TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL.

, plaintiffs-appellants,
vs.
SALVADOR SERRA
By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker and Venancio Concepcion, by
common consent, decided to dissolve the partnership between the "Hacienda Palma" and "Hacienda
San Isidro," thus cancelling the contract of partnership of February 1, 1919.
Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any
right arising out of that contract of partnership, which has been annulled, such as the right to claim
now a part of the cost of the construction of the railroad line stipulated in that contract.
Defendant's contention signifies that any person, who has contracted a valid obligation with a
partnership, is exempt from complying with his obligation by the mere fact of the dissolution of the
partnership. Defendant's contention is untenable. The dissolution of a partnership must not be
understood in the absolute and strict sense so that at the termination of the object for which it was
created the partnership is extinguished, pending the winding up of some incidents and obligations of
the partnership, but in such case, the partnership will be reputed as existing until the juridical
relations arising out of the contract are dissolved. This doctrine has been upheld by the supreme
court of Spain in its decision of February 6, 1903, in the following case: There was a partnership
formed between several persons to purchase some lands sold by the state. The partnership paid the
purchase price and distributed among its members the lands so acquired, but after the lapse of
some time, one of the partners instituted an action in the court of Badajoz, praying that he be
accepted as a partner with the same rights and obligations as the others, for the reason that he had
not been allowed all that he had a right to. The court granted the petition, which judgment was
affirmed by the Audiencia de Caceres.
From that decision the defendant sued out a writ of error alleging infringement of articles 1680 and
1700 of the Civil Code, on the proposition that all contracts are reputed consummated and therefore
extinguished, when the contracting parties fulfill all the obligations arising therefrom and that by the
payment of the money and the granting and distribution of the lands without any opposition, the
juridical relations between the contracting parties become extinguished and none of the parties has
any right of action under the contract. The supreme court, holding that some corrections and
liquidations asked by the actor were still pending, denied the writ, ruling that the articles cited were
not infringed because a partnership cannot be considered as extinguished until all the obligations
pertaining to it are fulfilled. (11 Manresa, page 312.)

Bearneza v dequila
Now, this partnership not having been organized in the form of a mercantile partnership, and,
therefore, the provisions of the Code of Commerce not being applicable thereto (article 1670 of the
Civil Code), it was dissolved by the death of Perpetua Bearneza, and falls under the provisions of
article 1700, subsection 3, of the same Code, and not under the exception established in the last
paragraph of said article 1700 of the Civil Code.

Neither can it be maintained that the partnership continued to exist after the death of Perpetua,
inasmuch as it does not appear that any stipulation to that effect has ever been made by her and the
defendant, pursuant to the provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal
status was that of a partnership in liquidation, and the only rights inherited by her testamentary heir,
the herein plaintiff, were those resulting from the said liquidation in favor of the deceased partner,
and nothing more. Before this liquidation is made, which up to the present has not been effected, it is
impossible to determine what rights or interests, if any, the deceased had, the partnership bond
having been dissolved.
There is no sufficient ground for holding that a community of property existed between the plaintiff
and the defendant, it not being known whether the deceased still had any interest in the partnership
property which could have been transmitted by will to the plaintiff. There being no community of
property, article 395 of the Civil Code cited by the plaintiff in support of his contention can have no
application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true
that the latter's act in requiring the heirs of Perpetua to contribute to the payment of the expenses of
exploitation of the aforesaid fishing industry was an attempt to continue the partnership, but it is also
true that neither the said heirs collectively, nor the plaintiff individually, took any action in response to
that requirement, nor made any promise to that effect, and therefore no new contract of partnership
existed.
We find that the plaintiff has not sufficiently shown his right of action.

Lota v tolentino
The present appellant is Solomon Lota, in his capacity as administrator of the estate of Urbano Lota,
original plaintiff, who died in l938. The decisive question that arises is whether or not, after the death
of the defendant Benigno Tolentino on November 22, 1939, plaintiff's action for accounting and
liquidation of the partnership formed in l918 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. This question was decided adversely to the appellant by the lower court and, in our
opinion, correctly. The applicable authority is the case of Po Yeng Cheovs. Lim Ka Yam, 44 Phil. 172,
in which the following pronouncements were made:
In the first place, 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. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibatavs. 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. Licahuco, 33 Phil., 350). Upon the death of Lim Ka Yam it therefore
become 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 state, 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 Manila Electric Railroad and Light Company,
are in the possession of the partner, the proper step for the surviving associates to take
would be to make application to the court having charge of 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 plaintiffs proportionate share of the
capital and assets. But of course the action was not maintenable in this aspect after the
death of the defendant; and the motion to discontinue the action against the administrator
should have been granted. (pp. 178-179.)

Goquiolay v sycip
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article 1713 of the
Civil Code of 1889. What this argument overlooks is that the widow was not a mere agent, because
she had become a partner upon her husband's death, as expressly provided by the articles of
copartnership. Even more, granting that by succession to her husband, Tan Sin An, the widow only
became a limited partner, Goquiolay's authorization to manage the partnership property was proof
that he considered and recognized her as general partner, at least since 1945. The reason is plain:
Under the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the
widow, if she were only a limited partner, to administer the properties of the firm, even as a mere
agent:
Limited partners may not perform any act of administration with respect to the interests of the
copartnership, not even in the capacity of agents of the managing partners. (Emphasis
supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to
be considered a general partner. By authorizing the widow to manage partnership property (which a
limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now
in estoppel to deny her position as a general partner, with authority to administer and alienate
partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
"necessarily") becomes a limited partner for his own protection, because he would normally prefer to
avoid any liability in excess of the value of the estate inherited so as not to jeopardize his personal
assets. But this statutory limitation of responsibility being designed to protect the heir, the latter may
disregard it and instead elect to become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not only with the inheritance but also with

the heir's personal fortune. This choice pertains exclusively to the heir, and does not require the
assent of the surviving partner.
It must be remember that the articles of co-partnership here involved expressly stipulated that:
In the event of the death of any of the partners at any time before the expiration of said term,
the co-partnership shall not be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said co-partnership (Art. XII, Articles of
Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partners; on the
contrary, they expressly stipulated that in case of death of either partner "the co-partnership ... will
have to be continued" with the heirs or assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership, since the difference between the two
kinds of associations is fundamental; and specially because the conversion into a limited association
would have the heirs of the deceased partner without a share in the management. Hence, the
contractual stipulation does actually contemplate that the heirs would becomegeneral partners rather
than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to
assume personal and unlimited responsibility for the obligations of the firm. The heirs, in other
words, can not be compelled to become general partners against their wishes. But because they are
not so compellable, it does not legitimately follow that they may not voluntarily choose to become
general partners, waiving the protective mantle of the general laws of succession. And in the latter
event, it is pointless to discuss the legality of any conversion of a limited partner into a general one.
The heir never was a limited partner, but chose to be, and became, a general partner right at the
start.
It is immaterial that the heir's name was not included in the firm name, since no conversion of status
is involved, and the articles of co-partnership expressly contemplated the admission of the partner's
heirs into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and does not
deal with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues
between the partners inter se were expressly reserved in our main decision. Now, in determining
what kind of partner the widow of partner Tan Sin an Had elected to become, strangers had to be
guided by her conduct and actuations and those of appellant Goquiolay. Knowing that by law a
limited partner is barred from managing the partnership business or property, third parties (like the
purchasers) who found the widow possessing and managing the firm property with the acquiescence
(or at least without apparent opposition) of the surviving partners were perfectly justified in assuming
that she had become a general partner, and, therefore, in negotiating with her as such a partner,
having authority to act for, and in behalf of the firm. This belief, be it noted, was shared even by the
probate court that approved the sale by the widow of the real property standing in the partnership
name. That belief was fostered by the very inaction of appellant Goquiolay. Note that for seven long
years, from partner Tan Sin An's death in 1942 to the sale in 1949, there was more than ample time
for Goquiolay to take up the management of these properties, or at least ascertain how its affairs

stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable notice in
the commercial registry could have warned strangers that they must deal with him alone, as sole
general partner. But he did nothing of the sort, because he was not interested (supra), and he did not
even take steps to pay, or settle the firm debts that were overdue since before the outbreak of the
last war. He did not even take steps, after Tan Sin An died, to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would have no intervention in the management of the
partnership. This lachescertainly contributed to confirm the view that the widow of Tan Sin An had, or
was given, authority to manage and deal with the firm's properties apart from the presumption that a
general partner dealing with partnership property has to requisite authority from his co-partners
(Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main decision, p. 11).
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 on 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 it is 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
copartner; 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 is acting in accordance therewith. And this
finds support in the legal presumption that the ordinary course of business has been followed
(No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31,
section 334). This last presumption is equally applicable to contracts which have the force of
law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis
supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm.
This argument is lamentably superficial because it fails to differentiate between real estate acquired
and held as stock-in-trade and real estate held merely as business site (Vivante's "taller o banco
social") for the partnership. Where the partnership business is to deal in merchandise and goods,
i.e., movable property, the sale of its real property (immovables) is not within the ordinary powers of
a partner, because it is not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the present case), the
immovables thus acquired by the firm from part of its stock-in-trade, and the sale thereof is in
pursuance of partnership purposes, hence within the ordinary powers of the partner. This distinction
is supported by the opinion of Gay de Montella1 , in the very passage quoted in the appellant's
motion for reconsideration:

Chocio v doing
Appellants make in their brief six assignments of errors, which, reduced to bare essentials, may be
boiled down to the following points: (1) the sale made by Ng Diong in behalf of the partnership NG
CHIN BENG HERMANOS of the seven lots belonging to it in favor of C. N. Hodges on April 2, 1946

is null and void because at that time said parcels were still in the custody of the assignee of the
insolvency proceedings, or in custodia legis, and, hence, the same is null and void; (2) said sale is
also null and void "because of the disparity, irrationality and unreasonableness between the
consideration and the real value of the properties when sold"; and (3) the lower court erred in not
finding that the two deeds of mortgage executed by he partnership in favor of the National Loan and
Investment Board which were later assigned to C. N. Hodges can no longer be enforced because
the action to foreclose the same has already prescribed.
Anent the first issue, it would be well to state the following facts by way of clarification: It should be
recalled that on August 8, 1940 the majority of the creditors of the partnership, as well as the
representatives of the latter, submitted to the court taking cognizance of the insolvency proceedings
a composition agreement whereby it was agreed that said creditors would receive 20% of the
amount of their claims in full payment thereof. This agreement was approved on October 10, 1940
which, in contemplation of law, has the effect of putting an end to the insolvency proceedings.
However, no further step was taken thereon because of the outbreak of the war. Later, the record of
the case was reconstituted and the parties on August 15, 1945 filed a petition with the court praying
for the dismissal and closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an order declaring
the proceedings terminated and ordering the assignee to return and reconvey the properties the
partnership. The actual reconveyance was done by a assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency ended on said date.
Since then partnership became, restored to its status quo. It again reacquired its personality as such
with Ng Diong as its general manager. From that date on its properties ceased to be in custodia
legis. Such being the case, it is obvious that when Ng Diong as manager of the partnership sold the
seven parcels of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale acknowledged
before a notary public on April 6, 1946, the properties were already was at liberty to do what it may
deem convenient and proper to protect its interest. And acting accordingly, Ng Diong made the sale
in the exercise of the power granted to him by the partnership in its articles of co-partnership. We do
not, therefore, find anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the question may be
fixed: Who shall wind up it business affairs? May its manager still execute the sale of its properties to
C. N. Hodges as was done by Ng Diong? The answer to this question cannot but be in the
affirmative because Ng Diong was still the managing partner of the partnership and he had the
necessary authority to liquidate its affairs under its articles of co-partnership. And considering that
war had intervened and the affairs of the partnership were placed under receivership up to October
6, 1945, we are of the opinion that Ng Diong could still exercise his power as liquidator when he
executed the sale in question in favor of C. N. Hodges. This is sanctioned by Article 228 of the Code
of Commerce which was the law in force at the time.

Lichauco v lichauco
These contentions of counsels for the defendant take no account of the provisions of both the Civil
and Commercial Codes for the dissolution and liquidation of the different classes of partnerships and
mercantile associations upon the occurrence of certain contingencies not within the control of the

partners. The provisions of paragraph 10 of the articles of partnership prohibiting the dissolution of
the association under review, except by the consent and agreement of two-thirds of its partners,
denied the right to a less number of the partners to effect a dissolution of the partnership through
judicial intervention or otherwise; but in no wise limited or restricted the rights of the individual
partners in the event the dissolution of the association was effected, not by any act of theirs, but by
the express mandate of statutory law. It would be absurd and unreasonable to hold that such an
association could never be dissolved and liquidated without the consent and agreement of two-thirds
of its partners notwithstanding that it had lost all its capital, or had become bankrupt, or that the
enterprise for which it had been organized had been concluded or utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which partnership
(sociedades) as defined in that code, may be terminated. The first article of that chapter is as
follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted expires.
(2) When the thing is lost, or the business for which it was constituted ends.
(3) By the natural death, civil interdiction, or insolvency of any of the partners, and in the
case provided for in article 1699.
(4) By the will of any of the partners, subject to the provisions of articles 1705 and 1707.
Partnerships, to which article 1670 refers, are excepted from the provisions of Nos. 3 and 4
of this article, in the cases in which they should exist, according to the Code of Commerce.
1670. Civil partnerships, on account of the objects for which they are destined, may adopt all
the forms accepted by the Code of Commerce. In this case, the provisions of the same shall
be applicable, in so far as they are not in conflict with those of the present Code.
Articles 221 and 222 of the Code of Commerce are as follows:
221. Associations of any kind whatsoever shall be completely dissolved for the following
reasons:
(1) The termination of the period fixed in the articles of association of the conclusion of the
enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall furthermore be totally dissolved for the
following reasons:

(1) The death of one of the general partners if the articles of copartnership do not contain an
express agreement that the heirs of deceased partner are to continue in the copartnership,
or an agreement to the effect that said copartnership will continue between the surviving
partners.
(2) The insanity of a managing partner or any other cause which renders him incapable of
administering his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions of law the association of which the defendant was
nominated manager (gestor) was totally dissolved in the year 1904, when the rice mill for the
operation of which it was organized was dismantled, the machinery offered for sale and the whole
enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of the defendant to liquidate its
affairs and account to his associates for their respective shares in the capital invested this not
merely from the very nature of his relation to the enterprise and of his duties to those associated with
him as partners, but also by the express mandate of the law. The association having been dissolved
by the termination and abandonment of the enterprise for which it was organized, he owed this duty
to liquidate and account to all and to each of his associates, and upon his failure to perform that
duty, all or any of them had a clear legal right to compel him to fulfill it. Each of his associates had a
perfect right to demand for himself a full, complete and satisfactory accounting, and in the event that
he conceived himself aggrieved in this regard, to institute the appropriate judicial proceedings to
secure relief. Doubtless, in order to avoid a multiplicity of actions, the defendant in such an action
could require all the associates to be made parties, but the right of an individual member of the
association to recover his share in the enterprise and to assert his individual claim for redress,
wholly independent of the action or attitudes of his associates, could be in no wise affected thereby.
The other associates would be proper, but not necessary, parties to an action of this kind; and when,
as in the case at bar, the defendant proceeds to trial without objection on the express ground that all
the associates in the enterprise have not been made parties to the action, he cannot thereafter be
heard to raise such an objection for the purpose of challenging any judgment which may be
rendered therein.
Although the enterprise was organized in the year 1901 for the purpose of conducting mercantile
operations, including the buying and selling of "palay" and rice, the articles of partnership or
association were not registered in the mercantile registry in accordance with the provisions of
articles 17 and 119 of the Commercial Code. It was therefore a mere unregistered commercial
partnership, and the association never became in the legal sense a juridical person, nor did it attain
the dignity, rights or privileges accorded the different classes of compaias mercantiles (mercantile
partnerships), discussed in Title 1 of Book 2 of the Commercial Code. Still, under the provisions of
the above-cited article 1670 of the Civil Code, if it be found that the association is clothed with the
forms of any of the commercial association or partnerships recognized in the Commercial Code, the
provisions of that code, in so far as they are not in conflict with those of the Civil Code, may be relied
upon in an attempt to define the legal relations of the association and its members. Though the
unregistered articles of partnership gave the association a form of organization closely assimilated to

that of a regular "compaia en comandita," as prescribed in the Commercial Code, except that the
name designated in the articles did not include the words "y compaia" (and company) and the
additional words "sociedad en comandita," it appears to have been organized and conducted in
substantially the manner and form prescribed for "cuentas en participacion" (joint accounts) in
articles 239-243 of that Code.
The plaintiffs alleged in their complaint and the defendant admitted in his answer that the contract
was one of a "sociedad de cuentas en participacion" (joint account partnership) of which the
defendant was gestor (manager). In his brief on appeal, however, counsel for defendant intimates
that under article 241 of the Commercial Code, the adoption in the articles of partnership of a firm
name deprived the parties of the rights and privileges secured to those interested in cuentas en
participacion under the provisions of the Commercial Code.
But whatever effect the inclusion or omission of a firm name in the articles of partnership may have
had as to third persons dealing with the partnership, we are of opinion that as between the
associates themselves, their mutual rights, duties and obligations may properly be determined upon
the authority of article 1670 of the Civil Code by the provisions of the Commercial Code touching
partnerships, the form of which in all other respects, the partners have adopted in their articles of
partnership.
The duty of the defendant to liquidate the affairs of the enterprise and to account to his associates
promptly upon the dissolution of the association in the year 1904 is expressly prescribed in the
Commercial Code, whether we regard the association, so far as it affects the mutual rights and
obligations of the partners, as clothed with the forms of a "sociedad de cuentas en participacion"
(joint account partnership) or a "sociedad en comindata."
Article 243 of the Code of Commerce prescribes with reference to "cuentas en participacion" (joint
accounts) that:
243. The liquidation shall be effected by the manager, and after the transactions have been
concluded he shall render a proper account of its results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited copartnerships, should there be no opposition on the part of any of
the partners, the persons who managed the common funds shall continue in charge of the
liquidation; but should all the partners not agree thereto a general meeting shall be called
without delay, and the decision adopted at the same shall be enforced with regard to the
appointment of liquidators from among the members of the association or not, as well as in
all that refers to the form and proceedings of the liquidation and the management of the
common funds.
230. Under the penalty of removal the liquidators shall

(1) Draw up and communicate to the members, within the period of twenty days, an
inventory of the common property, with a balance of the association in liquidation according
to its books.
(2) Communicate in the same manner to the members every month the condition of the
liquidation.
We conclude that an express statutory obligation imposed upon the defendant an imperative
obligation to proceed without delay to the liquidation of the association in the year 1904 and the
further duty to account to his associates for the result of that liquidation. While he appears to have
gone forward with the liquidation far enough to collect all the cash resources of the association into
his own hands, how utterly failed neglected to account therefor to his associates or to make any
attempt so to do, and we are of opinion that the plaintiffs were clearly entitled to bring this action to
compel an accounting, and the payment of their respective shares of the capital invested, together
with damages resulting from the failure of the defendant to perform the duty expressly imposed upon
him by statute. The damages arising from the failure to account consisted of the loss of the use of
the money to which they would have been entitled upon a proper accounting, from the date at which
it should have been turned over by the defendant until it is actually paid by him, that is to say,
interest on that amount at the rate of six per centum per annum until paid.
What has been said disposes adversely of the contentions of the defendant in support of his
assignments of errors Nos. 1 and 5; and sustains the contentions of the plaintiffs in their
assignments of errors Nos. 1 and 2, to the extent that interest at the rate of six per centum per
annum should have been allowed upon the credit balance of the enterprise from May 30, 1904, the
date when it should have been distributed among his associates by the defendant had he performed
his statutory duty in that regard. This balance (including the item mentioned in plaintiff's assignment
of error No. 2) we fix at P23, 131.53, adopting as a basis for our finding in this regard, the findings
and conclusions of the trial judge, and disregarding the possibility that had defendant accounted
promptly to his associates, interest might not have been chargeable on some of the smaller items in
included in the account until some little time after the date just mentioned.
As to the other assignments of error it must suffice to say that we have carefully examined the record
and have arrived at the following conclusions:
With relation to the item of account referred to in defendant's assignment of error No. 2 and plaintiff's
assignment No. 5, we hold that the defendant's account was properly charged by the trial judge with
the sum of P5,500, the purchase price of certain machinery sold by him and for which, under all the
circumstances, he must account, together with interest at the rate of six per centum per annum from
January 8, 1912, the date of sale to Marciano Rivera.
With relation to the items mentioned in plaintiff's assignments of errors Nos. 3 and 4, we hold that
the trial judge properly declines to charge the defendant's account with the amounts mentioned
therein, the evidence of record not being sufficient to establish his liability therefor as manager
or gestor of the enterprise.

With relation to the matter referred to in plaintiff's assignment of error number 6 and defendant's
assignment No. 4, we are of opinion that the trial judge properly disposed of the issues between the
parties in this regard, as they were submitted to him and as they are disclosed by the record brought
here on appeal.

Soncuya v de luna
In view of the foregoing considerations, we are of the opinion and so hold that for a partner to be
able to claim from another partner who manages the general copartnership, damages allegedly
suffered by him by reason of the fraudulent administration of the latter, a previous liquidation of said
partnership is necessary.
Singsong v Isabella sawmill
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in
the carrying on of the business. 18 However, on dissolution, the partnershop is not terminated but
continuous until the winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead
of winding up the business of the partnership, they continued the business still in the name of said
partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners
had constituted themselves as the partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and
Timoteo Tubungbanua, continued doing the business of the partnership in the name of "Isabela
Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G.
Saldajeno, was correctly held liable by the trial court because she purchased at public auction the
properties of the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published
in the newspapers. The appellees and the public in general had a right to expect that whatever,
credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of
the partnership "Isabela Sawmill" could be enforced against the proeprties of said partnership. The
judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno did not
relieve her from liability to the creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the
liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo
Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees
aslo acted in good faith in extending credit to the partnership. Where one of two innocent persons
must suffer, that person who gave occasion for the damages to be caused must bear the

consequences. Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing
Leon Garibay and Timoteo Tubungbanua to continue doing the business of the aprtnership, the
applees would not have been misled into thinking that they were still dealing with the partnership
"Isabela Sawmill". Under the facts, it is of no moment that technically speaking the partnership
"Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The
partnership was not terminated and it continued doping business through the two remaining
partners.
The contention of the appellant that the appleees cannot bring an action to annul the chattel
mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua
in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a
contract, may exercised an action for nullity of the contract if he is prejudiced in his rights with
respect to one of the contracting parties, and can show detriment which would positively result to
him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over
the properties of the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the
remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to
file the action to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees to the
plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a wanton
disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit
erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the
appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandumagreement, Leon Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno
from any obligation of "Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion
ordering appellants to pay attorney's fees and with the modification that the defendsants, Leon
Garibay and Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G.
Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees,
without pronouncement as to costs.
SO ORDERED.
Cheo v Yam

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.
The judgment must be reversed, and the defendant will be absolved from the complaint; but it will be
understood that this order is without prejudice to any proceeding which may be undertaken by the
proper person or persons in interest to settle the affairs of Kwong Cheong Tay and in connection
therewith to recover from the administrator of Lim Ka Yam the shares in the two concerns mentioned
above. No special pronouncement will be made as to costs of either. So ordered.
Laguna transportation co v sss
Finally, the weight of authority supports the view that where a corporation was formed by, and
consisted of members of a partnership whose business and property was conveyed and transferred
to the corporation for the purpose of continuing its business, in payment for which corporate capital
stock was issued, such corporation is presumed to have assumed partnership debts, and is prima
facie liable therefor. (Stowell vs. Garden City News Corps., 57 P. 2d 12; Chicago Smelting & Refining
Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for the
rule is that the members of the partnership may be said to have simply put on a new coat, or taken
on a corporate cloak, and the corporation is a mere continuation of the partnership. (8 Fletcher
Cyclopedia Corporations [Perm. Ed.] 402-411.)
Sison v mcquaid
The proceeds from the sale of a certain amount of lumber cannot be considered profits until costs
and expenses have been deducted. Moreover, the profits of the business cannot be determined by
taking into account the result of one particular transaction instead of all the transactions had. Hence,

the need for a general liquidation before a member of a partnership may claim a specific sum as his
share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the ground that the complaint
states no cause of action and without prejudice to the filing of an action for accounting or liquidation
should that be what plaintiff really wants. Without costs in this instance.
1awphil.net

August 3, 1918, defendant assumed complete responsibility for the business by objecting to the
appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until that date his
acts were those of a managing partner, binding against the partnership; but thereafter his acts were
those of a receiver whose authority is contained in section 175 of the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or directed by the
court to do some, and such authority is not derived from an order of appointment to take and
preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not appear that the defendant as a
receiver was authorized by the court to continue the business of the partnership in liquidation. This
being so, he is personally liable for the losses that the business amy have sustained. (34 Cyc., 296.)
The partnership must not, therefore, be liable for the acts of the defendant in connection with the
management of the business until August 3, 1918, the date when he ceased to be a member and
manager in order to become receiver.
As to the first semester of 1918, during which time the defendant had seen managing the business
of the partnership as a member and manager, taking into account that the profits had been on the
increase, said profits having reached the amount of P10,174.69 in the year 1917, it would not be an
exaggeration to estimate that the profits for 1918 would have been at least the same as the profits of
1917; so that for the first half of 1918, the profit would be P5,087.34.
In conclusion we have the following profits of the business of this partnership now in liquidation, to
wit:
Capital of partnership...........................

P4,779.39

Profits until 1905..................................

5,551.40

Profits 1906-1912................................

20,141.45

Profits 1913-1917................................

25,038.70

Profits first semester 1918...............

Total.......................................................

5,087.34
60,598.28

One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the intestate
estate of Go-Lio.
In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided by the
reversing the judgment appealed from, and sentencing the defendant to pay the plaintiff the sum of
P30,299.14 with legal interest at the rate of 6 per cent per annum from July 1, 1918, until fully paid,
with costs. So ordered.
Magdusa v albaran

We do not find the preceding reasoning tenable. A partner's share can not be returned without first
dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 177), for the
return is dependent on the discharge of the creditors, whose claims enjoy preference over those of
the partners; and it is self-evident that all members of the partnership are interested in his assets
and business, and are entitled to be heard in the matter of the firm's liquidation and the distribution of
its property. The liquidation Exhibit "C" is not signed by the other members of the partnership
besides appellees and appellant; it does not appear that they have approved, authorized, or ratified
the same, and, therefore, it is not binding upon them. At the very least, they are entitled to be heard
upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is first had, the
capital shares of the appellees, as retiring partners, can not be repaid, for the firm's outside creditors
have preference over the assets of the enterprise (Civ. Code, Art. 1839), and the firm's property can
not be diminished to their prejudice. Finally, the appellant can not be held liable in his personal
capacity for the payment of partners' shares for he does not hold them except as manager of, or
trustee for, the partnership. It is the latter that must refund their shares to the retiring partners. Since
not all the members of the partnership have been impleaded, no judgment for refund can be
rendered, and the action should have been dismissed.
Lim tan hu v ramolete
In the second place, assuming that the assignment actually brought profit to the partnership, it is
hard to see how defendant could be made to answer for plaintiffs' alleged share thereof. As stated in
the decision below, defendant did not receive the consideration for the assignment for, as already
stated, the assignment was made in payment for subscriptions of various persons to the capital
stock of the new corporation. Plaintiffs, in order to give color of legality to their claim against
defendant, maintain that the latter should be held liable for damages caused to them, consisting of
the loss of their share of the profits, due to defendant's failure properly to perform his duty as a
liquidator of the dissolved partnership, this on the theory that as managing partner of the partnership,
it was defendant's duty to liquidate its affairs upon its dissolutions. But it does not appear that
plaintiffs have ever asked for a liquidation, and as will presently be explained no liquidation was
called for because when plaintiffs withdrew from the partnership the understanding was that after
they had been reimbursed their investment, they were no longer to have any further interest in the
partnership or its assets and liabilities. Moreover, the stipulation of facts made at the hearing does
not bear out the claim that defendant was the managing partner of the partnership, for if there
appears that the partnership had its general manager in the person of Pedro Serranzana, who upon
the formation of the new corporation also became its vice-president and general manager.
As a general rule, when a partner retires from the firm, he is entitled to the payment of what may be
due him after a liquidation. But certainly no liquidation is necessary where there is already a
settlement or an agreement as to what the retiring partner shall receive. In the instant case, it
appears that a settlement was agreed upon on the very day the partnership was dissolved. For when
plaintiffs and Judge Jaime Reyes withdrew from the partnership on that day they did so as agreed to
by all the partners, subject to the only condition that they were to be repaid their contributions or
investments within three days from said date. And this condition was fulfilled when on the following
day they were reimbursed the respective amounts due them pursuant to the agreement.

There is evidence that the partnership was at that time operating its business at a loss and that the
partnership did not have necessary funds to meet its obligation to Meralco for the balance of the
purchase price. And in that connection it should be recalled that nonpayment of that obligation would
result in the partnership losing its entire investment because of the penalty clause in the deed of
sale. Because of these circumstances there is every reason to believe that plaintiffs together with
Judge Jaime Reyes, withdrew from the partnership for fear that they might lose their entire
investment should they choose to remain in the partnership which then faced the danger of losing its
entire assets. As testified to by Judge Reyes, one of the withdrawing partners, it was clearly
understood that upon their withdrawal and return to them of their investment they would have
nothing more to do with the association. It must, therefore, have been the intention or understanding
of the parties that the withdrawing partners were relinquishing all their rights and interest in the
partnership upon the return to them of their investment. That Judge Reyes did not join the plaintiffs in
this action is a clear indication that such was really the understanding. Judge Reyes has testified
that when he was invited to join in the present claim he refused because he did not want to be a "sin
verguenza." And, indeed, if the agreement was that the withdrawing partners were still to have
participation in the subsequent transactions of the partnership so that they would have a share not
only in the profits but also in the losses, it is not likely that their investment would have been returned
to them.
It is, therefore, our conclusion that the acceptance by the withdrawing partners, including the
plaintiffs, of their investment in the instant case was understood and intended by all the parties as a
final settlement of whatever rights or claim the withdrawing partners might have in the dissolved
partnership. Such being the case they are now precluded from claiming any share in the alleged
profits, should there be any, at the time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against defendant to be without legal basis so that
the judgment of dismissal rendered by the court below should be, as it is hereby, affirmed, with costs
against the appellants.