Kitem Duque Kadatuan Jr. 1

Kitem Duque Kadatuan Jr.
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Atty. Romulo A. Paras Jr.
Partnership, Agency and Corporation
I. Nature, Forms and Kinds of Partnership
A. Nature - 1. Definition
Art. 1767 By the Contract of Partnership two or more persons bind themselves to contribute
Money, Property or Industry to a common fund, with the intention of dividing the profit among
themselves
Two or more persons may also form a partnership for the exercise of a profession.
Torres vs CA
In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with
Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel
over a parcel of land, the sisters received no cash payment from Manuel but the promise of
profits (60% for the sisters and 40% for Manuel) said parcel of land is to be developed as a
subdivision.
Manuel then had the title of the land transferred in his name and he subsequently mortgaged the
property. He used the proceeds from the mortgage to start building roads, curbs and gutters.
Manuel also contracted an engineering firm for the building of housing units. But due to adverse
claims in the land, prospective buyers were scared off and the subdivision project eventually
failed.
The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of
the property, which according to the sisters, is whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no
partnership between them and Manuel because the joint venture agreement is void.
ISSUE: Whether or not there exists a partnership.
HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a partnership
agreement whereby they agreed to contribute property (their land) which was to be developed as
a subdivision. While on the other hand, though Manuel did not contribute capital, he is an
industrial partner for his contribution for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated percentage (60-40).
Clearly, the contract manifested the intention of the parties to form a partnership. Further still,
the sisters cannot invoke their right to the 60% value of the property and at the same time deny
the same contract which entitles them to it.

Kitem Duque Kadatuan Jr. 2 | P a g e

At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to
Manuel (the sisters on their appeal did not show evidence as to Manuels fault in the failure of
the partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the
loss of the other 40% because as an industrial partner he is exempt from losses.
Lim Tong Lim vs Phil. Fishing Gear
Business Organization Partnership, Agency, Trust Corporation by Estoppel
It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not
have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of
fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time
to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable because he was
not aware that Chua and Yao represented themselves as a corporation; that the two acted without
his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term common fund under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed that any loss or profit from the sale and operation
of the boats would be divided equally among them also shows that they had indeed formed a
partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his
boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.


J.M. Tuason & Co. vs Bolanos
Facts: Plaintiff's complaint was amended three times with respect to the extent and description of the
land sought to be recovered.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and
public and notorious possession (of land in dispute) under claim of ownership, adverse to the entire
world by defendant and his predecessor in interest" from "time in-memorial". The answer further
alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in interest
thru "fraud or error and without knowledge (of) or interest either personal or thru publication to
defendant and/or predecessors in interest."
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right
to the land in question and ordering him to restore possession thereof to plaintiff and to pay the latter a
monthly rent of P132.62 from January, 1940, until he vacates the land
The trial court erred in not dismissing the case on the ground that the case was not brought by the real
party in interest because the plaintiff is "represented herein by its Managing Partner Gregorio Araneta,
Inc.", another corporation
Issue: WoN a the action was brought by the real party in interest
Held: The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the
theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule
is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a
joint venture with another where the nature of that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp.,
1082.) There is nothing in the record to indicate that the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of
them.


1768 The partnership has a juridical personality separate and distinct from that each of the partners,
even in case of failure to comply with the requirements of article 1772, first paragraph.
1774 Any immovable property or an interest therein may be acquire in the partnership name. Title so
acquired can be conveyed only in the partnership name
1775 Association and Societies, whose articles are kept secret among its members, and wherein any
one of the members may contract in his own name with third persons, shall have no juridical
personality, and shall be governed by the provisions relating to co-ownership
Tocao vs CA 2. Juridical Personality
William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form
a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao also
contributed some cash and she shall also act as president and general manager; and Anay shall be
in charge of marketing. Belo and Tocao specifically asked Anay because of her experience and
connections as a marketer. They agreed further that Anay shall receive the following:
1. 10% share of annual net profits
2. 6% overriding commission for weekly sales
3. 30% of sales Anay will make herself
4. 2% share for her demo services
They operated under the name Geminesse Enterprise, this name was however registered as a sole
proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was
not reduced to writing because Anay trusted Belos assurances.
The venture succeeded under Anays marketing prowess.
But then the relationship between Anay and Tocao soured. One day, Tocao advised one of the
branch managers that Anay was no longer a part of the company. Anay then demanded that the
company be audited and her shares be given to her.
ISSUE: Whether or not there is a partnership.
HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in any
form. The fact that it was registered as a sole proprietorship is of no moment for such registration
was only for the companys trade name.
Anay was not even an employee because when they ventured into the agreement, they explicitly
agreed to profit sharing this is even though Anay was receiving commissions because this is only
incidental to her efforts as a head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an
innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the
partnership as well as damages or share in the profits realized from the appropriation of the
partnership business and goodwill. An innocent partner thus possesses pecuniary interest in


every existing contract that was incomplete and in the trade name of the co-partnership and
assets at the time he was wrongfully expelled.
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 of delectus personae allows the partners
to have the power, although not necessarily the right to dissolve the partnership.
Tocaos unilateral exclusion of Anay from the partnership is shown by her memo to the Cubao
office plainly stating that Anay was, as of October 9, 1987, no longer the vice-president for sales
of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership in the
carrying on of the business. Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.


Gatchalian vs CIR Distinction with other contracts

Facts: Plaintiffs purchased, in the ordinary course of business, from one of the duly authorized agents of
the National Charity Sweepstakes Office one ticket for the sum of two pesos (P2), said ticket was
registered in the name of Jose Gatchalian and Company. The ticket won one of the third-prizes in the
amount of P50,000.

Jose Gatchalian was required to file the corresponding income tax return covering the prize won.
Defendant-Collector made an assessment against Jose Gatchalian and Co. requesting the payment of the
sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan. Plaintiffs, however through
counsel made a request for exemption. It was denied.

Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was issued. Plaintiffs paid
under protest a part of the tax and penalties to avoid the effects of the warrant. A request that the balance
be paid by plaintiffs in installments was made. This was granted on the condition that a bond be filed.

Plaintiffs failed in their installment payments. Hence a request for execution of the warrant of distraint
and levy was made. Plaintiffs paid under protest to avoid the execution.

A claim for refund was made by the plaintiffs, which was dismissed, hence the appeal.

Issue: Whether the plaintiffs formed a partnership hence liable for income tax.

Held: Yes. According to the stipulation facts the plaintiffs organized a partnership of a civil nature
because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally
the prize which they may win, as they did in fact in the amount of P50,000. The partnership was not only
formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such
collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and
the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that
the plaintiffs organized and formed a community of property only.


Obillos et al vs. CIR/CA

FACTS:
Petitioners sold the lots they inherited from their father and derived a total profit of P33,584 for
each of them. They treated the profit as capital gain and paid an income tax thereof. The CIR
required petitioners to pay corporate income tax on their shares, .20% tax fraud surcharge and
42% accumulated interest. Deficiency tax was assessed on the theory that they had formed an
unregistered partnership or joint venture.
ISSUE:
Whether or not partnership was formed by the siblings thus be assessed of the corporate tax.
RULING:
Petitioners were co-owners and to consider them partners would obliterate the distinction
between co-ownership and partnership. The petitioners were not engaged in any joint venture by
reason of that isolated transaction.

Art 1769 the sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from which the
returns are derived. There must be an unmistakable intention to form partnership or joint venture.


Yulo vs Yang Chiao Seng
Facts: defendant Yang Chiao Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the
formation of a partnership between them to run and operate a theatre on the premises occupied by
former Cine Oro at Plaza Sta. Cruz, Manila.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion
Santa Marina and Maria Carrion Santa Marina. the attorney for the owners notified Mrs. Yulo of the
owner's desire to cancel the contract of lease
Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the business. Yang answered the
letter saying that upon the advice of his counsel he had to suspend the payment (of the rentals) because
of the pendency of the ejectment suit by the owners of the land against Mrs. Yulo.
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on
May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao
Seng has refused to pay her share
Issue: WoN there is a partnership between the defendant and plaintiff
Held: We have gone over the evidence and we fully agree with the conclusion of the trial court
that the agreement was a sublease, not a partnership. The following are the requisites of
partnership: (1) two or more persons who bind themselves to contribute money, property, or
industry to a common fund; (2) intention on the part of the partners to divide the profits among
themselves. (Art. 1767, Civil Code.).chanroblesvirtualawlibrary chanrobles virtual law library
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she
did not furnish any help or intervention in the management of the theatre. In the third place, it
does not appear that she has ever demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should have been to find out
how the business was progressing, whether the expenses were legitimate, whether the earnings
were correct, etc. She was absolutely silent with respect to any of the acts that a partner should
have done; all that she did was to receive her share of P3,000 a month, which can not be
interpreted in any manner than a payment for the use of the premises which she had leased from
the owners.


Bourns vs D.M. Carman
Facts: The plaintiff in this action seeks to recover the sum of $437.50, United Stated currency, balance
due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. the contract relating to
the said work was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and
it appears that the said Lo-Chim-Lim personally agreed to pay for the work himself. The plaintiff,
however, has brought this action against Lo-Chim-Lim and his codefendants jointly, alleging that, at the
time the contract was made, they were the joint proprietors and operators of the said lumber yard
engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim.
It seems that the alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal
agreement only. At least there is no evidence tending to show that the said agreement was reduced to
writing, or that it was ever recorded in a public instrument.
Issue: WoN the co-defendants are liable as partners
Held: A partnership constituted in such a manner, the existence of which was only known to
those who had an interest in the same, being no mutual agreements between the partners and
without a corporate name indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business, is exactly the accidental
partnership of cuentas en participacion defined in article 239 of the Code of Commerce.
Those who contract with the person under whose name the business of such partnership of
cuentas en participacion is conducted, shall have only a right of action against such person and
not against the other persons interested, and the latter, on the other hand, shall have no right of
action against the third person who contracted with the manager unless such manager formally
transfers his right to them. (Art 242 of the code Of Commerce.) It follows, therefore that the
plaintiff has no right to demand from the appellants the payment of the amount claimed in the
complaint, as Lo-Chim-Lim was the only one who contracted with him. the action of the plaintiff
lacks, therefore, a legal foundation and should be accordingly dismissed.


Fortis vs Gutierrez Hermanos
Facts: Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action
to recover a balance due him as salary for the year 1902.
He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business of the
defendants for said year.
The total judgment rendered against the defendants in favor of the plaintiff, reduced to Philippine
currency, amounted to P13,025.40. The defendants moved for a new trial, which was denied, and they
have brought the case here by bill of exceptions.
It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner
of the defendants in the business which they were carrying on.
Issue: WoN the plaintiff is considered a co-partner
Held: It was a mere contract of employnent. The plaintiff had no voice nor vote in the management of
the affairs of the company. The fact that the compensation received by him was to be determined with
reference to the profits made by the defendants in their business did not in any sense make by a partner
therein. The articles of partnership between the defendants provided that the profits should be divided
among the partners named in a certain proportion. The contract made between the plaintiff and the
then manager of the defendant partnership did not in any way vary or modify this provision of the
articles of partnership.


Gallemit vs Tabiliran
Facts: On March, 10, 1908, the plaintiff filed a written complaint, twice amended with the permission of
the court, wherein, after its second amendment, he alleged that the plaintiff and the defendant, while
residents of the municipality of Dapitan, had acquired, in joint tenancy, in or about the month of
January, 1904, a parcel of land from its original owner, Lui Ganong, under a verbal, civil contract of
partnership, for the price of P44; that it was stipulated that each of the said purchasers should pay one-
half of the price, or P22, and that an equal division should be made between them of the land thus
purchased, situate in the place called Tangian, of the barrio of Dohinob, municipality of Dapitan
he had repeatedly made upon the defendant to divide the said land, the latter, after having promised
him on several occasions that he would make such partition, finally refused, without good reason, and
still continued to refuse to divide the land and, moreover, without the knowledge and consent of the
plaintiff, gathered the abaca crops
Issue: What legal relation is created?
Held: There is community of property when the ownership of a thing belongs to different
persons undividedly. (Art. 392, Civil Code.) No coownership shall be obliged to remain a party
to the community. Each of them may ask at any time the division of the thing owned in common.
(Art. 400 of the same code.)
Considering the terms of the claim made by the plaintiff and those of the defendant's answer, and
the relation of facts contained in the judgment appealed from, it does not appear that any contract
of partnership whatever was made between them for the purposes expressed in article 1665 of
the Civil Code, for the sole transaction performed by them was the acquisition jointly by mutual
agreement of the land in question, since it was undivided, under the condition that they each
should pay one-half of the price thereof and that the property so acquired should be divided
between the two purchasers; and as, under this title, the plaintiff and the defendant are the
coowners of the said land, the partition or division of such property held in joint tenancy must of
course be allowed, and the present possessor of the land has no right to deny the plaintiff's claim
on grounds or reasons unsupported by proof.


Art. 1318 There is no contract unless the following requisites concur:
1. Consent of the contracting parties
2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established

B. REQUISITES

LYONS VS. ROSENSTOCK -
Facts: During his lifetime, Henry Elser got engaged in the real estate business. Petitioner Lyons, on
the other hand, joined Elser in some of his ventures and they equally divided profits gained from
these. In 1919, Lyons needed to go back to the United States for a year and a half and by reason of
which he executed a general power of attorney in favor of Elser, empowering the latter to manage
and dispose the properties owned by them.
In 1920, Elser was drawn to a piece of land, the San Juan Estate, and he perceived an opportunity to
develop it into a suburban community. The Estate was offered by its owners for P570,000 with an
initial payment of P150,000. In May 1920, Elser wrote a letter to Lyons inducing the latter to join
him in this venture and to likewise supply the means necessary for the fulfillment of this project. In
the meantime, Elser raised P120,000 from his own funds and loaned P50,000 from Uy Siolong to pay
for the initial payment. However in order to obtain the loan he had to give a personal note signed by
himself, by his other associates and by the Fidelity and Surety Company. Then again, in order to
obtain the signature of the Fidelity and Surety Company Elser had to execute a mortgage on one of
the properties owned by him and Lyons on Carriedo Street.
Lyons replied to the letter of Elser only in July 1920 and he expressed in it his unwillingness to join
the latter in this venture. Because of this Elser relieved the Carriedo property of the encumbrance
which he had placed upon it and requested the Fidelity and Surety Company to allow him to
substitute another property for it. However the release of the old mortgage and the recording of the
new were never registered because in September 1920, when Lyons returned to Manila, he allowed
the mortgage to remain on the Carriedo property. But in January 1921, Elser was able to pay the
note executed by him to Uy Siolong which enabled the release of the Carriedo Property.
Issue: W/N Lyons, as half owner of the Carriedo property, involuntarily became the owner or a co-
partner of an undivided interest in the San Juan Estate, which was acquired partly by the money
obtained through an encumbrance placed on the Carriedo property. No.
Held: Under our law, a trust does not necessarily attach with respect to property acquired by a
person who uses money belonging to another. In the case at bar, there was clearly no general
relation of partnership between Lyons and Elser and the most that can be said is that they had been
co-participants in various transactions involving real estate. It is clear the Elser, in buying the San
Juan Estate, was not acting for any partnership composed for himself and Lyons, especially that the
latter expressly communicated his desire not to participate in this venture. Lastly, it should be noted
that no money belonging to Lyons or any partnership composed by Lyons and Elser was in fact used
by the latter in the purchase of the San Juan Estate.


Arbes vs Polistico - Object

FACTS:

This is an action to bring about liquidation of the funds and property of the association called
"Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were
designated as president-treasurer, directors and secretary of said association. By agreement of the
parties, the court appointed a commissioner to examine all the books, documents, and accounts of
"Turnuhan Polistico & Co. The commissioner rendered his report, showing a balance of the cash on hand
inthe amount of P24,607.80. The trial court in accepting the report, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally
to return the amount of P24,607.80,as well as the documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest of the members of the said association
represented by said plaintiffs. There is no question that "Turnuhan Polistico & Co." is an unlawful
partnership, but the appellants allege that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a party defendant. The
appellants refer to article 1666 of the Civil Code, particularly the second paragraph, which provides:
When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in default of such, to those of the province.

ISSUE:
WHETHER OR NOT A CHARITABLE INSTITUTION IS A NECESSARY PARTY IN THISCASE.

RULING:
NO, no charitable institution is a necessary party in the present case of determination of the rights of
the parties. The action which may arise from said article, in the case of unlawful partnership, is that for
the recovery of the amounts paid by the member from those in charge of the administration of said
partnership, and it is not necessary for the said parties to base their action to the existence of the
partnership, but on the fact that of having contributed some money to the partnership capital. Hence,
the charitable institution of the domicile of the partnership, and in the default thereof, those of the
province are not necessary parties in this case. In so ruling, the court had the occasion of explaining the
scope and spirit of the provision of Article 1666 of the Civil Code (now Article 1770 of the New Civil
Code).


Deluao vs Casteel
Facts: In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio
of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action was taken
thereon by the authorities concerned. During the Japanese occupation, he filed another fishpond
application for the same area, but because of the conditions then prevailing, it was not acted upon
either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a
survey, was found to contain 178.76 hectares. Upon investigation conducted by a representative of the
Bureau of Forestry, it was discovered that the area applied for was still needed for firewood production.
Hence on May 13, 1946 this third application was disapproved.
Leoncio Aradillos filed his fishpond application, Victor D. Carpio filed on August 8, 1946 his fishpond
application
Because of the threat poised upon his position by the above applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding his occupation thereof by
constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from
usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed
improvements on the fishpond. Hence, a wide productive fishpond was built.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor
Casteel as party of the second part, executed a contract denominated a "contract of service"
In short Deluao the plaintiff is the administrator and Castel will be the manager and buyer of the
fish produced
Eventually the application was granted to Casteel, Sometime in January 1951 Nicanor Casteel forbade
Inocencia Deluao from further administering the fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and
Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First
Instance of Davao for specific performance and damages against Nicanor Casteel
the appellees' contended that it created a contract of co-ownership and partnership between Deluao
and casteel by virtue of the so-called contract of service
Issue: WoN there exist a contract of partnership
Held: Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, "... any event which makes it unlawful for the business of the partnership to be carried on
or for the members to carry it on in partnership." The approval of the appellant's fishpond application by
the decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which made
the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.


Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides
that
The lessee shall not assign, encumber, or sublet his rights without the consent of the
Secretary of Agriculture and Commerce, and the violation of this condition shall avoid
the contract
Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership.
However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the
fishpond with the other.


C. Form and Creation of Partnership
Art. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public
instrument.
Agad vs Mabato Necessity of Public Instrument
Facts: Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated
August 29, 1952, copy of which is attached to the complaint as Annex "A" partners in a fishpond
business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the profits;
that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato
had failed and refused to render accounts for the years 1957 to 1963
Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that
judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000
Mabato filed a motion to dismiss, the court issued the order appealed from, granting the motion to
dismiss the complaint for failure to state a cause of action. This conclusion was predicated upon the
theory that the contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil
Code, because an inventory of the fishpond referred in said instrument had not been attached thereto.
A reconsideration of this order having been denied, Agad brought the matter to us for review by record
on appeal.
Issue: WoN The contract of partnership is nulland void
Held: The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower court held
that the answer should be in the affirmative, because "it is really inconceivable how a partnership
engaged in the fishpond business could exist without said fishpond property (being) contributed
to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of
the partners contributed either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.
x x x x x x x x x
The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership.
Neither said fishpond nor a real right thereto was contributed to the partnership or became part of
the capital thereof, even if a fishpond or a real right thereto could become part of its assets.


Recording and Registration
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in
money or property, shall appear in a public instrument, which must be recorded in the Office of
the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability
of the partnership and the members thereof to third persons. (n)
Commencement and Continuation
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated. (1679)
Art. 1785. When a partnership for a fixed term or particular undertaking is continued after the
termination of such term or particular undertaking without any express agreement, the rights and
duties of the partners remain the same as they were at such termination, so far as is consistent
with a partnership at will.
Kinds of Partnership
As to object: Art. 1776. As to its object, a partnership is either universal or particular.As regards the
liability of the partners, a partnership may be general or limited.
a.) Universal - Art. 1777. A universal partnership may refer to all the present property or to all the
profits. (1672)

Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot
enter into universal partnership.
All Present Property - Art. 1778. A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a common fund, with the intention of
dividing the same among themselves, as well as all the profits which they may acquire therewith. (1673)
Art. 1779. In a universal partnership of all present property, the property which belongs to each of the
partners at the time of the constitution of the partnership, becomes the common property of all the
partners, as well as all the profits which they may acquire therewith.
All Profits - Art. 1780. A universal partnership of profits comprises all that the partners may acquire by
their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess at the time of the celebration of
the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.
(1675)


Art. 1781. Articles of universal partnership, entered into without specification of its nature, only
constitute a universal partnership of profits. (1676)
b.) Particular - Art. 1783. A particular partnership has for its object determinate things, their
use or fruits, or specific undertaking, or the exercise of a profession or vocation. (1678)
Commissioner of Internal Revenue Vs. Suter

Facts: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by herein
respondent William J. Sutter as the general partner, and Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. The firm was duly registered with the Securities and Excangange Commission and engaged
in lawful business. Later, Sutter and Spirig got married while Carlson sold his share to the spouses. The
limited partnership had been filing its income tax returns as a corporation, without objection by the herein
petitioner, CIR, until in 1959 when the latter, in an assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Sutter and Spirig resulting in a determination of a
deficiency income tax against respondent Sutter. Respondent Sutter protested the assessment, and
requested its cancellation and withdrawal, as not in accordance with law, but his request was denied.
Unable to secure a reconsideration, he appealed to the CTA, which ruled in favor of Sutter.

Issue: WoN the partnership dissolved by the marriage of Sutter and Spirig and the subsequent sale of
Carlson of his share to the spouses?

Held: No. The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is erroneous. The capital contributions of partners William J. Sutter and Julia Spirig were
separately owned and contributed by them before their marriage; and after they were joined in wedlock,
such contributions remained their respective separate property under the Spanish Civil Code (Article
1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of
its own, distinct and separate from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the existence of the limited partnership as
a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of
our law. The limited partnership's separate individuality makes it impossible to equate its income with that
of the component members. True, section 24 of the Internal Revenue Code merges registered general
co-partnerships (compaias colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can
not be extended by mere implication to limited partnerships.

As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Sutter is to overstretch the letter and intent of the law.
In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the
latter on its income, but not the former, because it is in the case of compaias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership


2. As to Liability of Partners - Art. 1776. As to its object, a partnership is either universal or particular.As
regards the liability of the partners, a partnership may be general or limited.
a. General
b. Limited 1843 1867
3.) Capitalist vs Industial Partner
Capitalist One who contributes money or property to the common fund
Industrial One who contributes only his industry or personal services
II. Obligations of the Partners Among Themselves
A. To Contribute Capital
Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute
thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things
which he may have contributed to the partnership, in the same cases and in the same manner as the vendor
is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand. (1681a)
Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods,
their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of
stipulation, it shall be made by experts chosen by the partners, and according to current prices, the
subsequent changes thereof being for account of the partnership. (n)
Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he should have complied with his obligation.
Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the
capital of the partnership. (n)
Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the
partnership, any partner who refuses to contribute an additional share to the capital, except an industrial
partner, to save the venture, shall be obliged to sell his interest to the other partners.
Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the
partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner
who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to
be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things
brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim
shall be limited to the value at which they were appraised.


Sancho vs Lizarraga
FACTS:
The plaintiff brought an action for the rescission of the partnership contract between himself and
the defendant and the reimbursement of his investment worth 50,000php with interest at 12 per
cent per annum form October 15, 1920, with costs, and any other just and equitable remedy
against said defendant. The defendant denies generally and specifically all the allegations of the
complaint and asked for the dissolution of the partnership, and the payment to him as its manager
and administrator P500 monthly from October 15, 1920 until the final dissolution with interest.
The CFI found that the defendant had not contributed all the capital he had bound himself to
invest hence it demanded that the defendant liquidate the partnership, declared it dissolved on
account of the expiration of the period for which it was constituted, and ordered the defendant, as
managing partner, to proceed without delay to liquidate it, submitting to the court the result of
the liquidation together with the accounts and vouchers within the period of thirty days from
receipt of notice of said judgment. The plaintiff appealed from said decision praying for the
rescission of the partnership contract between him and the defendant in accordance with Art.
1124.
ISSUE:
WON plaintiff acquired the right to demand rescission of the partnership contract according to
article 1124 of the Civil Code.
HELD:
The SC ruled that owing to the defendants failure to pay to the partnership the whole amount
which he bound himself to pay, he became indebted to the partnership for the remainder, with
interest and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to
demand rescission of the partnership contract according to article 1124 of the Code. Article 1124
cannot be applied to the case in question, because it refers to the resolution of obligations in
general, whereas articles 1681 and 1682 specifically refer to the contract of partnership in
particular. And it is a well known principle that special provisions prevail over general
provisions.


B. To Refrain from engaging in Business
1. Industrial Partner - Art. 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of this provision, with a right to
damages in either case. (n)
Evangelista & Co vs Abad Santos
FACTS: On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co."
On June 7, 1955 the Articles of Co-partnership were amended so as to include herein
respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonarda Atienza Abad Santos and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a contribution of P17,500 each

On December 17, 1963 herein respondent filed suit against the three other partners,
alleging that the partnership, which was also made a party-defendant, had been paying
dividends to the partners except to her; and that notwithstanding her demands the defendants
had refused and continued to refuse to let her examine the partnership books or to give her
information regarding the partnership affairs or to pay her any share in the dividends declared
by the partnership

The defendants, in their answer, denied ever having declared dividends or distributed
profits of the partnership; denied likewise that the plaintiff ever demanded that she be allowed
to examine the partnership books; and by way of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties, which was that the
plaintiff was not an industrial partner; that she did not in fact contribute industry to the
partnership.

ISSUE: WoN the defendant is entitled to a share in the Partnership even if she is currently
engaged in a Profession or Business as a Judge in Manila

HELD: 'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist partners may
either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for
himself seeks to prevent any conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner with this prestation. There is no
pretense, however, even on the part of the appellee is engaged in any business antagonistic to
that of appellant company, since being a Judge of one of the branches of the City Court of
Manila can hardly be characterized as a business.


2. Capitalist Partner - Art. 1808. The capitalist partners cannot engage for their own
account in any operation which is of the kind of business in which the partnership is
engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any profits
accruing to him from his transactions, and shall personally bear all the losses. (n)
C. To Prefer / Recognize Partnership Credit
Art. 1792. If a partner authorized to manage collects a demandable sum which was owed to
him in his own name, from a person who owed the partnership another sum also demandable,
the sum thus collected shall be applied to the two credits in proportion to their amounts, even
though he may have given a receipt for his own credit only; but should he have given it for
the account of the partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to
the other debtor by Article 1252, but only if the personal credit of the partner should be more
onerous to him. (1684)
Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit,
when the other partners have not collected theirs, shall be obliged, if the debtor should
thereafter become insolvent, to bring to the partnership capital what he received even though
he may have given receipt for his share only. (1685a)
D. To Refrain From fraudulent acts
Art. 1794. Every partner is responsible to the partnership for damages suffered by it through
his fault, and he cannot compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts may equitably lessen this
responsibility if through the partner's extraordinary efforts in other activities of the
partnership, unusual profits have been realized.


Soncuya vs De Luna
Facts:

Petitioner filed a complaint against respondent for damages as a result of the fraudulent
administration of the partnership, Centro Escolar de Senoritas of which petitioner and the
deceased Avelino Librada were members. For the purpose of adjudicating to plaintiff damages
which he alleges to have suffered as a partner, it is necessary that a liquidation of the business be
made that the end profits and losses maybe known and the causes of the latter and the
responsibility of the defendant as well as the damages in which each partner may have suffered,
maybe determined.

Issue: Whether the petitioner is can claim damages immediately.

Ruling:

According to the Supreme Court the complaint is not sufficient to constitute a cause of action on
the part of the plaintiff as member of the partnership to collect damages from defendant as
managing partner thereof, without previous liquidation. Thus, for a partner to be able to claim
from another partner who manages the general co-partnership, allegedly suffered by him by
reason of the fraudulent administration of the latter, a previous liquidation of said partnership is
necessary.


E. To Answer for obligations contracted - Art. 1796. The partnership shall be responsible to
every partner for the amounts he may have disbursed on behalf of the partnership and for
the corresponding interest, from the time the expense are made; it shall also answer to
each partner for the obligations he may have contracted in good faith in the interest of the
partnership business, and for risks in consequence of its management.
Martinez vs Ong Pong Co.
Facts: MARTINEZ delivered to Ong Pong Co and Ong Lay (ONGS) the sum of P1,500. The ONGS, in a
private document, acknowledged that they had received the money with the agreement that they will
invest it in a store, and the profits or losses therefrom was to be divided with MARTINEZ in equal shares
Later, MARTINEZ filed a complaint in order to compel the ONGS to render him an accounting of the
partnership, or else to refund him the P1,500 that he had given them Ong Pong Co alone appeared to
answer the complaint. He admitted the fact of the agreement, but he alleged that Ong Lay (deceased)
was the one who had managed the business, and that nothing had resulted therefrom except the loss of
the capital of P1,500, to which loss MARTINEZ agreed to bear CFI rendered decision ordering Ong Pong
Co to return to MARTINEZ one-half of the capital of P1,500 (P750) plus P90 as one-half of the profits,
calculated at the rate of 12% per annum for the six months that the store was supposed to have been
al by
Ong Pong Co
ISSUE: WON MARTINEZ is entitled to the capital he contributed to the partnership
HELD: YES. The ONGS failed to fulfill their obligation as partners who, acting as MARTINEZ's agents in
receiving money, did not render proper accounting therefor. Such renders them jointly liable for the
losses, solidarity not having been established. CFI decision is AFFRIMED in this regard but REVERSED
inasmuch as it found that the capital invested earned profits. Thus, the CFI ruling awarding MARTINEZ
another P840 is DELETED. Ong Pong Co is only liable to pay MARTINEZ half of the capital, or P750,
representing half of the loss which both ONGS should jointly bear due to their omission, to earn legal
interest of 6% from time of filing this complaint, and costs
RATIO: In his defense, Ong Pong Co raised the issue of the closure/failure of the store by virtue of
ejectment proceedings instituted against them. THIS, however, has no real significance in the
determination of the merits of this case To be sure, the whole action is based upon the fact that the
ONGS received capital from MARTINEZ for the purpose of organizing a store. The ONGS, according to
the agreement, were to handle the said money and invest it in a store which was the object of the
association The ONGS had no special agreement vesting in one sole person the management of the
business. Thus, both ONGS were the actual administrators thereof; and as such administrators, they
were the agents of the company and incurred the liabilities peculiar to every agent, among which is that
of rendering account to the principal of their transactions, and paying him everything they may have
received by virtue of the mandatum Since neither of them has rendered such account nor proven the
losses, they are therefore obliged to refund the money that they received for the purpose of
establishing the said store There is no evidence presented that the entire capital or any part thereof was
lost. Without proof, the allegation that the effects of the store were ejected is, as earlier mentioned, of
no moment. Even if we assume this to be true, it could still not be inferred that the ejectment was due
to the fact that no rents were paid, and that the rent was not paid on account of the loss of the capital


belonging to the partnership With regard to the CFI's finding of profits, it appears that the same was
based on the statements of Ong Pong Co, to the effect that "there were some profits, but not large
ones." this, however, was never proven. And even we admit the same, such statement still does not
make it possible to estimate the alleged "profits." As such, the CFI ruling on this point is REVERSED
Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a
partner who acted as agent in receiving money for a given purpose, for which he has rendered no
accounting, such agent is responsible only for the losses which, by a violation of the provisions of the
law, he incurred. This being an obligation to pay in cash, there are no other losses than the legal
interest, which interest is not due except from the time of the judicial demand, or, in the present case,
from the filing of the complaint Art. 1688 is NOT applicable in this case, in so far as it provides "that the
partnership is liable to every partner for the amounts he may have disbursed on account of the same
and for the proper interest," for the reason that no other money than that contributed as is involved
Art. 1138, CC is also NOT applicable here as this deals with debts of a partnership where the obligation is
NOT joint. Likewise,
Art 1723 regarding the liability of two or more agents with respect to the return of the money that they
received from their principal is NOT applicable. No showing of solidarity having been established, their
liability is JOINT!


Agustin vs Inocencio
SYLLABUS
1. PARTNERSHIP; ADVANCES ALLOWED MANAGING PARTNER. On the adjustment
of the accounts of a partnership, the managing partner may be allowed funds borrowed or
advanced and necessary to the completion of the work, within the scope of the business and
expressly provided for by agreement among the partners.

The parties to this controversy, who had been conducting a partnership as industrial partners without
capital, contributed from its profits the sum of P807.28 as a fund toward the construction of a casco for
use in their business, to which they added P3,500, borrowed from Maria del Rosario, the wife of the
defendant, Bartolome Inocencio, he being the managing partner. It is admitted that this total, a little over
P4,300, was the estimated cost of the casco, but in the progress of the work the defendant found that it
called for additional funds, which he advanced to the amount of P2,024.49. It is satisfactorily appears
from the evidence that this amount is necessary in order to complete the work undertaken. Although it
would seem that he failed to notify his partners of the various items from time to time going to make up
this sum, it is shown that the books were at all times open to their inspection, and that, being asked to
examine them, they omitted to do so, and that the plaintiff Juan Agustin, representing all the partners, was
also present at the construction of the casco, in charge of the practical work and cognizant of its needs and
its progress.

The work done in the casco having been within the scope of the association and necessary to carry out its
express object, the borrowing of the money required to carry it on, with the acquiescence if not with the
affirmative consent of his associates, was not outside the powers of the managing partner and constitutes
a debt for which all the associates are liable.

The note passed into the hands of the defendant by reason of the successive deaths of his wife and of their
only child, each without debts, and for the amount thereof he became a creditor, subject, however, to the
deduction therefrom of his proportionate part of the indebtedness.

The trial court treated his claim on this note, as well as the sum of P2,024.49 furnished by him, as an
addition to his capital in the firm, rather than as a loan, and this constitutes one of the grounds of error
stated by the Appellant. We do not deem it necessary to pass upon this objection, for the reason that,
considered as a loan, this sum would place the defendant as a creditor in a stronger position as against his
associates than if regarded as a mere contribution to capital. The error, if it be an error, is not, therefore,
prejudicial to the plaintiff, but is rather beneficial to him. The respondent did not except to it.

Various small sums have been paid out of the profits to some of the partners and these were properly
allowed him in the judgment.

On the theory on which the action was disposed of, the trial court committed no error in the computation
of the various shares.

Of the four parties plaintiff, but one, Victor del Rosario, is interested in this appeal, which has been
dismissed as to the others, and as to him the judgment of the trial court must be affirmed, with costs of
this instance. So ordered.


F. To Share in Losses
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share
of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits
in proportion to his capital. (1689a)
Art. 1798. If the partners have agreed to intrust to a third person the designation of the share of each one
in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no
case may a partner who has begun to execute the decision of the third person, or who has not impugned
the same within a period of three months from the time he had knowledge thereof, complain of such
decision.
The designation of losses and profits cannot be intrusted to one of the partners. (1690)
Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is
void.
Chavez vs Linan
The judgment impugned in the aforesaid bill of exceptions, presented by defendant, orders
among other things the exclusion from the liquidations therein admitted of the sum of $18,712.08
3/4 representing the credits and property mentioned by plaintiff in the liquidation contained in
his complaint. No legal reason is given for such an exclusion. The credits and property in
question pertained to the extinguished partnership, hence the interest that each partner has therein
is unquestionable. Therefore it is not possible to consider the liquidation as finally settled and
ended or determine which of the partners is the true debtor according thereto; consequently the
judgment excepted to can not be sustained, as it does not definitely decide or determine the
question pending as to the mere exclusion or omission of the sum referred to. This item, having
been acknowledged by both parties, should necessarily be included in the final settlement of the
affairs of the partnership, and must be taken into account in the liquidation and determination of
the suit pending between the parties.
The profit and loss of the partnership must be divided in the manner stipulated, and if the
agreement should only refer to the participation of each partner in the profits then their
corresponding share of the losses shall be in the same ratio.
In the absence of an agreement the share of each partner in the profits and losses shall be
in proportion to what he may have contributed. The partner who contributes his services
only shall receive a share equal to the one who has contributed the least. If besides his
services he should have contributed capital, he shall also receive the proportional share
which may pertain to him for his capital.


Moran vs CA
Business Organization Partnership, Agency, Trust Profit and Loss Sharing Speculative
Damages
In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership agreement
where they agreed to contribute P15k each for the purpose of printing 95k posters of the
delegates to the then 1971 Constitutional Commission. Moran shall be in charge in managing the
printing of the posters. It was further agreed that Pecson will receive a commission of P1k a
month starting from April 1971 to December 1971; that the partnership is to be liquidated on
December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor of the
partnership. He gave the P10k to Moran as the managing partner. Moran however did not add
anything and, instead, he only used P4k out of the P10k in printing 2,000 posters. He only
printed 2,000 posters because he felt that printing all 95k posters is a losing venture because of
the delay by the COMELEC in announcing the full delegates. All the posters were sold for a total
of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of
Appeals affirmed the decision of the trial court but modified the same as it ordered Moran to pay
P47.5k for unrealized profit; P8k for Pecsons monthly commissions; P7k as return of investment
because the venture never took off; plus interest.
ISSUE: Whether or not the CA judgment is correct.
HELD: No. The award of P47.5k for unrealized profit is speculative. There is no evidence
whatsoever that the partnership between the Moran and Pecson would have been a profitable
venture (because base on the circumstances then i.e. the delay of the COMELEC in proclaiming
the candidates, profit is highly unlikely). In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in favor of Pecson. Further, there is
mutual breach in this case, Pecson only gave P10k instead of P15k while Moran gave nothing at
all.
As for the P8k monthly commission, this is without basis. The agreement does not state the basis
of the commission. The payment of the commission could only have been predicated on
relatively extravagant profits. The parties could not have intended the giving of a commission
inspite of loss or failure of the venture. Since the venture was a failure, Pecson is not entitled to
the P8k commission.
As for the P7k award as return for Pecsons investment, the CA erred in his ruling too. Though
the venture failed, it did took off the ground as evidenced by the 2,000 posters printed. Hence,
return of investment is not proper in this case. There are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if
the latter exercised his best business judgment, which seems to be true in this case.


Moran must however return the unused P6k of Pecsons contribution to the partnership plus P3k
representing Pecsons profit share in the sale of the printed posters. Computation of P3k profit
share is as follows: (P10k profit from the sale of the 2,000 posters printed) (P4k expense in
printing the 2k posters) = (P6k profit); Profit 2 = P3k each.
Criado vs Gutierrez Hermanos
Business Organization Partnership, Agency, Trust Share of Losses by an Industrial Partner
Estoppel Liquidation
In January 1900, Placido Gutierrez de Celis (37%), Miguel Gutierrez de Celis (37%), Miguel
Alfonso (16%), Daniel Perez (5%), and Leopoldo Criado (5%) formed a partnership called
Gutierrez Hermanos. Perez and Criado were the industrialist partners while the other three are
the capitalist partners. **The percentages after their names denote their share in the profit.
In 1903, with the death of one partner (Alfonso), they agreed to liquidate the partnership. In the
liquidation, it was put into record in the partnerships books that Criado only had a balance of
P25,129.09. Criado immediately protested as he claimed that his balance in the partnership
should be P55,738.69, but Miguel persuaded Criado not to protest anymore as he made
assurances that the difference shall be paid later on by the new partnership that they will be
forming. Miguel convinced Criado to make it appear that the partnership has incurred losses
from 1900 to 1903 and that his share in the losses, based on Criados 5% share in profits is
deducted from his actual P55k+ balance. Miguel said they have to do this in order to avoid some
creditor claims against them, among others. Incidentally, Alfonso also owe P1k from Criado but
Miguel assured that the same shall be paid by the new partnership.
So in 1904, a new partnership was formed involving the remaining 4 original partners. They still
called themselves Hermanos Guttierez. This time they are all capitalist partners and Criado
contributed his P25,129.09 from the first phase of the partnership. The second phase of the
partnership went on until such time that Criado got tired of it because Miguel never made good
his word to reimburse him of his remaining balance from the first phase of the partnership.
And so a liquidation was made and in December 1911, Criado left the firm. Miguel requested
Criado to render service in lieu of the liquidation which Criado complied until the partnership
was fully liquidated in March 1912.
ISSUES:
1.Whether or not Criado is estopped from claiming his balance from the first phase of the
partnership considering that he did sign the new partnership agreement which indicated that the
remaining balance hes bringing in to the second phase from the first phase of the partnership
was only P25k+.
2. Whether or not Criado is liable for losses.
3. Whether or not Criado should be compensated for his services in the liquidation.


HELD:
1. No. There is no estoppel. It cannot be held that Criado was in estoppel immediately after
having signed the partnership contract of 1904, in which it appears that he brought into
the new firm, as capital of his own, P25,129.09, nor may it be said that he was not
entitled to claim the rest of his assets in the firm during the first period from 1900 to
1903, to wit, his actual balance P55,738.69 less simulated balance in lieu of Miguels
assurances of P25,129.09 = P30,609.60. Criado merely relied on the repeated promises of
Miguel hence estoppel cannot be setup against him.
2. No. He is an industrialist partner. Hence, this reinforces number (1).
3. Yes. At the time of the last liquidation, Criado was not a managing partner. In the Code
of Commerce, managing partners are the ones obliged to be in charge of the liquidation.
Criado without being obliged took charge in the liquidation and this was even upon the
request of Miguel himself hence, Criado is entitled to compensation (which as he claims
is P1k per month).
Gutierrez Hermanos Cross Claim
The firm made a cross claim whereby it alleged that at one time when Criado was a managing
partner, he delivered goods and provided loans to certain persons without any security for said
goods and loans. And because of such, the firm incurred damage.
The above claim by the firm against Criado is bereft of merit. According to the law, in order that
the partner at fault may be compelled to pay an indemnity, it is indispensable, in the first, place,
that his conduct shall have caused some damage to the partnership, and, in the second place, that
his conduct should not have been expressly or impliedly ratified by the other partners or the
manager of the partnership. Hermanos was not able to prove such damages by sufficient
evidence.


Compania Maritima vs Munoz
Business Organization Partnership, Agency, Trust Liability of Industrial Partners to Third
Persons
Facts: In 1905, Francisco Muoz, Emilio Muoz, and Rafael Naval formed an ordinary general
mercantile partnership in accordance with the Code of Commerce. They named the partnership
Francisco Muoz & Sons. Francisco was the capitalist partner while the other two were industrial
partners. In the articles of partnership, it was agreed upon by the three that for profits, Francisco shall
have a 3/4
th
share while the other two would have 1/8
th
each. For losses, only Francisco shall bear it.
Later, the partnership was sued by La Compaia Martitama for collection of sum of money
amounting to P26,828.30. The partnership lost the case and was ordered to make said payment; that
in case the partnership cant pay the debt, all the partners should be liable for it.
The ruling is in accordance with Article 127 of the Code of Commerce which states:
All the members of the general copartnership, be they or be they not managing partners of the same,
are liable personally and in solidum with all their property for the results of the transactions made in
the name and for the account of the partnership, under the signature of the latter, and by a person
authorized to make use thereof. (emphasis supplied)
Francisco now argues that the industrial partners should NOT be liable pursuant to Article 141 of the
Code of Commerce which states:
Losses shall be charged in the same proportion among the partners who have contributed capital,
without including those who have not, unless by special agreement the latter have been constituted as
participants therein. (emphasis supplied)
ISSUE: Whether or not the industrial partners are liable to third parties like La Compaia Martitama.
HELD: Yes. The controlling law is Article 127. There is no injustice in imposing this liability upon
the industrial partners. They have a voice in the management of the business, if no manager has been
named in the articles; they share in the profits and as to third persons it is no more than right that they
should share in the obligations. It is admitted that if in this case there had been a capitalist partner
who had contributed only P100 he would be liable for this entire debt of P26,000.
Article 141 relates exclusively to the settlement of the partnership affairs among the partners
themselves and has nothing to do with the liability of the partners to third persons; that each one of
the industrial partners is liable to third persons for the debts of the firm; that if he has paid such debts
out of his private property during the life of the partnership, when its affairs are settled he is entitled
to credit for the amount so paid, and if it results that there is not enough property in the partnership to
pay him, then the capitalist partners must pay him.
In relation to this, the Supreme Court noted that partnerships under the Civil Code provides for a
scenario where all partners are industrial partners (like when it is a partnership for the exercise of a
profession). In such case, if it is permitted that industrial partners are not liable to third persons then
such third persons would get practically nothing from such partnerships if the latter is indebted.


G. To Manage
Art. 1800. The partner who has been appointed manager in the articles of partnership may
execute all acts of administration despite the opposition of his partners, unless he should act in
bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners
representing the controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time. (1692a)
Art. 1801. If two or more partners have been intrusted with the management of the partnership
without specification of their respective duties, or without a stipulation that one of them shall not
act without the consent of all the others, each one may separately execute all acts of
administration, but if any of them should oppose the acts of the others, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the
controlling interest. (1693a)
Art. 1802. In case it should have been stipulated that none of the managing partners shall act
without the consent of the others, the concurrence of all shall be necessary for the validity of the
acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent
danger of grave or irreparable injury to the partnership. (1694)
Art. 1803. When the manner of management has not been agreed upon, the following rules shall
be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall
bind the partnership, without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in
the immovable property of the partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership,
the court's intervention may be sought. (1695a)
Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of
every partner, including the execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has no
such authority.


Litton vs Hill
Facts:
Litton sold and delivered to Ceron, one of the managing partners of Hill & Ceron, a certain number
of mining claims.
By virtue of said transaction, Ceron delivered to plaintiff a document (receipt) acknowledging that he
received from Litton certain share certificates of Big Wedge Mining Company totaling P1870.
Ceron paid to Litton P1,150 leaving a balance of P720
Litton was unable to collect the unpaid balance from Hill & Ceron or from its surety
Litton filed a complaint against the defendants for the recovery of the balance
The court ordered Ceron to personally pay the amount claimed and absolved the partnership, Hill
and the surety.
CA affirmed the decision of the court.
Issue:
Did the transaction bind the partnership or Ceron only?
Held:
While the transaction was entered into by Ceron, it bound the partnership. Robert Hill had the same power to
buy and sell; that in said partnership Hill as well as Ceron made the transaction as partners in equal parts; that
on the date of the transaction, February 14, 1934, the partnership between Hill and Ceron was in existence.
After this date, or on February 19th, Hill & Ceron sold shares of the Big Wedge; and when the transaction
was entered into with Litton, it was neither published in the newspapers nor stated in the commercial registry
that the partnership Hill & Ceron had been dissolved.
The kind of business in which the partnership Hill & Ceron is to engage being thus determined, none of
the two partners, under article 130 of the Code of Commerce, may legally engage in the business of
brokerage in general as stock brokers, security brokers and other activities pertaining to the business of
the partnership. Ceron, therefore, could not have entered into the contract of sale of shares with Litton
as a private individual, but as a managing partner of Hill & Ceron.


Bachrach vs 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 1803, 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.


H. Not to admit Associates as Partners - Art. 1804. Every partner may associate another
person with him in his share, but the associate shall not be admitted into the partnership
without the consent of all the other partners, even if the partner having an associate should
be a manager. (1696)
I. To Provide Access to Partnership Books/Information - Art. 1805. The partnership
books shall be kept, subject to any agreement between the partners, 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. (n)
Art. 1806. Partners shall render on demand true and full information of all things
affecting the partnership to any partner or the legal representative of any deceased partner
or of any partner under legal disability. (n)
J. To be Loyal/Fiduciary Duty - Art. 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without the consent of the other
partners from any transaction connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (n)
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 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
105 Phil 1270 G.R. No. L-11648 April 22, 1959

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 Catalans 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 dividendspaid 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 companys 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 thecompanys 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.


Catalan Vs. Gatchalian

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 Catalans redemption of the properties make him the absolute owner of the lands?

Ruling:

No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any
benefits or profits derived from his act as a partner. Consequently, when Catalan redeemed the
properties in question, he became a trustee and held the same in trust for his copartner Gatchalian,
subject to his right to demand from the latter his contribution to the amount of redemption.


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 companys 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 companys stocks appreciated.

Issue: WoN Hanlon is entitle to an account for his share

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.


K. To Render Formal Accounts
Art. 1809. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property
by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable. (n)


Fue Leung vs IAC
Facts: 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.
About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00 as his
contribution to the partnership.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the latter's
Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the restaurant for the year
1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking Corporation testified that said
check (Exhibit B) was deposited by and duly credited to the private respondents savings account with the bank after it
was cleared by the drawee bank, the Equitable Banking Corporation.
judgment is hereby rendered in favor of the plaintiff and against the defendant
The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely
erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and
the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve
(12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent.
Issue: WoN the respondent can still ask for account of his interest
Held: 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.


B. Liability for Contracts

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the
name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be
subject to the liability of a partner. (n)
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME SYCIP,
Facts: Petitions were filed by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975
and by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they
be allowed to continue using, in the names of their firms, the names of partners who had passed away.
Petitioners contend that the continued use of the name of a deceased or former partner when permissible
by local custom, is not unethical but care should be taken that no imposition or deception is practiced
through this use. They also contend that no local custom prohibits the continued use of a deceased
partners name in a professional firms name; there is no custom or usage in the Philippines, or at least in
the Greater Manila Area, which recognizes that the name of a law firm necessarily identifies the
individual members of the firm.
Issue: WON the surviving partners may be allowed by the court to retain the name of the partners who
already passed away in the name of the firm? NO
Held: In the case of Register of Deeds of Manila vs. China Banking Corporation, the SC said:
The Court believes that, in view of the personal and confidential nature of the relations between attorney
and client, and the high standards demanded in the canons of professional ethics, no practice should be
allowed which even in a remote degree could give rise to the possibility of deception. Said attorneys are
accordingly advised to drop the names of the deceased partners from their firm name.
The public relations value of the use of an old firm name can tend to create undue advantages and
disadvantages in the practice of the profession. An able lawyer without connections will have to make a
name for himself starting from scratch. Another able lawyer, who can join an old firm, can initially ride
on that old firms reputation established by deceased partners.
The court also made the difference from the law firms and business corporations:
A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a
particular purpose. It is not a partnership formed for the purpose of carrying on trade or business or of
holding property. 11 Thus, it has been stated that the use of a nom de plume, assumed or trade name in
law practice is improper.
We find such proof of the existence of a local custom, and of the elements requisite to constitute the
same, wanting herein. Merely because something is done as a matter of practice does not mean that
Courts can rely on the same for purposes of adjudication as a juridical custom.


Co-Pitco vs Yulo
Facts: Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the operation
of a sugar estate in Victorias, Island of Negros, and had commercial dealings with a Chinaman
named Dy-Sianco, who furnished them with money and goods, and used to buy their crop of
sugar. In February, 1903, the defendant, Pedro Yulo, father of the said Florencio, took charge of
the latter's interest in the above-mentioned partnership, and he became a general partner with the
said Jaime Palacios in the same business, and he continued as such partner until about the end of
1904, dealing with Dy-Sianco in the same manner as the old partnership had dealt with the latter.
Judge then finds that the balance due from the firm Pedro Yulo and Jaime Palacios was 1,638.40
pesos, Philippine currency, and orders judgment against the defendant, Pedro Yulo, for the entire
amount, with interest.
Issue: WoN Yulo is solidarily liable for the whole balance due by reason that Palacios has left
the country
Held: NO. The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore a civil partnership, as distinguished from a mercantile partnership. Being a civil
partnership, by the express provisions of articles 1698 and 1137 of the Civil Code, the partners are not
liable each for the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is
responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had
left the country can not increase the liability of Pedro Yulo.


Pacific Commercial Company vs Aboitiz & Martinez et al
Business Organization Partnership, Agency, Trust Industrial Partner Obligations as to
Losses vs as to Liabilities
In 1919, Arnaldo de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez formed a
partnership. De Silva, Guillermo, and Vidal were the capitalist partners while Martinez was the
industrial partner. The articles of partnership contained, among others, that Martinez may also be
liable for losses but only to the extent of his shares in the profits which was at 30%.
The partnership incurred loans from Pacific Commercial Company which the partnership failed
to pay. The partnerships property was exhausted but there remained an unpaid balance for
which PCC sued the partnership. The trial court issued a judgment where it ordered that the
deficiency should be satisfied by the properties of the three capitalist partners; that in the event
the properties of the three will not be enough, the remaining balance shall issue against the
property of Martinez. Martinez appealed the decision.
ISSUE: Whether or not Martinez is liable for the said debt.
HELD: Yes. As held in the case of La Compaia Maritama vs Francisco Muoz et al, all the
members of a general partnership are liable with all their property for the results of the duly
authorized transactions made in the name and for the account of the partnership. All the members
of the general copartnership, be they or be they not managing partners of the same are liable
personally and in solidum with all their property for the results of the transaction made in the
name and for the account of the partnership.
The Supreme Court also emphasized that liability for losses relates merely to the distribution of
losses among the partners themselves in the settlement of the partnership affairs and has no
reference to partnership obligations or liabilities to third parties.
NOTE: An industrial partner is not liable for losses. A provision exempting an industrial partner
from losses is naturally valid but the same provision exempting a capitalist partner is void. A
provision making an industrial partner liable for losses is permissible. An industrial partner may
be held liable by third persons but he may recover from the capitalist partners for after all, he is
not liable for losses.
ARTICLE 1816 refers to liabilities and article 1797 refers to losses


Magdusa vs Albaran
Facts: The Court of Appeals found that appellant and appellees, together with various other persons,
had verbally formed a partnership de facto, for the sale of general merchandise in Surigao, Surigao, to
which appellant contributed P2,000 as capital, and the others contributed their labor, under the
condition that out of the net profits of the business 25% would be added to the original capital, and the
remaining 75% would be divided among the members in proportion to the length of service of each.
Sometime in 1953 and 1954, the appellees expressed their desire to withdraw from the partnership, and
appellant thereupon made a computation to determine the value of the partners' shares to that date.
The results of the computation were embodied in the document Exhibit "C", drawn in the handwriting of
appellant. Appellees thereafter made demands upon appellant for payment, but appellant having
refused, they filed the initial complaint in the court below. Appellant defended by denying any
partnership with appellees, whom he claimed to be mere employees of his.
While finding that some amounts are due the plaintiffs, the lower court withheld an award in their
favor, reasoning that a judgment ordering the defendant to pay might affect the rights of other partners
who were not made parties in this case. The reason cited by the lower court does not constitute a legal
impediment to a judgment for the plaintiffs in this case. This is not an action for a dissolution of a
partnership and winding up of its affairs or liquidation of its assets in which the interest of other
partners who are not brought into the case may be affected. The action of the plaintiffs is one for the
recovery of a sum of money with Gregorio Magdusa as the principal defendant. The partnership, with
Gregorio Magdusa as managing partner, was brought into the case as an alternative defendant only.
Issue: WoN an action to recover shares maybe instituted by partners without prejudicing the other
partners not a party to the litigation
Held: We do not find the preceding reasoning tenable. A partner's share can not be returned
without first dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil.
177), for the return is dependent on the discharge of the creditors, whose claims enjoy preference
over those of the partners; and it is self-evident that all members of the partnership are interested
in his assets and business, and are entitled to be heard in the matter of the firm's liquidation and
the distribution of its property. The liquidation Exhibit "C" is not signed by the other members of
the partnership besides appellees and appellant; it does not appear that they have approved,
authorized, or ratified the same, and, therefore, it is not binding upon them. At the very least,
they are entitled to be heard upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is first
had, the capital shares of the appellees, as retiring partners, can not be repaid, for the
firm's outside creditors have preference over the assets of the enterprise (Civ. Code, Art.
1839), and the firm's property can not be diminished to their prejudice.
Compania Maritima vs Munoz Supra
there anything found in any one of these commentaries which in any way indicates that an industrial
partner is not liable to third persons for the debts of the partnership.


Island Sales vs United Pioneers
Facts:United Pioneers General Construction Company is a general partnership formed by
Benjamin Daco, Daniel Guizona, Noel Sim, Augusto Palisoc and Romulo Lumauig. In 1961,
United Pioneers purchased by installment a motor vehicle from Island Sales, Inc. United
Pioneers defaulted in its payment hence it was sued and the 5 partners were impleaded as co-
defendants.
Upon motion of Island Sales, Lumauig was removed as a defendant.
United Pioneers lost the civil case and the trial court rendered judgment ordering United Pioneers
to pay the outstanding balance plus interest and costs. It further decreed that the remaining 4 co-
defendants shall pay Island Sales in case United Pioneers property will not be enough to satisfy
its indebtedness to Island Sales.
ISSUE: What is the extent of the liability of the partners considering that one partner was
removed as a co-defendant on motion of Island Sales?
HELD: Their liability is pro-rata pursuant to Article 1816 of the Civil Code. But is should be
noted that since there were 5 partners when the purchase was made in behalf of the partnership,
the liability of each partner should be 1/5
th
(of the companys obligation) each. The fact that the
complaint against Lumauig was dismissed, upon motion of the Island Sales, does not unmake
Lumauig as a general partner in the company. In so moving to dismiss the complaint, Island
Sales merely condoned Lumauigs individual liability to them.


MUASQUE v. CA G.R. No. L-39780; November 11, 1985
FACTS: Elmo Muasque 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 remodeling 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.
Tropical agreed to give petitioner the amount of P7,000.00 soon after the construction began and thereafter the
amount of P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00.
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 P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through later manipulations, respondent Pons succeeded in changing the payee's
name 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.
Due to 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.

ISSUE: WoN the partners are liablie jointly or solidarily

HELD: 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 fm the account cd 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.


Goquiolay and Tan Sin An & Antonio C. Goquiolay
v. Sycip, et al.
July 26, 1960 (original decision)
JBL Reyes
alycat

SUMMARY: Tan Sin An and Goquiolay entered into a partnership. The partnership was fixed to exist for ten
years, and also provided that the partnership would continue even in the event of the death of one of the
partners, through representation by the deceased partners heirs. The partnership, and Goquiolay in his personal
capacity, purchased three and 46 lots, respectively. In doing so, they assumed the mortgage obligations on such
lots. Tan Sin died, and his widow Kong Chai Pin was designated as administratrix. Demands were made on the
partnership and Goquiolay to pay the mortgage. Kong Chai Pin, supposedly without the consent of Goquiolay,
sold all 49 parcels of land to Sycip and Lee to settle the debts. When Goquiolay learned of the sale, he filed a
petition claiming that the sale is invalid insofar as his interest over the parcels of land was concerned. The
Supreme Court upheld the validity of the sale.

DOCTRINE: Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in
the partnership agreement that every general partner has power to bind the partnership, especially those
partners acting with ostensible authority.

FACTS:
Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership for the purpose of
dealing in real estate.
The partnership had a capital of P30,000: P18,000 contributed by Goquiolay (60%); P12,000 by Tan Sin An
(40%).
By virtue of the Articles of partnership and an special power of attorney, Tan Sin An was designated as
sole managing partner, and Goquiolay as co-partner.
The agreement stipulated that the partnership was fixed at 10 years, and that the partnership would not
be dissolved in the event of death of any of the partners at any time before the expiration of the 10 years.
In such a case, the partnership would be continued, and the deceased partner would be represented by
his heirs or assigns.
The same day the partnership was created, it purchased three parcels of land in Davao, subject matter of
this litigation, assuming the payment of a mortgage obligation payable to La Urbana.
Another 46 parcels of land were purchased by Tan Sin An in his individual capacity, assuming the payment
of a mortgage obligation payable to Yutivo and Co.
The two separate obligations were consolidated in an instrument executed by the partnership, whereby
the entire 49 lots were mortgaged in favor of the Banco Hipotecario de Filipinas (BHF), as successor to La
Urbana.
Tan Sin An died, leaving as surviving heirs his widow Kong Chai Pin and their four minor children. Kong
Chai Pin was appointed administratrix of the intestate estate of her deceased husband.
In the meantime, repeated demands were made by BHF on the partnership and Tin Sin An. Defendant
Sing Yee and Cuan Co (SY&C)., upon request of defendant Yutivo Sons Hardware Co. (YSH), paid the
remaining balance on the mortgage debt, and the mortgage was cancelled.
SY&C and YSH filed their clams in the intestate proceedings of Tan Sin An.
Kong Chai Pin filed a petition for authority to sell all the 49 parcels of land to Washington Sycip and Betty
Lee, for the purpose of settling the debts of Tan Sin An and the partnership. The court allowed. And so,
Kong Chai Pin executed a deed of sale over the 49 parcels of land to Sycip and Lee, in consideration of
P37,000 and the vendees assuming payments of the claims filed by SY&C and YSH. Later, Sycip and Lee
executed a deed of transfer over the properties in favor of Insular Decelopment Co.


When Goquiolay learned of the sale to Sycip and Lee, he filed a petition in the intestate proceedings
seeking to set aside the order of the court approving the sale insofar as his interest over the parcels of
land was concerned.
The court annulled the sale with respect to the 60% interest of Goquiolay over the properties.
On appeal, the Supreme Court set aside the orders of the court and remanded the case for new trial.
The second amended complaint prayed for the annulment of the sale in favor of Sycip and Lee, and their
subsequent conveyance in favor of Insular, insofar as the three lots owned by the partnership are
concerned.
The lower court dismissed the complaint. Hence, this direct appeal.

ISSUES + RATIO:
1. Did Kong Chai Pin succeed her husband in the sole management of the partnership, upon her husbands
death?
Tan Sin An had exclusive power over the management of the business. Such power being premised on
trust and confidence, was a personal right that terminated upon Tans demise. The provision referring to the
continuation of the partnership even after the death of one of the partners could not have referred to the
managerial right given to Tan Sin An, but to the succession in the proprietary interest of each partner.
On the other hand, in consonance with the articles of partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or refusing
to be bound under the said provision, became individual partners with Goquiolay upon Tans demise. The validity
of like clauses is sanctioned under Art. 222 of the Code of Commerce.
Goquiolay argues that since the new members liability in the partnership was limited to the value of the
share or estate left by the deceased, they became no more than limited partners, and as such, were disqualified
from the management of the business under Art. 148 of the Code of Commerce. Although ordinarily, this effect
follows from the the continuance of the heirs in the partnership, it was not so with Kong Chai Pin.
Kong Chai Pin manifested her intent to be bound by the partnership agreement, not only as a limited, but
as a general partner. Thus, she managed and retained possession of the partnership properties for seven years,
and was admittedly deriving income therefrom up to and until the properties were sold to Sycip and Lee. In fact,
by executing the deed of sale over the properties in the name of the partnership, she was acting as no less than as
a managing partner. Having preferred to act as such, she could be held liable for the partnership debts and
liabilities as a general partner, beyond what she may have derived only from the estate of her deceased husband.

2. MAIN ISSUE: Was the consent of Goquiolay necessary to perfect the sale of the partnership properties to
Sycip and Lee? NO.
Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in the
partnership agreement that every general partner has power to bind the partnership, especially those partners
acting with ostensible authority.
The obligation created in Art. 129 of the Code of Commerce1 is one imposed by law on the partners
among themselves that does not necessarily affect the validity of the acts of a partner while acting within the
scope of the ordinary course of business, as regards third persons without notice. Such third persons may rightfully
assume that the contracting business partner was duly authorized to contract for and in behalf of the firm and
that, furthermore, he would not ordinarily act to the prejudice of his co-partners. The regular course of business
procedure does not require that each time a third person contracts with one of the managing partners, he should
inquire as to the latter's authority to do so, or that he should first ascertain whether or not the other partners had
given their consent thereto. In fact, Art. 130 of the same Code of Commerce provides that even if a new obligation
was contracted against the express will of one of the managing partners, "it shall not be annulled for such reason,
and it shall produce its effects without prejudice to the responsibility of the member or members who contracted
it, for the damages they may have caused to the common fund."

1 If the management of the general partnership has not been limited by special agreement to any of the members, all shall have the power to
take part in the direction and management of the common business, and the members present shall come to an agreement for all contracts or
obligations which may concern the association.


Although the partnership here is a commercial partnership and, therefore, is to be governed by the Code
of Commerce, the provisions of the Old Civil Code may give us some light on the right of one partner to bind the
partnership. The relevant provision is Art. 1695 thereof. The records fail to disclose that Goquiolay made any
opposition to the sale of the partnership realty to Sycip and Lee; on the contrary, it appears that he only
interposed his objections after the deed of conveyance was executed and approved by the court, and,
consequently, his opposition came too late to be effective.

3. Were the amounts paid for the account of the partnership as found be the trial court correct?
This need not be discussed here, as Sycip and Lee assumed, as part of the purchase price, the full claims of
the two creditors.

4. Is the sale of the entire firm realty valid? YES.
Goquiolay claims that such sale threw the partnership into dissolution, which requires the consent of all
partners, thereby making the sale invalid. This is untenable. The partnership was left without the real property it
originally had, but this will not work the partnerships dissolution, since the firm was not organized to exploit these
precise lots.

5. Was the sale of the partnership properties a fraudulent device to ease Goquiolay out of the partnership?
NO
Goquiolay presented no evidence of the marker value of the lots as of the time of their sale to Sycip and
Lee.

RULING: Affirmed. The sale to Sycip and Lee is valid.


MACDONALD v. THE NATIONAL CITY BANK OF NEW YORK
FACTS:
1) STASIKINOCEY is a partnership doing business in San Juan, Rizal.
2) This partnership was denied registration in the SEC.
3) The CARDINAL RATTAN, sometimes called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of which
Defendants Gorcey and da Costa are considered general partners, we are satisfied that, as alleged in various
instruments appearing of record, said Cardinal Rattan is merely the business name or style used by the partnership
Stasikinocey.
4) Defendant Stasikinocey had an overdraft account with The National City Bank of New York, a foreign banking
association duly licensed to do business in the Philippines.
5) The overdraft showed a balance of P6,134.92 against the Defendant Stasikinocey or the Cardinal Rattan.
6) Due to the failure of the partnership to make the required payment, was converted into an ordinary loan for which
the corresponding promissory joint note non-negotiable was executed on June 3, 1949, by Louis F. da Costa for and
in the name of the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D).
7) This promissory note was secured by a chattel mortgage executed by Louis F. da Costa, Jr., General Partner for and in
the name of Stasikinocey, alleged to be a duly registered Philippine partnership, doing business under the name and
style of Cardinal Rattan.
8) The mortgage deed was fully registered by the mortgagee in the Office of the Register of Deeds for the province of
Rizal.
9) While the said loan was still unpaid and the chattel mortgage subsisting, Defendant partnership, through
Defendants Gorcey and Da Costa transferred to Defendant McDonald the Fargo truck and Plymouth sedan.
10) Paul Mcdonald, notwithstanding Plaintiffs existing mortgage lien, in turn transferred the Fargo truck and the
Plymouth sedan to Benjamin Gonzales.
11) The National City Bank of New York, Respondent herein, upon learning of the transfers made by the partnership
Stasikinocey to William Shaeffer, from the latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales, of
the vehicles previously pledged by Stasikinocey to the Respondent, filed an action against Stasikinocey and its alleged
partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its credit and to foreclose
the corresponding chattel mortgage.
12) McDonald and Gonzales were made Defendants because they claimed to have a better right over the pledged vehicle.
13) The CFI annulled the sale of the vehicles in question to Benjamin Gonzales.
14) The CA modified the CFIs decision, relieving Appellant William Shaeffer of the obligation of paying, jointly and
severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any deficiency that may remain unpaid after
applying the proceeds of the sale of the said motor vehicles, hence this appeal.
ISSUE: Since an unregistered commercial partnership unquestionably has no juridical personality, can it have a
domicile so that the registration of a chattel mortgage therein is notice to the world?.
RULING: YES. While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more
persons attempt to create a partnership failing to comply with all the legal formalities, the law considers them as partners and
the association is a partnership in so far as it is a favorable to third persons, by reason of the equitable principle of estoppel. In
Jo Chung Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held that although the partnership with the firm name of Teck
Seing and Co. Ltd., could not be regarded as a partnership de jure, yet with respect to third persons it will be considered a
partnership with all the consequent obligations for the purpose of enforcing the rights of such third persons. Da Costa and
Gorcey cannot deny that they are partners of the partnership Stasikinocey, because in all their transactions with the
Respondent they represented themselves as such. Petitioner McDonald cannot disclaim knowledge of the partnership
Stasikinocey because he dealt with said entity in purchasing two of the vehicles in question through Gorcey and Da Costa. As
was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly organized has been recognized as such in
its dealings with certain persons, it shall be considered as partnership by estoppel and the persons dealing with it are
estopped from denying its partnership existence. The sale of the vehicles in question being void as to Petitioner McDonald, the
transfer from the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot have a better right than the seller.
It results that if the law recognizes a defectively organized partnership as de facto as far as third persons are concerned, for
purposes of its de facto existence it should have such attribute of a partnership as domicile. In Hung-Man Yoc vs. Kieng-Chiong-
Seng, 6 Phil., 498, it was held that although it has no legal standing, it is a partnership de facto and the general provisions of


the Code applicable to all partnerships apply to it. The registration of the chattel mortgage in question with the Office of the
Register of Deeds of Rizal, the residence or place of business of the partnership Stasikinocey being San Juan, Rizal, was
therefore in accordance with section 4 of the Chattel Mortgage Law.
Property Rights of a Partner
A. His right in Specific Partnership Property
US vs Clarin
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and Carlos de
Guzman, might buy and sell mangoes, and, believing that he could make some money in this business, the said Larin
made an agreement with the three men by which the profits were to be divided equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained P203 from the
business, but did not comply with the terms of the contract by delivering to Larin his half of the profits; neither did
they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against Eusebio
Clarin in which he accused him of appropriating to himself not only the P172 but also the share of the profits that
belonged to Larin, amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed that the facts presented
concerned the defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to six months' arresto
mayor, to suffer the accessory penalties, and to return to Pedro Larin P172, besides P30.50 as his share of the profits,
or to subsidiary imprisonment in case of insolvency, and to pay the costs. The defendant appealed, and in deciding
his appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves, a contract is formed which is called partnership. (Art. 1665,
Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he invested his
capital in the risks or benefits of the business of the purchase and sale of mangoes, and, even though he had reserved
the capital and conveyed only the usufruct of his money, it would not devolve upon of his three partners to return his
capital to him, but upon the partnership of which he himself formed part, or if it were to be done by one of the three
specifically, it would be Tarug, who, according to the evidence, was the person who received the money directly
from Larin.
The P172 having been received by the partnership, the business commenced and profits accrued, the action that lies
with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil
one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should
be any.
No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice of
another, shall appropriate or misapply any money, goods, or any kind of personal property which they may have
received as a deposit on commission for administration or in any other character producing the obligation to deliver
or return the same," (as, for example, in commodatum, precarium, and other unilateral contracts which require the
return of the same thing received) does not include money received for a partnership; otherwise the result would be
that, if the partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly for the share
of the capitalist partner who reserved the ownership of the money brought in by him, it would have to answer to the
charge of estafa, for which it would be sufficient to argue that the partnership had received the money under
obligation to return it.


We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed without
prejudice to the institution of a civil action.
B. Interest in the Partnership
Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Art. 1812. A partner's interest in the partnership is his share of the profits and surplus. (n)
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of
itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere in
the management or administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the partnership books;
but it merely entitles the assignee to receive in accordance with his contract the profits to
which the assigning partner would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's
interest and may require an account from the date only of the last account agreed to by all
the partners. (n)
V. Dissolution and Winding up
CHAPTER 3
DISSOLUTION AND WINDING UP

Art. 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from the
winding up of the business. (n)
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed. (n)
1. Dissolution
2. Winding Up
3. Termination


Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC and Joaquin
Misa
G.R. No. 109248 July 3, 1995
Vitug, J.

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.
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.

Issue: 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;

Held: 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


B. CAUSES
Voluntary
A. Extra Judicial
Without Violation of Agreement
Art. 1830. Dissolution is caused:

(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking
specified in the agreement;
(b) By the express will of any partner, who must act in good faith, when no
definite term or particular is specified;
(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts, either
before or after the termination of any specified term or particular
undertaking;
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement between the
partners;
With Violation of Agreement
(2) In contravention of the agreement between the partners, where the circumstances do not permit a
dissolution under any other provision of this article, by the express will of any partner at any time;
ROJAS V. MAGLANA
December 10, 1990
Paras, C.J.
Raeses, Roberto Miguel

SUMMARY: Maglana and Rojas executed their articles of co-partnership called EDE. It had an indefinite term, was registered
with the SEC, and had a Timer License. Later, Agustin Pahamitang became an industrial partner and another articles of co-
partnership was executed. The term of the second co-partnership was fixed to 30 years. After some time, the three executed
a conditional sale of interest in the partnership where Magalana and Rojas shall purchase the interest, share, and
participation of Pahamotang. It was agreed that, after payment of such including the loan secured by Pahamotang, the two
shall become owners of all equipment contributed by Pahamotang. The two continued the partnership without any written
agreement or reconstitution of the articles of partnership. Subsequently, Rojas entered into a contarct with CMS Estate.
Maglana reminded him of his contribution to the capital investments and his duties to the partnership. Rojas said he would
not be able to comply. Maglana told Rojas that the latter is only entitled to 20% of the profits, which was the sharing from
1957-1959 without dispute. Rojas took funds from the partnership which was more than his share. Maglana notified Rojas


that he had dissolved the partnership. Rojas filed an action against Magallana. The CFI ruled that the partnership of the two
after Pahamotang left was one de facto and at will. The SC said that it was not, considering that the first partnership was
never dissolved. With regard to the issue of unilateral dissolution, the SC held that Maglana had the power to do so.

DOCTRINE: Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution
by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is
not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to
remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way
he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership
shall be divided "share and share alike" between the partners.

FACTS: Maglana and Rojas executed their Articles of Co-partnership called Eastcoast Development Enterpises (EDE) which
had an indefinite term of existence and was registered with the SEC and had a Timber License. One of the EDEs purposes was
to apply or secure timber and/or private forest lands and to operate, develop and promote such forests rights and concessions.
Maglana shall manage the business affairs while Rojas shall be the logging superintendent. All profits and losses shall be divided
share and share alike between them.

Later on, the two availed the services of Agustin Pahamotang as industrial partner and executed another articles of co-
partnership with the latter. The purpose of this second partnership was to hold and secure renewal of timber license and the
term of which was fixed to 30 years.

Still later on, the three executed a conditional sale of interest in the partnership wherein Maglana and Rojas shall purchase the
interest, share and participation in the partnership of Pahamotang. It was also agreed that after payment of such including
amount of loan secured by Pahamotang in favor of the partnership, the two shall become owners of all equipment contributed
by Pahamotang. After this, the two continued the partnership without any written agreement or reconstitution of their articles
of partnership.

Subsequently, Rojas entered into a management contract with CMS Estate Inc. Maglana wrote him regarding his contribution to
the capital investments as well as his duties as logging superintendent. Rojas replied that he will not be able to comply with
both. Maglana then told Rojas that the latters share will just be 20% of the net profits. Such was the sharing from 1957 to 1959
without complaint or dispute. Rojas took funds from the partnership more than his contribution. Maglana notified Rojas that he
dissolved the partnership. Rojas filed an action against Maglana for the recovery of properties and accounting of the
partnership and damages.

CFI RULING:
1. The partnership of Maglana and Rojas after Pahamotang retired is one of de facto and at will; the sharing of profits
and losses is on the basis of actual contributions;
2. there is no evidence these properties were acquired by the partnership funds thus it should not belong to it;
3. neither is entitled to damages; the letter of Maglana in effect dissolved the partnership;
4. sale of forest concession is valid and binding and should be considered as Maglanas contribution;
5. Rojas must pay or turn over to the partnership the profits he received from CMS and pay his personal account to the
partnership;
6. Maglana must be paid 85k which he shouldve received but was not paid to him and must be considered as his
contribution

ACTION AND PRAYER: N/A

ISSUE:
1. WON the partnership carried on after the second partnership was a de facto partnership and at will.
2. WON Magalana may unilaterally dissolve the partnership.

HELD:
1. No.
2. Yes.

RATIO:


1. There was no intention to dissolve the first partnership upon the constitution of the second as everything else was
the same except for the fact that they took in an industrial partner: they pursued the same purposes, the capital
contributions call for the same amounts, all subsequent renewals of Timber License were secured in favor of the first
partnership, all businesses were carried out under the registered articles. To all intents and purposes therefore, the
First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership.

On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to
purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Maglana even reminded Rojas of
his obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well as his
obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the
provisions of the duly registered Articles of Co-Partnership.

2. As there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of
withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by
expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the
cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution.
And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in
the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits
and losses of the partnership shall be divided "share and share alike" between the partners.

But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the
commissioners appointed for the purpose.

According to the Commissioners report, Rojas is not entitled to any profits as he failed to give the amount he had
undertaken to contribute thus, had become a debtor of the partnership. Maglana cannot be liable for damages as
Rojas abandoned the partnership thru his acts and also took funds in an amount more than his contribution

DISPOSITIVE: PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until
liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of
Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the decision of the trial court
in all other respects.


Judicial
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be
of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the
partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
(4) A partner wilfully 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;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under Article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued. (n)
Fue Lueng Sun Wah Panciteria not given his share
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.


Lichauco vs Lichauco

Facts: In 1901, F. Lichauco Hermanos partnership was formed. It was provided, among others, in
the partnership agreement that Faustino Lichauco will be the managing partner; and that the firm
cannot be dissolved except upon the 2/3 vote of all the partners. In 1904, the firm wasnt
performing well and was unprofitable and so its machineries were dismantled. In 1905, Eugenia
and one other partner demanded Faustino to make an accounting of the firms assets but Faustino
refused to do so. Belatedly in 1912, Eugenia et al filed a civil suit against Faustino to compel the
latter to perform ac accounting. Faustino, in his defense, argued that the firm was not dissolved
pursuant to the partnership agreement there being no 2/3 vote from all the members (Faustino et
al are only 1/5 of the firm).
ISSUE: Whether or not Eugenia et al can demand an accounting.
HELD: Yes. The firm was already dissolved in 1904 when its machineries were dismantled
this was a sign that the firm abandoned and concluded the purpose for it was formed (rice
cleaning business). Upon said dissolution, it was the duty of Faustino to liquidate the assets and
inform his partners. The provision which requires a 2/3 votes of all the partners to dissolve the
firm cannot be given effect because the same denied the right of a less number of partners to
effect the dissolution especially where the firm has already sustained huge losses. It would be
absurd and unreasonable to hold that such an association could never be dissolved and liquidated
without the consent and agreement of two-thirds of its partners, notwithstanding that it had lost
all its capital, or had become bankrupt, or that the enterprise for which it had been organized had
been concluded or utterly abandoned.
2. Involuntary Dissolution
(3) By any event which makes it unlawful for the business of the partnership to be carried
on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the partnership,
perishes before the delivery; in any case by the loss of the thing, when the partner who
contributed it having reserved the ownership thereof, has only transferred to the
partnership the use or enjoyment of the same; but the partnership shall not be dissolved by
the loss of the thing when it occurs after the partnership has acquired the ownership
thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;


DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
Facts:
- In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership for
the purpose of exploiting a fish pond with Perpetua obligating herself to contribute to the payment of the
expenses of the business, which obligation she made good, and both agreeing to divide the profits
between themselves, which they had been doing until the death of the said Perpetua in the year 1912
- The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein
plaintiff, as her heir to succeed to all her rights and interests in the fish pond in question
- Domingo Bearnez then instituted an action to recover a part of the fish pond belonging to the decedent,
including of the profits received by the defendant from the years 1913-1919
- The defendant alleges that "the formation of the supposed partnership between the plaintiff and the
defendant for the exploitation of the aforesaid fish pond was not carried into effect, on account of the
plaintiff having refused to defray the expenses of reconstruction and exploitation of said fish pond." and
further averred that the right of the plaintiff had already prescribed
- Judgment was then rendered declaring the plaintiff owner of one-half of the fish pond but without may
awarding him any damages
- From this judgment the defendant appeals
Issue/Held:
- WoN the Partnership was DISSOLVED
Ratio:
- The partnership formed was a particular partnership, it having had for its subject-matter a specified thing,
the exploitation of the aforementioned fish pond
- Although, as the trial court says in its decision, the defendant, in his letters to Perpetua or her husband,
makes reference to the fish pond, calling it "our," or "your fish pond," this reference cannot be held to
include the land on which the said fish pond was built
- It has not been proven that Bearneza participated in the ownership of the said land
o Therefore, the land on which the fish pond was constructed did not constitute part of the
subject-matter of the partnership
- This partnership was dissolved by the death of Perpetua Bearneza
o Neither can it be maintained that the partnership continued to exist after the death of Perpetua,
inasmuch as it does not appear that any stipulation to that effect has ever been made by her and
the defendant
- The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status
was that of a partnership in liquidation, and the only rights inherited by her testamentary heir, the
herein plaintiff, were those resulting from the said liquidation in favor of the deceased partner, and
nothing more
- Before this liquidation is made, which up to the present has not been effected, it is impossible to
determine what rights or interests, if any, the deceased had, the partnership bond having been dissolved


- There is no sufficient ground for holding that a community of property existed between the plaintiff and
the defendant, it not being known whether the deceased still had any interest in the partnership property
which could have been transmitted by will to the plaintiff
- Furthermore, it cannot be said that the partnership continued between the plaintiff and the defendant. It
is true that the latter's act in requiring the heirs of Perpetua to contribute to the payment of the expenses
of exploitation of the aforesaid fishing industry was an attempt to continue the partnership, but it is also
true that neither the said heirs collectively, nor the plaintiff individually, took any action in response to
that requirement, nor made any promise to that effect, and therefore no new contract of partnership
existed
- The decision is hereby REVERSED
Effects of Dissolution
1. As to Partners
Art. 1832. Except so far as may be necessary to wind up partnership affairs or to
complete transactions begun but not then finished, dissolution terminates all authority
of any partner to act for the partnership:
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where
article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner,
each partner is liable to his co-partners for his share of any liability created by any
partner acting for the partnership as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the partnership
had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner acting for
the partnership had knowledge or notice of the death or insolvency.


2. As to Third Persons (READ PAGE 245 of Hector De Leon Partnership Book)
Singson vs Isabela Sawmill
FACTS:
Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo. S withdrew from
the partnership and after dissolution, L and T 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 S and was subsequently sold to a separate company.
ISSUE:
Whether or not Isabela Sawmill ceased to be a partnership and that creditors could no
longer demand payment.
RULING:
On dissolution, the partnership is not terminated but continues until the winding up of the
business. It does not appear that the withdrawal of S from the partnership was published in the
newspapers. The appellee and the public had a right to expect that whatever credit they extended
to L and T 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 S 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.
C. Rights and Liabilities on Dissolution
1. Right to Accounting
Magdusa vs Albaran
unless a proper accounting and liquidation of the partnership affairs is first had, the capital shares of the
appellees, as retiring partners, can not be repaid, for the firm's outside creditors have preference over
the assets of the enterprise (Civ. Code, Art. 1839), and the firm's property can not be diminished to their
prejudice.
Finally, the appellant can not be held liable in his personal capacity for the payment of partners' shares
for he does not hold them except as manager of, or trustee for, the partnership. It is the latter that must
refund their shares to the retiring partners. Since not all the members of the partnership have been
impleaded, no judgment for refund can be rendered, and the action should have been dismissed.


Art. 1842. 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 of any agreement to the contrary. (n)
Bonnevie vs Hernandez (Read pg. 275 of the book)
Facts: Complaint to recover P115,312.50 with interests as their alleged share in the profits of partnership
Plaintiffs with other associates formed a secret partnership for the purpose of acquiring the plants and
other properties of Meralco.
No formal articles were drawn for it was the purpose of the members to incorporate once the deal had
been consummated.
Negotiations for the purchase was commenced, but the results were not good.
Defendant was taken in as a member of the partnership so that he could push the deal through, and to
that end he was given the necessary power of attorney.
Using partnership funds, defendant was able to buy the Meralco properties for P122,000. P40,000 was
paid as initial investment. The remaining P82,000 will be paid in two installments on July 31, 1947 and
Jan 31, 1948
A penal clause was included that in case of default the initial payment will be forfeited in favor of
Meralco.
They formed a corporation named Bicol Electric Company.
Before the incorporation Judge Reyes (not a party) and the plaintiffs withdrew from the partnership.
The withdrawing partners were given their original investments right after.
Following the dissolution of the partnership, the members who preferred to remain in the business
went ahead with the formation of the corporation, taking in new associates as stockholders.
Hernandez, in fulfillment of his trust, made a formal assignment of the Meralco properties to the
treasurer of the corporation, giving them a book value of P365,000, in return for which the corporation
issued, to the various subscribers to its capital stock, shares of stock of the total face value of P225,000
and assumed the obligation of paying what was still due the Meralco on the purchase price.
On its first year, the company was losing money but the business became profitable eventually.
Two years from their withdrawal from the partnership, plaintiffs brought the present suit against
Jaime Hernandez, claiming a share in the profit the latter is supposed to have made from the
assignment of the Meralco properties to the corporation, estimated by plaintiffs to be P225,000 and
their share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of the assignment in question and alleges
that in any event plaintiffs, after their withdrawal from the partnership, ceased to have any further
interest in the subsequent transactions of the remaining members.
Issues:
1. WON the partnership had realized profit out of the Meralco properties made by the defendant to the
corporation. No.
2. If there was indeed a profit, WON the plaintiffs are entitled for their share out of such profit. No.
Held:


1.
It is true that the value set for those properties in the deed of assignment was P365,000 when the
acquisition price was only P122,000.
The difference between the two sums was really made out of the transaction, for the assignment was
not made for cash but in payment for subscriptions to shares of stock in the assignee, and while those
shares had a total face value of P225,000 this is not necessarily their real worth.
2.
Assuming that the assignment actually brought profit to the partnership, it plaintiffs were still not
entitled to receive from the profit.
Plaintiffs maintain that the latter should be held liable for damages caused to them, consisting of the
loss of their share of the profits, due to defendant's failure to perform his duty as a liquidator of the
dissolved partnership
On the theory that as managing partner, it was defendant's duty to liquidate its affairs upon its
dissolutions.
Plaintiffs never asked for liquidation during the dissolution.
No liquidation was called for because when plaintiffs withdrew from the partnership the understanding
was that after they had been reimbursed their investment, they were no longer to have any further
interest in the partnership or its assets and liabilities.
As a general rule, when a partner retires from the firm, he is entitled to the payment of what may be
due him after liquidation. But certainly no liquidation is necessary where there is already a settlement
or an agreement as to what the retiring partner shall receive.
A settlement was agreed upon on the very day the partnership was dissolved.
When plaintiffs and Judge Jaime Reyes withdrew from the partnership, the only condition was that
they were to be repaid their contributions or investments within three days from said date.
Condition was fulfilled when on the following day they were reimbursed the respective amounts due
them pursuant to the agreement.
SC: acceptance by the withdrawing partners of their investment was understood and intended by all
the parties as a final settlement of their rights or claim the withdrawing partners might have in the
dissolved partnership. Such being the case they are now precluded from claiming any share in the
alleged profits, should there be any, at the time of the dissolution.


Right on Wrongful Dissolution
Art. 1837. When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all persons claiming
through them in respect of their interests in the partnership, unless otherwise agreed, may
have the partnership property applied to discharge its liabilities, and the surplus applied to
pay in cash the net amount owing to the respective partners. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership agreement and if the expelled
partner is discharged from all partnership liabilities, either by payment or agreement
under the second paragraph of Article 1835, he shall receive in cash only the net amount
due him from the partnership.
When dissolution is caused in contravention of the partnership agreement the rights of the
partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution
wrongfully, to damages breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others,
may do so, during the agreed term for the partnership and for that purpose may
possess the partnership property, provided they secure the payment by bond
approved by the court, or pay any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1 (b) of this article, and in
like manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second
paragraph, No. 2, all the rights of a partner under the first paragraph,
subject to liability for damages in the second paragraph, No. 1 (b), of this
article.
(b) If the business is continued under the second paragraph, No. 2, of this
article, the right as against his co-partners and all claiming through them in
respect of their interests in the partnership, to have the value of his interest
in the partnership, less any damage caused to his co-partners by the
dissolution, ascertained and paid to him in cash, or the payment secured by a
bond approved by the court, and to be released from all existing liabilities of


the partnership; but in ascertaining the value of the partner's interest the
value of the good-will of the business shall not be considered. (n)

Right in case of fraud

Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property
after satisfying the partnership liabilities to third persons for any sum of money
paid by him for the purchase of an interest in the partnership and for any capital or
advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of
the creditors of the partnership for any payments made by him in respect of the
partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership. (n)

Rights of Retiring Partner

Art. 1841. When any partner retires or dies, and the business is continued under any of the conditions
set forth in the preceding article, or in Article 1837, second paragraph, No. 2, without any settlement
of accounts as between him or his estate and the person or partnership continuing the business,
unless otherwise agreed, he or his legal representative as against such person or partnership may
have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary
creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at
his option or at the option of his legal representative, in lieu of interest, the profits attributable to the
use of his right in the property of the dissolved partnership; provided that the creditors of the
dissolved partnership as against the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under this article, as provided Article 1840,
third paragraph. (n)

Right to continue business/corresponding liability

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of
the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner assigns)
his rights in partnership property to two or more of the partners, or to one or more


of the partners and one or more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner, who
continues the business without liquidation of partnership affairs, either alone or
with others;
(3) When any partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment
of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who
continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining partners
continue the business under the provisions of article 1837, second paragraph, No. 2,
either alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business
either alone or with others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set
forth in this article the creditors of the dissolved partnership, as against the separate
creditors of the retiring or deceased partner or the representative of the deceased partner,
have a prior right to any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business, on account of the
retired or deceased partner's interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set aside any
assignment on the ground of fraud.
The use by the person or partnership continuing the business of the partnership name, or
the name of a deceased partner as part thereof, shall not of itself make the individual
property of the deceased partner liable for any debts contracted by such person or
partnership. (n)


E. Winding-up
1. Right to Wind-up
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership
or the legal representative of the last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon
cause shown, may obtain winding up by the court. (n)
2. Distribution of Assets
Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the
partnership property. Without prejudice to this right, the private creditors of each partner may ask
the attachment and public sale of the share of the latter in the partnership assets. (n)
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:

(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the
liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article
to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary
to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court
shall have the right to enforce the contributions specified in the preceding number.


(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has paid in
excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the
rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims
against his separate property shall rank in the following order:

(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)


YU vs NLRC
Facts:
Yu ex-Assistant General Manager of the marble quarrying and export business operated
by a registered partnership called Jade Mountain Products Co. Ltd.
partnership was originally organized with Bendals as general partners and Chin Shian
Jeng, Chen Ho-Fu and Yu Chang as limited partners; partnership business consisted of
exploiting a marble deposit in Bulacan
Yu, as Assistant General Manager, had a monthly salary of 4000. Yu, however, actually
received only half of his stipulated 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. Yu actually managed the operations and finances of the
business; he had overall supervision of the workers at the marble quarry in Bulacan and
took charge of the preparation of papers relating to the exportation of the firms
products.
general partners Bendals sold and transferred their interests in the partnership to Co and
Emmanuel Zapanta
partnership was constituted solely by Co and Zapanta; it continued to use the old firm
name of Jade Mountain
Yu dismissed by the new partners

Issues: 1. WON the partnership which had hired Yu as Asst. Gen. Manager had been
extinguished and replaced by a new partnership composed of Co and Zapanta; 2. if indeed
a new partnership had come into existence, WON Yu could nonetheless assert his rights
under his employment contract with the old partnership as against the new partnership

Held: 1. Yes. Changes in the membership of the partnership resulted in the dissolution of
the old partnership which had hired Yu and the emergence of a new partnership composed
of Co and Zapanta.
Legal bases:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
(b) by the express will of any partner, who must act in good faith, when no definite
term or particular undertaking is specified;
(2) in contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will of
any partner at any time;
No winding up of affairs in this case as contemplated in Art. 1829: on dissolution the
partnership is not terminated, but continues until the winding up of partnership affairs is
completed
the new partnership simply took over the business enterprise owned by the old
partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its
debts, liquidating and distributing its net assets, and then re-assembling the said assets
or most of them and opening a new business enterprise
2. Yes. the new partnership is liable for the debts of the old partnership
Legal basis: Art. 1840 (see codal)
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 partnership
But Yu is not entitled to reinstatement. Reason: new partnership was entitled to appoint
and hire a new gen. or asst. gen. manager to run the affairs of the business enterprise


take over. An asst. gen. 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 non-retention of Yu did not constitute unlawful termination. The new partnership
had its own new General Manager, Co, the principal new owner himself. Yus old position
thus became superfluous or redundant.
Yu is entitled to separation pay at the rate of one months pay for each year of service
that he had rendered to the old partnership, a fraction of at least 6 months being
considered as a whole year.

Kitem Duque Kadatuan Jr. 1

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