Week No.
4 RULING
Obligations of the partner with regard to third persons (Art. 1815-1827)
a.) Requisites prescribed by law in order that a partnership may be held liable to
third persons for the act of one partner (Art. 1816, 1822, 1823, 1824)
Pacific Commercial vs. Aboitiz GR No. 25007, March 2, 1926
FACTS:
Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez
formed a regular, collective, mercantile partnership with a capital of P40,000 as
contributed equally by de Silva and the two Aboitiz while Jose Martinez was an
industrial partner with no capital contribution. As provided in the article of
partnership, Martinez was to receive 30% of the profits and shall also be
responsible for losses which should not exceed 30%.
The partnership, through Guillermo Aboitiz, executed a promissory note in
favor of Pacific Commercial Company in the sum of P23,168.71 with interest at 12%
per annum. They executed a chattel mortgage to secure the note. Due to their
failure to pay their obligation, the chattel mortgage was foreclosed and sold at
P2,000 which was paid over to plaintiff Pacific Co. Due to non payment of the
remaining balance, plaintiff brought a suit for recovery of unpaid balance with
interest against the partnership.
A judgment was rendered in favor of plaintiff and the partnership was
ordered to pay the sum of P27,951.68 and the interest amounting to P21,168.71 at
10% per annum until fully paid plus fees. The judgment further provided that the
execution should first issue against the property of the partnership Aboitiz &
Martinez and in the event of the insolvency of the partnership, it might issue
against the property of de Silva and Aboitiz and in the event of insolvency, then
against the property of Jose Martinez. Defendant Martinez appealed to the decision
and invoked that under Art.141 of the Code of Commerce, he is merely an industrial
partner, thus, he cannot be held liable for the partnership's debt.
ISSUE: Is an industrial partner liable for partnership's debt?
Yes. The language of Art. 127 of the Code of Commerce is clear and specific
and must be taken to mean exactly what it says, namely, that all the members of a
general co 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.
Defendant's reliance to Art. 141 is misplaced. This article of the Code of Commerce
relates merely to the distribution of losses among partners themselves in the
settlement of the partnership affairs and has no obligations to third parties.
Island Sales vs. United Pioneers GR No. L-22493, July 31, 1975
DOCTRINE: Condonation by creditor of share in partnership debt of one partner
does not increase pro rata liability of other partners.
FACTS:
The defendant company ( UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY ET .AL ), a general partnership duly registered under the laws of the
Philippines, purchased from theplaintiff ( ISLAND SALES, INC) a motor vehicle on
installment basis and for this purpose executed apromissory note for P9,440.00,
payable in twelve (12) equal monthly installments of P786.63, the first installment
payable on or before May 22, 1961 and the subsequent installments on the 22nd
day of every month thereafter, until fully paid, with the condition that failure to pay
any 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 fact that the complaint against the defendant Romulo B. Lumauig
was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a
general partner in the defendant company. In so moving to dismiss the complaint,
the plaintiff merely condoned Lumauig's individual liability to the plaintiff.
RATIO: Article 1816 of the Civil Code provides:
“All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account of the partnership,
under its signature and by a person authorized to act for the partnership. However,
any partner may enter into a separate obligation to perform”
Munasque vs Court of Appeals GR No. L-39780, November 11, 1985
Facts: Munasque (petitioner) entered into a partnership with Galan under the
registered name “Galan and Associates” as Contractor. They entered into a written
contract with respondent Tropical for remodeling the latter’s Cebu branch building.
Under the contract, the project totaled 25,000 to be paid in installments; 7, 000
upon signing and 6, 000 every 15 working days.
Tropical made the first payment by check in the name of Munasque.
Munasque indorsed the check in favor of Galan to enable Galan to deposit it in the
bank and pay for the materials and labor used in the project. However, Galan
allegedly spent P 6,183.37 for his personal use. When the second check came,
Munasque refused to indorse it again to Galan.
Galan informed Tropical of the misunderstanding between him and
Munasque as partners. Hence upon second payment, Tropical changed the name of
the payee on the second check from Munasque to “Galan and Associates” which
enabled Galan to encash the second check.
Meanwhile, the construction was continued through Munasque’s sole
efforts by incurring debts from various suppliers. The construction work was
finished ahead of schedule with the total expenditure reaching P 34, 000 (note yung
contract nila 25k lang). Munasque filed a complaint for payment of sum of money
and damages against Galan, Tropical, and Tropical’s Cebu branch manager Pons.
Cebu Southern Hardware Company and Blue Diamond Glass Palace intervened in
the case for the credit which they extended to the partnership of Munasque and
Galan for the construction project.
Both trial court and Court of Appeals absolved respondents Tropical and its
Cebu manager, Pons, from any liability. TC held Galvan and Munasque “jointly and
severally” liable to its creditors which decision was modified by CA and held them
“jointly” liable.
Issue: Whether the obligation of Munasque and Galan is joint or solidary?
Held:
Solidary. While it is true that under Article 1816 of CC, “All partners,
including industrial ones, shall be liable pro rate with all their property and after all
the partnership assets have been exhausted, for the contracts which may be
entered into the name and for account of the partnership, under its signature and
by a person authorized to act for the partnership. xxx”, 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.” 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 and 1823. 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.
 Tropical had every reason to believe that a partnership existed between
Munasque and Galan and no fault or error can be imputed against it for making
payments to “Galan and Associates” because as far as it was concerned, Galan was
a true partner with real authority to transact in behalf of the partnership it was
dealing with (because in the first place they entered into a duly registered
partnership name and secondly, Munasque endorsed the first check payment to
Galan). This is even more true in the cases of the intervenors who supplied
materials on credit to the partnership. Thus, it is but fair that the consequences of
any wrongful act committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole.
However, as between Munasque and Galan, Galan must reimburse
Munasque for the payments made to the intervenors as it was satisfactorily
established that Galan acted in bad faith in his dealings with Munasque as a
partner.
c) Partner's liability for partnership obligation (nature) (Art. 1816 in rel. to 1824)
Liwanag vs. Workmen's Compensation Commission, 105 Phil. 741
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went
to the house of complainant Isidora Rosales (Rosales) and asked her to join them in
the business of buying and selling cigarettes. Convinced of the feasibility of the
venture, Rosales readily agreed. Under their agreement, Rosales would give the
money needed to buy the cigarettes while Liwanag and Tabligan would act as her
agents, with a corresponding 40% commission to her if the goods are sold;
otherwise the money would be returned to Rosales. Consequently, Rosales gave
several cash advances to Liwanag and Tabligan amounting to P633,650.00.During
the first two months, Liwanag and Tabligan made periodic visits to Rosales to report
on the progress of the transactions. The visits, however, suddenly stopped, and all
efforts by Rosales to obtain information regarding their business proved futile.
Alarmed by this development and believing that the amounts she
advanced were being misappropriated, Rosales filed a case of estafa against
Liwanag.After trial on the merits, the trial court rendered a decision dated January
9, 1991, finding Liwanag guilty as charged.
Said decision was affirmed by the Court of Appeals with modification on the
penalty.Her motion for reconsideration having been denied, Liwanag filed the
instant petition.
Issue: Whether or not the contract betwen complainant and accused-petitioner is
that of a partnership, hence the latter should not be convicted for the crime estafa?
Ruling: While factual findings of the Court of Appeals are conclusive on the parties
and not reviewable by the Supreme Court, and carry more weight when these
affirm the factual findings of the trial court, we deem it more expedient to resolve
the instant petition on its merits.Estafa is a crime committed by a person who
defrauds another causing him to suffer damages, by means of unfaithfulness or
abuse of confidence, or of false pretenses of fraudulent acts. From the foregoing,
the elements of estafa are present, as follows: (1) that the accused defrauded
another by abuse of confidence or deceit; and (2) that damage or prejudice capable
of pecuniary estimation is caused to the offended party or third party, and it is
essential that there be a fiduciary relation between them either in the form of a
trust, commission or administration.[6]The receipt signed by Liwanag states thus:
“May 19, 1988 Quezon City
Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX
THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine Currency, to
purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. In the event
the said cigarrets (sic) are not sold, the proceeds of the sale or the said products
(shall) be returned to said Mrs. Isidora P. Rosales the said amount of P526,650.00
or the said items on or before August 30, 1988.
The language of the receipt could not be any clearer. It indicates that the
money delivered to Liwanag was for a specific purpose that is, for the purchase of
cigarettes, and in the event the cigarettes cannot be sold, the money must be
returned to Rosales.Thus, even assuming that a contract of partnership was indeed
entered into by and between the parties, we have ruled that when money or
property have beenreceived by a partner for a specific purpose (such as that
obtaining in the instant case) and he later misappropriated it, such partner is guilty
of estafa. Neither can the transaction be considered a loan, since in a contract of
loan once the money is received by the debtor, ownership over the same is
transferred. Being the owner, the borrower can dispose of it for whatever purpose
he may deem proper. WHEREFORE, CA decission is AFFIRMED.
 Weeks No. 5
Difference between Dissolution and Winding Up
Sy vs. Court of Appeals, G.R. No. 94285, August 31, 1999.
FACTS:
Sy Yong Hu & Sons is a partnership of Sy Yung Hu and his six (6) sons. The
partnership has valuable assets such as tracts of land planted with sugar cane and
commercial lots in the business district of Bacolod City. Sometime in September
1977, a certain Keng Sian brought an action before the then Court of First Instance
of Negros Occidental, docketed as Civil Case No. 13388, against the partnership for
accounting of all the partnership properties and for the delivery or reconveyance of
her one-half (1/2) share in the properties and in the fruits thereof. Keng Sian
averred that she is the common-law wife of Sy Yung Hu and that the latter and his
children connived to deprive her of her share in the properties by diverting it to the
partnership. During the pendency of said civil case, partner Marciano Sy filed a
petition for declaratory relief against his co-partners, praying that he be appointed
managing partner to replace Jose Sy who just died. Answering the petition, his
brothers, Vicente, Jesus and Jaime, who claimed to represent the majority interest
in the partnership, sought the dissolution of the partnership and the appointment
of Vicente Sy as managing partner. The Hearing Officer, in a decision (Sison
Decision) dismissed the petition, and dissolved the partnership. The Sison Decision
was affirmed by the SEC En Banc. In the meantime the Regional Trial Court
appointed one Alex Ferrer as Special Administrator. Thereafter, Alex Ferrer moved
to intervene in the proceedings in for the partition and distribution of the of the
partnership assets on behalf of the respondent intestate estate but was denied. The
Intestate Estate appealed to the SEC en banc. In its decision, the SEC en banc
reiterated that the Abello decision, which upheld the order of dissolution of the
partnership, had long become final and executory. No further appeal was taken
from said decision. During the continuation of SEC Case, the parties brought to the
attention of the Hearing Officer the fact of existence of a Civil Case pending before
the RTC. They also agreed that during the pendency of said case, there would be no
disposition of partnership assets. Hearing Officer Tongco in an order placed the
partnership under a receivership committee. Petitioners appealed to the SEC en
banc. In an order (Lopez Order), the SEC en banc affirmed the Tongco order. Then
they filed a special civil action for certiorari with the Court of Appeals. The appellate
court granted the petition and remanded the case for further execution of the
Decisions, ordering partition and distribution of partnership properties. On motion
for reconsideration by private respondents, the Court of Appeals reversed its earlier
decision and remanded the case to the SEC for the formation of a receivership
committee as envisioned in the Tongco Order. Hence the present petition.
ISSUE: What is there is a difference between winding up and dissolution
HELD:
Petitioners fail to recognize the basic distinctions underlying the principles
of dissolution, winding up and partition or distribution. The dissolution of a
partnership is the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be distinguished from the
winding up, of its business. Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business
culminating in its termination. The dissolution of the partnership did not mean that
the juridical entity was immediately terminated and that the distribution of the
assets to its partners should perfunctorily follow. On the contrary, the dissolution
simply effected a change in the relationship among the partners. The partnership,
although dissolved, continues to exist until its termination, at which time the
winding up of its affairs should have been completed and the net partnership assets
are partitioned and distributed to the partners.
It ruled that although the Abello Decision was, indeed, final and executory, it did
not pose any obstacle to the hearing officer to issue orders not inconsistent
therewith because from the time a dissolution is ordered until the actual
termination of the partnership,
Rojas vs. Maglana, F.R. No. 30616, December 10. 190.
FACTS:
Maglana and Rojas executed their Articles of Co-partnership called
“Eastcoast Development Enterpises” which had an indefinite term of existence and
was registered with the SEC and had a Timber License. One of the EDE’s purposes
was to apply or secure timber and/or private forest lands and to operate, develop
and promote such forests rights and concessions. M shall manage the business
affairs while R 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 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 M and R shall purchase the interest, share and participation in the
partnership of P. It was also agreed that after payment of such including amount of
loan secured by P in favor of the partnership, the two shall become owners of all
equipment contributed by P. After this, the two continued the partnership without
any written agreement or reconstitution of their articles of partnership.
Subsequently, R entered into a management contract with CMS Estate Inc. M wrote
him re: his contribution to the capital investments as well as his duties as logging
superintendent. R replied that he will not be able to comply with both. M then told
R that the latter’s share will just be 20% of the net profits. Such was the sharing
from 1957 to 1959 without complaint or dispute. R took funds from the partnership
more than his contribution. M notified R that he dissolved the partnership. R filed
an action against M for the recovery of properties and accounting of the
partnership and damages.
CFI: the partnership of M and R is after P retired is one of de facto and at will; the
sharing of profits and losses is on the basis of actual contributions; there is no
evidence these properties were acquired by the partnership funds thus it should
not belong to it; neither is entitled to damages; the letter of M in effect dissolved
the partnership; sale of forest concession is valid and binding and should be
considered as M’s contribution; R must pay or turn over to the partnership the
profits he received from CMS and pay his personal account to the partnership; M
must be paid 85k which he should’ve received but was not paid to him and must be
considered as his contribution.
ISSUE: What is the nature of the partnership and legal relationship of M-R after P
retired from the second partnership? May M unilaterally dissolve the partnership?
HELD:
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.
M and R agreed to purchase the interest, share and participation of P and
after, they became owners of the equipment contributed by P. Both considered
themselves as partners as per their letters. It is not a partnership de facto or at will
as it was existing and duly registered. The letter of M dissolving the partnership is in
effect a notice of withdrawal and may be done by expressly withdrawing even
before expiration of the period with or without justifiable cause. As to the
liquidation of the partnership it shall be divided “share and share alike” after an
accounting has been made.
R 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.
M cannot be liable for damages as R abandoned the partnership thru his acts and
also took funds in an amount more than his contribution.
Duty to wind up/ liquidate partnership affairs (Art. 1836)
Aldecoa & Co. vs. Warner, Barnes & Co., 16 Phil. 423
FACTS:
This case talks about joint-account partnership involving two companies:
Aldecoa and Co., (plaintiff) and Warner, Barnes and Co., (defendant). The plaintiff is
a domestic company and at present in liquidation. It alleged that the defendant is a
joint stock mercantile firm organized in accordance with the laws of England,
registered in the mercantile registry of Manila. In the Philippines, defendant was
conducting a buy and sell business in Albay particularly purchase of hemp in the
pueblos of Legaspi and Tobacco to bring it to Manila for exportation.
The plaintiff then became interested in the defendant’s business and both
formed the a joint-account partnership agreeing to share profits equally of the
business in Albay, the defendant will be the manager of the business and to render
accounts of it substantially pertaining to its accounting per se.
ISSUES:
1.Whether or not the date when the partnership was formed and began
business in Albay is correct.
2. Whether or not the managing firm did render accounts, duly verified by
vouchers, of its management from the date of the organization of the partnership.
3. Whether or not errors and omission, prejudicial to the plaintiff, Aldecoa
and Co., exist in the partnership books and in its accounts and whether, in the
management of the said business, fraudulent acts were committed also to the
plaintiff's injury.
4. Whether or not the partnership property should be included in the
liquidation of the said business and in the accounts appertaining to the year 1903,
when the existence of the partnership came to an end.
HELD:
By the facts herein above set forth, it has been shown that in the present
state of this cause resulting from the rendering of the judgment appealed from, it
has not been possible to decide in a final manner the various issues brought up and
controverted by the litigants, for, though it be granted as proved that the defendant
firm, the manager of the said partnership, has in fact rendered accounts pertaining
to the years from June 30, 1899, to December 31, 1902, as found in the said
judgment, there still remain to be decided the four points or questions of fact
before specified. Wherefore, and in accordance with section 496 of the Code of Civil
Procedure, a new trial should be held For the purpose of a final decision of all the
questions involved in this litigation, and accordingly the judgment appealed from is
set aside and this cause shall be returned to the court below, accompanied by a
certified copy of this decision, for the holding of a new trial, for which purpose, first,
the defendant shall be advised that it must, within a fixed period, render an
account, verified by vouchers, of its management of the business of the joint-
account partnership with the plaintiff, pertaining to the months from December 1,
1898, to June 29, 1899, and to the twelve months of the year 1903, unless it shall
prove in a satisfactory manner that the said partnership began on June 30, 1899,
contrary to the averment of the plaintiff supported by evidence that it commenced
on December 1, 1898, in which case the said rendering of account shall be
restricted to the twelve months of the year 1903, in the accounts of which last
period must be included all the property that is found to belong to the said
partnership; second, in the examination of the accounts that may be found to have
been rendered, the parties may allege and prove facts conducive to their revision or
approval besides availing themselves of the evidence already adduced at trial; and,
third, with respect to the accounts corresponding to the period from June 30, 1899,
to December 31, 1902, already approved, the trial court shall be proceed in
accordance with law, duly considering the errors, omissions, mistakes and
fraudulent or deceitful acts that have been alleged or may specifically be alleged in
rejecting the said approved accounts, as well as the evidence introduced by both
parties, and it shall be careful to decide in its final judgment all the issues raised
between the parties in the course of this litigation and to provide such remedies as
are proper in regard to their respective claims. So ordered.
Po Yeng Cheo vs. Lim Ka Yan, 44 Phil. 172
FACTS:
Po Yeng Cheo, alleged sole owner of a business formerly conducted in the
City of Manila under the style of Kwong Cheong, as managing partner in said
business and to recover from him its properties and assets.
The defendant having died during the pendency of the cause in the court
below and the death suggested of record, his administrator, one Lim Yock Tock, was
required to appear and make defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in
the court below, found that the plaintiff was entitled to an accounting from Lim Ka
Yam, the original defendant, as manager of the business already reffered to, and he
accordingly required Lim Yock Tock, as administrator, to present a liquidation of
said business within a stated time.
This order bore no substantial fruit, for the reason that Lim Yock Tock
personally knew nothing about the aforesaid business (which had ceased operation
more than ten years previously) and was apparently unable to find any books or
documents that could shed any real light on its transaction.
However, he did submit to the court a paper written by Lim Ka Yam in life
purporting to give, with vague and uncertain details, a history of the formation of
the Kwong Cheong Tay and some account of its disruption and cessation from
business in 1910.
To this narrative was appended a statement of assets and liabilities,
purporting to show that after the business was liquidate, it was actually debtor to
Lim Ka Yam to the extent of several thousand pesos.
Appreciating the worthlessness of this so-called statement, and all parties
apparently realizing that nothing more was likely to be discovered by further
insisting on an accounting, the court proceeded, on December 27, 1921, to render
final judgment in favor of the plaintiff.
ISSUE: Whether or not Lim Yock Tock has a right to interfere with the right the
rights and deceased partner.
RULINGS:
No. In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affair devolves upon the surviving
member, or members, of the firm, not upon the legal representative of the
deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs.
Green, 6 Phil., 744) And the same rule must be equally applicable to a civil
partnership clothed with the form of a commercial association (art. 1670, Civil
Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it
therefore became the duty of his surviving associates to take the proper steps to
settle the affairs of the firm, and any claim against him, or his estate, for a sum of
money due to the partnership by reason of any misappropriation of its funds by
him, or for damages resulting from his wrongful acts as manager, should be
prosecuted against his estate in administration in the manner pointed out in
sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it
appears, as here, that the property pertaining to Kwong Cheong Tay, like the shares
in the Yut Siong Chyip Konski and the Manila Electric Railroad and Light Company,
are in the possession of the deceased partner, the proper step for the surviving
associates to take would be to make application to the court having charge to the
administration to require the administrator to surrender such property.
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.

Guidote vs. Borja, 53 Phil. 900