B U S

C. OBLIGATIONS OF THE PARTNERS

a. Among themselves (Arts. 1784 to 1809)
Sancho v Lizarraga
GR L-33580

February 6, 1931

By: Trina Faye Ladores

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |1

the case in question, because it refers to the resolution of obligations in

general, whereas article 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.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of
costs. So ordered.

FACTS:
The plaintiff brought an action for the rescission of a partnership
contract between himself and the defendant, entered into on October
15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, 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 which are incompatible with his special defenses, crosscomplaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager
and administrator of P500 monthly from October 15, 1920, until the
final dissolution, with interest, one-half of said amount to be charged to
the plaintiff. He also prays for any other just and equitable remedy.

NOTES:
Article 1124. Judicial summons shall be deemed not to have been
issued and shall not give rise to interruption:
(1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should
allow the proceedings to lapse;
(3) If the possessor should be absolved from the complaint.
In all these cases, the period of the interruption shall be counted for the
prescription. (1946a)

CFI:
The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the
capital he had bound himself to invest, and that the plaintiff had
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, without
costs.
(ISSUES) The plaintiff appealed from said decision making the
following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract, Exhibit A, and that article
1124 of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to
the plaintiff with interest from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.

Article 1681. Neither does the lessee have any right to a reduction of
the rent if the fruits are lost after they have been separated from their
stalk, root or trunk. (1576)

Article 1682. The lease of a piece of rural land, when its duration has
not been fixed, is understood to have been for all the time necessary
for the gathering of the fruits which the whole estate leased may yield
in one year, or which it may yield once, although two or more years
have to elapse for the purpose. (1577a)
SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendantappellant.
Penned by: CONCEPCION JR.
By: Earshad Banjal
FACTS:

In the brief filed by counsel for the appellee, a preliminary question is

raised purporting to show that this appeal is premature and therefore
will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts,
have not been made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet appealable. In support
of this contention counsel cites section 123 of the Code of Civil
Procedure, and the decision of this court in the case of Natividad vs.
Villarica (31 Phil., 172).
HELD:
This contention is well founded. Until the accounts have been rendered
as ordered by the trial court, and until they have been either approved
or disapproved, the litigation involved in this action cannot be
considered as completely decided; and, as it was held in said case of
Natividad vs .Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the dissolution of
partnership, the appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court's
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682
of the Civil Code have been properly applied. Owing to the defendant's
failure to pay to the partnership the whole amount which he bound
himself to pay, he became indebted to it 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. This article cannot be applied to

This case is an appeal from the decision of the CFI of

Manila, dissolving the "U.P. Construction Company" and ordering the
defendant Bartolome Puzon (Puzon) to pay the plaintiff the amounts of:
(1) P115,102.13, with legal interest thereon from the date of the filing of
the complaint until fully paid; (2) P200,000.00, as plaintiffs share in the
unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
The case stemmed from the following:
1. Puzon had a contract with the Republic of the Philippines for
the construction of a road in and of five bridges.
2. However, Puzon found difficulty in accomplishing both
projects, so he established a partnership with Uy as subcontractor of the projects for financial assistance and the
profits shall be divided equally between them; the resulting
partnership is U.P. Construction Company.
3. The partners agreed to contribute P50, 000 each as capital.
However, Puzon failed to pay but promised to contribute his
share as soon as his application of loan with the PNB shall
be approved. Uy gave Puzon advance contribution of his
share in partnership for Puzon top pay his obligations with
PNB. Uy was entrusted with the management of the project
since Puzon is busy with his other projects; whatever
expense Uy may incur shall be considered part of his
contribution.
4. Upon approval of Puzons loan with the PNB, he gave Uy
P60, 000 for reimbursement of Uys contribution and Puzons
contribution to the partnership capital. To guarantee the
payment of the loan, Puzon assigned to PNB all payments to
be received on account of the contracts with the Bureau of
Public Highways for the construction; this was done without
the knowledge and consent of Uy.
5. Financial demands of the project increased, thus, Uy called
on Puzon to place his capital contribution; Puzon failed to do

B U S

6.

so. Uy thereafter sent letters of demand to which Puzon

replied that hes not capable of putting additional capital.
Puzon wrote UP Construction Company terminating their
subcontract agreement. Uy was then not allowed in the office
of UP Construction Company and his authority to deal with
BPH was revoked.
Hence, he instituted an action against Puzon seeking the
dissolution of the partnership and payment of damages for
the violation of the latter of the terms of their partnership
agreement.

Uys contention:
Uy claimed that Puzon had violated the terms of their
partnership agreement.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |2

There is no doubt Uy failed to make profits because of

Puzon's breach of contract. The partnership showed some profits
even though the profit and loss statement showed net loss; it may
be due to error in accounting. Had the appellant not been remiss
in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform
pursuant to the partnership and subcontract agreements, and
considering the fact that the total contract amount of these two
projects is P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the P334,255.61.
The Court has hereinabove indicated. The award, therefore, made
by the trial court of the amount of P200,000.00, as compensatory
damages, is not speculative, but based on reasonable estimate.

Puzons contention:
Puzon denied that he violated the terms of their agreement
claiming that it was the plaintiff, Uy, who violated the terms thereof. He
claimed that Uy is equally guilty of not contributing his share in the
partnership capital.
He, likewise, prayed for the dissolution of the partnership and for the
payment by the plaintiff of his, share in the losses suffered by the
partnership.

WHEREFORE, finding no error in the decision appealed from, the said

decision is hereby affirmed with costs against the appellant.

CFIs ruling:
The trial court found that defendant Puzon, contrary to the
terms of their partnership agreement, failed to contribute his share in
the capital of the partnership applied partnership funds to his personal
use; ousted the plaintiff from the management of the firm, and caused
the failure of the partnership to realize the expected profits of at least
P400,000.00. The court ordered the dissolution of the partnership and
Puzon to pay Uy a certain sum stated above in this appeal to the SC.
Franco Puzon substituted Bartolome Puzon on the appeal of the case
before the SC.

*As cited in Moran vs. CA: The rule is, when a partner who has
undertaken to contribute a sum of money fails to do so, he becomes a
debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation (Art. 1788, Civil
Code).

* the interest or damages awarded for loss of reasonably expected

profits or for loss of use of property
Wala sa case but then:

Moran vs. CA
By: Albert Bantan

Puzon claimed before the SC that the award of P200,000.00 as his

share in the unrealized profits of the partnership is without any basis
and is not supported by the evidence. Hence, this petition.
ISSUES:

Facts:

WON the amount of money the defendant Puzon has been order to
pay Uy by the trial court for the failure to contribute his share in the
capital of the partnership is proper.

In February 1971, Isabelo Moran and Mariano Pecson entered into a

partnership agreement where they agreed to contribute P15k each for
the purpose of printing 95k posters of the delegates to the then 1971
Constitutional Commission. Moran shall be in charge in managing the
printing of the posters. It was further agreed that Pecson will receive a
commission of P1k a month starting from April 1971 to December
1971; that the partnership is to be liquidated on December 15, 1971.

HELD: Yes.
1. As to the appellants failure to contribute in the partnership:
The findings of the trial court that appellant Puzon failed
to contribute his share in the capital of the partnership is clear
incontrovertible. The appellant failed to make any further
contributions the partnership funds as shown in his letters to the
appellee wherein he confessed his inability to put in additional
capital to continue with the projects.
As to the claim of the appellant that the appellee is
equally guilty of not contributing his share in the partnership
capital, it is plainly untenable. The terms of the receipts signed by
the appellant are clear and unequivocal that the sums of money
given by the appellee are appellee's partial contributions to the
partnership capital.
The findings of the trial court that the appellant
misapplied partnership funds is, likewise, sustained by competent
evidence. It is of record that the appellant assigned to the PNB all
the payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the
aforementioned projects to guarantee the repayment of the bank.
2.

As to the award of unrealized profits:

The appellant maintains that the lower court, in making its

determination, did not take into consideration the great risks
involved in business operations involving as it does the
completion of the projects within a definite period of time, in the
face of adverse and often unpredictable circumstances, as well as
the fact that the appellee, who was in charge of the projects in the
field, contributed in a large measure to the failure of the
partnership to realize such profits by his field management.
This argument must be overruled in the light of the law and
evidence on the matter. Under Article 2200 of the Civil Code,
indemnification for damages shall comprehend not only the value
of the loss suffered, but also that of the profits which the obligee
failed to obtain. In other words lucrum cessans* is also a basis for
indemnification.

Pecson partially fulfilled his obligation to the partnership when he

issued P10k in favor of the partnership. He gave the P10k to Moran as
the managing partner. Moran however did not add anything and,
instead, he only used P4k out of the P10k in printing 2,000 posters. He
only printed 2,000 posters because he felt that printing all 95k posters
is a losing venture because of the delay by the COMELEC in
announcing the full delegates. All the posters were sold for a total of
P10k.

Pecson sued Moran. The trial court ordered Moran to pay Pecson
damages. The Court of Appeals affirmed the decision of the trial court
but modified the same as it ordered Moran to pay P47.5k for unrealized
profit; P8k for Pecsons monthly commissions; P7k as return of
investment because the venture never took off; plus interest.

ISSUE: Whether or not the CA judgment is correct.

HELD: No. The award of P47.5k for unrealized profit is speculative.

There is no evidence whatsoever that the partnership between the
Moran and Pecson would have been a profitable venture (because
base on the circumstances then i.e. the delay of the COMELEC in
proclaiming the candidates, profit is highly unlikely). In fact, it was a
failure doomed from the start. There is therefore no basis for the award
of speculative damages in favor of Pecson. Further, there is mutual

B U S

breach in this case, Pecson only gave P10k instead of P15k while
Moran gave nothing at all.

As for the P8k monthly commission, this is without basis. The

agreement does not state the basis of the commission. The payment of
the commission could only have been predicated on relatively
extravagant profits. The parties could not have intended the giving of a
commission inspite of loss or failure of the venture. Since the venture
was a failure, Pecson is not entitled to the P8k commission.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |3

He further argued that :"The complaint avers that private

respondent extended 'financial assistance' to herein petitioner at the
time of the establishment of the Sun Wah Panciteria, in return of which
private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a serious
error for the lower court and the Hon. Intermediate Appellate Court to
grant a relief not called for by the complaint. It was also error for the
Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a
partnership;"
ISSUE NO. 1

As for the P7k award as return for Pecsons investment, the CA erred
in his ruling too. Though the venture failed, it did took off the ground as
evidenced by the 2,000 posters printed. Hence, return of investment is
not proper in this case. There are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business
judgment, which seems to be true in this case.

Moran must however return the unused P6k of Pecsons contribution to

the partnership plus P3k representing Pecsons profit share in the sale
of the printed posters. Computation of P3k profit share is as follows:
(P10k profit from the sale of the 2,000 posters printed) (P4k expense
in printing the 2k posters) = (P6k profit); Profit 2 = P3k each.
DAN FUE LEUNG, petitioner,vs.HON. INTERMEDIATE APPELLATE
COURT and LEUNG YIU, respondents.
G.R. No. 70926 January 31, 1989
By: Gladys Barretto
FACTS:
A complaint was filed by Leung Yiu with the then Court of
First Instance of Manila to recover the sum equivalent to twenty-two
percent (22%) of the annual profits derived from the operation of Sun
Wah Panciteria since October, 1955 against Dan Fue Leung.
The Sun Wah Panciteria, a restaurant and was registered
under the name of Dan Fue Leung as the sole proprietor.
Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he
was one of the partners having contributed P4,000.00 to its initial
establishment.
The petitioner denied having received from the private
respondent the amount of P4,000.00.
He argued that he used his savings from his salaries as an employee
at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was
the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by himself
alone.

Whether or not the private respondent is a partner of the

petitioner in the establishment of Sun Wah Panciteria.
HELD:
The Court held that private respondent is a partner of the
petitioner in Sun Wah Panciteria.
In essence, the private respondent alleged that when Sun
Wah Panciteria was established, he gave P4,000.00 to the petitioner
with the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that
"By the contract of partnership two or more persons bind themselves to
contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the
complaint as one wherein the private respondent asserted his rights as
partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance
therein. We agree with the appellate court's observation to the effect
that "... given its ordinary meaning, financial assistance is the giving
out of money to another without the expectation of any returns
therefrom'. It connotes an ex gratia dole out in favor of someone driven
into a state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case.'
The complaint explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be entitled to twentytwo percentum (22%) of the annual profit derived from the operation of
the said panciteria.
The private respondent's cause of action is premised
upon the failure of the petitioner to give him the agreed profits in
the operation of Sun Wah Panciteria. In effect the private
respondent was asking for an accounting of his interests in the
partnership.
It is Article 1842 of the Civil Code in conjunction with Articles
1144 and 1155 which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding up partners
or the surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement
to the contrary.
ISSUE NO. 2
Whether or not the cause of action already prescribed.

As between the conflicting evidence of the parties, the trial

court gave credence to that of the plaintiffs. Hence, the court ruled
in favor of the private respondent.
The petitioner appealed the trial court's decision to the then
Intermediate Appellate Court.
Later, the appellate court affirmed the lower court's decision.
The petitioner filed a motion for reconsideration but was denied.
The petitioner now asks for the reversal of the decision of the
then Intermediate Appellate Court which affirmed the decision of the
then Court of First Instance of Manila declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun
Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.

HELD:
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807, and 1809
show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution
of the partnership when the final accounting is done.
--------------------PETITIONERS ALLEGATION:
The alleged receipt is dated October 1, 1955 and the complaint was
filed only on July 13, 1978 or after the lapse of twenty-two (22) years,
nine (9) months and twelve (12) days. From October 1, 1955 to July
13, 1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:

B U S

Art. 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.

Jose Ornum and Emerenciana Ornum VS. Mariano, Lasala, et.al

Facts:
Father of respondents formed a partnership with Emerenciano Ornum,
whereby the former, as capitalist, delivered the sum of P1000 to the
latter who, as industrial partner, was to conduct business at his place of
residence in Romblon. When the assets of the partnership consisted of
outstanding accounts and old stock of merchandise, Emerenciano
asked for the dissolution of the partnership. Emerenciano looked for
someone who could take his place and suggested the names of the
petitioners who accordingly became the new partners. Upon joining,
petitioners contributed P505.54 as their capital, adding it to the former
capital of P1000. Pedro Lasala died and his children, now the
respondents, succeeded to all his rights and interest in the partnership.
Petitioners as managing partners, received one-half of the net gains
and the other half was to be divided between them and the Lasala
group in proportion to the capital put in by each group.
After 20 years, business has grown to such extent that its total value
amounted to P44,618.67. Statement of accounts were periodically
prepared by petitioners and sent to respondents who did not make any
objection thereto. Before the last statement of accounts was made,
respondents announce their desire to dissolve the partnership.
Respondents asked for another accounting and they be paid the
corresponding amount. Petitioners remitted and paid to the
respondents the amount of P5,387.29 under the statement of accounts
which, however, was not signed by the latter.
Respondents filed a complaint, praying for an accounting and final
liquidation of the assets of the partnership.

ANTONIO M. PABALAN vs. FELICIANO VELEZ, G.R. No. L-5953,

February 24, 1912

Court of first instance: held that the last and final statement of accounts
prepared by the petitioners was tacitly approved and accepted by the
respondents who, by virtue of the above-quoted letter of Father
Mariano Lasala, lost their right to a further accounting from the moment
they received and accepted their shares as itemized in said statement.

By: Gretchin Cinco

FACTS OF THE CASE:

Issue:
WON the final statement of accounts was approved by respondents.

The Court of Appeals did not make any findings that there was fraud.
The pronouncement that the evidence tends to prove that there were
mistakes in the petitioner's' statements of accounts, without specifying
the mistakes, merely intimates as suspicion and is not such a positive
and unmistakable finding of fact as to justify a revision, especially
because the Court of Appeals has relied on the bare allegations of the
parties, Even admitting that, as alleged by the petitioners in their
counterclaim, they overpaid the respondents in the sum of P575.12,
this error is essentially fatal to the latter's theory what the statement of

2 0 1 6 |4

We are reversing the appealed decision on the legal ground that the
petitioners' final statement of accounts had been approved by the
respondents and no justifiable reason (fraud, deceit, error or mistake)
has been positively and unmistakably found by the Court of Appeals so
as to warrant the liquidations sought by the respondents. In justice to
the petitioners, however, we may add that, considering that they ran
the business of the partnership for about twenty years at a place far
from the residence of the respondents and without the latter's
intervention; that the partners did not even know each other personally;
that no formal partnership agreement was entered into which bound
the petitioners under specific conditions; that the petitioners could have
easily and freely alleged that the business became partial, or even a
total, loss for any plausible reason which they could have concocted, it
appearing that the partnership engaged in such uncertain ventures as
agriculture, cattle raising and operation of rice mill, and the petitioners
did not keep any regular books of accounts; that the petitioners were
still frank enough to disclose that the original capital of P1,505.54
amounted, as of the date of the dissolution of the partnership, to
P44,618.67; and that the respondents had received a total of
P8,105.76 out of their capital of P1,000, without any effort on their part,
we are reluctant even to make the conjecture that the petitioners had
ever intended to, or actually did, take undue advantage of the absence
and confidence of the respondents. Indeed, we feel justified in stating
that the petitioners have here given a remarkable demonstration of the
legendary honesty, good faith and industry with which the natives of
Taal pursue business arrangements similar to the partnership in
question, and we would hate, in the absence of any sufficient reason,
to let such a beautiful legend have a distasteful ending.

By: Iona Casas

This approval precludes any right on the part of the respondents to a

further liquidation, unless the latter can show that there was fraud,
deceit, error or mistake in said approval.

D i g e s t s / U M L a w

If the liquidation is ordered in the absence of any particular error, found

as a fact, simply because no damage will be suffered by the petitioners
in case the latter's final statement of the accounts proves to be correct,
we shall be assuming a fundamentally inconsistent position. If there is
not mistake, the only reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense that they will be required
to pay anything to the respondents, but they will have to go to the
trouble of itemizing accounts covering a period of twenty years mostly
from memory, its appearing that no regular books of accounts were
kept. Stated more emphatically, they will be told to do what seems to
be hardly possible. When it is borne in mind that this case has been
pending for nearly nine years and that, if another accounting is
ordered, a costly action or proceeding may arise which may not be
disposed of within a similar period, it is not improbable that the
intended relief may in fact be the respondents' funeral.

Ornum vs Lasala

Ruling:
Yes. We hold that the last and final statement of accounts hereinabove
quoted, had been approved by the respondents. After such shares had
been paid by the petitioners and accepted by the respondents without
any reservation, the approval of the statement of accounts was virtually
confirmed and its signing thereby became a mere formality to be
complied with by the respondents exclusively. Their refusal to sign,
after receiving their shares, amounted to a waiver to that formality in
favor of the petitioners who has already performed their obligation.

1 C a s e

accounts shows, and is therefore not the kind of error that calls for
another accounting which will serve the purpose of the respondent's
suit.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by
the debtor.'

CA: reversed. Final statement of accounts remains unsigned by the

respondents, the same stands disapproved

O R G

The plaintiff, Antonio M. Pabalan, was the owner in fee simple of a

rural estate consisting of an hacienda known by the name of
"Pantayani," which was devoted to agricultural purposes, situated on
the roads leading from Mariquina to Antipolo, within the pueblos of
Cainta and Antipolo, Province of Rizal, and which covered an area of
1,978,822 square meters and a parcel of land consisting of a building
lot situated on Calle Real, of Cainta, measuring 371.30 square meters.
Plaintiff, desiring to make use of the two properties entered into an
agreement with Walter A. Fitton whereby they formed a regular
mercantile partnership for the development of the said properties and
for the manufacture and sale of their products and other business.
The sum of 9,000 pesos Mexican currency was fixed as the amount of
the capital stock of the partnership, of which 3,000 pesos, in cash,
were to be contributed by the plaintiff and 6,000 pesos, in real property,
by the said Fitton. To obtain 3,000 pesos, the plaintiff sold his two
aforementioned real properties to Walter A. Fitton.
The plaintiff received from the purchaser the sum of 3,000 pesos and
the latter, Walter A. Fitton, bound himself to pay into the funds of the
said partnership, as the plaintiff's capital, the remaining 3,000 pesos of
the selling price. It was furthermore agreed that the two real
properties should constitute the capital of Walter A. Fitton in the
partnership, which would be known by the name of "A. M. Pabalan and
Company" and should be equivalent of 6,000 pesos.
From June 27, 1900, up to the date when the partner Fitton died, the
latter failed to pay into the partnership funds, the remainder of the price
of the properties purchased by him in the amount of 3,000 pesos.
Neither the administrator of the latter's estate (Feliciano Velez) nor any
other person had turned into the partnership or paid to the plaintiff the
aforesaid 3,000 pesos.

B U S

The properties in question had been entirely unproductive and

losses and damages had been occasioned to the plaintiff in the sum of
2,000 pesos because of the failure of Fitton to comply with his
obligation.

Hence, plaintiff prayed for the rescission of the contract, the

dissolution of the partnership "A. M. Pabalan and Company," and the
annulment of the sale of the said properties.

Defendant alleged that the action prosecuted by the plaintiff had

prescribed and that the fact that the properties of the company known
as "A. M. Pabalan and Company" had been unproductive was
exclusively due to the great negligence of the plaintiff.
The court ordered a dissolution of the partnership formed between the
plaintiff and the deceased Walter A. Fitton and a recission of the sale
and contract of partnership executed between them.

ISSUE: Whether or not the partnership between plaintiff and Fitton be

rescinded on the ground that the latter failed to observe the
stipulation of their contract. YES
RULING:

Article 116 of the Code of Commerce prescribes: Articles of

association by which two or more persons obligate themselves to place
in a common fund any property, industry, or any of these things, in
order to obtain profit, shall be commercial, no matter what its class
may be, provided it has been established in accordance with the
provisions of this code.
It was duly proved at the trial of this case, that the partner Walter A.
Fitton failed to observe the stipulations of the two aforesaid contracts;
that he did not pay any part of the price of the sale of the two parcels of
land which he had purchased from his partner, Antonio M. Pabalan,
and, consequently, did not turn into the company funds, as capital of
the said Pabalan, the sum of which the said price consisted. It is
therefore unquestionable that he did not comply with his two principal
obligations, assumed in the said double contract wherein he expressly
agreed that the said P3,000, a part of the price of the two pieces of
land that he purchased from Pabalan, would be by him turned into the
fund of the general partnership which they had formed, as capital of the
partner Pabalan.
In case one of the parties to a contract does not fulfill his
obligation as stipulated therein, the other contracting party, by the
provisions of Article 1124 of the Civil Code, is entitled to demand
the rescission of the contract, as such obligations are mutual, and the
court must order the rescission demanded. The partner, Walter A.
Fitton, came within such a case, since he failed to pay any part of the
price of the two properties which he had acquired and did not turn into
the company fund, as capital of the vendor partner, the sum
representing such sale, and therefore justice requires the dissolution of
the aforementioned company and the rescission of the said sale, in
conformity with the finding contained in the judgment appealed from
the prayer rightfully and lawfully made by the partner who did not
violate his obligations as set forth in the said contract.
With respect to the interest on the capital which belonged to Pabalan,
and which Fitton failed to turn into the company fund in conformity with
the agreement made, and in regard to the amount of the losses and
damages occasioned by the noncompliance, on the part of the partner
Fitton, with the stipulated provisions, both such amounts should be
considered as the company's losses and computed pro rata, in
proportion to the extent that each partner is interested in the company
and on the same basis as the profits. (Arts. 140 and 141 of the Code of
Commerce.)
Hence, the court ruled that the administrator of the estate of the
deceased Fitton shall deliver to the administrator of the estate of
Pabalan the two parcels of land, the sale of which was rescinded, upon
payment by the last named administrator to that of the estate of Fitton,
of the sum of P2,700, equivalent to P3,000 Mexican pesos, the said
administrator of the Pabalan estate being entitled to deduct from the
said sum that of P348.20, which is two-thirds of the amount paid as
land tax on the properties concerned.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |5

B U S

MARTINEZ v. ONG PONG CO Arellano, CJ (1910)

By: Yanee Dapitanon
MARTINEZ delivered to Ong Pong Co and Ong Lay (ONGS) the sum
of P1,500. The ONGS, in a private document, acknowledged that they
had received the money with the agreement that they will invest it in a
store, and the profits or losses therefrom was tube divided with
MARTINEZ in equal shares.
Later, MARTINEZ filed a complaint in order to compel the ONGSto
render him an accounting of the partnership, or else to refund him the
P1, 500 that he had given them
Ong Pong Co alone appeared to answer the complaint. He admitted
the fact of the agreement, but he alleged that Ong Lay (deceased) was
the one who had managed the business, and that nothing had resulted
therefrom except the loss of the capital of P1,500, to which loss
MARTINEZ agreed to bear.
CFI rendered decision ordering Ong Pong Co to return to MARTINEZ
one-half of the capital of P1,500 (P750) plus P90 as one-half of the
profits, calculated at the rate of 12% per annumfor the six months that
the store was supposed to have been open(total of P840) with legal
interest of 6% until the full payment, with costs
Hence, this appeal by Ong Pong Co
ISSUE:

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 |6

This, however, was never proven. And even we admit the same; such
statement still does not make it possible to estimate the alleged
profits. As such, the CFI ruling on this point is REVERSED.
Inasmuch as in this case nothing appears other than the failure to fulfill
an obligation on the part of a partner who acted as agent in receiving
money for a given purpose, for which he has rendered no accounting,
such agent is responsible only for the losses which, by a violation of
the provisions of the law, he incurred. This being an obligation to pay in
cash, there are no other losses than the legal interest, which interest is
not due except from the time of the judicial demand, or, in the present
case, from the filing of the complaint
Art. 1688 is NOT applicable in this case, in so far as it provides that
the partnership is liable to every partner for the amounts he may have
disbursed on account of the same and for the proper interest," for the
reason that no other money than that contributed as is involved Art.
1138, CC is also NOT applicable here as this deals with debts of a
partnership where the obligation is NOT joint. Likewise, Art 1723
regarding the liability of two or more agents with respect tithe return of
the money that they received from their principal is NOT applicable. No
showing of solidarity having been established, their liability is JOINT.
G.R. No. 30286

September 12, 1929

M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.

WON MARTINEZ is entitled to the capital he contributed to the

partnership

EN BANC
By: Jan Dela Cruz

HELD:
YES. The ONGS failed to fulfill their obligation as partners who, acting
as MARTINEZs agents in receiving money, did not render proper
accounting therefor. Such renders them jointly liable for the losses;
solidarity not having been established.CFI decision is AFFRIMED in
this regard but REVERSED inasmuch as it found that the capital
invested earned profits. Thus, the CFIruling awarding MARTINEZ
another P840 is DELETED. Ong PongCo is only liable to pay
MARTINEZ half of the capital, or P750, representing half of the loss
which both ONGS should jointly bear due to their omission, to earn
legal interest of 6% from time of filing this complaint, and costs.

[FROM CASE SYLLABUS:

1. WHEN PARTNER MUST ACCOUNT Where one party to a
partnership, without any authority, takes and uses the money of the
firm in the purchase of property which he acquired and had registered
in his own name, in a suit for the dissolution of the partnership, he will
be required to account to his partners for the money which he used in
such purchase.

RATIO:

2. WHEN PARTNERSHIP SHOULD ACCOUNT When it appears that

such partnership had the use and benefit of such property, it will be
required to account to the owner for the reasonable value of its use. ]

In his defense, Ong Pong Co raised the issue of the closure/failure of

the store by virtue of ejectment proceedings instituted against them.
THIS, however, has no real significance in the determination of the
merits of this case.

On December 1926, Plaintiff and the defendants formed a partnership

for the operation of a fish business and similar commercial
transactions, which by mutual consent was called "Malangpaya Fish
Co,"

To be sure, the whole action is based upon the fact that the
ONGSreceived capital from MARTINEZ for the purpose of organizing a
store. The ONGS, according to the agreement, were to handle the said
money and invest it in a store which was the object of the association.

Plaintiff asked for dissolution of the partnership and the appointment of

a receiver pendente lite.

The ONGS had no special agreement vesting in one sole person the
management of the business. Thus, both ONGS were the actual
administrators thereof; and as such administrators, they were the
agents of the company and incurred the liabilities peculiar to every
agent, among which is that of rendering account to the principal of their
transactions, and paying him everything they may have received by
virtue of the mandatum.

Plaintiff alleges that:

(a) the plaintiff was named the general manager to take
charge of the business, with full power to do and perform
all acts necessary to carry out of the purposes of the
partnership.
(b) plaintiff wants to dissolve it, but that the defendants
refused to do so;
(c) the partnership purchased and now owns a lighter
called Lapu-Lapu, and a motorship called Barracuda, and
other properties;
(d) the lighter and the motorship are in the possession of
the defendants who are making use of them, to the
damage and prejudice of the plaintiff, for any damage
which plaintiff may sustain;
(e) it is for the best interest of the parties to have a
receiver appointed pending this litigation, to take
possession of the properties, and he prays that the
Philippine Trust Company be appointed receiver.

Since neither of them has rendered such account nor proven the
losses, they are therefore obliged to refund the money that they
received for the purpose of establishing the said store.
There is no evidence presented that the entire capital or any
part thereof was lost. Without proof, the allegation that the effects
of the store were ejected is, as earlier mentioned, of no moment. Even
if we assume this to be true, it could still not be inferred that the
ejectment was due to the fact that no rents were paid, and that the rent
was not paid on account of the loss of the capital belonging to the
partnership.
With regard to the CFIs finding of profits, it appears that the same was
based on the statements of Ong Pong Co, to the effect that "there were
some profits, but not large ones."

--CASE ACCORDING TO THE PLAINTIFF--

--CASE ACCORDIN

Defendants allege
plan to which all agr
It is then alleged tha
Capt. Maddy will ha
the same. Salary P3
Mr. Martin will hav
commissary and pro
Mr. Teague will hav
supplies. No salary
as Maddy or Martin.

Defendant Martin sp
manager of the pa
powers of the said
quoted written agre
were ever given the
He prays that plai
ordered and require

The defendants did not object to the dissolution of the partnership, but
prayed for an accounting with the plaintiff.
The lower court on April 30, 1928, rendered the following judgment:

B U S

That the partnership, existing among the parties in this suit, is

hereby declared dissolved;

O R G

1 C a s e

x
x

On June 7, 1928, plaintiff filed a petition praying that the decision of the
court in the case be set aside. On June 28, 1928, the court denied
plaintiff's motion for a new trial.
Hence, this appeal.

2 0 1 6 |7

reasonable, amount which the plaintiff should receive for its

use.

That the plaintiff immediately render a true and proper account of

all the money due to and received by him for the partnership.
That the barge Lapu-Lapu as well as the Ford truck No. T-3019
and adding machine belong exclusively to the plaintiff, M. Teague,
but the said plaintiff must return to and reimburse the partnership
the sum of P14,032.26 taken from its funds for the purchase and
equipment of the said barge Lapu-Lapu; and also to return the
sum of P1,230 and P228 used for buying the Ford truck and
adding machine, respectively:

D i g e s t s / U M L a w

EN BANC
G.R. No. 5840 September 17, 1910
THE UNITED STATES, plaintiff-appellee,
vs.
EUSEBIO CLARIN, defendant-appellant.
By: Rohannah Dilangalen
Pedro Larin delivered to Pedro Tarug P172, in order that the latter,
in company with Eusebio Clarin and Carlos de Guzman, might
buy and sell mangoes, and, believing that he could make some
money in this business, the said Larin made an agreement with
the three men by which the profits were to be divided equally
between him and them.

ISSUES:
1. Whether or not appellant had authority to buy the Lapu-Lapu, the
Ford truck and the adding machine without the consent of his
copartners, for in accordance with article 131 of the Code of
Commerce the managing partner of a partnership can make purchases
for the partnership without the knowledge and/or consent of his
copartners.
2. Whether or not the Lapu-Lapu, the Ford truck and the adding
machine purchased by appellant, as manager of the Malangpaya Fish
Company, for and with funds of the partnership, form part of the assets
of the partnership.
3. Whether or not the lower court erred in requiring the appellant to pay
to the partnership the sum of P14,032.26, purchase price, cost of
repairs and equipment of the barge Lapu-Lapu; P1,230 purchase price
of the adding machine, for these properties were purchased for and
they form part of the assets of the partnership.
HELD:
1. No authority. Under his powers and duties as specified in the
tentative, unsigned written agreement, his authority was confined and
limited to the "selling of fish in Manila and the purchase of supplies." It
must be conceded that, standing alone, the power to sell fish and
purchase supplies does not carry with it or imply the authority to
purchase the Lapu-Lapu, or the Ford truck, or the adding machine.
From which it must follow that he had no authority to purchase the
lighter Lapu-Lapu, the Ford truck, or the adding machine, as neither of
them can be construed as supplies for the partnership business.
2. No, they belong to plaintiff. The proof is conclusive that they were
purchased by the plaintiff and paid for him from and out of the money
of the partnership. That at the time of their purchase, the LapuLapu was purchased in the name of the plaintiff, and that he personally
had it registered in the customs house in his own name, for which he
made an affidavit that he was its owner.
We agree with the trial court that the Lapu-Lapu, the Ford truck, and
the adding machine were purchased by the plaintiff and paid for out of
the funds of the partnership, and that by his own actions and conduct,
and the taking of the title in his own name, he is now estopped to claim
or assert that they are not his property or that they are the property of
the company.
3.

Plaintiff's case was tried on the theory that the partnership

was the owner of the property in question, and no claim was
made for the use of the Lapu-Lapu, and it appears that
P14,032.26 of the partnership money was used in its
purchase, overhauling, expenses and repairs. In truth and in
fact the partnership had the use and benefit of the LapuLapu in its business from sometime in May until the receiver
was appointed on November 11, 1927, or a period of about
six months, and that the partnership has never paid anything
for its use. For such reason, in the interest of justice, plaintiff
should be compensated for the reasonable value of the time
which the partnership made use of the Lapu-Lapu. All things
considered, we are of the opinion that P2,000 is a

Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact

trade in mangoes and obtained P203 from the business, but did
not comply with the terms of the contract by delivering to Larin his
half of the profits; neither did they render him any account of the
capital.
Larin charged them with the crime of estafa, but the provincial
fiscal filed an information only against Eusebio Clarin in which he
accused him of appropriating to himself not only the P172 but also
the share of the profits that belonged to Larin, amounting to
P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as
witnesses and assumed that the facts presented concerned the
defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the
defendant, Eusebio Clarin, to six months' arresto mayor, to suffer
the accessory penalties, and to return to Pedro Larin P172,
besides P30.50 as his share of the profits, or to subsidiary
imprisonment in case of insolvency, and to pay the costs. The
defendant appealed, and in deciding his appeal we arrive at the
following conclusions:
issue: WON a partnership can be held criminally liable for estafa?
Ruling: When two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention
of dividing the profits among themselves, a contract is formed
which is called partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed
with Tarug, Clarin, and Guzman, he invested his capital in the
risks or benefits of the business of the purchase and sale of
mangoes, and, even though he had reserved the capital and
conveyed only the usufruct of his money, it would not devolve
upon of his three partners to return his capital to him, but upon the
partnership of which he himself formed part, or if it were to be
done by one of the three specifically, it would be Tarug, who,
according to the evidence, was the person who received the
money directly from Larin.
The P172 having been received by the partnership, the business
commenced and profits accrued, the action that lies with the
partner who furnished the capital for the recovery of his money is
not a criminal action for estafa, but a civil one arising from the
partnership contract for a liquidation of the partnership and a levy
on its assets if there should be any.
No. 5 of article 535 of the Penal Code, according to which those
are guilty of estafa "who, to the prejudice of another, shall
appropriate or misapply any money, goods, or any kind of
personal property which they may have received as a deposit on
commission for administration or in any other character producing

B U S

the obligation to deliver or return the same," (as, for example, in

commodatum, precarium, and other unilateral contracts which
require the return of the same thing received) does not include
money received for a partnership; otherwise the result would be
that, if the partnership, instead of obtaining profits, suffered
losses, as it could not be held liable civilly for the share of the
capitalist partner who reserved the ownership of the money
brought in by him, it would have to answer to the charge of estafa,
for which it would be sufficient to argue that the partnership had
received the money under obligation to return it.

ISSUE:
WON Inocencio, in borrowing money and
advancing funds, was acting within the scope of his authority as a
managing partner.
HELD:
Yes. The work done in the casco having been
within the scope of the association and necessary to carry out its
express object, the borrowing of the money required to carry it on, with
the acquiescence if not with the affirmative consent of his associates,
was not outside the powers of the managing partner and constitutes a
debt for which all the associates are liable.
For the amount loaned, Inocencio became a creditor, subject
to the deduction therefrom of his proportionate part of the
indebtedness. Considered as a loan, this sum would place Inocencio
as a creditor in a stronger position as against his associates than if
regarded as a mere contribution to capital.
RATIO: The nature of the transaction (construction of casco) was
within the scope of the business of the partnership. Inocencio, in
borrowing money and advancing funds, was acting within the scope of
his authority as a managing partner. All partners, therefore, are liable
for the debt.
SONCUYA VS DE LUNA (GR No. L-45464, April 28, 1939)
By: Remle Estacio

2 0 1 6 |8

Ruling: NO

By: Cathy Docdocil

The note was passed into the hands of Inocencio by reason

of the successive deaths of his wife and their only child. The trial court
treated his claim as an addition to his capital in the firm, rather than as
a loan.

D i g e s t s / U M L a w

Issue: Whether or not CFI erred in dismissing the plaintiffs

complaint.

JUAN AGUSTIN, ET AL. vs. BARTOLOME INOCENCIO

FACTS: The parties are all industrial partners. They contributed from
the profits of their business the sum of P807.28 as a fund toward the
construction of a casco. Inocencio, being the managing partner,
borrowed P3,500.00 from his wife to complete the construction since
the estimated cost of the casco was around P4,300.00. Inocencio,
however, failed to notify his partners of the borrowing of money and
payment of the various items from time to time, but it was shown that
the books were at all times open for their inspection. Agustin,
representing all the partners, was also present at the construction of
the casco, in charge of the practical work and cognizant of its needs
and its progress.

1 C a s e

court ordered the dismissal of the complaint. Hence, this

appeal from the plaintiff.

We therefore freely acquit Eusebio Clarin, with the costs de oficio.

The complaint for estafa is dismissed without prejudice to the
institution of a civil action.

G.R. No. L-3745 (October 26, 1907)

O R G

For the purpose of adjudicating to plaintiff damages which he

alleges to have suffered as a partner by reason of the
supposed fraudulent management of he partnership referred
to, it is first necessary that a liquidation of the business
thereof be made to the end that the profits and losses may
be known and the causes of the latter and the responsibility
of the defendant as well as the damages which each partner
may have suffered, may be determined. It is not alleged in
the complaint that such a liquidation has been effected nor is
it prayed that it be made. Consequently, there is no reason
or cause for plaintiff to institute the action for damages which
he claims from the managing partner Carmen de Luna.
The facts alleged in the complaint are not sufficient to
constitute a cause of action on the part of plaintiff as member
of the partnership "Centro Escolar de Seoritas" to collect
damages from defendant as managing partner thereof,
without a previous liquidation. 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.
With this finding, the SC deemed it unnecessary to discuss
the remaining question of whether or not the complaint is
ambiguous, unintelligible and vague. Judgment is affirmed.
GEORGE LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
G.R. No. L-45624

April 25, 1939

By: Charlotte Esuerte

Facts:
This is a petition to review on certiorari the decision of the Court of
Appeals. On February 14, 1934, Litton sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain
number of mining claims, and by virtue of said transaction, Ceron
delivered to plaintiff adocument (receipt) acknowledging that he
received from Litton certain share certificates of Big Wedge Mining
Company totaling P1870. Ceron paid to the plaintiff the sum or P1,150
leaving an unpaid balance of P720, and unable to collect this sum
either from Hill & Ceron or from its surety Visayan Surety & Insurance
Corporation, Litton filed a complaint in the Court of First Instance of
Manila against the said defendants for the recovery of the said
balance.
The lower court, after trial, ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill & Ceron, Robert Hill
and the Visayan Surety & Insurance Corporation. On appeal to the CA,
the latter affirmed the decision of the lower court, having reached the
conclusion that Ceron did not intend to represent and did not act for the
firm Hill & Ceron in the transaction involved in this litigation.
Issue: Whether or not Cerons act binds the partnership.
Held:

Facts:

Plaintiff Josue Soncuya, defendant Carmen De Luna, and

Linrado Avelino were partners in the business Centro
Escolar de Seoritas. On September 11, 1936, plaintiff filed
with CFI Manila a complaint against defendant, De Luna, in
her own name and as co-administratrix of the intestate
estate of their deceased partner. Librada Avelino. He prayed
that De Luna be sentenced to pay him the sum of
P700,432.00 as damage and costs by defendants alleged
fradulent administration of the partnership, the defendant
being the managerial partner.
Defendant interposed a demurrer based on the following
grounds: (1) That the complaint does not contain facts
sufficient to constitute a cause of action; and (2) that the
complaint is ambiguous, unintelligible and vague. The CFI
sustained defendants demurrer and ordered the plaintiff to
amend its complaint. Plaintiff manifested that he would not
amend his complaint. Upon motion of the defendant, the

Yes, the Supreme Court reach the conclusion that the transaction
made by Ceron with the plaintiff should be understood in law as
effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified
at the trial that he and Ceron, during the partnership, had the same
power to buy and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that on the date of the
transaction, February 14, 1934, the partnership between Hill and Ceron
was in existence.
According to the articles of copartnership of Hill & Ceron, a written
contract of the firm can only be signed by one of the partners if the
other partner consented. Without the consent of one partner, the other
cannot bind the firm by a written contract. Now, assuming for the

B U S

moment that Ceron attempted to represent the firm in this contract with
the plaintiff (the plaintiff conceded that the firm name was not
mentioned at that time), the latter has failed to prove that Hill had
consented to such contract. Also, third persons, like the plaintiff, are
not bound in entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the transaction is
made has the consent of the other partner. The public need not make
inquires as to the agreements had between the partners. Its
knowledge, is enough that it is contracting with the partnership which is
represented by one of the managing partners.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the
stock brokerage business for engaging in other transactions different
from those of the partnership, as it happens in the present case,
because the transaction made by Ceron is a mere personal loan, and
this argument, so it is said, is corroborated by the Court of Appeals.
The Supreme Court do not find this alleged corroboration because the
only finding of fact made by the Court of Appeals is to the effect that
the transaction made by Ceron with the plaintiff was in his individual
capacity.
The appealed decision is reversed and the defendants are ordered to
pay to the plaintiff, jointly and severally, the sum of P720, with legal
interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (%) from the original price of
P1,870, with the costs to the respondents. So ordered.
Bachrach v La Protectora (1918)
By: Iresha Generalao
Facts: Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto
Serrano (defendants) formed a civil partnership called La Protectora
for the purpose of engaging in the business of transporting passengers
and freight at Laoag, Ilocos Norte. Marcelo Barba, acting as manager,
negotiated for the purchase of 2 automobile trucks from E. M.
Bachrach for P16,500. Barba paid P3,000 in cash and for the balance
executed promissory notes. One of these promissory notes was signed
in the following manner: P.P La Protectora, By Marcelo Barba Marcelo
Barba The other 2 notes were signed in the same way but the word
by was omitted. It was obvious that in signing the notes, Barba
intended to bind both the partnership and himself. The defendants
executed a document in which they declared that they were members
of La Protectora and that they had granted to its president full authority
to contract for the purchase of the 2 automobiles. The document was
delivered by Barba to Bachrach at the time the vehicles were
purchased. Barba incurred a debt amounting to P2,617.57 and
Bachrach foreclosed a chattel mortgage on the trucks but there was
still balance. To recover the balance, action was instituted against the
defendants. Judgment was rendered against the defendants.

O R G

1 C a s e

G.R. No. L-16318

D i g e s t s / U M L a w

2 0 1 6 |9

October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,

vs.
LO SENG, defendant-appellant.
By: Geraldine Gruyal
FACTS:
1.

2.

3.

Lo Seng and Pang Lim, Chinese residents of the City of

Manila, were partners, under the firm name of Lo Seng and
Co., in the business of running a distillery, known as "El
Progreso.
The land on which said distillery is located as well as the
buildings and improvements originally used in the business
were the property of another Chinaman, who resides in
Hongkong, named Lo Yao, who, in September, 1911, leased
the same to the firm of Lo Seng and Co. for the term of three
years.
The lease was extended for fifteen years.

4.

In conformity with this understanding many thousands of

pesos were expended by Lo Seng and Co., and later by Lo
Seng alone, in enlarging and improving the plant.

5.

Neither the original contract of lease nor the agreement

extending the same was inscribed in the property registry, for
the reason that the estate which is the subject of the lease
has never at any time been so inscribed.

6.

Pang Lim sold all his interest in the distillery to his partner Lo
Seng, thus placing the latter in the position of sole owner.
7. Lo Shui, again as attorney in fact of Lo Yao, executed and
acknowledged before a notary public a deed purporting to
convey to Pang Lim and another Chinaman named Benito
Galvez, the entire distillery plant including the land used in
connection therewith.
8. The document also was never recorded in the registry of
property.
9. Pang Lim and Benito Galvez demanded possession from Lo
Seng, but the latter refused to yield.
10. An action of unlawful detainer was thereupon initiated by
Pang Lim and Benito Galvez.
11. The case for the plaintiffs is rested exclusively on the
provisions of article 1571 of the Civil Code, which reads in
part as follows: ART. 1571. The purchaser of a leased
estate shall be entitled to terminate any lease in force at the
time of making the sale, unless the contrary is stipulated,
and subject to the provisions of the Mortgage Law.
12. From the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant thereupon
appealed to the Supreme Court.

Issue:
a. Whether or not the defendants are liable for the firm debts.
b. Whether or not Barba had authority to incur expenses for the
partnership (relevant issue)

ISSUE:
Whether or not the plaintiffs herein, as purchasers of the estate, are at
liberty to terminate the lease, assuming that it was originally binding
upon all parties participating in it.

Held:
a.

b.

Yes. Promissory notes constitute the obligation exclusively of La

Protectora and Barba. They do not constitute an obligation directly
binding the defendants. Their liability is based on the principles of
partnership liability. A member is not liable in solidum with his
fellows for the entire indebtedness but is liable with them or his
aliquot part. SC obiter: the document was intended merely as an
authority to enable Barba to bind the partnership and that the
parties to the instrument did not intend to confer upon Barba an
authority to bind them personally.
Yes. Under Art 1804, every partner may associate another person
with him in his share. All partners are considered agents of the
partnership. Barba must be held to have authority to incur these
expenses. He is shown to have been in fact the
president/manager, and there can be no doubt that he had actual
authority to incur obligation.

HELD:
Every competent person is by law bond to maintain in all good faith the
integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes
as regards any contract previously entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim
participated in the creation of this lease, and when he sold out his
interest in that firm to Lo Seng this operated as a transfer to Lo Seng of
Pang Lim's interest in the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of a purchaser of the estate,
to destroy an interest derived from himself, and for which he has
received full value.
On account of his status as partner in the firm of Lo Seng and Co.,
Pang Lim knew that the original lease had been extended for fifteen

B U S

years; and he knew the extent of valuable improvements that had been
made thereon.
It would be shocking to the moral sense if the condition of the law were
found to be such that Pang Lim, after profiting by the sale of his
interest in a business, worthless without the lease, could intervene as
purchaser of the property and confiscate for his own benefit the
property which he had sold for a valuable consideration to Lo Seng.
Above all other persons in business relations, partners are required to
exhibit towards each other the highest degree of good faith. In fact the
relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the other. It
is therefore accepted as fundamental in equity jurisprudence that one
partner cannot, to the detriment of another, apply exclusively to his own
benefit the results of the knowledge and information gained in the
character of partner.
It has been held that if one partner obtains in his own name and for his
own benefit the renewal of a lease on property used by the firm, to
commence at a date subsequent to the expiration of the firm's lease,
the partner obtaining the renewal is held to be a constructive trustee of
the firm as to such lease.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 10

B U S

CATALAN vs. GATCHALIAN

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 11

and 70 wooden posts, upon plaintiff's filing of a bond in favor

of the defendant (for subsequent delivery to the plaintiff).

G.R. No. L-11648

April 22, 1959
By: Joanna Guilonsod
FACTS:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr.
Marave together with the improvements thereon to secure a credit from
the latter. The partnership failed to pay the obligation. The properties
were sold to Dr. Marave at a public auction. Catalan redeemed the
property and he contends that title should be cancelled and a new one
must be issued in his name.

ISSUE:
Did Catalans redemption of the properties make him the absolute
owner of the lands?

Defendant filed an answer, denying that the

generator and the equipment mentioned in the complaint
belong to the plaintiff and alleging that the same had been
contributed by the plaintiff to the partnership entered into
between them in the same manner that defendant had
contributed equipments also, and therefore that he is not
unlawfully detaining them.

Defendant further filed a motion to declare plaintiff

in default on his counterclaim, but this was denied by the
court. Hearings on the case were conducted and the judge
entered a decision declaring plaintiff owner of the equipment
and entitled to the possession thereof, with costs against
defendant. It is against this judgment that the defendant has
appealed.

HELD:
ISSUES:
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.
G.R. No. L-13680

April 27, 1960

MAURO LOZANA, plaintiff-appellee,

vs.
SERAFIN DEPAKAKIBO, defendant-appellant.

W/N the property contributed by the

plaintiff became a property of the
partnership. YES

W/N the partnership, as declared by the

lower court, null and void. NO

HELD:

By: Jana Lomala

FACTS:

Plaintiff Mauro Lozana entered into a contract with

defendant Serafin Depakakibo wherein they established a
partnership, plaintiff furnishing 60% thereof and the
defendant, 40%, for the purpose of maintaining, operating
and distributing electric light and power in the Municipality of
Dumangas, Province of Iloilo, under a franchise issued to
Mrs. Piadosa Buenaflor. Later on the franchise or certificate
of public necessity and convenience in favor of Buenaflor
was cancelled and revoked by the Public Service
Commission. The said decision of the Public Service
Commission was appealed to SC. Consequently, a
temporary certificate of public convenience was issued in the
name of Olimpia D. Decolongon. By reason of the
cancellation of the franchise in the name of Buenaflor,
plaintiff herein sold a generator Buda (diesel) to the new
grantee Decolongon, by a deed. Defendant Depakakibo, on
the other hand, sold one Crossly Diesel Engine to the
spouses Felix Jimenea and Felina Harder, by a deed.

Plaintiff Mauro Lozana subsequently brought an

action against the defendant, alleging that he is the owner of
the Generator Buda (Diesel), valued at P8, 000 and 70
wooden posts with the wires connecting the generator to the
different houses supplied by electric current in the
Municipality of Dumangas, and that he is entitled to the
possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered
damages. Plaintiff prayed that said roperties be delivered
back to him. Judge Pelayo issued an order in said case
authorizing the sheriff to take possession of the generator

As it appears from the above stipulation of facts

that the plaintiff and the defendant entered into the contract
of partnership, plaintiff contributing the amount of P18,000,
and as it is not stated therein that there has been a
liquidation of the partnership assets at the time plaintiff sold
the Buda Diesel Engine and since the court below had found
that the plaintiff had actually contributed one engine and 70
posts to the partnership, it necessarily follows that the Buda
diesel engine contributed by the plaintiff had become the
property of the partnership. As properties of the partnership,
the same could not be disposed of by the party contributing
the same without the consent or approval of the partnership
or of the other partner.

The lower court declared that the contract of

partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the
owner of the franchise. The reason for this holding was the
admission by defendant when being cross-examined by the
court that he and the plaintiff are dummies.
The SC held that the admission by the defendant
is an error of law, not a statement of a fact. The Anti-Dummy
law has not been violated as parties plaintiff and defendant
are not aliens but Filipinos. The Anti-Dummy law refers to
aliens only. Upon examining the contract of partnership,
especially the provision thereon wherein the parties agreed
to maintain, operate and distribute electric light and power
under the franchise belonging to Mrs. Buenaflor, we do not
find the agreement to be illegal, or contrary to law and public
policy such as to make the contract of partnership, null and
void ab initio. The agreement could have been submitted to
the Public Service Commission if the rules of the latter
require them to be so presented. But the fact of furnishing

B U S

the current to the holder of the franchise alone, without the

previous approval of the Public Service Commission, does
not per se make the contract of partnership null and void
from the beginning and render the partnership entered into
by the parties for the purpose also void and non-existent.

Under the circumstances, therefore, the court

erred in declaring that the contract was illegal from the
beginning and that parties to the partnership are not bound
therefore, such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also follows
that the claim of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is the
proper remedy, not for each contributing partner to claim
back what he had contributed.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 12

As the deed of mortgage expired, Echevarria commenced a case

to collect his mortgage credit. Echevarria obtained judgment in his
favor because the defendant did not interpose any defense or
objection, and, moreover, admitted being really indebted to the
intervenor in the amount set forth in the deed of mortgage.

However, the machines mortgaged were then in fact in custodia

legis, as they were under the control of the receiver and liquidator.
It was, therefore, useless for the intervenor to attach the same in
view of the receiver's opposition; and the question having been
brought to court, it decided that nothing could be done because
the receiver was not a party to the case which the intervenor
instituted to collect his aforesaid credit. The question ended thus
because the intervenor did not take any other step until he
thought of joining in this case as intervenor.

Hence, Echevarria appealed to the SC.

ISSUE/S
b.

Property Rights of Partners (Arts. 1810 to 1814)

EN BANC
G.R. No. L-45662

April 26, 1939

ENRIQUE CLEMENTE, plaintiff-appellee,

vs.
DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.
DIAZ, J.:
By: Ana Nihara D. Magarang
FACTS:

On June 6, 1931, Clemente and Galvan organized a civil

partnership named "Galvan y Compaia" to engage in the
manufacture and sale of paper and other stationery with an
agreement to invest a capital of P100,000, but as a matter of fact,
each only contributed P10,000.

After a year, plaintiff filed a case to ask for the dissolution of the
partnership and to compel defendant to whom the management
thereof was entrusted to submit an accounting of his
administration and to deliver to him his share as such partner.

A receiver and liquidator, in the name of Juan D. Mencarini, was

appointed to take charge of the properties and business for the
partnership while the same was not yet definitely dissolved.

In May 24, 1933, by virtue of a petition ex parte of the plaintiff, the

RTC issued an order requiring the receiver to deliver to the
plaintiff certain machines at Ylaya St., Manila.

As compliance to the order, the receiver delivered to plaintiff the

keys to the place where the machines were found, which was the
same place where defendant had his home; but before he could
take actual possession of said machines, upon the strong
opposition of defendant, the court, on motion of the latter,
suspended the effects of its order.

In the meantime the judgments rendered in cases entitled

"Philippine Education Co., Inc. vs. Enrique Clemente", and "Jose
Echevarria vs. Enrique Clemente", all for the recovery of a sum of
money, were made executory; and in order to avoid the
attachment and subsequent sale of the machines by the sheriff for
the satisfaction from the proceeds thereof of the judgments
rendered in the two cases aforecited, plaintiff agreed with the
intervenor Jose Echevarria, who is his nephew, to execute a deed
of mortgage encumbering the machines described in said deed in
which it is stated that "they are situated on Singalong Street No.
1163", which is a place entirely different from the house Nos. 705
and 707 on Ylaya Street hereinbefore mentioned.

I. WON the court a quo erred in finding in the appealed decision that
plaintiff was unable to take possession of the machines subject of the
deed of mortgage Exhibit B either before or after the execution thereof.
II. WON the court a quo likewise erred in deciding the present case
against the intervenor-appellant, on the ground, among others, that
"plaintiff has not adduced any evidence nor has he testified to show
that the machines mortgaged by him to the intervenor have ever
belonged to him, notwithstanding that said intervenor is his close
relative."
HELD:
1. From the foregoing facts, it is clear that plaintiff could not obtain
possession of the machines in question. The constructive possession
deducible from the fact that he had the keys to the place where the
machines were found (Ylaya Street Nos. 705-707), as they had been
delivered to him by the receiver, does not help him any because the
lower court suspended the effects of the other whereby the keys were
delivered to him a few days after its issuance; and thereafter revoked it
entirely in the appealed decision. Furthermore, when he attempted to
take actual possession of the machines, the defendant did not allow
him to do so. Consequently, if he did not have actual possession of the
machines, he could not in any manner mortgage them, for while it is
true that the oft-mentioned deed of mortgage Exhibit B was annotated
in the registry of property, it is no less true the machines to which it
refers are not the same as those in question because the latter are on
Ylaya Street Nos. 705-707 and the former are on Singalong Street No.
1163. It cannot be said that Exhibit B-1, allegedly a supplementary
contract between the plaintiff and the intervenor, shows that the
machines referred to in the deed of mortgage are the same as those in
dispute and which are found on Ylaya Street because said exhibit
being merely a private document, the same cannot vary or alter the
terms of a public document which is Exhibit B or the deed of mortgage.
2. The second error attributed to the lower court is baseless. The
evidence of record shows that the machines in contention originally
belonged to the defendant and from him were transferred to the
partnership Galvan y Compania. This being the case, said machines
belong to the partnership and not to him, and shall belong to it until
partition is effected according to the result thereof after the liquidation.
THE LEYTE-SAMAR SALES CO., and RAYMUNDO
TOMASSI, petitioners,
vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First
Instance of Leyte and OLEGARIO LASTRILLA, respondents.
By: Cloydie Mark Marcos
Facts
Civil case No. 193 of the CFI is a suit for damages by the Leyte-Samar
Sales Co. (hereinafter called LESSCO) and Raymond Tomassi against
the Far Eastern Lumber & Commercial Co. (unregistered commercial
partnership hereinafter called FELCO), Arnold Hall, Fred Brown and
Jean Roxas, judgment against defendants jointly and severally for the

B U S

amount of P31,589.14 on October 29, 1948. The CA confirmed the

award in November 1950. The decision having become final, the sheriff
sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias
"all the rights, interests, titles and participation" of the defendants in
certain buildings and properties. But on June 4, 1951 Olegario Lastrilla
filed in the case a motion, wherein he claimed to be the owner by
purchase on September 29, 1949, of all the "shares and interests" of
defendant Fred Brown in the FELCO, and requested "under the law of
preference of credits" that the sheriff be required to retain in his
possession so much of the deeds of the auction sale as may be
necessary "to pay his right. The judge in his order, granted Lastrilla's
motion by requiring the sheriff to retain 17 per cent of the money "for
delivery to the assignee, administrator or receiver" of the FELCO. And
on motion of Lastrilla, the court on August 14, 1951, modified its order
of delivery and merely declared that Lastrilla was entitled to 17 per cent
of the properties sold.
Issue: WON Lastrilla is entitled to any claim in the share of the
proceeds of the sale?
The record is not very clear, but there are indications, and we shall
assume for the moment, that Fred Brown (like Arnold Hall and Jean
Roxas) was a partner of the FELCO, was defendant in Civil Case No.
193 as such partner,and that the properties sold at auction actually
belonged to the FELCO partnership and the partners. We shall also
assume that the sale made to Lastrilla on September 29, 1949, of all
the shares of Fred Brown in the FELCO was valid. (Remember that
judgment in this case was entered in the court of first instance a year
before.)
The result then, is that on June 9, 1951 when the sale was effected of
the properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastilla
was already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale?
If he was a creditor of the FELCO, perhaps or maybe. But he was no.
The partner of a partnership is not a creditor of such partnership for the
amount of his shares. That is too elementary to need elaboration.
Lastrilla's theory, and the lower court's seems to be: inasmuch as
Lastrilla had acquired the shares of Brown is September,
1949, i.e., before the auction sale and he was not a party to the
litigation, such shares could not have been transferred to Dorfe and
Asturias.
Granting arguendo that the auction sale and not included the interest
or portion of the FELCO properties corresponding to the shares of
Lastrilla in the same partnership (17%), the resulting situation would be
at most that the purchasers Dorfe and Austrias will have to
recognized dominion of Lastrillas over 17 per cent of the properties
awarded to them.2 So Lastrilla acquired no right to demand any part of
the money paid by Dorfe and Austrias to the sheriff any part of the
money paid by Dorfe and Austrias to the sheriff for the benefit of
FELCO and Tomassi, the plaintiffs in that case, for the reason that, as
he says, his shares (acquired from Brown) could not have been and
were not auctioned off to Dorfe and Austrias.
c.

Obligations & Dealings with Third Persons (Arts. 1815 to

1827)

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.SEVERO

EUGENIO LO, ET AL., defendants. SEVERIO EUGENIO LO, NG
KHEY LING and YEP SENG,appellants.
G.R. No. L-26937 October 5, 1927
VILLAMOR, J.:
By: Natasha Militar
In September 1916, Severo Eugenio Lo and Ling, together with Ping,
Hun, Lam and Peng formed a commercial partnership under the name
of Tai Sing and Co., with a capital of P40,000 contributed by said
partners. The firm name was registered in the mercantile registrar in
the Province of Iloilo. Ping, in the articles of partnership, was assigned
as the general manager. However, in 1917, he executed a special
power of attorney in favor of Lam to act in his behalf as the manager of
the firm. Subsequently, Lam obtained a loan from PNB the loan was
under the firms name. In the same year, Ping died in China. From
1918 to 1920, the firm, via GM Lam, incurred other loans from PNB.
The loans were not objected by any of the partners. Later, PNB sued

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 13

the firm for non-payment. Lo, in his defense, argued that he cannot be
liable as a partner because the partnership, according to him, is void;
that it is void because the firms name did not comply with the
requirement of the Code of Commerce that a firm name should contain
the names of all of the partners, of several of them, or only one of
them. Lo also argued that the acts of Lam after the death of Ping is
not binding upon the other partners because the special power of
attorney shall have already ceased.
Defendants defense:
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing &
Co. was not a general partnership, and that the commercial credit in
current account which "Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of the company, nor
was the person who subscribed said contract authorized to make the
same, under the article of copartnership. The other defendants, Yap
Sing and Ng Khey Ling, answered the complaint denying each and
every one of the allegations contained therein.
Trial Court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co.,
Sieng Peng indebted to plaintiff Philippine National Bank in sum of
P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the
balance on account of the partnership "Tai Sing & Co. for the sum of
P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August 31, 1926,
and from the date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the
action.
ISSUE: Whether or not Lo is correct in both arguments.
HELD: No. The anomalous adoption of the firm name above noted
does not affect the liability of the general partners to third parties under
Article 127 of the Code of Commerce. The object of the Code of
Commerce in requiring a general partnership to transact business
under the name of all its members, of several of them, or of one only, is
to protect the public from imposition and fraud; it is for the protection of
the creditors rather than of the partners themselves. It is unenforceable
as between the partners and at the instance of the violating party, but
not in the sense of depriving innocent parties of their rights who may
have dealt with the offenders in ignorance of the latter having violated
the law; and that contracts entered into by a partnership firm
defectively organized are valid when voluntarily executed by the
parties, and the only question is whether or not they complied with the
agreement. Therefore, Lo cannot invoke in his defense the anomaly in
the firm name which they themselves adopted. Lo was not able to
prove his second argument. But even assuming arguendo, his second
contention does not deserve merit because (a) Lam, in acting as a GM,
is also a partner and his actions were never objected to by the
partners, and (b) it also appeared from the evidence that Lo, Lam and
the other partners authorized some of the loans.
NOTE: Under the New Civil Code, a firm name may or may not include
the name of one or more of the partners (Article 1815)
SHARRUF AND CO. VS. BALOISE FIRE INSURANCE CO
By: Gil Ontal
FACTS:
Plaintiffs Salomon Sharruf and Elias Eskenazi were doing business
under the firm name of Sharruf & Co. As they had applied to the
defendant companies for insurance of the merchandise they had in
stock
On August 26, 1933, the plaintiffs executed a contract of partnership
between themselves wherein they substituted the name of Sharruf &
Co. with the Sharruf & Eskenazi, stating that Elias Eskenazi
contributed to the partnership, as his capital, goods valued at
P26,299.94 listed in an inventory. It was likewise stated in said contract
that Salomon Sharruf brought to said partnership, as his capital, goods
valued at P24,205.10, appearing in the inventories
A fire broke out and burned the the said goods.
Herein defendant questions the plaintiffs capacity to sue either as a
partnership or individually
ISSUE:
whether or not Salomon Sharruf and Elias Eskenazi had
juridical personality to bring this action, either individually or
collectively.

B U S

HELD:
As already seen, Salomon Sharruf and Elias Eskenazi were doing
business under the firm name of Sharruf & Co. in whose name the
insurance policies were issued, Elias Eskenazi having paid the
corresponding premiums.

In the present case, while it is true that at the beginning the plaintiffs
had been doing business in said name of "Sharruf & Co.", insuring their
business in said name, and upon executing the contract of partnership
on August 26, 1933, they changed the title thereof to "Sharruf &
Eskenazi," the membership of the partnership in question remained
unchanged, the same and only members of the former, Salomon
Sharruf and Elias Eskenazi, being the ones composing the latter, and it
does not appear that in changing the title of the partnership they had
the intention of defrauding the herein defendant insurance companies.
Therefore, under the above-cited doctrine the responsibility of said
defendants to the plaintiffs by virtue of the respective insurance
policies has not been altered. If this is true, the plaintiffs have juridical
personality to bring this action.
La Compaia Martitama vs. Muoz
By: Sarah Porras
In 1905, Francisco Muoz, Emilio Muoz, and Rafael Naval formed an
ordinary general mercantile partnership in accordance with the Code of
Commerce. They named the partnership Francisco Muoz & Sons.
Francisco was the capitalist partner while the other two were industrial
partners. In the articles of partnership, it was agreed upon by the three
that for profits, Francisco shall have a 3/4th share while the other two
would have 1/8th each. For losses, only Francisco shall bear it. Later,
the partnership was sued by La Compaia Martitama for collection of
sum of money amounting to P26,828.30. The partnership lost the case
and was ordered to make said payment; that in case the partnership
cant pay the debt, all the partners should be liable for it. The ruling is
in accordance with Article 127 of the Code of Commerce which states:
"All the members of the general copartnership, be they or be they not
managing partners of the same, are liable personally and in solidum
with all their property for the results of the transactions made in the
name and for the account of the partnership, under the signature of the
latter, and by a person authorized to make use thereof." Francisco now
argues that the industrial partners should NOT be liable pursuant to
Article 141 of the Code of Commerce which states: "Losses shall be
charged in the same proportion among the partners who have
contributed capital, without including those who have not, unless by
special agreement the latter have been constituted as participants
therein."
ISSUE: Whether or not the industrial partners are liable to third parties
like La Compaia Martitama.
HELD: Yes. The controlling law is Article 127. There is no injustice in
imposing this liability upon the industrial partners. They have a voice in
the management of the business, if no manager has been named in
the articles; they share in the profits and as to third persons it is no
more than right that they should share in the obligations. It is admitted
that if in this case there had been a capitalist partner who had
contributed only P100 he would be liable for this entire debt of
P26,000. Article 141 relates exclusively to the settlement of the
partnership affairs among the partners themselves and has nothing to
do with the liability of the partners to third persons; that each one of the
industrial partners is liable to third persons for the debts of the firm; that
if he has paid such debts out of his private property during the life of
the partnership, when its affairs are settled he is entitled to credit for
the amount so paid, and if it results that there is not enough property in

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 14

the partnership to pay him, then the capitalist partners must pay him. In
relation to this, the Supreme Court noted that partnerships under the
Civil Code provides for a scenario where all partners are industrial
partners (like when it is a partnership for the exercise of a profession).
In such case, if it is permitted that industrial partners are not liable to
third persons then such third persons would get practically nothing
from such partnerships if the latter is indebted.

In the case of Lim Cuan Sy vs. Northern Assurance Co. (55 Phil., 248),
this court said:
A policy insuring merchandise against fire is not invalidated
by the fact that the name of the insured in the policy is
incorrectly written "Lim Cuan Sy" instead of "Lim Cuan Sy &
Co.", the latter being the proper legal designation of the firm,
where it appears that the designation "Lim Cuan Sy" was
commonly used as the name of the firm in its business
dealings and that the error in the designation of the insured
in the policy was not due to any fraudulent intent on the part
of the latter and did not mislead the insurer as to the extent
of the liability assumed.

O R G

G.R. No. L-6252

January 28, 1911

GEORGE O. DIETRICH vs. O.K. FREEMAN and BURTON

WHITCOMB
TRENT, J.:
By: Cherry Tempongko
FACTS
When the plaintiff was first employed, this steam laundry was owned
and operated by Freeman and Pierce.
Pierce, sold all of his right, title, and interest in the said laundry to
Whitcomb, who, together with Freeman, then became the owners of
this laundry and continued to operate the same as long as the
plaintiff was employed.
An action was brought against O.K. Freeman, James L. Pierce, and
Burton Whitcomb, as owners and operators of the Manila Steam
Laundry, to recover the sum of P952 alleged to be the balance due
the plaintiff for services performed.
An action was brought against O.K. Freeman, James L. Pierce, and
Burton Whitcomb, as owners and operators of the Manila Steam
Laundry, to recover the balance due the plaintiff for services
performed.
Judgment was rendered in favor of the plaintiff and against Freeman
and Whitcomb, jointly and severally, for the sum of P752, with
interest at the rate of 6 per cent per annum from the 27th day of
August, 1909, and the costs of the cause. The complaint as to
Pierce was dismissed, Whitcomb alone appealing.
ISSUE
WON partners of a non-commercial partnership are individually liable
for the entire amount due to the plaintiff.
HELD: NO
Partners cannot make private agreements, but all must appear in
the articles of copartnership.
In the organization of this partnership by Freeman and Whitcomb
the provisions of law were not complied with; that is, no formal
partnership was ever entered into by them, notwithstanding the fact
that they were engaged in the operation of this laundry.
The purpose for which this partnership was entered into by Freeman
and Whitcomb show clearly that such partnership was not a
commercial one; hence the provisions of the Civil Code and not the
Code of Commerce must govern in determining the liability of the
partners.
Those partnerships, although commercial, were not organized in
accordance with the provisions of the Code of Commerce as
expressed in those articles. In determining the liability of the partners
in these cases the court, after making the finding of facts, was
governed by the provisions of article 120 of the Commercial Code.
"A partnership," quoting from the syllabus in this case, "constituted
in such a manner that its existence was only known to those who
had an interest in the same, there being no mutual agreement
between the partners, and without a corporate name indicating to
the public in some way that there were other people besides the one
who ostensibly managed and conducted the business, is exactly the
accidental partnership of cuentas en participacion defined in article
239 of the Code of Commerce."
In a partnership of cuentas en participacion, under the provisions of
article 242 of the Code of Commerce, those who contract with the
person in whose name the business of such a partnership was
conducted shall have only the right of action against such person
and not against other persons interested. So this case is easily
distinguished from the case at bar, in that the one did not have the
corporate name while the other was known as the Manila Steam
Laundry.
The plaintiff was employed by and performed services for the Manila
Steam Laundry and was not employed by nor did he perform
services for Freeman alone. The public did not deal with Freeman
and Whitcomb personally, but with the Manila Steam Laundry. These
two partners were doing business under this name and, as we have
said, it was not a commercial partnership. Therefore, by the express
provisions of articles 1698 and 1137 of the Civil Code the partners
are not liable individually for the entire amount due the plaintiff. The

B U S

liability is pro rata and in this case the appellant is responsible to the
plaintiff for only one-half of the debt.

Conveyance of real property belonging to the partnership

SANTIAGO SYJUCO, INC. VS CASTRO

By: Roita Valles

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 15

Robles vs. Rado y Robles Hermanos

G.R. No. L-12164

May 22, 1959

BENITO LIWANAG and MARIA LIWANAG REYES, petitionersappellants,

vs.
WORKMEN'S COMPENSATION COMMISSION, ET
AL., respondents-appellees.

Facts:
ENDENCIA, J.:
The private respondents, Eugenio Lim, et al., borrowed from
petitioner Santiago Syjuco, Inc., the sum of P800,000.00. The loan was
given on the security of a first mortgage on property registered in the
names of said borrowers as owners in common under Transfer
Certificates of Title Numbered 75413 and 75415 of the Registry of
Deeds of Manila. Thereafter, additional loans on the same security
were obtained by the private respondents from Syjuco, so that as of
May 8, 1967, the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been augmented by bringing
into the mortgage other property, also registered as owned pro indiviso
by the private respondents under two titles: TCT Nos. 75416 and
75418 of the Manila Registry.
The private respondents failed to pay it despite demands
therefore; that Syjuco consequently caused extra-judicial proceedings
for the foreclosure of the mortgage to be commenced by the Sheriff of
Manila; and that the latter scheduled the auction sale of the mortgaged
property on December 27, 1968. The attempt to foreclose triggered off
a legal battle that has dragged on for more than twenty years now,
fought through five (5) cases in the trial courts, two (2) in the Court of
Appeals,
and three (3) more in the Supreme Court.
One of the complaints filed by the private respondents was filed
not in their individual names, but in the name of a partnership of which
they themselves were the only partners: "Heirs of Hugo Lim." The
complaint advocated the theory that the mortgage which they, together
with their mother, had individually constituted (and thereafter amended
during the period from 1964 to 1967) over lands standing in their
names in the Property Registry as owners pro indiviso, in fact no
longer belonged to them at that time, having been earlier deeded over
by them to the partnership, "Heirs of Hugo Lim," more precisely, on
March 30, 1959, hence, said mortgage was void because executed by
them without authority from the partnership. Syjuco filed an instant
petition for certiorari, prohibition and mandamus. It prays in its petition
that the default judgment rendered against it by Judge Castro be
annulled on the ground of, among others, estoppel, res judicata, and
Article 1819 of the Civil Code.
Issue:
Whether or not the private respondents are estopped to avoid the
aforementioned mortgage.
Whether or not the conveyance of real property belongs to the
partnership.
Held:
Yes. The Supreme Court ruled that the respondent partnership was
inescapably chargeable with knowledge of the mortgage executed by
all the partners thereof, its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than 17 years,
brought into play the doctrine of estoppel to preclude any attempt to
avoid the mortgage as allegedly unauthorized. Equally or even more
preclusive of the respondent partnerships claim to the mortgaged
property is the last paragraph of Art. 1819 of the Civil Code, which
contemplates a situation similar to the case at bar. It states that where
the title to real property is in the names of all the partners, a
conveyance executed by the entire partners pass all their rights in such
property. Consequently, those members' acts, declarations and
omissions cannot be deemed to be simply the individual acts of said
members, but in fact and in law, those of the partnership. Finally, the
Supreme Court emphasizes that the right of the private respondents to
assert the existence of the partnership could have been stressed at the
time they instituted their first action, considering that the actions
involved property supposedly belonging to it, and therefore, the
partnership was the real party in interest. What was done by them was
to split their cause of action in violation of the well-known rule that only
one suit may be instituted for a single cause of action.

By: Erwin Verano

Facts: Appellants Benito Liwanag and Maria Liwanag Reyes are coowners of Liwanag Auto Supply, a commercial guard who while in line
of duty, was skilled by criminal hands. His widow Ciriaca Vda. de
Balderama and minor children Genara, Carlos and Leogardo, all
surnamed Balderama, in due time filed a claim for compensation with
the Workmen's Compensation Commission, which was granted in an
award worded as follows:
WHEREFORE, the order of the referee under consideration
should be, as it is hereby, affirmed and respondents Benito
Liwanag and Maria Liwanag Reyes, ordered.
1. To pay jointly and severally the amount of three thousand
Four Hundred Ninety Four and 40/100 (P3,494.40) Pesos to
the claimants in lump sum; and
To pay to the Workmen's Compensation Funds the sum of
P4.00 (including P5.00 for this review) as fees, pursuant to
Section 55 of the Act.
In appealing the case to this Tribunal, appellants do not question the
right of appellees to compensation nor the amount awarded. They only
claim that, under the Workmen's Compensation Act, the compensation
is divisible, hence the commission erred in ordering appellants to
pay jointly and severally the amount awarded. They argue that there is
nothing in the compensation Act which provides that the obligation of
an employer arising from compensable injury or death of an employee
should be solidary obligation, the same should have been specifically
provided, and that, in absence of such clear provision, the
responsibility of appellants should not be solidary but merely joint.
At first blush appellants' contention would seem to be well, for
ordinarily, the liability of the partners in a partnership is not solidary; but
the law governing the liability of partners is not applicable to the case
at bar wherein a claim for compensation by dependents of an
employee who died in line of duty is involved. And although the
Workmen's Compensation Act does not contain any provision
expressly declaring solidary obligation of business partners like the
herein appellants, there are other provisions of law from which it could
be gathered that their liability must be solidary. Arts. 1711 and 1712 of
the new Civil Code provide:
ART. 1711. Owners of enterprises and other employers are
obliged to pay compensation for the death of or injuries to
their laborers, workmen, mechanics or other employees,
even though the event may have been purely accidental or
entirely due to a fortuitous cause, if the death or personal
injury arose out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a
fellow-worker, the latter and the employer shall be solidarily
liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads

in part as follows:
. . . The right to compensation as provided in this Act shall
not be defeated or impaired on the ground that the death,
injury or disease was due to the negligence of a fellow
servant or employee, without prejudice to the right of the
employer to proceed against the negligence party.
ISSUE: W/N the appellants should pay jointly the amount awarded to
the widow and children?

B U S

HELD: The provisions of the new Civil Code above quoted taken
together with those of Section 2 of the Workmen's Compensation Act,
reasonably indicate that in compensation cases, the liability of
business partners, like appellants, should be solidary; otherwise, the
right of the employee may be defeated, or at least crippled. If the
responsibility of appellants were to be merely joint and solidary, and
one of them happens to be insolvent, the amount awarded to the
appellees would only be partially satisfied, which is evidently contrary
to the intent and purposes of the Act. In the previous cases we have
already held that the Workmen's Compensation Act should be
construed fairly, reasonably and liberally in favor of and for the benefit
of the employee and his dependents; that all doubts as to the right of
compensation resolved in his favor; and that it should be interpreted to
promote its purpose. Accordingly, the present controversy should be
decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full
protection to the employee, reason demands that the nature of the
obligation of the employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary; otherwise, the
purpose of the law could not be attained.
Wherefore, finding no error in the award appealed from, the same is
hereby affirmed, with costs against appellants.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo,
Labrador, and Concepcion, JJ., concur.
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere
co-owners, their liability for the indemnity due their deceased
employee would not be solidary but only pro rata (Arts. 485 and 1815,
new Civil Code). The Workmen's Compensation Act does not change
the nature of that liability either expressly or by intendment. To hold
that it does, is to read into the Act something that is not there. For this
Court, therefore, to declare that under the said Act the defendants
herein are liable solidarily is to play the role of legislator.
The injustice of the rule sought to be established in the majority
opinion may readily be made obvious with an example. Suppose that
one of two co-partners or co-owners owns 99 percent of the business
while his co-partner or co-owners own only 1 percent. To hold that in
such case the latter's liability may run up to 100 percent although his
interest is only 1 percent would not only be illogical but also
inequitable.
For the foregoing reasons, I have no choice but to dissent.
G.R. No. L-4776 March 18, 1909
MANUEL ORMACHEA TIN-CONGCO, deceased, represented by
the Chinaman Tiu Tusay, judicial administrator of his estate,
plaintiff-appellee, vs. SANTIAGO TRILLANA, defendant-appellant.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 16

Contention: The defendant alleges that he had already settled his

accounts and obligations contracted in the business by means of
periodical payments in tuba or the liquor of the nipa palm, and that if
any accounts are still pending, the same should, owing to their
character and the manner in which they were constituted, be paid in
kind and not in money as the plaintiff claims in his complaint, and
should be paid at the time and under the circumstances which, as is
customary in Hagonoy.
TRIAL COURT RULING: The trial judge, on February 27, 1907,
rendered judgment ordering the defendant, Santiago Trillana, to pay to
the Chinaman Florentino Tiu Tusay, the judicial administrator of the
estate of the deceased plaintiff, Ormachea Tin-Congco, the sum of
P2,832.22, in tuba, under the same conditions stipulated between the
debtor and the copartnership for the working of the distillery of Luis
Vizmanos and the late Chinaman Manuel Ormachea, with costs.
The representative of the defendant excepted to the above judgment,
and announced his intention to appeal by means of a bill of exceptions;
and by a writing dated March 22, 1907, he prayed the lower court to
revoke or amend its former decision of the 27th of February, and to
order a new trial as the evidence adduced at the hearing was not
sufficient to justify said decision, because some vales are not
subscribed to the defendant.
At the hearing, the trial judge, on the 7th of May, 1907, overruled the
motion to modify his former decision as far as it referred to the amount
of the indebtedness found against the defendant and the said judgment
was modified by adding the provision that the defendant should make
payment in tuba which he should deliver at the plaintiff's distillery in the
town of Hagonoy within the term of six months, but that, if said term
should expire without such payment, whatever might be the cause, he
should be obliged to pay his debt in cash.
As Manuel Ormachea Tin-Congco claimed from Santiago Trillana the
payment of the sum which, as capital and interest thereon, he owed
the former for amounts in cash and in goods which he took from the
creditor and his partner, Luis Vizmanos Ong Queco, as shown by the
135 vales which are attached to the complaint and which were
admitted as authentic by the defendant, with the exception of eight of
them signed by the other persons, aggregating P173, the court below,
in view of the evidence, found that the debt which could be claimed
from the defendant, after deducting the said P173, amounted only to
P2,832.22 4/8.
The amounts advanced to the debtor, most of which were addressed to
Lopez Lawa, and some to other persons, were delivered by the said
Lopez Lawa who, from the years 1894 or by 1895 to 1901, was the
manager of the distillery, and owned in partnership by Ormachea and
Vizmanos, but the money furnished by the manager to Trillana
belonged to the two owners of the same, not to the manager, Jose
Lopez Lawa.
While this litigation was pending, the plaintiff, Manuel Ormachea, died,
and Florentino Tiu Tusay was appointed administrator of his estate;
letters of administration in favor of the latter were issued on the 9th of
October, 1905.

TORRES, J.:
By: Roxanne Lipoles
FACTS: Ormachea and Luis Vizmanos Ong Queco were engaged in
business in the pueblos of Hagonoy, Malolos, and other places in the
Province of Bulacan, and that in the course thereof the defendant
purchased from them merchandise to the value of 4,000 pesos, local
currency;
- two years prior to that date, the partnership was dissolved and the
business was divided up between the partners, all accounts and debts
of the defendant were alloted to the plaintiff, and became the individual
property of Ormachea Tin-Congco;
-the indebtedness is proven by the documents signed by the defendant
or his agents in favor of Ormachea or of Vizmanos Ong Queco or their
agent named Lawa in charge of the business. They aggregate 135
documents, some of which are written in Tagalog with corresponding
translations.

In evidence of his payment, while testifying under oath, he introduced

the following document marked "A" which appears at folio 248:
I, Jose R. Lopez (Lawa), a Christian Chinese, do hereby declare
that D. Santiago Trillana has no outstanding debt whatever with the
distillery situated in the barrio of San Sebastian in this town, which
in past times was under my management. What I have stated is
the truth. Hagonoy, November 19, 1903. Jose R. Lopez.
The debtor explained how and in what manner he obtained the
foregoing document from Lawa, and stated: That in November, 1903,
he received a letter from Mr. McGirr, the plaintiff's attorney, requesting
him to settle his account with Lawa, for which reason he called on the
latter and asked him whether he still owed him anything on account of
the distillery in San Sebastian; Lawa replied that he no longer owed
anything; thereupon the requested Lawa to issue the said document,
and under Lawa's direction the debtor wrote out the document, and the
former, upon being informed of its contents, signed it; for said reason
the witness believed that he no longer owed anything.

B U S

However, Lopez Lawa affirms that he gave the said document marked
as Exhibit A" to the debtor, Santiago Trillana, because the latter was
not indebted to him but to Manuel Ormachea, to whom the credits
standing against Trillana were transferred when Ormachea withdrew
from the above-mentioned partnership with Vizmanos Ong Queco.
When drawing up the preinserted document, it was not his intention to
annul and set aside the vales which represented the indebtedness of
the defendant, Trillana.
ISSUE: W/N the document Exhibit A executed by Lawa absolved
Trillana from his liability to the partnership
HELD: No.
If the business jointly carried on by Ormachea and Vizmanos was
dissolved, and its transactions ceased in 1901, Lawa also ceased to
act as such manager in said year, and for said reason the document
Exhibit A, which he issued to the debtor on the 19th of November,
1903, two years after ceasing to be manager, can not serve to relieve
the debtor from paying what he owed by virtue of the documents or
vales that he had issued in order to obtain money from the owners of
the said distillery; that is to say, as agreed upon by them, the right to
recover the debts of the defendant still belonged to Ormachea when
the business was dissolved, as Lawa was not authorized by Ormachea
to deliver to the debtor an acquittance releasing him from the
obligations that he had contracted, to the prejudice of the real creditor,
the only person entitled to condone a debt in the event of waiving the
right to recover the same.
He had no express authority to issue such a document, with the further
circumstance of its being written in Spanish, a language with which the
Chinaman who signed it was probably not well acquainted and the fact
that it was written by the defendant, Santiago Trillana himself; it is not
proper nor lawful to admit the said document as possessing a force
and effect that would fully exempt the defendant from the payment of
his obligation, and with greater reason if it is considered that it has not
been shown that Lawa was authorized to liquidate accounts, or issue
an acquittance releasing the debtor from the payment of his debt. (Arts.
1714 and 1719, Civil Code.)
Article 1162 of said code reads:
Payment must be made to the person in whose favor an
obligation is constituted, or to another authorized to receive it in
his name.
Lawa was not authorized to sign the document marked "A," made out
by the debtor, by which the credit of Ormachea should be considered
as settled, and the obligation contracted by Santiago Trillana, as shown
by the vales which appear in the record, extinguished.
MACDONALD vs. NATIONAL CITY BANK OF NEW YORK
By: Stella Monette De Castro
Facts:
Stasikinocey is a partnership formed by da Costa,Gorcey, Kusik and
Gavino. It was denied registration by the SEC due to a confusion
between the partnership and Cardinal Rattan. Cardinal Rattan is the
business name or style used by Stasikinocey. Da Costa and Gorcey
are the general partners of Cardinal Rattan. Moreover, Da Costa is the
managing partner of Cardinal Rattan. Stasikinocey had an overdaft
account with Nationa City Bank, which was later converted into an
ordinary loan due the partnerships failure in paying its obligation. The
ordinary loan was secured by a chattel mortgage over 3vehicles.
During the subsistence of the loan, the vehicles weresold to
MacDonald and later on, MacDonald sold 2 of the 3vehicles to
Gonzales. The bank brought an action for recovery of its credit and
foreclosure of the chattel mortgage upon learning of these
transactions.
Held:
While an unregistered commercial partnership has no juridical
personality, nevertheless, where two or more persons attempt to create
a partnership failing to comply with all the legal formalities, the law
considers them as partners and the association is a partnership in so
far as it is a favorable to third persons, by reason of the equitable
principle of estoppel. Where a partnership not duly organized has been
recognized as such in its dealings with certain persons, it shall be
considered as partnership by estoppel and the persons dealing with it
are estopped from denying its partnership existence.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 17

E. Walch vs Lim Chai Seng

By: Chrissy Sabella
Facts:
A limited co-partnership was formed between Lim Hai Tao
and Lim Chai Seng doing business under the name of Guan Hoo.
According to its articles the general partner was Lim Hai Tao and the
limited partner was Lim Chai Seng. The term of the partnership was for
an indefinite period, but it could be dissolved by agreement of those
parties.
On January 1930, one Liong Kee Ho proposed to buy Lim
Chay Sengs participation in the business of the partnership. So, on
January 6, 1930, a written agreement was entered into by and between
Lim Hai Tao and Lim Chay Seng by vurtue of which the latter retired
and separated from the partnership effective on the same date. Before
the execution of this agreementof separation, Liong Kee Ho delivered
to Lim Hai Tao the sum of 31,129.27 pesos to be paid to Lim Chay
Seng as purchase price of his participation in the business of the
partnership. However, at the time of the delivery, the deed of
separation had not yet formally executed.
Subsequently, an insolvency proceeding was instituted
against Lim Hai Tao by his creditors. Lim Hai Tao was duly adjudged
insolvent by the court and E. Walch was elected by the creditors as
assignee of the insolvent estate. In this capacity as assignee, Walch
sued Lim Chai Seng for the purpose of recovering part of the money
paid to him by Liong Kee Ho for participation in the business of the
partnership. Walch predicates his case on the theory that the payment
was in fraud of the creditors of both the partnership and Lim Hai Tao.
Issue:
Whether or not the money paid by Liong Kee Ho to Lim Hai
Tao was in fraud of the creditors of both the partnership and Lim Hai
Tao.
Ruling:
No. The co-partnership was never been declared insolvent.
The transactions of the present creditors were actually with the
individual Lim Hai Tao instead of with the co-partnership. Finally, the
money which the Lim Chay Seng received was paid in by a third party
for Sengs interest in the copartnership. Thus, the co-partnership
suffered no diminution and the creditors of the firm were not injuriously
affected by the transaction.
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
By: Eula Maye Celaine Perturbos
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondent filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that Ocean Quest Fishing
Corporation was a nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission.
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.
The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and
(2) on a Compromise Agreement executed by the three which Chua
and Yao had brought against Lim in the RTC of Malabon, Branch 72,
for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats;
(d) an injunction and (e) damages.
The CA affirmed the trial court decision.
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding that a
partnership existed between him, Peter Yao and Antonio Chua. He

B U S

asserts that the CA based its finding on the Compromise Agreement

alone. Furthermore, he disclaims any direct participation in the
purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives
of the respondent company. Petitioner further argues that he was a
lessor, not a partner, of Chua and Yao, for the "Contract of Lease"
dated February 1, 1990, showed that he had merely leased to the two
the main asset of the purported partnership -- the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.
Hence, petitioner brought this recourse before this Court.
The Issue: Whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.

O R G

Moreover, it is clear that the partnership extended not only to the

purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but
not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
Compromise Agreement Not the Sole Basis of Partnership
The Agreement was but an embodiment of the relationship extant
among the parties prior to its execution. A proper adjudication of
claimants rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties.
Petitioner Was a Partner, Not a Lessor

2 0 1 6 | 18

Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel.

Munasque v. CA

The facts as found by the two lower courts clearly showed that there
existed a partnership among Chua, Yao and him, pursuant to Article
1767 of the Civil Code which provides:

From the factual findings of both lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioners brother. In their
Compromise Agreement, they subsequently revealed their intention to
pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under
the term common fund under Article 1767. The contribution to such
fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.

D i g e s t s / U M L a w

There is no dispute that the respondent, Philippine Fishing Gear

Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who
dealt in the name of the ostensible corporation should be held liable.
Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he
cannot be held liable.

Existence of a Partnership and Petitioner's Liability

Article 1767 - By the contract of partnership, two or more persons bind

themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.

1 C a s e

G.R. No. L-39780 November 11, 1985

By: Trina Faye Ladores
FACTS:
Petitioner Elmo Munasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. and Ramon Pons. Petitioner alleged that he
entered into a contract with respondent Tropical for remodelling a
portion of its building without exchanging or expecting any
consideration from Galan. Galan was casually named as partner in the
contract by virtue of his having introduced the petitioner to Tropical.
Galan would receive some kind of compensation in the form of some
percentages or commission. Tropical agreed to give petitioner the
amount of P7,000.00 soon after the construction began and thereafter,
the amount of P6,000.00 every fifteen (15) days.
Tropical delivered a check for P7,000.00 to Galan who succeeded in
getting Munasques indorsement on the same check persuading the
latter that the same be deposited in a joint account. When the second
check for P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through later manipulations, changed
the payee's name from Elmo Muasque to Galan and Associates.
Galan encashed the same at the placing the petitioner in great financial
difficulty in his construction business and subjecting him to demands of
creditors to pay' for construction materials.
Petitioner later on
demanded that said amount be paid to him by respondents under the
terms of the written contract between the petitioner and respondent
company.

TRIAL COURT

Verily, as found by the lower courts, petitioner entered into a business

agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels which
would be used in their fishing business. The sale of the boats, as well
as the division among the three of the balance remaining after the
payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from
a loan in the name of the person the lender trusts, who in this case is
the petitioner himself. After all, he is the brother of the creditor, Jesus
Lim.

- ordered plaintiff Muasque and defendant Galan to pay intervenors

(suppliers of construction materials) jointly and severally

We stress that it is unreasonable indeed, it is absurd -- for petitioner to

sell his property to pay a debt he did not incur, if the relationship
among the three of them was merely that of lessor-lessee, instead of
partners.

CA: affirmed the judgment of the trial court with the sole modification
that the liability imposed was changed from "jointly and severally" to
"jointly."

- absolved the defendants Tropical and Pons from any liability,

Petitioner and Intervenors filed MR. MR denied.

Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him. Again,
we disagree.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation. Thus, even if the ostensible corporate entity is proven
to be legally nonexistent, a party may be estopped from denying its
corporate existence.

ISSUES:
(1) WON a partnership existed between petitioner and respondent
Galan
(2) WON Galan and Munasque are solidarily liable

B U S

Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a
sham and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also contends that the
appellate court committed grave abuse of discretion in holding that the
payment made by Tropical to Galan was "good" payment when the
same gave occasion for the latter to misappropriate the proceeds of
such payment.

O R G

1 C a s e

D i g e s t s / U M L a w

2 0 1 6 | 19

Article 1824: "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 or
1823.
Articles 1822 and 1823 of the Civil Code provide:

HELD:
(1) YES.
The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muasque."
Likewise, when Muasque
received the first payment of Tropical with a check made out in his
name, he indorsed the check in favor of Galan. Respondent Tropical
therefore had every right to presume that the petitioner and Galan were
true partners. If they were not partners as petitioner claims, then he
has only himself to blame for making the relationship appear otherwise,
not only to Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.
There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the firm
in carrying on the partnership transactions. The presumption is
sufficient to permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority.

Art. 1822. Where, by any wrongful act or omission of any partner

acting in the ordinary course of the business of the partner-ship or
with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and t he money or property so
received is misapplied by any partner while it is in the custody of
the partnership.
The obligation is solidary, because the law protects him, who in good
faith relied upon the authority of a partner, whether such authority is
real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is
the partnership, are solidarily liable.

(2) YES.
While Article 1816 of the Civil Code states that,"All partners, including
industrial ones, shall be liable prorate with all their property and after all
the partnership assets have been exhausted...". this provision should
be construed together with

However. as between the partners Muasque and Galan,justice also

dictates that Muasque be reimbursed by Galan for the payments
made by the former representing the liability of their partnership to
herein intervenors, as it was satisfactorily established that Galan acted
in bad faith in his dealings with Muasque as a partner.