of the entries in these books. Hence, must be taken to
be admitted by him.
It appears from the record that the statement
of account, the vouchers, and the books of the
company were placed at the disposition of Garrido
for more than six weeks prior to the trial, and that
during the trial he was given every opportunity to
indicate any erroneous or fraudulent items appearing
in the account, yet he was unable, or in any event he
declined to specify such items, contenting himself
with a general statement to the effect that there must
be some mistake, as he did not and could not believe
that the business had been conducted at a loss.
Upon the whole record as brought here by
Garrido, the Supreme Court ruled that the weight of
the evidence does sustain the findings of the trial
court, and the judgment entered in that court should
be, and is hereby, affirmed.
Mini-digest: Art. 1805. The partnership books shall
be kept, subject to any agreement between the parties,
at the principal place of business of the partnership,
and every partner shall at any reasonable hour have
access to and may inspect and copy any of them.
ORNUM v. LASALA
1. In 1908 Pedro Lasala, father of the respondents, and
Emerenciano Ornum formed a partnership.
2. Lasala as capitalist while Ornum will be the
industrial partner.
3. Lasala delivered the sum of P1,000 to Ornum who
will conducta business at his place of residence in
Romblon.
4. In 1912, when the assets of the partnership consisted
of outstanding accounts and old stock of merchandise,
Emerenciano Ornum, following the wishes of his wife,
asked for the dissolution of the Lasala, Emerenciano
5. Ornum looked for some one who could take his
place and hesuggested the names of the petitioners
who accordingly became the new partners.
6. Upon joining the business, the petitioners,
contributed P505.54as their capital.
7. the new partnership Pedro Lasala had a capital of
P1,000,appraised value of the assets of the former
partnership, plus the said P505.54 invested by the
petitioners who, as industrial partners, were to run the
business in Romblon.
8. After the death of Pedro Lasala, his children (the
respondents)succeeded to all his rights and interest in
the partnership.
9. The partners never knew each other personally
10. No formal partnership agreement was ever
executed.
11. The petitioners, as managing partners, were
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.
12. During the course divided, but the partners were
given the election, as evidenced by the statements of
accounts referred to in the decision of the Court of
Appeals, to invest their respective shares in such
profits as additional capital.
13. The petitioners accordingly let a greater part of
their profits as additional investment in the
partnership.
14. After twenty years the business had grown to such
an extent that is total value, including profits,
amounted toP44,618.67.
15. Statements of accounts were periodically prepared
by the petitioners and sent to the respondents who
invariably did not make any objection thereto.
16. Before the last statement of accounts was made,
the respondents had received P5,387.29 by way of
profits.
17. The last and final statement of accounts, dated May
27,1932, and prepared by the petitioners after the
respondents had announced their desire to dissolve the
partnership,
18. Pursuant to the request contained in this letter, the
petitioners remitted and paid to the respondents the
total amount corresponding to them under the above-
quoted statement of accounts which, however, was not
signed by the latter.
19. Thereafter the complaint in this case was filed by
the respondents, praying for an accounting and final
liquidation of the assets of the partnership.
20. The Court of First Instance of Manila held that the
last and final statement of accounts prepared by the
petitioners was tacitly approved and accepted by the
respondents who, by virtue of the 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
.21. This judgment was reversed by the Court of
Appeals principally on the ground that as the final
statement of accounts remains unsigned by the
respondents, the same stands disapproved.
22. The decision appealed by the petitioners
ISSUES:(1) WoN the accounting stated in the letter
including the last and final statement of account was
tacitly accepted by the petitioners as the final
liquidation and accounting of the assets of the
partnership?(2) Are there really mistakes and
misrepresentations made in the statement of accounts
made?
Petitioners’ contention:
To support a plea of a stated account so as to conclude
the parties in relation to all dealings between them, the
accounting must be shown to have been final. (1 Cyc.
366.) All the first nine statements which the
defendants sent the plaintiffs were partial settlements,
while the last, although intended to be final, has not
been signed.
HELD FOR ISSUE NO. 1
: YES. SC stated that the last and final statement of
accounts hereinabove quoted, had been approved by
the respondents.
This approval resulted, by virtue of the letter of Father
Mariano Lasala of July 19, 1932, quoted in part in the
appealed decision from the failure of the respondents
to object to the statement and from their promise to
sign the same as soon as they received their shares as
shown in said statement.
After such shares had been paid by the petitioners and
accepted by the respondents without any reservation,
the approval of the statement of accounts was virtually
confirmed and its signing thereby became a mere
formality to be complied with by the respondents
exclusively. Their refusal to sign, after receiving their
shares, amounted to a waiver to that formality in favor
of the petitioners who 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.(Pastor ,vs .Nicasio, 6 Phil., 152;
Aldecoa & Co.,vs. Warner, Barnes & Co., 16 Phil.,
423; Gonsalez vs. Harty, 32 Phil. 328.)The Court of
Appeals did not make any findings that there was
fraud, and on the matter of error or mistake it merely
said.

HELD FOR ISSUE NO. 2: the pronouncement that

the evidence tends to prove that there were mistakes in
the petitioners' 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, Moreover, as the petitioners did not appeal
from the decision of the Court abandoned such
allegation in the Court of Appeals. no justifiable
reason (fraud, deceit, error or mistake) has been
positively and unmistakably found by the Court of
Appeals so as to warrant the liquidations sought by the
respondents. In justice to the petitioners. It should be
borne in mind that this case has been pending for
nearly nine years and that, if another accounting is
ordered, a costly action or proceeding may arise which
may not be disposed of within a similar period, it is not
improbable that the intended relief may in fact be the
respondents' funeral.