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CASE NO.

YULO vs. YANG CHIAO SENG


106 Phil 111, G.R. No. L-12541, August 28, 1959, Labrador,
J.:p

FACTS: Yang Chiao Seng proposed to form a partnership with


Rosario Yulo to run and operate a theatre on the premises
occupied by Cine Oro, Plaza Sta. Cruz, Manila, the principal
conditions of the offer being (1) Yang guarantees Yulo a monthly
participation of P3,000 (2) partnership shall be for a period of 2
years and 6 months with the condition that if the land
is expropriated, rendered impracticable for business, owner
constructs a permanent building, then Yulo’s right to lease and
partnership even if period agreed upon has not yet expired; (3)
Yulo is authorized to personally conduct business in the lobby of
the building; and (4) after Dec 31, 1947, all improvements placed
by partnership shall belong to Yulo but if partnership is terminated
before lapse of 1 and ½ years, Yang shall have right to
remove improvements.

Parties established, “Yang and Co. Ltd.”, to exist from July 1,1945
– Dec 31, 1947. In June 1946, they executed a supplementary
agreement extending the partnership for 3 years beginning Jan.1,
1948 to Dec. 31, 1950. The land on which the theater
was constructed was leased by Yulo from owners, Emilia Carrion
and Maria Carrion Santa Marina for an indefinite period but that
after 1 year, such lease may be cancelled by either party upon 90-
day notice. In Apr 1949, the owners notified Yulo of their desire
to cancel the lease contract come July. Yulo and husband brought
a civil action to declare the lease for an indefinite period. Owners
brought their own civil action for ejectment upon Yulo and Yang.

CFI: Two cases were heard jointly; Complaint of Yulo and Yang
dismissed declaring contract of lease terminated.

CA: Affirmed the judgment. In 1950, Yulo demanded from Yang


her share in the profits of the business. Yang answered saying he
had to suspend payment because of pending ejectment suit. Yulo
filed present action in 1954, alleging the existence of a partnership
between them and that Yang has refused to pay her shares.

Defendant’s Position: The real agreement between plaintiff and


defendant was one of lease and not of partnership; that
the partnership was adopted as a subterfuge to get around the
prohibition contained in the contract of lease between the owners
and the plaintiff against the sublease of the property.

Trial Court: Dismissal. It is not true that a partnership was created


between them because defendant has not actually contributed the
sum mentioned in the Articles of Partnership or any other amount.
The agreement is a lease because plaintiff didn’t share either in
the profits or in the losses of the business as required by Art 1769
(CC) and because plaintiff was granted a “guaranteed
participation” in the profits belies the supposed existence of
a partnership.

ISSUE: Was the agreement a contract a lease or a partnership?

HELD: Dismissed. 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) the intention on the part of the
partners to divide the profits among themselves (Article 1761,
CC). Plaintiff did not furnish the supposed P20,000 capital nor did
she furnish any help or intervention in the management of the
theatre. Neither has she demanded from defendant any
accounting of the expenses and earnings of the business. She
was absolutely silent with respect to any of the acts that a partner
should have done; all she did was to receive her share of P3,000
a month which cannot be interpreted in any manner than a
payment for the use of premises which she had leased from the
owners.

Partnership Digest – Dissolution Page 1 of 17


CASE NO. 2

J.M. TUASON & CO. vs. BOLANOS


95 Phil 106, G.R. No. L-4935, May 28, 1954, Reyes, J.:p

FACTS: Plaintiff-appellee JM Tuason & Co., Inc. is a partnership.


Thru its managing partner, Gregorio Araneta, Inc., it originally
brought this suit with QC CFI to recover possession of registered
land situated in Tatalon, QC. Defendant-appellant Quirino
BOLAÑOS, on the other hand, is an adverse owner of the same
land by alleged acquisitive prescription thru “open, continuous,
exclusive, public and notorious possession of land in dispute
under claim of ownership, adverse to the entire world time
immemorial”. The complaint was amended three times with
respect to the description of the land sought to be recovered.
Originally, it was 13 hectares reduced to 6 hectares and then back
to 13. Meanwhile, BOLAÑOS had prayed for the dismissal of the
case against him by alleging his prior, adverse possession of the
disputed land and alleging that TUASON’s registration of the land
in dispute was obtained thru fraud or error and without knowledge
of his and/or predecessors interest therein. CFI rendered
judgment in favor of TUASON, declaring BOLAÑOS to be without
any right to the land in question and ordering him to restore
possession thereof to TUASON and to pay the latter a monthly
rent and also to pay the costs. BOLAÑOS appealed directly to the
SC because of the value of the property involved.

ISSUES: Whether or not Gregorio Araneta, Inc. (a corporation) be


a “partner” of another corporation?

HELD: BOLAÑOS’ petition is without merit. The CFI decision is


AFFIRMED.

It is true that the complaint also states that the TUASON is being
represented by its “Managing Partner” Gregorio Araneta, Inc.,
another corporation. There is nothing against one corporation
being represented by another person, natural or juridical, in a suit
in court. The contention that Gregorio Araneta, Inc. cannot act as
managing partner for TUASON 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. (citing
Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043).
There is nothing in the record to indicate that the venture in which
TUASON is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of
either of them

Partnership Digest – Dissolution Page 2 of 17


CASE NO 3.

VILLAREAL V. RAMIREZ

Facts:

In 1984, Villareal, Carmelito Jose and Jesus Jose formed a


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

Issue: W/N petitioners are liable to respondents for the latter’s


share in the partnership?

Ruling:

No. Respondents have no right to demand from petitioner the


return of their equity share. As found by the court petitioners did
not personally hold its equity or assets. “The partnership has a
juridical personality separate and distinct from that of each of the
partners.” Since the capital was contributed to the partnership, not
to petitioners, it is the partnership that must refund the equity of
the retiring partners. However, before the partners can be paid
their shares, the creditors of the partnership must first be
compensated. Therefore, the exact amount of refund equivalent
to respondents’ one-third share in the partnership cannot be
determined until all the partnership assets will have been
liquidated and all partnership creditors have been paid. CA’s
computation of the amount to be refunded to respondents as their
share was thus erroneous.

Partnership Digest – Dissolution Page 3 of 17


CASE NO. 4

ABONG vs. THE WORKMEN'S COMPENSATION


COMMISSION et al

FACTS:

 Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao,


Juanita Monteroyo and Wilfredo Monteroyo and
Demetrio Escoreal, all decent were members of a fishing
outfit, the "IWAG" or more popularly called the "ALEX",
owned by petitioner herein, Dr. Agustino R. Abong.
 May 15, 1966, this fishing outfit set out to sea. The
decedents were among the 70 crew members. While
they were, thus, fishing, typhoon "IRMA" passed along
their way, scattering the boats and blowing them far out
into the open sea. The tragedy netted eight (8) dead
while some sixty (60) men survived the disaster.
 As a consequence of the incident seven (7) notices and
claims for death compensation were filed with the
Bacolod Sub-Regional Office of the Department of Labor
by herein private respondents
 A copy of the notices and claims were sent to petitioner
Dr. Agustino R. Abong by registered mail at his place of
business, but the envelopes containing said notices and
claims were returned unclaimed, although petitioner was
personally notified thrice.
 After due hearing before Acting Referee, Bertito D.
Dadivas, he rendered on August 1, 1966, a decision
granting the claims.
 Petitioner filed a (1) motion to set aside the order
declaring him in default and a (2) separate motion to set
aside the Decision of the Acting Referee, to which
seasonable oppositions were interposed by private
respondents on September 26, 1966.

ISSUE: Who is the statutory employer of the decedents and who


should be liable for their death compensation.

RATIO:

 There is a faint attempt by petitioner Agustino R. Abong


to evade liability by advancing the theory that he had
absolutely no voice or intervention in the choice, hiring,
dismissing, control, supervision and compensation of the
fishermen-crew members, and that these matters, which
are the essence of employer-employee relationship, are
the sole responsibility of the team leader, Simplicio
Panganiban, and the team-members or crew pursuant to
their Agreement
 The contention of petitioner is devoid of merit. It should
be pointed out that this case is an appeal from the
decision of the Workmen's Compensation Commission.
And in this class of proceedings, only questions of law
should be raised, the findings of facts made by the
Commission being conclusive and binding upon this
Court.
 Court finds the findings of fact made by Associate
(Medical) Commissioner Herminia Castelo-Sotto, M.D.,
and concurred in by the Commission en banc to be fully
supported by the evidence on record which clearly points
out that petitioner Agustino R. Abong is the statutory
employer of the decedents.
 As pointed out by the Commission's findings, the
fundamental bases showing that petitioner, Dr. Agustino
R. Abong, is the employer, are present, namely, the
selection and engagement of the employee; the payment
of wages; the power of dismissal and the employer's
power to control the employees' conduct.
 These powers were lodged in petitioner Abong, thru his
agent, Simplicio Panganiban, whom he alleges to be his
"partner". On this score alone, the petitioner for review
must fail. It is well-settled that employer-employee
relationship involves findings of fact which are conclusive
and binding and not subject to review by this Court.

Partnership Digest – Dissolution Page 4 of 17


CASE NO. 5

ARBES vs. POLISTICO


53 Phil 489, G.R. No. 31057, September 7, 1929, Villamor, J.:p

FACTS: This is an action for the liquidation of the funds and


property of the association called "Turnuhan Polistico & Co”. It
appears that in April 1911, the plaintiffs and defendants, together
with several hundred other persons, formed an association under
the name of Turuhan Polistico & Co. Vicente Polistico. Under the
by-laws of the association, each member shall pay 50 centavos
every Sunday, except that on every 5th Sunday the amount to be
paid was P1. It is alleged that from April, 1911, until April, 1917,
the said contributions were paid weekly by all of the members of
the society (with few irregularities). The inducement to these
weekly contributions was found in provisions of the by-laws to the
effect that a lottery should be conducted weekly among the
members of the association and that the successful member
should be paid the amount collected each week.

It has already been ruled that "Turnuhan Polistico & Co." was an
unlawful partnership. Plaintiffs now seek the recovery of
contributions paid by them.

ISSUES: Whether or not the plaintiffs can still recover the


contributions paid by them considering that "Turnuhan Polistico &
Co." has no valid existence having been declared as an unlawful
partnership?

HELD: Article 1666 of the Civil Code, provides:

“A partnership must have a lawful object, and must be


established for the common benefit of the partners.

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.” (emphasis supplied)

The partner who limits himself to demanding only the amount


contributed by him need not resort to the partnership contract on
which to base his action. As said contract does not exist in the
eyes of the law, the purpose from which the contribution was
made has not come into existence, and the administrator of the
partnership holding said contribution retains what belongs to
others, without any consideration; for which reason he is not
bound to return it and he who has paid in his share is entitled to
recover it.

This is not the case with regard to profits. In order to demand the
proportional part of the said profits, the partner would have to base
his action on the contract which is null and void, since this partition
or distribution of the profits is one of the juridical effects thereof.
Wherefore considering this contract as non-existent, by reason of
its illicit object, it cannot give rise to the necessary action, which
must be the basis of the judicial complaint. Furthermore, it would
be immoral and unjust for the law to permit a profit from an industry
prohibited by it.

The Civil Code does not state whether, upon the dissolution of
the unlawful partnership, the amounts contributed are to be
returned by the partners, because it only deals with the disposition
of the profits; but the fact that said contributions are not included
in the disposal prescribed profits, shows that in consequences of
said exclusion, the general law must be followed, and hence the
partners should reimburse the amount of their respective
contributions.

Partnership Digest – Dissolution Page 5 of 17


CASE NO. 6

CAMPOS RUEDA & CO. vs. PACIFIC COMMERCIAL CO.,


44 Phil 916, G.R. No. L-18703, August 28, 1922, Romualdez,
J.:p

FACTS: The limited partnership was, and is, indebted to the


appellants in various sums amounting to not less than P1,000,
payable in the Philippines, which were not paid more than thirty
days prior to the date of the filing by the petitioners of the
application for involuntary insolvency.

ISSUE: Whether or not a limited partnership, such as the


appellee, which has failed to pay its obligation with three creditors
for more than thirty days, may be held to have committed an act
of insolvency, and thereby be adjudged insolvent against its will.

HELD: Unlike the common law, the Philippine statutes consider a


limited partnership as a juridical entity for all intents and purposes,
which personality is recognized in all its acts and contracts (art.
116, Code of Commerce). This being so and the juridical
personality of a limited partnership being different from that of its
members, it must, on general principle, answer for, and suffer, the
consequence of its acts as such an entity capable of being the
subject of rights and obligations. If, as in the instant case, the
limited partnership of Campos Rueda & Co. Failed to pay its
obligations with three creditors for a period of more than thirty
days, which failure constitutes, under our Insolvency Law, one of
the acts of bankruptcy upon which an adjudication of involuntary
insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent.
We are not unmindful of the fact that some courts of the United
States have held that a partnership may not be adjudged insolvent
in an involuntary insolvency proceeding unless all of its members
are insolvent, while others have maintained a contrary view. But it
must be borne in mind that under the American common law,
partnerships have no juridical personality independent from that
of its members; and if now they have such personality for the
purpose of the insolvency law, it is only by virtue of general law
enacted by the Congress of the United States on July 1, 1898.

The liability of the limited partners for the obligations and losses
of the partnership is limited to the amounts paid or promised to be
paid into the common fund except when a limited partner should
have included his name or consented to its inclusion in the firm
name (arts. 147 and 148, Code of Commerce).

Therefore, it having been proven that the partnership Campos


Rueda & Co. failed for more than thirty days to pay its obligations
to the petitioners the Pacific Commercial Co. the Asiatic
Petroleum Co. and the International Banking Corporation, the
case comes under paragraph 11 of section 20 of Act No. 1956,
and consequently the petitioners have the right to a judicial decree
declaring the involuntary insolvency of said partnership.

The judgment of the lower court was reversed and it was adjudged
that the limited partnership Campos Rueda & Co. is and was on
December 28, 1921, insolvent and liable for having failed for more
than thirty days to meet its obligations with the three petitioners.
The proceeding was remanded to the Court of First Instance of
Manila with instruction to issue the proper decrees under section
24 of Act No. 1956, and proceed therewith until its final disposition.

Partnership Digest – Dissolution Page 6 of 17


CASE NO. 7

CIR VS. SUTER

FACTS:

A limited partnership named William J. Suter 'Morcoin'


Co., Ltd was formed 30 September 1947 by William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson. They
contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00. it was also duly registered with the SEC. On 1948
Suter and Spirig got married and in effect Carlson sold his share
to the couple, the same was also registered with the SEC.

The limited partnership had been filing its income tax


returns as a corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the latter,
in an assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against
respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.

ISSUE:

Whether or not the limited partnership has been


dissolved after the marriage of Suter and Spirig and buying the
interest of limited partner Carlson.

RULING:

No, the limited partnership was not dissolved.

“A husband and a wife may not enter into a contract of


general copartnership, because under the Civil Code, which
applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to each
other are prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing partnership. “

What the law prohibits was when the spouses entered


into a general partnership. In the case at bar, the partnership was
limited.

Partnership Digest – Dissolution Page 7 of 17


CASE NO. 8 2. Donation of movables worth more than P5,000 (Art. 748)
G.R. No. L-27010 April 30, 1960 which must be in writing otherwise they are void.
(b) Contracts that the law requires to be proved by some writing
(memorandum) of its terms, i.e. those covered by the old
MARLENE DAUDEN-HERNAEZ, petitioner, Statute of Frauds, now Article 1403(2) of the Civil Code.
vs. For the latter example, their existence are not provable
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of by mere oral testimony (unless wholly or partly executed) and are
First Instance of Quezon City, HOLLYWOOD FAR EAST required to be in writing to be enforceable by action in court.
PRODUCTIONS, INC., and RAMON VALENZUELA,
respondents. However, the contract sued upon (compensation for
services) does not come under either exception. While the last
FACTS clause of Article 1358 provides that "all other contracts where the
Marlene Dauden-Hernaez, a movie actress, filed a case amount involved exceeds five hundred pesos must appear in
against Hollywood Far East Productions its President and General writing, even a private one." Said Article does not provide that the
Manager, Ramon Valenzuela, to recover P14,700 allegedly the absence of a written form in this case will make the agreement
balance due for her services as leading actress in two motion invalid or unenforceable.
pictures. The complaint was dismissed by Judge De Los Angeles
mainly because her claim was not supported by an written On the contrary, Article 1357 clearly indicates that
document, public or private in violation of Articles 1356 and 1358 contracts covered by Article 1358 are binding and enforceable by
of the Civil Code. Upon a motion for reconsideration, the action or suit despite the absence of writing.
respondent judged dismissed the same because the allegations
were the same as the first motion.

According to Judge De Los Angeles, the contract sued


upon was not alleged to be in writing when Article 1358 requires it
to be so because the amount involved exceeds P500.

ISSUE:

Whether or not a contract for personal services involving


more than P500.00 was either invalid or unenforceable under the
last paragraph of Article 1358?

HELD

No. The order dismissing the complaint is set aside and


the case is remanded to the CFI.

RATIO

Consistent with the Spanish Civil Code in upholding spirit


and intent of the parties over formalities, in general, contracts are
valid and binding from their perfection regardless of whether they
are oral or written.

However, as provided in the 2nd sentence of Art. 1356:

ART. 1356. Contracts shall be obligatory in


whatever form they may have been entered into,
provided all the essential requisites for their validity are
present. However, when the law requires that a
contract be in some form in order that it may be valid
or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and
indispensable....

Thus, the two exceptions to the general rule that the form
is irrelevant to the binding effect of a contract are:

(a) Solemn Contracts - contracts which the law requires to be in


some particular form (writing) in order to make them valid and
enforceable. Examples:
1. Donation of immovable property (Art. 749) which must be
in a public instrument to be valid. in order "that the
donation may be valid", i.e., existing or binding.

Partnership Digest – Dissolution Page 8 of 17


CASE NO. 9

MAXIMILIANO SANCHO, vs. SEVERIANO LIZARRAGA


G.R.No. L-33580 February 6, 1931

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 defendant’s 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. Hence, SC dismissed the appeal
left the decision appealed from in full force.

Partnership Digest – Dissolution Page 9 of 17


CASE NO. 10

Pang Lim et al v. Lo Seng


Facts:
1. Pang Lim and Lo Seng were partners under the firm
name, Lo Seng & Co. The partnership was in the
business of running a distillery
2. The land on which the distillery was build was leased
from another, Lo Yao, through his agent Lo Shui.
3. Upon expiration of the lease, a contract to extend the
lease for 15 years was entered into by the parties
4. Later on, Lim sold ALL his interest in the distillery to
Seng (including his interest in the lease).
5. Lo Shui, as agent of Lo Yao, conveyed the land to
Pang Lim and Benito Galvez. However, Lo Seng refused
to yield the property causing Lim and Galvez to institute
an action for unlawful detainer against Seng.

Justice of Peace: Favored Lim and Galvez


CFI: Upheld

Issue: Whether it is contrary to law for partner who has left the
partnership may, after his departure, use information known to him
by reason of the partnership for his own benefit.
Held: Yes, it is contrary.
Ratio:
1. In business relations, partners are required to exhibit
towards each other the highest degree of good faith. The
relation of the partners is essentially fiduciary as one is
the confidential agent of the other.
2. The partner cannot, to the detriment of another, apply
exclusively to his own benefit, knowledge and
information gained as a partner.

RE: W/N the Unlawful Detainer action may prosper


Held: No, it may not.
Ratio:
1. In an action for unlawful detainer, the question to be
resolved is that of the right to possession. It must be
shown that the occupant’s possession is unlawful.
2. In selling all his share in the partnership, Lim likewise
sold his interest in the lease. Hence, Lo Seng became
the owner of such rights in the lease. Lim cannot
terminate the lease on the basis that he is estopped from
the sale (estoppel by deed).

Partnership Digest – Dissolution Page 10 of 17


CASE NO. 11

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 Catalanâs redemption of the properties make him the


absolute owner of the lands?

HELD: 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.

Partnership Digest – Dissolution Page 11 of 17


Case No. 12 fact that the complaint against the defendant Romulo B. Lumauig
Island Sales v. United 65 SCRA 554 was dismissed, upon motion of the plaintiff, does not unmake the

DOCTRINE: Condonation by creditor of share in partnership debt said Lumauig as a general partner in the defendant company. In

of one partner does not increase pro rata liability of other partners. so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.

FACTS:
The defendant company ( UNITED PIONEERS GENERAL RATIO: Article 1816 of the Civil Code provides:

CONSTRUCTION COMPANY ET .AL ), a general partnership


duly registered under the laws of the Philippines, purchased from “All partners including industrial ones, shall be liable pro rata

theplaintiff ( ISLAND SALES, INC) a motor vehicle on installment with all their property and after all the partnership assets

basis and for this purpose executed apromissory note for have been exhausted, for the contracts which may be entered

P9,440.00, payable in twelve (12) equal monthly installments of into in the name and for the account of the partnership, under

P786.63, the first installment payable on or before May 22, 1961 its signature and by a person authorized to act for the

and the subsequent installments on the 22nd day of every month partnership. However, any partner may enter into a separate

thereafter, until fully paid, with the condition that failure to pay any obligation to perform”

of said installments asthey fall due would render the whole unpaid
balance immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the
plaintiff sued the defendant company for the unpaid balance
amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona,
Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were
included as co-defendants in their capacity as general partners of
the defendant company.

Daniel A. Guizona failed to file an answer and was consequently


declared in default. Subsequently, on motion of the plaintiff, the
complaint was dismissed insofar as the defendant Romulo B.
Lumauig is concerned.

When the case was called for hearing, the defendants and their
counsels failed to appear notwithstanding the notices sent to
them. Consequently, the trial court authorized the plaintiff to
present its evidence ex-parte , after which the trial court rendered
the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to


reconsider the decision claiming that since there are five (5)
general partners, the joint and subsidiary liability of each partner
should notexceed one-fifth (1/5) of the obligations of the defendant
company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit the liability of
the defendants Daco and Sim to only one-fifth (1/5 ) of the
obligations of the defendant company.Hence, this appeal.

ISSUE: Whether the condonation of a partner’s share in the


debts of the company increases the remaining partners’ liability?

RULING:
No. In the instant case, there were five (5) general partners when
the promissory note in question was executed for and in behalf of
the partnership. Since the liability of the partners is pro rata, the
liability of the appellant Benjamin C. Daco shall be limited to only
one-fifth ( 1/ 5 ) of the obligations of the defendant company. The
Partnership Digest – Dissolution Page 12 of 17
CASE NO. 13 new owner himself. Yu’s old position thus became superfluous
or redundant.
Benjamin Yu v. National Labor Relations Commission & Jade  Yu is entitled to separation pay at the rate of one month’s pay
Mountain Products Co. Ltd., Willy Co, Rhodora Bendal, Lea for each year of service that he had rendered to the old
Bendal, Chiu Shian Jeng and Chen Ho-Fu partnership, a fraction of at least 6 months being considered as
G.R. No. 97212 June 30, 1993 a whole year.
Feliciano, J.

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 firm’s 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
Partnership Digest – Dissolution Page 13 of 17
CASE NO. 14
TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., TRIAL COURT ->ruled in favor of the defendant
plaintiffs-appellants,
vs. SALVADOR SERRA, defendant-appellee. The court a quo in its decision held that there was a novation of
VILLAMOR, J.: the contract by the substitution of the debtor, and therefore
absolved the defendant from the complaint with costs against the
plaintiffs. With regard to the prayer that the said contract be
FACTS: declared valid and binding, the court held that there was no way
of reviving the contract which the parties themselves in interest
 Ps and D entered into a contract of partnership for the construction had spontaneously and voluntarily extinguished.
& exploitation of a railroad line from the "San Isidro" and "Palma"
centrals to the place known as "Nandong." Hence, this petition for review.
 The original capital stipulated was P150,000.
 It was covenanted that the parties should pay this amount in equal ISSUE:
parts & the plaintiffs were entrusted w/ the administration of the W/N Defendant is exempt from his obligation from the partnership
partnership. on the ground that the partnership was dissolved?
 However, the agreed capital of P150,000 did not prove sufficient
since the expenses reached P 226, 092
Ruling:
 So D entered into a contract of sale with Venancio Concepcion,
Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold
to the latter the estate and central known as "Palma" with its running
The dissolution of a firm does not relieve any of its
business, all the improvements, machineries & buildings.
members from liability for existing obligations, although it
 Before delivery of the haciendato the purchasers, de Luzuriaga does save them from new obligations to which they have not
renounced all his rights under the contract of Messrs. Concepcion expressly or impliedly assented, and any of them may be
& Whitaker. discharged from old obligations by novation or other form of
 This gave rise to the fact that Concepcion, Whitaker & Def executed release. A partnership continues, even after dissolution,
another deed of absolute sale of the said "Palma" Estate for the for the purpose of winding up its affairs. At the
amount of P1,695,961.90, of which the vendor received at the time termination of the object for which it was created the
of executing the deed the amount of P945,861.90, & the balance partnership is extinguished, pending the winding up of some
was payable by installments in the form and manner stipulated in
incidents and obligations of the partnership, but in such
the contract.
case, the partnership will be reputed as existing until the
 The purchasers guaranteed the unpaid balance of the purchase juridical relations arising out of the contract are dissolved. A
price by a first & special mortgage in favor of the vendor upon the partnership cannot be considered as extinguished until
hacienda & the central with all the improvements, buildings,
all the obligations pertaining to it are fulfilled.
machineries, and appurtenances then existing on the said
hacienda.
 Messrs. Phil. C. Whitaker and Venancio Concepcion, in Clause 6
of the deed, expressed awareness of contract of partnership and
their willingness to subrogate themselves into the obligations
therefor.
 Thereafter, Concepcion & Whitaker also bought from Mota et al. the
½ of the railroad line and they agreed that the partnership "Palma"
and "San Isidro," formed between Serra & Mota et al, should be
totally cancelled and of no force and effect whatever.
 The price of this sale was P237,722.15, excluding any amount
which the D might be owing to the Ps.
 Of the purchase price of ½ of the railroad, Concepcion &Whitaker
paid the sum of P47,544.43 only.
 So it results that the "Hacienda Palma," with the entire railroad (the
subject-matter of the contract of partnership between Ps and D)
became the property of Whitaker & Concepcion.
 However, Whitaker & Concepcion failed to pay to the D a part of the
purchase price (P750,000), so the vendor/defendant, foreclosed
the mortgage upon the said hacienda, which was adjudicated to
him at the public sale held by the sheriff for the amount of P500,000,
and D put in possession thereof, including what was planted at the
time, together with all the improvements made by Whitaker
&Concepcion.
 Since D, Whitaker & Concepcion failed to pay 1/2 of the amount
(P113,046.46) expended by the Ps upon the construction of the
railroad line,the plaintiffs instituted the present action praying:
(1) That the deed of February 1, 1919 (contract of partnership), be
declared valid and binding;
(2) that the defendant be sentenced to pay plaintiffs the aforesaid
sum of P113,046.46, with the stipulated interest at 10 per cent
per annum beginning June 4, 1920, until full payment thereof,
with the costs of the present action.

 Defendant pointed out that he is now relieved from the obligation


because of the novation of the contract by the substitution of the
debtor with the conformity of the creditors;
Partnership Digest – Dissolution Page 14 of 17
CASE NO. 15 It may fittingly be recalled that the action for accounting and
URBANO LOTA v. BENIGNO TOLENTINO, GR No. L-3518, liquidation was filed... on March 3, 1937. No sooner had the
1952-02-29 defendant Benigno Tolentino died on November 22, 1939, than
said fact was made of record by his attorney. On January 9, 1940,
Facts: the lower court gave the plaintiff (who had then died and was
substituted on September 28, 1939, by the administrator... of his
nature of the action for accounting and liquidation of the estate, Solomon Lota), 30 days to amend the complaint by
partnership filed by plaintiff... plaintiff filed an action against substituting the administrator or legal representative of the
defendant to order the latter (a) to render an accounting of his deceased defendant Benigno Tolentino. On January 28, 1941, the
management of their partnership, and (b) to deliver to plaintiff lower court dismissed the case for lack of prosecution on the part
whatever share he may have in the assets of the partnership after of the plaintiff, but... the order of dismissal was reconsidered, upon
the liquidation has been... approved by the Court. a showing by the plaintiff that on March 28, 1941, an
administration proceeding for the estate of Benigno Tolentino was
The partnership... was entered into by and between plaintiff and instituted by the plaintiff. On August 8, 1941, the lower court
defendant in the year 1918, whereby they agreed to engage in issued, at the instance of the plaintiff, letters... of administration to
general business in the municipality of Alabat, province of Tolentino's surviving spouse, Marta Sadiasa, who however failed
Batangas... and... defendant to be manager of the partnership. to qualify. Accordingly, the court dismissed the administration
Plaintiff alleges that from 1918 until 1928 defendant had rendered proceeding on January 3, 1949, for lack of interest. It was only as
an annual accounting, but had refused to do so from 1929 to 1937, late as April 6, 1949, that the plaintiff filed the motion to...
hence, plaintiff's complaint. substitute, not even the legal representative of Benigno Tolentino,
but his heirs.
defendant filed answer, alleging that defendant was the industrial
partner... that he rendered a yearly accounting and liquidation If the plaintiff was genuinely interested in substituting the proper
thereof from 1918 to 1932, and that in party,... he should have taken timely measures to have the
administratrix appointed on August 8, 1941, qualify or, in case of
1932, the partnership was dissolved and... defendant delivered all her... failure or refusal, to procure the appointment of another
its properties and assets to the plaintiff. administrator; because the plaintiff could have availed himself of
section 6, Rule 80, of the Rules of Court, providing that "letters of
The plaintiff died in 1938, and... he was substituted by the administration may be granted to any qualified applicant, though
administrator of his estate, Solomon Lota. it appears that... there are other competent persona having better
right to the administration, if such persons fail to appear when
Court ordered the dismissal of the case for lack of prosecution. notified and claim the issuance of letters to themselves." Certainly,
This order was reconsidered and set aside upon a showing by inaction for almost eight years (after the issuance of letters of
plaintiff that... he had filed a petition for the issuance of letters of administration) on the part of... the appellant, sufficiently implies
administration to deceased defendants'... surviving spouse, Marta indifference to or desistance from its suit.
Sadiasa, for the purpose of substituting her for the deceased
defenda

"It will thus be seen that from defendant's death on

1939, to the present, or almost ten years, no administrator or legal


representative has been actually substituted to take the place of
said defendant. It was only on

49, that plaintiff made another try... to substitute said deceased by


filing his motion, referred to in the first paragraph of this resolution,
praying that defendant's heirs be substituted for him as parties
defendant.

Issues:

whether the motion for substitution should be granted and the


ease allowed to go to trial on the merits, or whether the
defendant's opposition should be sustained and the case
dismissed.

whether or not, after the death of the defendant Benigno


Tolentino... plaintiff's... action for ac-counting and liquidation of the
partnership formed in 1918 between Urbano Lota and Benigno
Tolentino, of which the latter was the industrial and managing
partner, may be continued against the heirs of Benigno Tolentino.

Ruling:

it is well settled that when a member of a mercantile partnership


dies, the duty of liquidating its affairs-devolves upon the surviving
member or members of the firm, not upon the legal
representatives of the deceased partner.

And the same rule must be equally applicable to a civil partnership


clothed with the form of a commercial association

But, in the second place, as already indicated, the proceedings in


this cause, considered in the character of an action" for an
accounting; were futile; and the court, abandoning entirely the
effort to obtain an accounting gave judgment" against the
administrator upon the... supposed liability of his intestate to
respond for the plaintiff's proportionate share of the capital and
assets. But of course the action was not maintainable in this
aspect after the death of the defendant; and the motion to
discontinue the action as against the administrator... should have
been granted... dismissing the present action for accounting, is
lack of prosecution on the part of the appellant.

Partnership Digest – Dissolution Page 15 of 17


CASE NO. 17 An agreement with Tee Hoon was shown and signed by Tan Put
that she received P40,000 for her subsistence when they
Lim Tanhu vs. Ramolete terminated their relationship of common-law marriage and
promised not to interfere with each other’s affairs since they are
66 SCRA 425 incompatible and not in the position to keep living together
permanently. Hence, this document not only proves that her
FACTS: relation was that of a common-law wife but had also settled
property interests in the payment of P40,000.
Private respondent Tan Put alleged that she is the widow of Tee
Hoon Lim Po Chuan, who was a partner and practically the owner IN VIEW OF ALL THE FOREGOING, the petition is granted. All
who has controlling interest of Glory Commercial Company and a proceedings held in respondent court in its Civil Case No. 12328
Chinese Citizen until his death. Defendant Antonio Lim Tanhu subsequent to the order of dismissal of October 21, 1974 are
and Alfonso Leonardo Ng Sua were partners in name but they hereby annulled and set aside, particularly the ex-parte
were mere employees of Po Chuan and were naturalized Filipino proceedings against petitioners and the decision on December 20,
Citizens. Tan Put filed complaint against spouses-petitoner Lim 1974. Respondent court is hereby ordered to enter an order
Tanhu and Dy Ochay including their son Tech Chuan and the extending the effects of its order of dismissal of the action dated
other spouses-petitoner Ng Sua and Co Oyo including also their October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy
son Eng Chong Leonardo, that through fraud and machination Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And respondent
took actual and active management of the partnership and that court is hereby permanently enjoined from taking any further
she alleged entitlement to share not only in the capital and profits action in said civil case gave and except as herein indicated.
of the partnership but also in the other assets, both real and Costs against private respondent.
personal, acquired by the partnership with funds of the latter
during its lifetime."

According to the petitioners, Ang Siok Tin is the legitimate wife,


still living, and with whom Tee Hoon had four legitimate children,
a twin born in 1942, and two others born in 1949 and 1965, all
presently residing in Hong Kong. Tee Hoon died in 1966 and as a
result of which the partnership was dissolved and what
corresponded to him were all given to his legitimate wife and
children.

Tan Put prior of her alleged marriage with Tee Hoon on 1949, was
engaged in the drugstore business; that not long after her
marriage, upon the suggestion of the latter sold her drugstore for
P125,000.00 which amount she gave to her husband as
investment in Glory Commercial Co. sometime in 1950; that after
the investment of the above-stated amount in the partnership its
business flourished and it embarked in the import business and
also engaged in the wholesale and retail trade of cement and GI
sheets and under huge profits.

Defendants interpose that Tan Put knew and was are that she was
merely the common-law wife of Tee Hoon. Tan Put and Tee Hoon
were childless but the former had a foster child, Antonio Nunez.

ISSUE: Whether Tan Put, as she alleged being married with Tee
Hoon, can claim from the company of the latter’s share.

HELD:

Under Article 55 of the Civil Code, “the declaration of the


contracting parties that they take each other as husband and wife
"shall be set forth in an instrument" signed by the parties as well
as by their witnesses and the person solemnizing the marriage.
Accordingly, the primary evidence of a marriage must be an
authentic copy of the marriage contract”. While a marriage may
also be proved by other competent evidence, the absence of the
contract must first be satisfactorily explained. Surely, the
certification of the person who allegedly solemnized a marriage is
not admissible evidence of such marriage unless proof of loss of
the contract or of any other satisfactory reason for its non-
production is first presented to the court. In the case at bar, the
purported certification issued by a Mons. Jose M. Recoleto,
Bishop, Philippine Independent Church, Cebu City, is not,
therefore, competent evidence, there being absolutely no showing
as to unavailability of the marriage contract and, indeed, as to the
authenticity of the signature of said certifier, the jurat allegedly
signed by a second assistant provincial fiscal not being authorized
by law, since it is not part of the functions of his office. Besides,
inasmuch as the bishop did not testify, the same is hearsay.

Partnership Digest – Dissolution Page 16 of 17


CASE NO. 18 was not made for cash but in payment for subscriptions to
shares of stock in the assignee, and while those shares had
Bonnevie vs. Hernandez a total face value of P225,000, this is not necessarily their real
worth.
2. No. Assuming that the assignment actually brought profit to
Facts:
the partnership, it is hard to see how defendant could be
made to answer for plaintiffs' alleged share thereof.
 Plaintiffs with other associates formed a syndicate or secret
partnership for the purpose of acquiring the plants, franchises
In the case at bar, the defendant did not receive the
and other properties of the Manila Electric Co. — hereinafter consideration for the assignment for, as already stated, the
called the Meralco. assignment was made in payment for subscriptions of various
 No formal articles were drawn for it was the purpose of the persons to the capital stock of the new corporation.
members to incorporate once the deal had been
consummated. Plaintiffs, in order to give color of legality to their claim against
 Negotiation for the purchase was commenced, but as it made defendant, maintain that the latter should be held liable for
no headway, defendant was taken in as a member of the damages caused to them, consisting of the loss of their share
of the profits, due to defendant's failure properly to perform
partnership so that he could push the deal through, and to
his duty as a liquidator of the dissolved partnership, this on
that end he was given the necessary power of attorney. the theory that as managing partner of the partnership, it was
 Using partnership funds, defendant was able to buy the defendant's duty to liquidate its affairs upon its dissolutions.
Meralco properties.
However, it does not appear that plaintiffs have ever asked
 Although defendant was the one named vendee in the deed for a liquidation, and as will presently be explained no
of sale, there is no question that the transaction was in liquidation was called for because when plaintiffs withdrew
penalty made for the partnership so that the latter assumed from the partnership the understanding was that after they
control of the business the day following the sale had been reimbursed their investment, they were no longer
 About the latter half of the following month the members of to have any further interest in the partnership or its assets and
the partnership proceeded with the formation of the proposed liabilities.
corporation, apportioning among themselves its shares of
stock in proportion to their respective contributions to the
As a general rule, when a partner retires from the firm, he is
capital of the partnership and their individual efforts in
entitled to the payment of what may be due him after a
bringing about the acquisition of the Meralco properties.
liquidation. But certainly no liquidation is necessary where
 But before the incorporation, judge Reyes and the plaintiffs
there is already a settlement or an agreement as to what the
withdrew from the partnership for the reason that the
retiring partner shall receive.
business was not going well, and, as admitted by both parties,
the partnership was then dissolved. In accordance with the
terms of the resolution, the withdrawing partners In the instant case, it appears that a settlement was agreed
 Following the dissolution of the partnership, the members upon on the very day the partnership was dissolved. For
who preferred to remain in the business went ahead with the when plaintiffs and Judge Jaime Reyes withdrew from the
formation of the corporation, taking in new associates as partnership on that day they did so as agreed to by all the
stockholders. partners, subject to the only condition that they were to be
 And defendant, on his part, in fulfillment of his trust, made a repaid their contributions or investments within three days
formal assignment of the Meralco properties to the treasurer from said date. And this condition was fulfilled when on the
of the corporation, giving them a book value of P365,000, in following day they were reimbursed the respective amounts
return for which the corporation issued, to the various due them pursuant to the agreement.
subscribers to its capital stock, shares of stock of the total
face value of P225,000 and assumed the obligation of paying The SC therefore, found that, the acceptance by the
what was still due the Meralco on the purchase price. withdrawing partners, including the plaintiffs, of their
 Two years from their withdrawal from the partnership, when investment in the instant case was understood and intended
the corporate business was already in a prosperous by all the parties as a final settlement of whatever rights or
condition, plaintiffs brought the present suit against Jaime claim the withdrawing partners might have in the dissolved
Hernandez, claiming a share in the profit the latter is partnership. Such being the case they are now precluded
supposed to have made from the assignment of the Meralco from claiming any share in the alleged profits, should there be
properties to the corporation, estimated by plaintiffs to be any, at the time of the dissolution.
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. No. the profit alleged to have been realized from the


assignment of the Meralco properties to the new corporation,
the Bicol Electric Company, is more apparent than real. 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. But one should not jump to the conclusion that
a profit, consisting of the difference between the two sums
was really made out of the transaction, for the assignment

Partnership Digest – Dissolution Page 17 of 17