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United States vs Eusebio Clarin

Sometime before 1910, Pedro Larin formed a partnership with Pedro Tarug, Eusebio Clarin and
Carlos de Guzman. Larin, being the capitalist, agreed to contribute P172.00 to the partnership and
the three others shall use said fund to trade mangoes. The three industrial partners bought
mangoes and sell them and they earned P203.00 but they failed to give Larins share of the
profits. 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. Clarin was eventually
convicted.

ISSUE: Whether or not the conviction is correct.

HELD: No. The P172.00 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.
The then Penal Code provides that those who are guilty of estafa are those 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
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.

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 totalingP1870.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 Hillas 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 SC dissented from the view of the CA that for one of the partners tobind
the partnership the consent of the other is necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the two partners, to ascertain whether or not this
partner with whom the transaction is made has the consent of the other partner. The public need
not make inquires as to the agreements had between the partners. Its knowledge is enough that it
is contracting with the partnership which is represented by one of the managing partners. The
second paragraph of the articles of partnership of Hill & Ceron reads inpart: Second: That the
purpose or object for which this co-partnership is organized is to engage in the business of
brokerage in general, such as stock and bond brokers, real brokers, investment security brokers,
shipping brokers, and other activities pertaining to the business of brokers in general. 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 The stipulation
in the articles of partnership that any of the two managing partners may contract and sign in the
name of the partnership with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before contracting for the
partnership. This obligation of course is not imposed upon a third person who contracts with the
partnership. Neither is it necessary for the third person to ascertain if the managing partner with
whom he contracts has previously obtained the consent of the other. A third person may and has a
right to presume that the partner with whom he contracts has, in the ordinary and natural course of
business, the consent of his co-partner; for otherwise he would not enter into the contract. The
third person would naturally not presume that the partner with whom he enters into the transaction
is violating the articles of partnership but, on the contrary, is4By Joy Co

Acting in accordance therewith. And this finds support in the legal presumption that the ordinary
course of business has been followed. If we are to interpret the articles of partnership in question
by holding that it is the obligation of the third person to inquire whether the managing co-partner of
the one with whom he contracts has given his consent to said contract, which is practically casting
upon him the obligation to get such consent, this interpretation would, in similar cases, operate to
hinder effectively the transactions, a thing not desirable and contrary to the nature of business
which requires promptness and dispatch one the basis of good faith and honesty which are always
presumed.

ANTONIO PARDO v. THE HERCULES LUMBER and IGNACIO FERRER


1924 / Street / Rights and obligations of the partners among themselves > Books, information,
accounts
Pardo is a stockholder of Hercules Lumber and Ferrer is the acting secretary of the said
company. The Company refused to permit the Pardo to inspect the records and business
transactions of the company.
There was no question regarding the right to inspect as it is guaranteed in the Corp. Law.
The main consideration in this case has reference to the time, or times, within which the
right of inspection may be exercised.
The company, through various resolutions, had designated certain times to which the
stockholders can inspect the books. Allegedly, Pardo didnt get permission to inspect thus
was denied such.
Hence this petition.
The main ground upon which the defense of the company appears to be rested has
reference to the time, or times, within which the right of inspection may be exercised.
Article 10 of the By-laws of the company
"Every shareholder may examine the books of the company and other documents
pertaining to the same upon the days which the board of directors shall annually fix."
Board Resolution passed at the directors' meeting held on 16 February 1924

The board also resolved to call the usual general (meeting of shareholders) for March 30 of the
present year, with notice to the shareholders that the books of the company are at their disposition
from the 15th to 25th of the same month for examination, in appropriate hours.
ISSUES:
1) WON the board resolution constitutes a lawful restriction on the right conferred by statute? NO
2) WON Pardo lost his right to inspection and examination for the year, since he has not availed
himself of the permission [to inspect the companys books and transactions within the 10 days
defined in the board resolution? NO
3) WON the shareholders motive in exercising this right is material? NO

Held:
The basis of right of inspection is Sec. 51 of Act No. 1459 [Corporation Law]. In Philpotts v.
Philippine Manufacturing Co., and Berry, it was held that the right of examination there conceded
to the stockholder may be exercised either by a stockholder in person or by any duly authorized
agent or representative.
It may be admitted that the officials in charge of a corporation may deny inspection when
sought at unusual hours or under other improper conditions; but neither the executive officers nor
the board of directors have the power to deprive a stockholder of the right altogether.
A by-law unduly restricting the right of inspection is undoubtedly invalid. Under a statute
similar to our own it has been held that the statutory right of inspection is not affected by the
adoption by the board of directors of a resolution providing for the closing of transfer books thirty
days before an election.
Our statute declares that the right of inspection can be exercised "at reasonable hours."
This means at reasonable hours on business days throughout the year, and not merely during
some arbitrary period of a few days chosen by the directors.

Additional issue: The motives that prompted Pardo to make inspection


It is alleged that the information which Pardo seeks is desired for ulterior purposes in
connection with a competitive firm with which Pardo is alleged to be connected. It is also insisted
that one of Pardos purposes is to obtain evidence preparatory to the institution of an action, which
he means to bring against the company re: a contract of employment which once existed between
the corporation and himself. These suggestions are entirely apart from the issue the motive of
the shareholder exercising the right is immaterial.

Writ of mandamus will issue


Section 51. All business corporations shall keep and carefully preserve a record of all
business transactions, and a minute of all meetings of directors, members, or stockholders, in
which shall be set forth in detail the time and place of holding the meeting, how authorized, the
notice given, whether the meeting was regular or special, if special its object, those present and
absent, and every act done or ordered done at the meeting. On the demand of any director,
member, or stockholder, the time when any director, member, or stockholder entered or left the
meeting must be noted on the minutes, and on a similar demand, the yeas and nays must be
taken on any motion or proposition and a record thereof carefully made. The protest of any
director, member, or stockholder on any action or proposed action must be recorded in full on his
demand. The record of all business transactions of the corporation and the minutes of any meeting
shall be open to the inspection of any director, member, or stockholder of the corporation at
reasonable hours.
No. Such restriction made by the company is invalid.
Inspection at unusual hours or under improper conditions may be denied, otherwise it
cannot be denied.
Neither the executive officers nor board of directors have the power to deny a stockholder
of the right all together.
It will be noted that such right can be exercised at reasonable hours, meaning reasonable
hours on business days throughout the year; not merely during some arbitrary period
chosen by the officers.
Also, generally speaking, the motive of the shareholder exercising the right is immaterial.
Therefore, Pardo is granted the relief to inspect.
Right to inspect- open to any director, trustee or stockholder or member of the corporation
at reasonable hours on business days. He may demand in writing a copy of excerpts at his
expense.

LIM TANHU v. HON. JOSE R. RAMOLETE

FACTS:
Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company with Antonio Lim Tanhu and Alfonso Ng
Sua".
Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual and active management of the partnership
and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and buildings in the
cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla.

She alleged in her complaint that after the death of Tee Hoon Lim Po Chuan, the defendants,
without liquidation, continued the business of Glory Commercial Company, by purportedly
organizing a corporation known as the Glory Commercial Company, Incorporated and sometime in
the month of November, 1967, defendants, particularly Antonio Lim Tanhu, by means of fraud
deceit, and misrepresentations did then and there, induce and convince her to execute a quitclaim
of all her rights and interests, in the assets of the partnership of Glory Commercial Company.

Thereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the
aforesaid properties and assets in favor, among others of plaintiff and until the middle of the year
1970 when the plaintiff formally demanded from the defendants the accounting of real and
personal properties of the Glory Commercial Company, defendants refused and stated that they
would not give the share of the plaintiff.

ISSUE:
Whether Tan has a right over the liquidated properties of the partnership

HELD:

No, Tan has no right over the liquidated properties of the partnership

The Supreme Court held that there is no alternative but to hold that plaintiff Tan Put's allegation
that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that,
on the contrary, the evidence on record convincingly shows that her relation with said deceased
was that of a common-law wife.

Moreover, the Supreme Court said that the lower courts committed an error by awarding 1/3 of the
partnership properties to Tan because there has been no liquidation proceedings yet. And if there
has not yet been any liquidation of the partnership, the only right plaintiff could have would be to
what might result after much liquidation to belong to the deceased partner (her alleged husband)
and before this is finished, it is impossible to determine, what rights or interest, if any the deceased
had.

In other words, no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first terminated.
DAN FUE LEUNG vs.HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU,
respondents.

FACTS:
The petitioner asks for the reversal of the decision of the Appellate Court in which affirmed the
decision of the lower court declaring private respondent Leung Yiu a partner of petitioner Dan Fue
Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the lower court 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 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.

Lower court ruled in favor of the private respondent. Petitioner appealed the trial court's amended
decision. However, the questioned decision was further modified and affirmed by the appellate
court. Both the trial court and the appellate court declared that the private petitioner is a partner
and is entitled to a share of the annual profits of the restaurant. Hence, an appeal to the SC. The
petitioner argues that private respondent extended 'financial assistance' to herein petitioner at the
time of the establishment of the Sun Wah Panciteria, in return of which private respondent
allegedly will receive a share in the profits of the restaurant. It was, therefore, error for the
Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by
a partner to a partnership.

ISSUE:
WON the private respondent is a partner of the petitioner in the establishment of Sun Wah
Panciteria.

HELD:
In essence, the private respondent alleged that when Sun Wah Panciteria was established, he
gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two
percent (22%) of the annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the petitioner partners in the
establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the
contract of partnership two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among themselves".

Therefore, the lower courts did not err in construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance therein.

SC affirmed appellate courts decision and ordered the dissolution of the partnership.

EMILIO EMNACE VS COURT OF APPEALS

Emilio Emnace, Jacinto Divinagracia and Vicente Tabanao formed a partnership engaged in the
fishing industry. In 1986, Jacinto decided to leave the partnership hence they agreed to dissolve
the partnership. At that time, the partnership has an estimated asset amounting to
P30,000,000.00.
HOWEVER, until the death of Vicente Tabanao in 1994, Emnace never rendered an accounting
either to Vicente or his heirs. Emnace reneged on his promise to turn over Tabanaos share which
is 1/3 of the P30M. The heirs of Tabanao then sued Emnace. Emnace argued, among others, that
the heirs are barred by prescription hence they can no longer demand an accounting. He contends
that the partnership was dissolved in 1986 and that was the time when Tabanaos (and his heirs)
right to inquire into the business affairs accrued; that said right has expired in 1990 or 4 years
after. So beyond 1990, they can no longer inquire.

ISSUE: Whether or not Emnace is correct.

HELD: No. Prescription has not run in this case, it has never begun. The three final stages of
partnership are: a) dissolution, b) winding up, and c) termination. In this case, Emnace and his
partners dissolved their partnership but such did not perfect the dissolution because no accounting
took place. The partnership, although dissolved, continues to exist and its legal personality is
retained, at which time it completes the winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners. For as long as the partnership exists, any
of the partners (or legal representative in this case the heirs of Tabanao) may demand an
accounting of the partnerships business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done.

When a final accounting is made, it is only then that prescription begins to run. In the case at bar,
no final accounting has been made, and that is precisely what the heirs are seeking in their action
before the trial court, since Emnace has failed or refused to render an accounting of the
partnerships business and assets. Hence, the said action is not barred by prescription.

NOTE: Under Article 1809 of the Civil Code, right to demand an accounting may also be invoked
under certain agreements these are just one of the exceptions. General Rule: Accounting only
when there is dissolution. Exception: Article 1807 and 1809.