Partnership (case Digests).doc

PARTNERSHIP 1. BENITO LIWANAG and MARIA LIWANAG REYES vs. WORKMEN’S COMPENSATION COMMISSION, ET AL., G.R. No. L-12164, May 22, 1959 Facts: Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply, a commercial guard who while in line of duty, was skilled by criminal hands. His widow Ciriaca Vda. de Balderama and minor children Genara, Carlos and Leogardo, all surnamed Balderama, in due time filed a claim for compensation with the Workmen's Compensation Commission, which was granted in an award worded as follows: The order of the referee under consideration was affirmed and respondents Benito Liwanag and Maria Liwanag Reyes, were 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. Issue: WON the responsibility of the appellants' obligation is joint, not solidary. Ruling: No. 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 fellowworker, 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. 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: . . . . 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.

Separate Opinion: REYES, A., J., dissenting: Whether the defendants herein be regarded as co-partners or as mere coowners, 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 co-partner or coowners 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. 2. ELMO MUÑASQUE vs. COURT OF APPEALS, CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON PONS, G.R. No. L-39780, November 11, 1985 Facts:

P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan but through later manipulations, respondent Pons succeeded in changing the payee's name from Elmo Munñ asque to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his construction business and subjecting him to demands of creditors to pay' for construction materials, the payment of which should have been made from the P13,000.00 received by Galan. Petitioner undertook the construction at his own expense completing it prior to the March 16, 1967 deadline; that because of the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to Galan, petitioner demanded that said amount be paid to him by respondents under the terms of the written contract between the petitioner and respondent company. The respondents answered the complaint by denying some and admitting some of the material averments and setting up counterclaims. The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed to intervene, both having legal interest in the matter in litigation. RTC Decision: (1) Plaintiff Munñ asque and defendant Galan to pay jointly and severally the intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace; and (2) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability. No damages awarded whatsoever.

Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for remodelling a portion of its building without exchanging or expecting any consideration from Galan although the latter was casually named as partner in the contract; that by virtue of his having introduced the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in the form of some percentages or commission; that Tropical, under the terms of the contract, 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 during the construction to make a total sum of P25,000.00.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for reconsideration.

On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check persuading the latter that the same be deposited in a joint account. On January 26, 1967, when the second check for

Court of Appeals Decision: The Court of Appeals affirmed the judgment of the trial court with the sole modification that the liability imposed in the dispositive part of the decision on the credit of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" (solidary) to "jointly."

RTC Amended Decision: (1) Plaintiff Munñ asque and defendant Galan to pay jointly and severally the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace; (2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware Company and Tan Siu jointly and severally interest at 12% per annum of the sum of P6,229.34 until the amount is fully paid; (3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees jointly and severally to Intervenor Cebu Southern Hardware Company; and (4) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability. No damages awarded whatsoever.

Not satisfied, Mr. Munñ asque filed this petition. Issues: 1. WON the appellate court erred in holding that a partnership existed between petitioner and respondent Galan. 2. Assuming that there was such a partnership, WON the court erred in not finding Galan guilty of malversing the P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for the said amount. 3. WON the court committed grave abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan was "good payment". Ruling: 1. NO. 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 Muñasque." There is nothing in the records to indicate that the partner-ship organized by the two men was not a genuine one. If there was a falling out or misunderstanding between the partners, such does not convert the partnership into a sham organization. Likewise, when Munñ asque received the first payment of Tropical in the amount of P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan. 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. 2. The Supreme Court did not render any ruling as regards this issue. Petitioner maintains that the appellate court committed grave abuse of discretion in not holding Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that although this was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless, alleged the same in his amended complaint which was, duly admitted by the court. When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in his personal capacity. Although the petitioner made allegations as to the alleged malversations of Galan, these were the same allegations in his original complaint. The malversation by one partner was not

an issue actually raised in the amended complaint but the alleged connivance of Pons with Galan as a means to serve the latter's personal purposes. The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because he himself agreed to the same. Petitioner could have asked at least for a modification of the issues if he really wanted to include the determination of Galan's personal liability to their partnership but he chose not to do so, as he vehemently denied the existence of the partnership. 3. NO. No error was committed by the appellate court in holding that the payment made by Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the two were partners when the debts were incurred, they, are also both liable to third persons who extended credit to their partnership. What is the kind of liability/obligation of the partners? While it is true that under Article 1816 of the Civil Code, "All partners, including industrial ones, shall be liable prorate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and for the account of the partnership, under its signature and by a person authorized to act for the partner-ship. ...", this provision should be construed together with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short, 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. In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to transact on behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole However, as between the partners Munñ asque and Galan,justice also dictates that Munñ asque 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 Munñ asque as a partner. Dispositive Portion: The liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any amount that he pays, in his capacity as a partner, to the above intervenors, 3. LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) vs. JOSE S. Y. PENG, G.R. No. L-29182, October 24, 1928 Facts: San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted insolvency proceedings against Leoncia Vda. de Chan Diaco, owner of a grocery store on Calle Nueva, Binondo, known as the store of "La Viuda de G. G. Chan Diaco." In their petition for the declaration of the insolvency, the firms alleged that Leoncia was indebted to them in the sum of P26,234.47, which debt was incurred within thirty days prior to the filing of said petition. Other creditors have filed claims against the estate to the amount of P50,000.

Leoncia did not appear at the hearing, the court declared her insolvent and ordered the sheriff to take possession of her property, which were some merchandise, afterwards sold at public auction for P3,300. The Judge appointed Ricardo Summers, the clerk of the CFI Manila, referee, authorizing him to take further evidence in regard to the questions of fact raised by the motions of August 5th and 19th. The referee rendered a report to the court which was approved by Judge del Rosario. Chan Bona were ordered to show cause why they should not return that alleged merchandise to the value of P20,000, alleged to have been delivered by Leoncia, together with P5,000 in cash alleged to have been received from her by the merchant Chua Ico. The attorney for the insolvent filed her exception to the report of the referee, which was approved, and ordered the insolvent to deliver to the assignee the sum of P56,000, more or less, alleged to have been in her possession on April 19, 1925. The court further ordered her to surrender the books of accounts together with the accounts receivable amounting to P40,000 and the sums withdrawn by her from her China Banking account a few days prior to the declaration of insolvency; and directed the assignee to file actions against the merchants Cua Ico, Chan Keep, and Simon A. Chan Bona for the return by them of the sum of P5,000 in cash, plus the merchandise valued at P20,000 delivered to them by the insolvent in fraud of her creditors. On August 4, 1926, attorney for the insolvent filed a motion asking the court to dismiss the proceedings against her on the ground that they should have been brought against the partnership "Lao Liong Naw & Co.," of which she was only a member. The alleged partnership was evidenced by an agreement dated July 22, 1922, and from which it appeared that on that date Lao Liong Naw (Leoncia), Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le, and Juan Maquitan Chan had formed a partnership with a capital of P21,000, of which only P4,000 was contributed by Leoncia. Judge Del Rosario suspended for the time being the effects of the decision and set the motion down for hearing on the 14th of August, 1926. His Honor again appointed Summers as referee. The referee rendered a second report, in which he found as facts that the alleged partnership between the insolvent and some of her relatives and employees was only a fictitious organization created for the purpose of deceiving the Bureau of Customs and enable some of the aforesaid relatives, who were mere coolies, to come to the Philippines under the status of merchants. He, therefore, recommended that the motion of the insolvent to dismiss the proceedings against her be denied. Judge Francisco Zandueta, who had been temporarily assigned to take the place of Judge Del Rosario disapproved the report of the referee. The court affirmed the suspension of the decision of Judge Del Rosario, and dismissed the

insolvency proceedings, and ordered the assignee to return to the sheriff all the property of the insolvent which he has in his possession. A MR was presented by the assignee but was denied by the court. The assignee appealed to this court and presents the following assignments of error: Issues: 1. WON the lower court erred in disapproving the second report of the referee. 2. WON the lower court erred in dismissing the petition for the involuntary insolvency of the merchant Leoncia. 3. WON the lower court erred in ordering the filing of a new petition of insolvency against the fictitious partnership Lao Liong Niew & Co. and the delivery to the sheriff of all the property of the insolvency. Ruling: The evidence appearing in the record fully supports the findings of the referee and his report should have been approved by the court below. As to the second and third assignments of error it is to be observed that for the sake of the argument that the debts in question were incurred by the alleged partnership, it clearly appears from the record that said partnership has no visible assets that the partners individually must jointly and severally respond for its debts (Code of Commerce, art. 127). As the appellee is one of the partners and admits that she is insolvent, we can see no reason for the dismissal of the proceedings against her. It is further to be noted that both the partnership and the separate partners thereof may be joined in the same action, though the private property of the latter cannot be taken in payment of the partnership debts until the common property of the concern is exhausted and, under this rule, it seems clear that the alleged partnership here in question may, if necessary, be included in the case by amendments to the insolvency petition. We also call attention to the fact that the evidence clearly shows that the business, alleged to have been that of the partnership, and was carried on under the name "Leoncia Vda. de Chan Diaco" or "La Vda. de G. G. Chan Diaco," both of which are names of the appellee, it can be safely held that a partnership may be adjudged bankrupt in the name of an ostensible partner, when such name is the name under which the partnership did business. The decision appealed from is hereby reversed, the reports and recommendations of the referee are approved, and the order for the dismissal of the case is set aside, and the decision of Judge Simplicio Del Rosario dated July

23, 1926, will remain in full force and effect. No costs will be allowed. So ordered. 4. EUFRACIO D. ROJAS vs. CONSTANCIO B. MAGLANA, G.R. No. 30616, December 10, 1990 Facts: Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE). It was a partnership with an indefinite term of existence. Maglana shall manage the business affairs while Rojas shall be the logging superintendant and shall manage the logging operation. They shall share in all profits and loss equally. Due to difficulties encountered they decided to avail of the sources of Pahamatong as industrial partners. They again executed their Articles of Co-Partnership under EDE. The term is 30 years. After sometime Pamahatong sold his interest to Maglana and Rojas including equipment contributed. After withdrawal of Pamahatong, Maglana and Rojas continued the partnership. After 3 months, Rojas entered into a management contract with another logging enterprise. He left and abandoned the partnership. He even withdrew his equipment from the partnership and was transferred to CMS. He never told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter share will just be 20% of the net profits. Rojas took funds from the partnership more than his contribution. Thus, Maglana notified Rojas that he dissolved the partnership. Issue: What is the nature of the partnership and legal relationship of Maglana and Rojas after Pahamatong retired from the second partnership? Ruling: It was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called “additional agreement.” Otherwise stated even during the existence of the second partnership, all business transactions were carried out under the duly registered articles. No rights and obligations accrued in the name of the second partnership except in favor of Pahamatong which was fully paid by the duly registered partnership.

5. MARJORIE TOCAO and WILLIAM T. BELO vs. COURT OF APPEALS and NENITA A. ANAY, G.R. No. 127405, October 4, 2000

render an accounting and to pay the estate 25k as net profits, credits, and property pertaining to Santos.

Facts:

Guidote called several witnesses and introduced a so-called accounting and a mass of documentary evidence, which was so hopelessly and inextricably confused that the court could not consider it of much probative value. The court dismissed Guidote’s complaint and absolved Borja. Guidote was ordered to render a full and complete accounting, verified by vouchers, of the partnership business.

Respondent met the petitioner through Belo. They entered into a joint venture for the local distribution of kitchen wares. Anay was made to receive commissions based on her performance, as verbally agreed upon by her and Belo, the latter acting as guarantor of Tocao. The business was named Geminisse Enterprises under the sole proprietorship of Tocao. In 1987, Beo signed a 37% commission to Anay for her business transactions but after 2 days, she discovered that she was no longer the head of marketing and have been barred from holding office. Issue: WON Anay was an employee or partner of the business and thus entitled for damages. Ruling: The RTC and CA found that partnership existed based on the facts presented. Where no immovable property is involved, an oral agreement will suffice to create a partnership. Thus an unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine or delectus personae allows the partners to have the power although not necessarily to dissolve the partnership. 6. MAXIMO GUIDOTE vs. ROMANA BORJA, as administratrix of the estate of Narciso Santos, G.R. No. L-28920, October 24, 1928 Facts: Maximo Guidote and Narciso Santos formed in 1918 a partnership business under the name of “Taller Sinukuan,” in which Santos was the capitalist partner and Guidote was the industrial partner. Santos died in 1920. Guidote failed to liquidate the affairs of the partnership and to render an account thereof to Borja, the administratrix of Santos’ estate. Guidote brought an action against Borja to recover a sum of money [9k~], a part of which was alleged to be the net profits from the business due Guidote, and the rest of the sum consisting of advances allegedly made by Guidote. Borja admitted the partnership’s existence and prayed that Guidote be ordered to

Guidote rendered an account prepared by one Tomas Alfonso, a public accountant. Numerous objections were presented by Borja. The court disapproved the account and ordered that Borja submit an accounting from the date of the commencement of the partnership up to the time the business was closed. Borja presented an account and liquidation prepared by a public accountant, Santiago A. Lindaya, showing a balance of P29k~ in Borja’s [Santos’ estate] favor. At the hearing, Borja introduced the public accountant Jose Turiano Santiago to testify as to the results of an audit made by him of the partnership accounts. Santiago testified that he had prepared a separate accounting or liquidation similar in results to that prepared by Lindaya, but with a few differences in the sums total. [Computation: Santos is a creditor of the Taller Sinukuan in the sum of P26k. Guidote is a debtor to the Taller Sinukuan in the sum of P20k.] In order to contradict the conclusions of the two public accountants, Guidote presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses. The trial court judge said that the testimonies of these witnesses are unreliable. Tomas Alfonso is the same public accountant who filed the liquidation Exhibit O on behalf of Guidote, in relation to the partnership business, which liquidation was disapproved by this court in a decision. The judge did not believe Alfonso’s proposition that Guidote, a mere industrial partner, notwithstanding his having received 21k on the various jobs and contracts of the business had actually expended and paid out 63k, of 44k in excess of the gross receipts of the business. It materially contradicts Guidote’s allegations to the effect that the advances that he [Guidote] made amounted only to 2k. Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct liquidations for the same partnership business, and the court found that the testimony given by him at the last hearing is confusing, contradictory and unreliable. Other witnesses were given scant consideration—Chua Chak can neither read nor write English, Spanish, or Tagalog; Claro Reyes was forced to admit that a certain exhibit was not the original.

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

WON the trial court is correct in ordering Guidote to pay P26k to Borja. YES

7. MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC. vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, G.R. No. L-27343, February 28, 1979

Ruling:

Facts:

There may be some merit in Guidote’s contention that the dismissal of his complaint was premature. The better practice would been to let the complaint stand until the result of the liquidation of the partnership affairs was known. But under the circumstances, no harm was done by the dismissal of Guidote’s complaint.

Isabela Sawmill was formed by partners Saldajeno, Leon and Timoteo. Saldajeno withdrew from the partnership and after dissolution, Leon Garibay and Timoteo Tubungbanua continued the business still under the name Isabela Sawmill. The partnership is indebted to various creditors and that Sheriff sold the assets of Isabela Sawmill to Saldajeno and was subsequently sold to a separate company.

Guidote’s argument: Since Santos, up to the time of his death, generally took care of the partnership’s payments and collections, his legal representatives were under the obligation to render accounts of the operations, notwithstanding the fact that Guidote was in charge of the business subsequent to the death of Santos.

Issue:

Issue:

GUIDOTE’S ARGUMENT IS UNAVAILING. Wahl v. Donaldson Sim & Co.: The death of one of the partners dissolves the partnership, but that the liquidation of its affairs is by law entrusted, not to the executors of the deceased partner, but to the surviving partners or the liquidators appointed by them. The rule for the conduct of a surviving partner In equity, surviving partners are treated as trustees of the representatives of the deceased partner, with regard to the interest of the deceased partner in the firm. As a consequence of this trusteeship, surviving partners are held in their dealings with the firm assets and the representatives of the deceased to that nicety of dealing and that strictness of accountability required of and incidental to the position of one occupying a confidential relation. It is the duty of surviving partners to render an account of the performance of their trust to the personal representatives of the deceased partner, and to pay over to them the share of such deceased member in the surplus of firm property, whether it consists of real or personal assets. Guidote failed to observe this rule, and he is not in position to complain if his testimony and that of his witnesses is discredited.

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

8. GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, G.R. No. 109248, July 3, 1995

9. LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ, G.R. No. 144214, July 14, 2003

Facts:

Facts:

Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in said firm. He filed with SEC a petition for dissolution and liquidation of partnership.

Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for the operation of a restaurant and catering business under the name “Aquarius Food House and Catering Services.” Villareal was appointed general manager and Carmelito Jose, operations manager. Respondent Donaldo Ramirez joined as a partner on September 5, 1984 with a capital contribution of P250,000 which was paid by his parents, Respondents Cesar and Carmelita Ramirez. Jesus Jose withdrew from the partnership and his capital contribution of P250,000 was refunded to him in cash by agreement of the partners.

SEC en banc ruled that withdrawal of Misa from the firm had dissolved the partnership. Reason: since it is partnership at will, the law firm could be dissolved by any partner at anytime, such as by withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. Issues: 1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will; 2. WON the withdrawal of Misa dissolved the partnership regardless of his good or bad faith; Ruling: 1. Yes. The partnership agreement of the firm provides that ”[t]he partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners.” 2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will (e.g. by way of withdrawal of a partner). He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages.

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. The restaurant furniture and equipment were deposited in the respondents’ house for storage. On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latter’s offer to return their capital contribution. Respondent wrote another letter informing petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded. Respondents filed before the RTC for the collection of a sum of money from petitioners. Petitioners contended that respondents had expressed a desire to withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831; that respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of their equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible business losses. In their Reply, respondents alleged that had not received any regular report or accounting from the latter, who had solely managed the business. Respondents also alleged that they expected the equipment and the furniture stored in their house to be removed by petitioners as soon as the latter found a better location for the restaurant. RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court

rendered a judgment in favor of respondents and ordering the petitioners to pay jointly and severally. Issues: 1. WON the Honorable Court of Appeals' decision ordering the distribution of the capital contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby treating the capital contribution like a loan, is in accordance with law and jurisprudence. 2. WON the Honorable Court of Appeals' decision ordering the petitioners to jointly and severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record. Ruling: 1. First Issue: Share in Partnership Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of trust in, the latter's management of the partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of their one-third equity in the partnership. We hold that respondents have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The partnership has a juridical personality separate and distinct from that of each of the partners." Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners. 2. Second Issue: What Must Be Returned? Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in the partnership cannot be determined until all the partnership assets will have been liquidated — in other words, sold and converted to cash — and all partnership creditors, if any, paid. The CA's computation of the amount to be refunded to respondents as their share was thus erroneous. First, it seems that the appellate court was under the misapprehension that the total capital contribution was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural and totally without factual or legal support. Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the present case, the financial statements presented before the trial court showed that the business had made meager profits. However, notable therefrom is the omission of any provision for the depreciation of the furniture and the equipment. The amortization of the goodwill (initially valued at P500,000) is not reflected either. Properly taking these non-cash items into account will show that the partnership was actually sustaining substantial losses, which consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the latter failed to recognize the consequent corresponding decrease of the capital. Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the obligation belonged to the partnership for the following reason: "x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the Certification issued by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to Jesus Jose when he withdrew from the partnership. Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners and respondents ventured into business together, they should have prepared for the fact that their investment would either grow or shrink. In the present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they had invested could no longer be returned to them, because one third of the partnership properties at the time of dissolution did not amount to that much. It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments. Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to respondents was precisely the manner of liquidating the partnership and fully settling the latter's share in the partnership. We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their capital investment. 10. BENJAMIN YU vs. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, G.R. No. 97212, June 30, 1993 Facts: Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade Mountain").

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. The actual operations of the business enterprise continued as before. All the employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries. The partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. Issues: 1. WON the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and 2. If indeed a new partnership had come into existence, WON petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership. Ruling: The legal effect of the changes in the membership of the partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987. The set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code. Under Article 1840 of the Civil Code, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired

or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain. It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The nonretention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy.

provided for the laying off of all the FEATI employees and the payment to them of one and a half month’s separation pay. Almost six years from the time they were laid off, the Public Utilities Employees Association filed a petition with the CIR praying that the PAL be ordered to pay them the twelve (12) days vacation leave and twelve (12) days sick leave with pay, which had already accrued at the time they were laid off. The PAL, in its Answer to the Employees’ petition, denied liability, alleging that it was not a party to the Agreement. The CIR, issued an Order requiring the PAL to pay the said employees the money value of whatever vacation and sick leave might have accrued to the said employees, which is roughly about P100,000.00.

11. PHILIPPINE AIR LINES, INC. vs. ANTONIO BALANGUIT, ET AL., (PUBLIC UTILITIES EMPLOYEES ASSOCIATION [FEATI CHAPTER] and THE COURT OF INDUSTRIAL RELATIONS, G.R. No. L-8715, June 30, 1956

Issue:

Facts:

Ruling:

PAL purchased and acquired a majority of the shares of the Far Eastern Air Transport, Inc. (FEATI). Those two airlines were, previous to the said purchases, then competing in various air routes through the Philippines, with the result that both companies were losing and it became necessary to maintain only one airline. The purchase gave rise to the problem of what to do with the FEATI employees. After some negotiations, the parties finally reached an agreement, whereby the PAL agreed to absorb some 70 per cent of the FEATI employees, and the said employees agreed to work for PAL in accordance with the provisions of the Collective Bargaining Agreement entered into between the previous Management of FEATI and the representatives of the Public Utilities Employees Association FEATI Chapter until such time as they come to a definite understanding.

The final agreement, between the PAL and FEATI on one side and the Employees on the other, failed to make any mention whatsoever about the money equivalent of this vacation and sick leave, whether it was payable or not and if payable, by whom. The employees claim and also the CIR, that when the PAL bought out the FEATI the former assumed all the rights and obligations of the latter. This is too sweeping a statement.

The Collective Bargaining Agreement with the FEATI referred to in the employment agreement of the Public Utilities Employees Association with the PAL was their Industrial Agreement, which granted the said employees certain privileges, among which, the employees will be entitled to twelve (12) days vacation leave and twelve (12) days sick leave with pay every year, which may be cumulative. PAL reached a ‘definite understanding’ with the Public Utilities Employees Association whereby they entered into an agreement cancelling the previous agreements and declaring them ‘void and of no further force and effect. It also

WON the PAL is legally liable for the payment of this amount.

In some cases, when one company buys out another and continues the business of the latter company, the buyer may be said to assume the obligations of the company bought out when said obligations are not of considerable amount or value, specially when incurred in the ordinary course of trade, and when the business of the latter company is continued. However, when said obligation is of extraordinary value, as in this case, amounting to about P100,000, and the FEATI was bought out not to continue its business but to stop its operation in order to eliminate competition, as shown by the fact that all the employees of the FEATI were laid-off, we cannot say that the vendee assumed all the obligations of the rival airline. What the employees should have done at the time of the negotiation, preparatory to the execution of the agreement, was to raise the question as to who would pay them the equivalent of the vacation and sick leave already earned by them under the FEATI. Had they insisted on its payment, the FEATI could perhaps have been made to pay unless, of course, the PAL agreed to

assume the obligation. When they (employees) failed to raise that question or have it embodied in the agreement, said failure may be regarded as a waiver of their right. And when they received a separation pay equivalent to one and one half months and then kept quiet about their vacation and sick leave for a period of more than five years, there is every reason to believe that there was actually such renunciation and waiver. This separation pay was not only for one month but it was for one month and a half, exceeding the “mesada” provided for in the Code of Commerce (still in force in 1947) by half a month. It is highly possible that the extra half month pay was to take care of the vacation and sick leave, especially when we consider the fact that at the time of separation, the employees had, for purposes of earning the leave, not yet completed one year service. Even assuming for a moment that the employees were entitled to the payment of said leave, they were guilty of laches. It would be unfair now to demand this payment from the PAL after more than five years when the papers and the records of the service of said employees may no longer exist; when the FEATI has long ceased operations and has long ceased to exist and when its officials who were in a position to determine which employees because of their faithful, efficient and continuous service were entitled to leave and for how many days, may no longer be available. “The purpose of vacation is to afford to a laborer a chance to get a much-needed rest to replenish his worn out energies and acquire a new vitality to enable him to efficiently perform his duties, and not merely to give him additional salary or bounty. This privilege must be demanded in its opportune time and if he allows the years to go by in silence, he waives it. It becomes a mere concession or act of grace of the employer.” The petition for certiorari is granted, and the order of the CIR and the resolution of the CIR en banc are set aside, and the complaint of the employees (Association) against the PAL is hereby dismissed, with costs. 12. ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO vs. HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, G.R. No. L-40098, August 29, 1975 Doctrine: Since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if defendants had obtained any portion of the funds of the partnership for themselves, it must have been with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from them

therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of the other partner or partners. Even assuming there has not yet been any liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the status of a partnership in liquidation and the only right plaintiff could have would be to what might result after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the deceased had. In other words, no specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner without the liquidation being first terminated. Facts: Private respondent Tan Put alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner and practically the owner who has controlling interest of Glory Commercial Company and a Chinese Citizen until his death. Defendant Antonio Lim Tanhu and Alfonso Leonardo Ng Sua were partners of Po Chuan. Tan Put filed complaint against spouses-petitoner Lim Tanhu and Dy Ochay including their son Tech Chuan and the other spouses-petitoner Ng Sua and Co Oyo including also their son Eng Chong Leonardo, that through fraud and machination took actual and active management of the partnership and that she alleged entitlement to share not only in the capital and profits of the partnership but also in the other assets, both real and personal, acquired by the partnership with funds of the latter during its lifetime." (Basically, her allegations were that she actually gave some of her money to Po Chuan to help launch the partnership business; that the assets of the business were never liquidated after her common-law-husband’s death; that the partners used the partnership funds to acquire several properties and to also launch the new business of Glory Commercial Company, Inc. [as opposed to the older one which was Glory Commercial Company Partnership]; that she was entitled to accounting and share in profits of the partnership as wife of Po Chuan; that she was fraudulently made to sign a quitclaim for 25,000 pesos which she said she did not actually receive.) According to the petitioners, Ang Siok Tin is the legitimate wife, still living, and with whom Tee Hoon had four legitimate children, a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hong Kong. Tee Hoon died in 1966 and as a result of which the partnership was dissolved and what corresponded to him were all given to his legitimate wife and children. Tan Put prior of her alleged marriage with Tee Hoon on 1949, was engaged in the drugstore business; that not long after her marriage, upon the suggestion of the latter sold her drugstore for P125,000.00 which amount she gave to her

husband as investment in Glory Commercial Co. sometime in 1950; that after the investment of the above-stated amount in the partnership its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under huge profits. Defendants interpose that Tan Put knew and was aware that she was merely the common-law wife of Tee Hoon. Tan Put and Tee Hoon were childless but the former had a foster child, Antonio Nunez. Defendants also said that the defendant knew she was not entitled to the profits of the partnership but out of the goodness of their hearts, they gave her 25,000 as evidenced by the quitclaim she signed. Issue: WON Tan Put, as she alleged being married with Tee Hoon, can claim from the company of the latter’s share. Ruling: No. Under Article 55 of the Civil Code, “the declaration of the contracting parties that they take each other as husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an authentic copy of the marriage contract”. While a marriage may also be proved by other competent evidence, the absence of the contract must first be satisfactorily explained. Surely, the certification of the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof of loss of the contract or of any other satisfactory reason for its non-production is first presented to the court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being authorized by law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did not testify, the same is hearsay. An agreement with Tee Hoon was shown and signed by Tan Put that she received P40,000 for her subsistence when they terminated their relationship of common-law marriage and promised not to interfere with each other’s affairs since they are incompatible and not in the position to keep living together permanently. Hence, this document not only proves that her relation was that of a common-law wife but had also settled property interests in the payment of P40,000.

We find no alternative but to hold that plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that, on the contrary, the evidence on record convincingly shows that her relation with said deceased was that of a common-law wife and furthermore, that all her claims against the company and its surviving partners as well as those against the estate of the deceased have already been settled and paid. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not only unconvincing but has been actually overcome by the more competent and weighty evidence in favor of the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory Commercial Co. and converted its properties to themselves is even more dismal. From the very evidence summarized by His Honor in the decision in question, it is clear that not an iota of reliable proof exists of such alleged misdeeds. If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants have defrauded him of such huge amounts as plaintiff had made his Honor believe? Upon the other hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if defendants had obtained any portion of the funds of the partnership for themselves, it must have been with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of the other partner or partners. Incidentally again, this theory about Po Chuan having been actively managing the partnership up to his death is a substantial deviation from the allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Co., defendants managed to use the funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been permitted to be proven by the hearing officer, who naturally did not know any better. Moreover, it is very significant that according to the very tax declarations and land titles listed in the decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969 or later, that is, long after the partnership had been automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the absence of clear proof that they had violated the trust of Po Chuan during the existence of the partnership.

Besides, assuming there has not yet been any liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the status of a partnership in liquidation and the only right plaintiff could have would be to what might result after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the deceased had. In other words, no specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner without the liquidation being first terminated. Disposition: IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are hereby annulled and set aside, particularly the ex-parte proceedings against petitioners and the decision on December 20, 1974. Respondent court is hereby ordered to enter an order extending the effects of its order of dismissal of the action dated October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking any further action in said civil case gave and except as herein indicated. Costs against private respondent. 13. ANTONIO C. GOQUIOLAY, ET AL. vs. WASHINGTON Z. SYCIP, ET AL., G.R. No. L-11840, December 10, 1963 Facts: Tan Sin An and Goquiolay entered into a general commercial partnership under the partnership name “Tan Sin An and Antonio Goquiolay” for the purpose of dealing in real estate. The agreement lodged upon Tan Sin An the sole management of the partnership affairs. The lifetime of the partnership was fixed at ten years and the Articles of Co-partnership stipulated that in the event of death of any of the partners before the expiration of the term, the partnership will not be dissolved but will be continued by the heirs or assigns of the deceased partner. But the partnership could be dissolved upon mutual agreement in writing of the partners. Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff partnership purchased 3 parcels of land which was mortgaged to “La Urbana” as payment of P25,000. Another 46 parcels of land were purchased by Tan Sin An in his individual capacity which he assumed payment of a mortgage debt for P35K. A downpayment and the amortization were advanced by Yutivo and Co. The two obligations were consolidated in an instrument

executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of “Banco Hipotecario”. Tan Sin An died leaving his widow, Kong Chai Pin and four minor children. The widow subsequently became the administratrix of the estate. Repeated demands were made by Banco Hipotecario on the partnership and on Tan Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons, paid the remaining balance of the mortgage debt, the mortgage was cancelled. Yutivo Sons and Sing Yee filed their claim in the intestate proceedings of Tan Sin An for advances, interest and taxes paid in amortizing and discharging their obligations to “La Urbana” and “Banco Hipotecario.” Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land. She then sold it to Sycip and Lee in consideration of P37K and of the vendees assuming payment of the claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed in favor of Insular Development a deed of transfer covering the 49 parcels of land. When Goquiolay learned about the sale to Sycip and Lee, he filed a petition in the intestate proceedings to set aside the order of the probate court approving the sale in so far as his interest over the parcels of land sold was concerned. Probate court annulled the sale executed by the administratrix with respect to the 60% interest of Goquiolay over the properties. Administratrix appealed.The decision of probate court was set aside for failure to include the indispensable parties. New pleadings were filed. The second amended complaint prays for the annulment of the sale in favor of Sycip and Lee and their subsequent conveyance to Insular Development. The complaint was dismissed by the lower court hence this appeal. Issues: 1. WON a widow or substitute become also a general partner or only a limited partner.  Answer: General Partner. 2. WON the lower court err in holding that the widow succeeded her husband Tan Sin An in the sole management of the partnership upon Tan’s death.  Answer: No error. 3. WON the consent of the other partners was necessary to perfect the sale of the partnership properties to Sycip and Lee.  Answer: No. Ruling:

Kong Chai Pin became a mere general partner. By seeking authority to manage partnership property, Tan Sin An’s widow showed that she desired to be considered a general partner. By authorizing the widow to manage partnership property (which a limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now in estoppel to deny her position as a general partner, with authority to administer and alienate partnership property. The articles did not provide that the heirs of the deceased would be merely limited partners; on the contrary, they expressly stipulated that in case of death of either partner, “the co partnership will have to be continued” with the heirs or assignees. It certainly could not be continued if it were to be converted from a general partnership into a limited partnership since the difference between the two kinds of associations is fundamental, and specially because the conversion into a limited association would leave the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation actually contemplated that the heirs would become general partners rather than limited ones. Separate Opinion: Justice Angelo Bautista The court affirmed the decision but on different grounds, among which are: (1) there is no sufficient factual basis to conclude that Kong Chai Pin executed acts of management to give her the character of general manager of the partnership, or to serve as basis for estoppel that may benefit the purchasers of the partnership properties; (2) the alleged acts of management, even if proven, could not give Kong Chai Pin the character of general manager for the same is contrary to law and wellknown authorities; (3) even if Kong Chai Pin acted as general manager she has no authority to sell the partnership properties as to make it legal and valid; and (4)Kong Chai Pin had no necessity to sell the properties to pay the obligation of the partnership and if she did so it was merely to favor the purchasers who were close relatives to the prejudice of Goquiolay. The sale of the partnership properties by Kong Chai Pin cannot be upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly proven. Moreover, mere acceptance of the inheritance does not make the heir of a general partner a general partner himself. He emphasized that heir must declare that he is entering the partnership as a general partner unless the deceased partner has made it an express condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of

inheritance, in which case acceptance of the inheritance is enough. But here Tan Sin An died intestate. Kong Chai Pin cannot be deemed to have declared her intention to become a general partner by exercising acts of management because as a general rule the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious that the heir, upon entering the partnership, must make a declaration of his character, otherwise he should be deemed as having succeeded as limited partner by the mere acceptance of the inheritance. And here Kong Chai Pin did not make such declaration. Being then a limited partner upon the death of Tan Sin An by operation of law, the peremptory prohibition contained in Article 148 of the Code of Commerce became binding upon her and as a result she could not change her status by violating its provisions not only under the general principle that prohibited acts cannot produce any legal effect, but also because under the provisions of Article 147 of the same Code she was precluded from acquiring more rights than those pertaining to her as a limited partner. The alleged acts of management, therefore, did not give Kong Chai Pin the character of general manager to authorize her to bind the partnership. Kong Chai Pin could not sell the partnership properties without authority from the other partners. The relationship between a managing partner and the partnership is substantially the same as that of the agent and his principal, the extent of the power of Kong Chai Pin must, therefore, be determined under the general principles governing agency. And, on this point, the law says that an agency created in general terms includes only acts of administration, but with regard to the power to compromise, sell, mortgage, and other acts of strict ownership, an express power of attorney is required. Here Kong Chai Pin did not have such power when she sold the properties of the partnership. Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but to pay its obligation without first obtaining the consent of the other partners the sale is invalid being in excess of her authority. Upon the strength of the foregoing considerations, the court granted the motion for reconsideration.

14. TECK SEING AND CO., LTD., SANTIAGO JO CHUNG, ET AL., partners vs. PACIFIC COMMERCIAL COMPANY, ET AL., G.R. No. 19892, September 6, 1923

Facts: Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Pinñ ol &Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was prayed to enter an order: "(A) Declaring the individual partners as described in paragraph 5parties to this proceeding; (B) to require each of said partners to file an inventory of his property in the manner required by section 51 of Act No. 1956; and (C) that each of said partners be adjudicated insolvent debtors in this proceeding." The trial judge first granted the motion, but, subsequently, on opposition being renewed, denied it. It is from this last order that an appeal was taken in accordance with section 82 of the Insolvency Law. Issue: WON the partnership contract created a limited partnership. Ruling: No. The contract created was not a limited partnership but a general partnership even if “Ltd.” was used in the firm’s name to avoid liability for possible losses. The general rule is that those who seek to avail themselves of the protection of laws permitting the creation of limited partnerships must show a substantially full compliance with such laws. A limited partnership that has NOT complied with the law of its creation is not considered a limited partnership at all, but a GENERAL partnership in which all the members are liable. To establish a limited partnership there must be, at least, one general partner and the name of the least one of the general partners must appear in the firm name. (Code of Commerce, arts.122 [2], 146, 148.) But NEITHER of these requirements has been fulfilled. Article 125 of the Code of Commerce provides that the articles of general copartnership must state the names, surnames, and domiciles of the partners; the firm name; the names, and surnames of the partners to whom the management of the firm and the use of its signature is instructed; the capital; the duration of the co-partnership; and the amounts which, in a proper case, are to be given to each managing partner annually for his private expenses, while the succeeding article of the Code provides that the general co-partnership must transact

business under the name of all its members, of several of them, or of one only. Turning to the document before us, it will be noted that all of the requirements of the Code have been met, with the sole EXCEPTION of that relating to the composition of the firm name. What is said in Article 126 of the Code of Commerce relating to the general copartnership transacting business under the name of all its members or of several of them or of one only is wisely included in our commercial law for the protection of the creditors than of the partners themselves. The one object of the act is manifestly to protect the public against imposition and fraud, prohibiting persons from concealing their identity by doing business under an assumed name, making it unlawful to use other than their real names in transacting business without a public record of who they are. On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the name of all or any of the partners as prescribed by the Code of Commerce prevents the creation of a general partnership, Professor Jose A. Espiritu, as amicus curiæ, states: …If they intend to do a thing which in law constitutes a partnership, they are partners, although their purpose was to avoid the creation of such relation. Here, the intention of the persons making up Teck Seing & co., Ltd. was to establish a partnership which they erroneously denominated a limited partnership. If this was their purpose, all subterfuges resorted to in order to evade liability for possible losses, while assuming their enjoyment of the advantages to be derived from the relation, must be disregarded. The partners who have disguised their identity under a designation distinct from that of any of the members of the firm should be penalized, and not the creditors who presumably have dealt with the partnership in good faith. Articles 127 and 237 of the Code of Commerce make all the members of the general co-partnership 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. Section 51 of the Insolvency Law, likewise, makes all the property of the partnership and also all the separate property of each of the partners liable. In other words, if a firm is insolvent, but one or more partners thereof are solvent, the creditors may proceed both against the firm and against the solvent partner or partners, first exhausting the assets of the firm before seizing the property of the partners. The court reached the conclusion that the contract of partnership found in the document therein before quoted established a general partnership or, to be more exact, a partnership as his word is used in the Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be returned to the court of origin for further proceedings pursuant to the motion presented by the creditors, inconformity with the provisions of the Insolvency Law.