[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty.

Paolo Dimayuga

1. f and selling real estate. These are expressly

Goquiolay v. Sycip108 Phil 947
Facts:
1940: Goquiolay and Tan Sin An were partners who
owned 3parcels of land. On the same date that
the partnership acquired these, Tan Sin An purchased 46
parcels of land. Both the partnership and Tan Sin An
alone executed mortgages in favor of the same company,
La Urbanidad Sociedad Mutua de Construccion. For
the partnership, it was P25,000 while for Tan Sin An, it
was P35,000. A few months later, the two mortgage
obligations were consolidated and transferred to the
Banco Hipote cario de Filipinas and as a result, Tan Sin
An, in his individual capacity, and the partnership bound
themselves to pay jointly and severally the total amount
of P52,282.20, with 8% annual interest thereon within a
period of eight years mortgaging in favor of said entity
the 3 parcels of land belonging to the partnership and the
46 parcels of land belonging individually to Tan Sin An.
1942: Tan Sin An died, his widow, Kong Chai Pin was
made Administratrix of his estates in 1944. In 1949, she
executed a sale of these lands. This was executed in her
dual capacity as Administratrix of her husbands estates
and as partner in lieu of her husband. She sold these to
respondents Washington Sycip and Betty Lee.
We note the following in this situation:
We are dealing with the transfer of partnership
property by one partner, acting in behalf of the
firm, to a stranger. There is no question between
the partners inter se.
The partnership was expressly organized to
engage in real estate business, either by buying
provided for in the Articles of co-partnership.
The properties sold were not part of the
contributed capital but land precisely acquired to
be sold, although subject to a mortgage in favor
of the original owners, from whom the
partnership had acquired them
Regardless of the previous ruling by the
Supreme Court for the respondents, the
petitioners still filed this motion for
reconsideration.
Issue:
W/N Tan Sin Ans widow, Kong Chai Pin, became
partner when her husband died, allowing her to validly
sell the property that belongs to the partnership.
HELD: YES.
Goquiolay insists that Kong Chai Pin never became
more than a limited partner, incapacitated by law to
manage the affairs of partnership; that the testimony of
Kongs witnesses belie that she
took over the administration of the partnership property;
and that, in any event, the sale should be set aside
because it was executed with the intent to defraud
Goquiolay of his share in the properties sold.
Based on the sequence of events (as taken from the
testimonies of Goquiolay and Kong Chai Pins
witnesses, Young
and Lim), Young and Lim observed that most of the
properties were undeveloped and some were occupied by
the Japanese Army during the Japanese Occupation from
1942-1944.Goquiolay then admitted that in 1945, after
the Japanese Occupation, he allowed the widow to
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
continue managing the properties. The sale made by
Kong Chai Pin was in 1949. Clearly, the testimonies of
the widows witnesses do not contradict Goquiolays
admission. He had given her authority after the
occupation while witnesses were referring to the time of
the Japanese period. And this authority was never
revoked until now.
Goquiolay tried to argue that Kong Chai Pin only had
the authority to manage the property and did not include
the power to alienate, citing Art. 1713 of the Civil Code
of 1889.What this argument overlooks is that the widow
was not a mere agent because she had become partner
upon her husbands death (In the event of the death of
any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but
willhave to be continued and the deceased partner shall
be represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership), which
was expressly stipulated in the articles of co-partnership.
The stipulation in the articles of co-partnership imply
that there is a general partnership, and not merely a
limited one, because since the co-partnershipwill
have to be continued with the heirs and assigns, it
cannot continue if the partnership would be converted to
a limited one upon death of one of the partners.
And even though she only became a limited partner at
her husbands death as Goquiolay claims, Goquilays
authorization to manage the property was proof that he
considered her and recognized her as a general partner,
at least since 1945. Takenote that if she were only a
limited partner, under the Code of Commerce, Art. 148,
last paragraph
Limited partners may not perform any act of
administration with respect to the interest of the co-
Atty. Paolo Dimayuga
partnership, not even in the capacity of agents of the
managing partners.
Goquiolay is estopped from saying that Kong Chai Pin is
not a general partner because he granted her the
authority to manage the partnership properties. Also, the
heir ordinarily becomes a limited partner for his own
protection, because he would normally prefer to avoid
any liability in excess of the value of the estate inherited
so as not to jeopardize his personal assets, however, he
may also elect to become general partner instead. This is
a choice exclusively to be made by the heir, because as
general partner, he may have all the rights and privileges
of one, and answering got the debts of the firm not only
with the inheritance but also with the heirs personal
fortune. In addition to this authority, the Court had yet
again stressed the fact that he had 7 years between the
death of his partner and the sale made by his partners
widow to take up the management of the properties
himself, which he clearly failed to do.
General Rule:
Stipulations made between partners in the articles of co-
partnership which require that any of the two managing
partners may contract in the name of the partnership with
the consent of the other, creates an obligation between
the two partners BUT shall not impose the same
obligation to a third person who contracts with the
partnership. This means that a third person has the
right to resume that the partner he contracts with already
has the consent of his partner when they both enter into a
contract.
In a partnership that deals with real estate, it is presumed
that every partner already has ample power, as a general
agent of the firm, to enter into an executory contract for
the sale of real estate. (American cases: Rosen v. Rose,
Chester v. Dickerson, Revelsky v. Brown) In this case,
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
since the articles of co-partnership expressly stipulate
that the business of the partnership is in the buying and
selling of real estate, it cannot be maintained that the sale
Kong Chai Pin made was in excess of her power as a
general partner.
Obiter:
There is no fraud: first of all, the price was already
approved by the Court in the previous case, even if the
petitioners claim it to be much too low. The relationship
between the buyers of the lands and Kong Chai Pin
alone cannot be a badge of fraud. There is no proof that
the buyers were without independent means to purchase
the property. Goquiolay has no proof that he was a
victim of a conspiracy because he has no proof.
Dispositive: Premises considered, the motion for
reconsideration is denied.
DISSENT (Bautista Angelo, J.):
The facts of the case were told a bit differently in the
dissent.1946: Two companies (Yutivo Sons Hardware
co. and Sing, Yee and Cuan Co. filed claims in the
intestate proceeding in Tan Sin An because Tan Sin An
himself and the partnership with Goquiolay had
obligations to him. And when Goquiolay refused to sell
his interest to the companies, these went after the
deceased partners estate1948: It appears that Goquiolay
actually refused to grant Kong Chai Pin a power of
attorney when she requested for one .1949: Kong Chai
Pin filed a petition in the probate court to sell the
properties of the partnership and some conjugal
properties for the purpose of paying these claims. This
was approved by the court and then she then begun to
presume the role of managing partner. The dissenting
opinion stresses on the following points:
Atty. Paolo Dimayuga
(1) There is no sufficient factual basis to conclude
that Kong Chai Pin executed acts of management to
give her the character of general manager of the
partnership, or to serve as basis for estoppel that may
benefit the purchasers of the partnership properties;
we may conclude that the sale of the partnership
properties by Kong Chai Pin cannot be upheld on the
ground of estoppel, first, because the alleged acts
of management have not been clearly proven; second,
because the record clearly shows that the defendants, or
the buyers, were not misled nor did they rely on the acts
of management, but instead they acted solely on the
opinion of their counsel, Atty. Quisumbing, to the effect
that she succeeded her husband in the partnership as
managing partner by operation of law; and third, because
the defendants are themselves estopped to invoke a
defense which they tried to dispute and repudiate.
(2) The alleged acts of management, even if proven,
could not give Kong Chai Pin the character of
general manager for the same contrary to law and
well-known authorities;
Garrigues, a well-known commentator, is clearly of the
opinion that mere acceptance of the inheritance does not
make the heir of a general partner a general partner
himself. He emphasized that heir must declare that he is
entering the partnership as a general partner unless the
deceased partner has made it an express condition in his
will that the heir accepts the condition of entering the
partnership as a prerequisite of inheritance, in which
case acceptance of the inheritance is enough. But here
Tan Sin An died intestate.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

(3) Even if Kong Chai Pin acted as general manager
she had no authority to sell the partnership
properties as to make it legal and valid; and
Article 129 of the Code of Commerce says:
If the management of the general partnership has
not been limited by special agreement to any of the
members, all shall have the power to take part in the
direction and management of the common business, and
the members present shall come to an agreement for all
contracts or obligations which may concern the
association
(4) Kong Chai Pin had no necessity to sell the
properties to pay the obligation of the partnership
and if she did so it was merely to favor the
purchasers who were close relatives to the prejudice
of Goquiolay.
2.
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO
PUZON, defendant-appellant.

FACTS
the pertinent portions of the articles of partnership
provides:
It is of record that the defendant Bartolome Puzon had a
VII. The affairs of the co-partnership shall be managed contract with the Republic of the Philippines for the
exclusively by the managing partner or by his authorized construction of the Ganyangan Bato Section of the
agent, and it is expressly stipulated that the managing Pagadian Zamboanga City Road, province of
partner may delegate the entire management of the Zamboanga del Sur and of five (5) bridges in the
affairs of the co-partnership by irrevocable power of Malangas-Ganyangan Road. Finding difficulty in
attorney to any person, firm or corporation he may accomplishing both projects, Bartolome Puzon sought
select, upon such terms as regards compensation as he the financial assistance of the plaintiff, William Uy. As
may deem proper, and vest in such person, firm or an inducement, Puzon proposed the creation of a
corporation full power and authority, as the agent of the partnership between them which would be the sub-
co-partnership and in his name, place and stead to do contractor of the projects and the profits to be divided
anything for it or on his behalf which he as such equally between them. William Uy inspected the
managing partner might do or cause to be done. projects in question and, expecting to derive
considerable profits therefrom, agreed to the proposition,
The law says that an agency created in general terms
thus resulting in the formation of the "U.P. Construction
includes only acts of administrations, but with regard to
Company" which was subsequently engaged as
the power to compromise, sell mortgage, and other acts
subcontractor of the construction projects.
of strict ownership, an express power of attorney is
required. Here Kong Chai Pin did not have such power The partners agreed that the capital of the partnership
when she sold the properties of the partnership. would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. But, as
heretofore stated, Puzon was short of cash and he
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
promised to contribute his share in the partnership
capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00
shall have been approved. However, before his loan
application could be acted upon, he had to clear his
collaterals of its incumbrances first. For this purpose, on
October 24, 1956, Wilham Uy gave Bartolome Puzon
the amount of P10,000.00 as advance contribution of his
share in the partnership to be organized between them
under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be
used by Puzon to pay his obligations with the Philippine
National Bank to effect the release of his mortgages with
the said Bank. On October 29, 1956, William Uy again
gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the
said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. Puzon promised
William Uy that the amount of P150,000.00 would be
given to the partnership to be applied thusly:
P40,000.00, as reimbursement of the capital contribution
of William Uy which the said Uy had advanced to clear
the title of Puzon's property; P50,000.00, as Puzon's
contribution to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the partnership.
Although the partnership agreement was signed by the
parties on January 18, 1957, work on the projects was
started by the partnership on October 1, 1956 in view of
the insistence of the Bureau of Public Highways to
complete the project right away. Since Puzon was busy
with his other projects, William Uy was entrusted with
the management of the projects and whatever expense
the latter might incur, would be considered as part of his
contribution. At the end of December, 1957, William
Uy had contributed to the partnership the amount of
P115,453.39, including his capital.
Atty. Paolo Dimayuga
The loan of Puzon was approved by the Philippine
National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount,
P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear
the title to Puzon's property, and the P20,000.00 as
Puzon's contribution to the partnership capital.
To guarantee the repayment of the above-mentioned
loan, Bartolome Puzon, without the knowledge and
consent of William Uy, assigned to the Philippine
National Bank all the payments to be received on
account of the contracts with the Bureau of Public
Highways for the construction of the afore-mentioned
projects. By virtue of said assignment, the Bureau of
Public Highways paid the money due on the partial
accomplishments on the government projects in question
to the Philippine National Bank which, in turn, applied
portions of it in payment of Puzon's loan. Of the amount
of P1,047,181.07, released by the Bureau of Public
Highways in payment of the partial work completed by
the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and
only the amount of P27,820.80 was deposited in the
partnership funds, which, for all practical purposes, was
also under Puzon's account since Puzon was the
custodian of the common funds.
As time passed and the financial demands of the projects
increased, William Uy, who supervised the said projects,
found difficulty in obtaining the necessary funds with
which to pursue the construction projects. William Uy
correspondingly called on Bartolome Puzon to comply
with his obligations under the terms of their partnership
agreement and to place, at lest, his capital contribution at
the disposal of the partnership. Despite several promises,
Puzon, however, failed to do so. Realizing that his
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
verbal demands were to no avail, William Uy
consequently wrote Bartolome Puzon pormal letters of
demand, to which Puzon replied that he is unable to put
in additional capital to continue with the projects.
Failing to reach an agreement with William Uy,
Bartolome Puzon, as prime contractor of
construction projects, wrote the subcontractor, U.P.
Construction Company, on November 20, 1957,
advising the partnership, of which he is also a partner,
that unless they presented an immediate solution and
capacity to prosecute the work effectively, he would be
constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the
construction of the projects in accordance with his
original contract with the Bureau of Public
Highways. On November 27, 1957, Bartolome Puzon
again wrote the U.P.Construction Company finally
terminating their subcontract agreement as of December
1, 1957.
Thereafter, William Uy was not allowed to hold office in
the U.P. Construction Company and his authority to deal
with the Bureau of Public Highways in behalf of the
partnership was revoked by Bartolome Puzon who
continued with the construction projects alone.
ISSUE
1. Whether or not Puzon failed to make contributions to
the partnership?
2. Whether or not Puzon misapplied the partnership
profits?
RULING
1. Yes
Atty. Paolo Dimayuga
The findings of the trial court that the appellant failed to
contribute his share in the capital of the partnership is
clear incontrovertible. The record shows that after the
appellant's loan the amount of P150,000.00 was
approved by the Philippin National Bank in November,
1956, he gave the amount P60,000.00 to the appellee
the who was then managing the construction projects. Of
this amount, P40,000.00 was to be applied a
reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the
appellant's property, and the balance of P20,000.00, as
Puzon's contribution to the partnership. Thereafter, 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.
Parenthetically, the claim of the appellant that the
appellee is equally guilty of not contributing his share in
the partnership capital inasmuch as the amount of
P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal
loan of the appellant which he had paid to the appellee,
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. Thus, in the
receipt for P10,000.00 dated October 24, 1956, the
appellant stated:+.wph!1
Received from Mr. William Uy the sum
of TEN THOUSAND PESOS
(P10,000.00) in Check No. SC 423285
Equitable Banking Corporation, dated
October 24, 1956, as advance
contribution of the share of said William
Uy in the partnership to be organized
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

between us under the firm name U.P. question to the Philippine National Bank who, in turn,
CONSTRUCTION COMPANY which applied portions of it in payment of the appellant's loan.
amount mentioned above will be used
by the undersigned to pay his The appellant claims, however, that the said assignment

obligations with the Philippine National was made with the consent of the appellee and that the

Bank to effect the release of his assignment not prejudice the partnership as it was

mortgages with the said bank. reimbursed by the appellant.

(Emphasis supplied)
But, the appellee categorically stated that the assignment

In the receipt for the amount of P30,000.00 dated to the Philippine National Bank was made without his

October 29, 1956, the appellant also said:+.wph!1 prior knowledge and consent and that when he learned of
said assignment, he cal the attention of the appellant who
Received from William Uy the sum of assured him that the assignment was only temporary as
THIRTY THOUSAND PESOS he would transfer the loan to the Rehabilitation Finance
(P30,000.00) in Check No. SC423287, Corporation within three (3) months time.
of the Equitable Banking
Corporation, as partial contribution of The question of whom to believe being a matter large

the share of the said William Uy to the dependent on the trier's discretion, the findings of the

U.P. CONSTRUCTION COMPANY for trial court who had the better opportunity to examine and

which the undersigned will use the said appraise the fact issue, certainly deserve respect.

amount in payment of his obligation to

That the assignment to the Philippine National Bank
the Rehabilitation Finance Corporation.
prejudicial to the partnership cannot be denied. The
record show that during the period from March, 1957 to
September, 1959, the appellant Bartolome Puzon
2. Yes received from the Bureau of Public highways, in
payment of the work accomplished on the construction
The findings of the trial court that the appellant
projects, the amount of P1,047,181.01, which amount
misapplied partnership funds is, likewise, sustained by
rightfully and legally belongs to the partnership by virtue
competent evidence. It is of record that the appellant
of the subcontract agreements between the appellant and
assigned to the Philippine National Bank all the
the U.P. Construction Company. In view of the
payments to be received on account of the contracts with
assignment made by Puzon to the Philippine National
the Bureau of Public Highways for the construction of
Bank, the latter withheld and applied the amount of
the aforementioned projects to guarantee the repayment
P332,539,60 in payment of the appellant's personal loan
of the bank. By virtue of the said appelant's personal
with the said bank. The balance was deposited in Puzon's
loan with the said bank assignment, the Bureau of Public
current account and only the amount of P27,820.80 was
Highways paid the money due on the partial
deposited in the current account of the partnership. For
accomplishments on the construction projects in
sure, if the appellant gave to the partnership all that were
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

earned and due it under the subcontract agreements, the whatever is to be left is to be paid to each one of those
money would have been used as a safe reserve for the who had put in money.
discharge of all obligations of the firm and the
partnership would have been able to successfully and DOCTRINE: Thus, it follows that Vicente
profitably prosecute the projects it subcontracted. Buenaventura, whose rights are those of his father, is in
no case entitled to receive any part of the assets until the
When did the appellant make the reimbursement claimed creditors who are non-partners and the Chuidian minors
by him? are paid. Whatever rights he had either as creditor or
partner, he could only transfer subject to this condition.
For the same period, the appellant actually disbursed for
the partnership, in connection with the construction
FACTS:
projects, the amount of P952,839.77. Since the appellant
The defendants are a regular general partnership,
received from the Bureau of Public Highways the sum of
organized in Manila, December 29, 1882, as a
P1,047,181.01, the appellant has a deficit balance of
continuation of a prior partnership of the same
P94,342.24. The appellant, therefore, did not make
name. The original partners constituting the
complete restitution.
partnership of 1882 were D. TelesforoChuidian,
Doa RaymundaChuidian, Doa
CandelariaChuidian, and D. Mariano
4.
Buenaventura.

JOSE MACHUCA, plaintiff-appellee, v. CHUIDIAN,

The capital was fixed in the partnership
BUENAVENTURA & CO., defendants-appellants
agreement at 16,000 pesos, of which the first
(G.R. No. 1011, May 13, 1903) (LADD, J.)
three partners named contributed 50,000 pesos
each, and the last named 10,000 pesos, and it
SUMMARY: One of the heirs (Vicente Buenaventura)
was stipulated that the liability of the partners
of the partners of Messrs. Chuisian, Buenaventura & Co.
should be "limited to the amounts brought in by
assigned a 25% share of the part pertaining to him in all
them to form the partnership stock.
that may be obtained by whatever right in whatever form
from the liquidation of the partnership to Garcia. And
In addition to the amounts contributed by the
Garcia assigned the share to Machuca. Machuca is now
partners to the capital, it appears from the
claiming his purported share against the partnership
partnership agreement that each one of them had
while its liquidation is pending. The lower court held
advanced money to the preexisting partnership,
for him while the SC held otherwise because the Clause
which advances were assumed or accounts-
19 of the partnership agreement stipulated that upon
current aggregated something over 665,000
dissolution, outside parties were to be satisfied first,
pesos, of which sum about 569,000 pesos
funds allotted for the Chuidian minors second, and
represented the advances from the Chuidians
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
and the balance that balance that from D.
Mariano Buenaventura.
Doa RaymundaChuidian retired from the
partnership November 4, 1885. On January 1,
1888, the partnership went into liquidation, and
it does not appear that the liquidation had been
terminated when this action was brought.
Down to the time the partnership went into
liquidation the accounts-current of D.
TelesforoChuidian and Doa
CandelariaChuidian had been diminished in an
amount aggregating about 288,000 pesos, while
that of D. Mariano Buenaventura had been
increased about 51,000 pesos. During the period
from the commencement of the liquidation down
to January 1, 1896, the account-current of each
of the Chuidians had been still further decreased,
while that of D. Mariano Buenaventura had been
still further increased.
On January 1, 1894, D. Mariano Buenaventura
died,among his heirs was D. Vicente
Buenaventura. Upon the partition of the estate,
the amount of the interest of D. Vicente
Buenaventura in his father's account-current and
in the capital was ascertained and recorded in
the books of the firm.
On December 15, 1898, D. Vicente
Buenaventura executed a public instrument in
which for a valuable consideration he assigned
to D. Jose Gervasio Garcia a 25%share in all
that may be obtained by whatever right in
whatever form from the liquidation of the
Atty. Paolo Dimayuga
partnership of Chuidian, Buenaventura & Co., in
the part pertaining to him in said partnership.
Jose Machuca claims that Garcia had
subsequently assigned the right to claim from
the partnership, which has been notified to the
liquidator of the partnership.
The liquidator of the partnership declined to
record in the books of the partnership the
plaintiff's claim under the assignment as a credit
due him in the books of the partnership.
Machuca brought this action to compel such
record to be made, and that he be adjudicated to
be a creditor of the partnership in an amount
equal to 25% of D. Vicente Buenaventura's
share in his father's account-current, with
interest, less the liability to which the plaintiff is
subject by reason of his share in the capital. He
also asks to recover the damages caused by
reason of the failure of the liquidator to record
his credit in the books of partnership.
The lower court had the credit assigned to the
plaintiff recorded in the books of the
partnership. And also had him receive 25% of
an amount representing the share he claims, with
interest, the payment of the 25% of
Buenaventura's share in the capital to be
postponed till the termination of the liquidation.
ISSUE: WON Machuca was entitled to receive his claim
over the partnership pending liquidation.
HELD: NO.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Clause 19 of the partnership agreement stipulate
that: "upon the dissolution of the company, the pending
obligations in favor of outside parties should be
satisfied, the funds of the minors Jose and Francisco
Chuidian [it does not appear what their interest in the
partnership was or when or how it was acquired] should
be taken out, and afterwards the resulting balance of the
account-current of each one of those who had put in
money (imponentes) should be paid."
A construction of the clause establishes that the
liabilities to noncompartners are to be first discharged;
that the claims of the Chuidian minors are to be next
satisfied; and that what is due to the respective partners
on account of their advances to the firm is to be paid last
of all, leaving the ultimate residue, of course, if there be
any, to be distributed, among the partners in the
proportions in which they may be entitled thereto.
A distinction is made in this clause between
creditors who were partners and creditors who were not
partners, and that the expression "outside parties" refers
to the latter class. And the words "pending obligations"
clearly comprehend outstanding obligations of every
kind in favor of such outside parties, and do not refer
merely, as claimed by counsel for the plaintiff, to the
completion of mercantile operations unfinished at the
time of the dissolution of the partnership, such as
consignments of goods and the like.
Such being the basis upon which by agreement
of the partners the assets of the partnership are to be
applied to the discharge of the various classes of the
firm's liabilities, it follows that D. Vicente
Buenaventura, whose rights are those of his father, is in
no case entitled to receive any part of the assets until the
creditors who are nonpartners and the Chuidian minors
Atty. Paolo Dimayuga
are paid. Whatever rights he had either as creditor or
partner, he could only transfer subject to this condition.
It is clear, from the language of the instrument
under which the plaintiff claims, that this conditional
interest was all that D. Vicente Buenaventura ever
intended to transfer. By that instrument he undertakes to
assign to Garcia not a present interest in the assets of the
partnership but an interest in whatever "may be obtained
from the liquidation of the partnership," which Garcia is
to receive "in the same form in which it may be obtained
from said partnership.
The assignment by its terms is not to take effect
until all the liabilities of the partnership have been
discharged and nothing remains to be done except to
distribute the assets, if there should be any, among the
partners. Meanwhile the assignor, Buenaventura, is to
continue in the enjoyment of the rights and is to remain
subject to the liabilities of a partner as though no
assignment had been made. In other words, the
assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to 25% of
such portion of the ultimate residue of the partnership
property as the assignor may become entitled to receive
by virtue of his proportionate interest in the capital.
There is nothing in the case to show either that
the nonpartner creditors of the partnership have been
paid or that the claims of the Chuidian minors have been
satisfied. Such rights as the plaintiff has acquired against
the partnership under the assignment still remain,
therefore, subject to the condition which attached to
them in their origin, a condition wholly uncertain of
realization, since it may be that the entire assets of the
partnership will be exhausted in the payment of the
creditors entitled to preference under the partnership
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

agreement, thus extinguishing the plaintiff's right to

receive anything from the liquidation.

It is contended by the plaintiff that, as the

partnership was without authority to enter upon new
mercantile operations after the liquidation commenced,
the increase in D. Mariano Buenaventura's account-
current during that period was the result of a void 5.
transaction, and that therefore the plaintiff is entitled to
withdraw at once the proportion of such increase to PAUL MACDONALD, ET AL., Petitioners, vs. THE
which he is entitled under the assignment. With NATIONAL CITY BANK OF NEW
reference to this contention, it is sufficient to say that it YORK,Respondent.[G.R. No. L-7991. May 21, 1956.]
nowhere appears in the case that the increase in D.
Mariano Buenaventura's account-current during the FACTS:
period of liquidation was the result of new advances to
STASIKINOCEY is a partnership doing
the firm, and the figures would appear to indicate that it
business at No. 58, Aurora Boulevard, San Juan,
resulted from the accumulation of interest.
Rizal, and formed by Alan W. Gorcey, Louis F.
da Costa, Jr., William Kusik and Emma
The plaintiff having acquired no rights under the
BadongGavino. This partnership was denied
assignment which are now enforceable against the
registration in the Securities and Exchange
defendant, the action can not be maintained. The
Commission, and while it is confusing to see in
liquidator of the defendant having been notified of the
this case that the CARDINAL RATTAN,
assignment, the plaintiff will be entitled to receive from
sometimes called the CARDINAL RATTAN
the assets of the partnership, if any remain, at the
FACTORY, is treated as a copartnership, of
termination of the liquidation, 25% of D. Vicente's
which Defendants Gorcey and da Costa are
resulting interest, both as partner and creditor. The
considered general partners, we are satisfied
judgment in this case should not affect the plaintiff's
that, as alleged in various instruments appearing
right to bring another action against the partnership
of record, said Cardinal Rattan is merely the
when the affairs of the same are finally wound up. The
business name or style used by the partnership
proper judgment will be that the action be dismissed.
Stasikinocey.
The judgment of the lower court is reversed and the case
is remanded to that court with directions to enter a
Defendant Stasikinocey had an overdraft
judgment of dismissal.
account with The National City Bank of New
York, a foreign banking association duly
licensed to do business in the Philippines. The
overdraft showed a balance of P6,134.92 against
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
the Defendant Stasikinocey or the Cardinal
Rattan, which account, due to the failure of the
partnership to make the required payment, was
converted into an ordinary loan for which the
corresponding promissory joint note non-
negotiable was executed by Louis F. da Costa
for and in the name of the Cardinal Rattan,
Louis F. da Costa and Alan Gorcey. This
promissory note was secured by a chattel
mortgage executed by Louis F. da Costa, Jr.,
General Partner for and in the name of
Stasikinocey, alleged to be a duly registered
Philippine partnership, doing business under the
name and style of Cardinal Rattan, with
principal office at 69 Riverside, San Juan, Rizal.
The chattels mortgaged were the following
motor vehicles:(a) Fargo truck
(1949);(b) Plymouth Sedan
automobile; and(c) Fargo Pick-Up FKI-16
(1949).
The mortgage deed was fully registered by the
mortgagee, in the Office of the Register of
Deeds for the province of Rizal, at Pasig, and
among other provisions it contained the
following:(a) That the mortgagor shall not sell
or otherwise dispose of the said chattels without
the mortgagees written consent; and(b) That
the mortgagee may foreclose the mortgage at
any time, after breach of any condition thereof,
the mortgagor waiving the 30- day notice of
foreclosure.
On June 7, 1949, the same day of the execution
of the chattel mortgage aforementioned, Gorcey
and Da Costa executed an agreement purporting
to convey and transfer all their rights, title and
Atty. Paolo Dimayuga
participation in Defendant partnership to
Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed
by them and Defendant partnership to the latter,
which transaction is said to be in violation of the
Bulk Sales Law (Act No. 3952 of the Philippine
Legislature).
While the said loan was still unpaid and the
chattel mortgage
subsisting, Defendant partnership,
through Defendants Gorcey and Da Costa
transferred to Defendant McDonald the Fargo
truck and Plymouth sedan. The Fargo pickup
was also sold by William Shaeffer to Paul
McDonald.
Paul Mcdonald, notwithstanding Plaintiffs
existing mortgage lien, in turn transferred the
Fargo truck and the Plymouth sedan to Benjamin
Gonzales.
The National City Bank of New
York, Respondent herein, upon learning of the
transfers made by the partnership Stasikinocey
to William Shaeffer, from the latter to Paul
McDonald, and from Paul McDonald to
Benjamin Gonzales, of the vehicles previously
pledged by Stasikinocey to theRespondent, filed
an action against Stasikinocey and its alleged
partners Gorcey and Da Costa, as well as Paul
McDonald and Benjamin Gonzales, to recover
its credit and to foreclose the corresponding
chattel mortgage. McDonald and Gonzales were
made Defendants because they claimed to have a
better right over the pledged vehicle.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

CFI Manila ruled in favor of National City PARTNERSHIP WITHOUT JURIDICAL

Bank. PERSONALITY INDEPENDENT OF ITS MEMBERS,
IT NEED NOT BE REGISTERED IN THE ACTUAL
Only Paul McDonald and Benjamin Gonzales RESIDENCE OF THE MEMBERS WHO EXECUTED
appealed to the CA. SAME; AND, AS A CONSEQUENCE THEREOF, IN
NOT MAKING ANY FINDING OF FACT AS TO THE
CA modified the decision of the trial court, ACTUAL RESIDENCE OF SAID CHATTEL
relieving Appellant William Shaeffer of the MORTGAGOR, DESPITEAPPELLANTS RAISING
obligation of paying, jointly and severally, THAT QUESTION PROPERLY BEFORE IT AND
together with Alan W. Gorcey and Louis F. da REQUESTING A RULING THEREON.
Costa, Jr., any deficiency that may remain (3) WON WHEN A CHATTEL MORTGAGOR
unpaid after applying the proceeds of the sale of EXECUTES AN AFFIDAVIT OF GOOD FAITH
the said motor vehicles which shall be BEFORE A NOTARY PUBLIC OUTSIDE OF THE
undertaken upon the lapse of 90 days from the TERRITORIAL JURISDICTION OF THE LATTER,
date this decision becomes final, if by THE AFFIDAVIT IS VOID AND THE CHATTEL
then Defendants Louis F. da Costa, Jr., and Alan MORTGAGE IS NOT BINDING ON THIRD
W. Gorcey had not paid the amount of the PERSONS WHO ARE INNOCENT PURCHASERS
judgment debt. This decision is without FOR VALUE; AND, AS A CONSEQUENCE
prejudice to whatever action Louis F. da Costa, THEREOF, IN NOT MAKING ANY FINDING OF
Jr., and Alan W. Gorcey may take against their FACT AS TO WHERE THE DEED WAS IN FACT
co-partners in the Stasikinocey unregistered EXECUTED, DESPITE APPELLANTS RAISING
partnership. THAT QUESTION PROPERLY BEFORE IT AND
EXPRESSLY REQUESTING A RULING THEREON.
An appeal by certiorari was taken by Paul
(4) WON A LETTER AUTHORIZING ONE MEMBER
McDonald and Benjamin
OF AN UNREGISTERED COMMERCIAL CO-
Gonzales, Petitioners herein.
PARTNERSHIP TO MAKE ALL OFFICIAL AND
ISSUES: (1) WONAN UNREGISTERED BUSINESS ARRANGEMENTS .. WITH THE
COMMERCIAL CO-PARTNERSHIP WHICH HAS NATIONAL CITY BANK OF NEW YORK IN
NO INDEPENDENT JURIDICAL PERSONALITY ORDER TO SIMPLIFY ALL MATTERS RELATIVE
CAN HAVE A DOMICILE SO THAT A CHATTEL TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER
MORTGAGE REGISTERED IN THAT DOMICILE BANKING MEDIUMS, WAS SUFFICIENT
WOULD BIND THIRD PERSONS WHO ARE AUTHORITY FOR THE SAID MEMBER TO
INNOCENT PURCHASERS FOR VALUE. EXECUTE A CHATTEL MORTGAGE IN ORDER TO
(2) WONWHEN A CHATTEL MORTGAGE IS GIVE THE BANK SECURITY FOR A PRE-

EXECUTED BY ONE OF THE MEMBERS OF AN EXISTING OVERDRAFT, GRANTED WITHOUT

UNREGISTERED COMMERCIAL CO- SECURITY. WHICH THE BANK HAD CONVERTED

 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
INTO A DEMAND LOAN UPON FAILURE TO PAY
SAME AND BEFORE THE CHATTEL MORTGAGE
WAS EXECUTED.
RULING: (1) 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.
In Jo Chung Chang vs. Pacific Commercial Co., it
was held that although the partnership with the firm
name of TeckSeing and Co. Ltd., could not be regarded
as a partnership de jure, yet with respect to third persons
it will be considered a partnership with all the
consequent obligations for the purpose of enforcing the
rights of such third persons. Da Costa and Gorcey
cannot deny that they are partners of the partnership
Stasikinocey, because in all their transactions with
theRespondent they represented themselves as such.
Petitioner McDonald cannot disclaim knowledge of the
partnership Stasikinoceybecause he dealt with said
entity in purchasing two of the vehicles in question
through Gorcey and Da Costa. As was held in Behn
Meyer & Co. vs. Rosatzin, 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. The sale of the vehicles in question being
void as to Petitioner McDonald, the transfer from the
latter to Petitioner Benjamin Gonzales is also void, as
the buyer cannot have a better right than the seller.
Atty. Paolo Dimayuga
It results that if the law recognizes a defectively
organized partnership as de facto as far as third persons
are concerned, for purposes of its de facto existence it
should have such attribute of a partnership as domicile.
In Hung-Man Yoc vs. Kieng-Chiong-Seng, it was held
that although it has no legal standing, it is a
partnership de facto and the general provisions of the
Code applicable to all partnerships apply to it. The
registration of the chattel mortgage in question with the
Office of the Register of Deeds of Rizal, the residence or
place of business of the partnership Stasikinocey being
San Juan, Rizal, was therefore in accordance with
section 4 of the Chattel Mortgage Law.
(2) These have become academic by reason of the
answer to the first question, namely, that as a de facto
partnership, Stasikinocey had its domicile in San
Juan, Rizal.
(3) It is noteworthy that the chattel mortgage in
question is in the form required by law, and there is
therefore the presumption of its due execution which
cannot be easily destroyed by the biased testimony of
the one who executed it. The interested version of Da
Costa that the affidavit of good faith appearing in the
chattel mortgage was executed in Quezon City before a
notary public for and in the City of Manila was correctly
rejected by the trial court and the Court of Appeals.
Indeed, cumbersome legal formalities are imposed to
prevent fraud. As aptly pointed out in El Hogar Filipino
vs. Olviga, If the biased and interested testimony of
a grantor and the vague and uncertain testimony of
his son are deemed sufficient to overcome a public
instrument drawn up with all the formalities
prescribed by the law then there will have been
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

established a very dangerous doctrine which would good faith and for value, the Respondent having
throw wide open the doors to fraud. transacted with Stasikinocey earlier than the Petitioners,
it should enjoy and be given priority.
(4) In view of the conclusion that Stasikinocey is a de
facto partnership, and Da Costa appears as a co-manager
in the letter of Gorcey to the Respondent and in the
promissory note executed by Da Costa, and that even the
partners considered him as such, as stated in the
affidavit, to the effect that That we as the majority
partners hereby agree to appoint Louis da Costa co-
managing partner of Alan W. Gorcey, duly approved
6.
managing partner of the said firm, the partner who
executed the chattel mortgage in question must be
E. WALCH v. LIM CHAI SENG
deemed to be so fully authorized.Section 6 of the
G.R. No. L-37160, 2 March 1933, EN BANC, (Hull,
Chattel Mortgage Law provides that when a
J.)
partnership is a party to the mortgage, the affidavit
may be made and subscribed by one member thereof.
FACTS:
In this case the affidavit was executed and subscribed
- A limited co-partnership was formed b/w Lim Hai
by Da Costa, not only as a partner but as a managing
Tao (LHT) and Lim Chai Seng (LCS) under the firm
partner.
name Lim Hai Tao, S. en C., and doing business
under the Chinese name of Guan Hoo. The
There is no merit in Petitioners pretense that the motor
partnership was duly registered in the Bureau of
vehicles in question are the common property of Da
Commerce and Industry (BCI) and accdg. to its
Costa and Gorcey. Petitioners invoke article 24 of the
articles, the general partner was LHT w/ a capital of
Code of Commerce in arguing that an unregistered
P20,000, and the limited partner was LCS w/ a
commercial partnership has no juridical personality and
capital of P40,000, thereby making the sum of
cannot execute any act that would adversely affect
P60,000 as its capital. The term of the partnership
innocent third persons. Petitioners forget that
was for an indefinite period but it could be dissolved
theRespondent is a third person with respect to the
by the agreement of the parties. LHT was the
partnership, and the chattel mortgage executed by
manager of the business and LCS had no
Da Costa cannot therefore be impugned by Gorcey
intervention in its management w/ the exception of
on the ground that there is no partnership between
his right to examine the books of the partnership
them and that the vehicles in question belonged to
during the days of January each year.
them in common. As a matter of fact,
the Respondent and the Petitioners are all third
- Accdg. to the balance sheet of the partnership for the
persons as regards the partnership Stasikinocey;and
ending year of 1929, its assets amounted to
even assuming that the Petitioners are purchasers in
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
P130,723.14, while its obligations totaled
P94,435.43. The participation of LCS in the capital
was P24,191.81 while his credit against the
partnership was P6,937.46. When LCS agreed to
LiongKee Hos (LKH) proposal of buying his
participation in the partnership, a written agreement
was entered into by and b/w LCS and LHT, by
virtue of w/c the former retired and separated from
the partnership effective on the same date. This was
duly filed for registry in the BCI. Before the
execution of this agreement, LKH delivered to LHT
the sum of P31,129.27 to be paid to LCS as purchase
price of his participation. This transaction appeared
in the books of the partnership as a loan, but this
circumstance was explained by LCS in that, at time
of the delivery of the money to LHT by LKH, the
deed of separation had not yet been formally
executed. When the deed was made, the sum of
P31,129.27 was paid to LCS in the partnership
capital and P6,937.36 to his credit against the
partnership. This transaction likewise appears in the
books.
- An insolvency proceeding was instituted in the CFI
of Manila by Guan Hoos creditors (Menzi& Co,
Inc, Otto Gmur, Inc. and Pacific Commercial Co.),
all of whom are doing business individually under
the name and style of Guan Hoo.LHT was duly
adjudged insolvent by the court and E. Walch was
elected by the creditors as assignee of the insolvent
estate. In his aforesaid capacity as assignee, has sued
LCS for the purpose of recovering from him the sum
of 24,191.81. This amount being a part of the money
paid to him by LKH for his participation in the
business of the partnership. This claim was
grounded on the theory that the payment of the sum
to LCS was in fraud of the creditors of both the
Atty. Paolo Dimayuga
partnership and LHT. The CFI rendered a decision
in favor of LCS. When Walchs motion for new trial
was denied, he perfected the appeal to the SC.
ISSUE: Is Walchs claim, in representation of the estate
of the insolvent LHT, meritorious?
RULING: NO.
- The principal defenses relied upon by LCS are the
ff: (1) the co-partnership has never been declared
insolvent, (2) the transactions of the present
creditors were actually w/ the individual LHT,
instead of w/ the co-partnership, and (3) the
money w/c LCS received was paid in by a 3rd
party, LKH, for LCSs interest in the co-
partnership and that the assets of the latter
suffered no diminution and therefore, the
creditors of the firm were not injuriously affected
by the said transaction.
- The CFI based its decision on the 2nd and 3rd
grounds, that the transactions of the present creditors
were only w/ LHT and that the money received by
LCS was in his own interest and not that of the co-
partnership. The 2nd ground being more of a question
of fact than of law, should not be tackled here as it
requires a lengthy opinion. No matter what
conclusion might be reached on the 2nd defense, the
SC is convinced that recovery cannot be had in view
of the 1st and 3rd defenses mentioned, that the co-
partnership was never declared insolvent, and that
upon payment to LCS, the partnership and its
creditors were prejudiced.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
7. TESTATE ESTATE OF LAZARO MOTA,
deceased, ET AL.vs. SALVADOR SERRA
G.R. No. L-22825 February 14, 1925
Art. 1829. On dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed.
Doctrine:The dissolution of a partnership must not be
understood in the absolute and strict sense so that at the
termination of the object for which it was created the
partnership is extinguished.
After dissolution, the partnership as a business
enterprise remains viable only for the purpose of
winding up its affairs. The principal signicance of
Atty. Paolo Dimayuga
dissolution is that thereafter, no new partnership
business should be undertaken, but affairs should be
liquidated and distribution made to those entitled to the
partners interest.
Facts: plaintiffs and defendant entered into a contract of
partnership for the construction and exploitation of a
railroad line from the "San Isidro" and "Palma" centrals
to the place known as "Nandong." The original capital
stipulated was P150,000. It was covenanted that the
parties should pay this amount in equal parts and the
plaintiffs were entrusted with the administration of the
partnership. When the capital was proved to be
insufficient, the defendant entered into a contract of sale
with Venancio Concepcion, Phil. C. Whitaker, and
Eusebio R. de Luzuriaga, whereby he sold to the latter
the estate and central known as "Palma" with its running
business, as well as all the improvements, machineries
and buildings, real and personal properties, rights,
choses in action and interests, including the sugar
plantation of the harvest year of 1920 to 1921, covering
all the property of the vendor.
Before the delivery to the purchasers of the hacienda
thus sold, Eusebio R. de Luzuriaga renounced all his
rights in favor of Messrs. Venancio Concepcion and
Phil. C. Whitaker. The purchasers guaranteed the unpaid
balance of the purchase price by a first and special
mortgage in favor of the vendor upon the hacienda and
the central with all the improvements, buildings,
machineries, and appurtenances then existing on the said
hacienda.
Afterwards, Venancio Concepcion and Phil. C. Whitaker
bought from the plaintiffs the one-half of the railroad
line pertaining to the latter. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker paid the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
sum of P47,544.43 only. The plaintiffs and Concepcion
and Whitaker agreed, among other things, that the
partnership "Palma" and "San Isidro," between Serra,
Lazaro Mota, now deceased, and Juan J. Vidaurrazaga
for himself and in behalf of his brother, Felix and
Dionisio Vidaurrazaga, should be dissolved upon the
execution of this contract, and that the said partnership
agreement should be totally cancelled and of no force
and effect whatever.
So it results that the "Hacienda Palma," with the entire
railroad, the subject-matter of the contract of partnership
between plaintiffs and defendant, became the property of
Whitaker and Concepcion. Phil. C. Whitaker and
Venancio Concepcion having failed to pay to the
defendant a part of the purchase price, that is, P750,000,
the vendor, the herein defendant, foreclosed the
mortgage upon the said hacienda, which was adjudicated
to him at the public sale held by the sheriff for the
amount of P500,000, and the defendant put in possession
thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C.
Whitaker and Venancio Concepcion.
Since the defendant Salvador Serra failed to pay one-half
of the amount expended by the plaintiffs upon the
construction of the railroad line, that is, P113,046.46, as
well as Phil. C. Whitaker and Venancio Concepcion, the
plaintiffs instituted the present action.
Defendant set up three special defenses: (1) The
novation of the contract by the substitution of the debtor
with the conformity of the creditors; (2) the confusion of
the rights of the creditor and debtor; and (3) the
extinguishment of the contract
Atty. Paolo Dimayuga
Arguments: Testate estate of Mota assigns also as a
ground of their appeal the holding of the court that by
the termination of the partnership, no legal rights can be
derived therefrom.
By virtue of the contract Exhibit 5, the plaintiffs and
Phil. C. Whitaker and Venancio Concepcion, by
common consent, decided to dissolve the partnership
between the "Hacienda Palma" and "Hacienda San
Isidro," thus cancelling the contract of partnership of
February 1, 1919.
Counsel for appellee (Serra) in his brief and oral
argument maintains that the plaintiffs cannot enforce any
right arising out of that contract of partnership, which
has been annulled, such as the right to claim now a part
of the cost of the construction of the railroad line
stipulated in that contract.
Defendant's contention signifies that any person, who
has contracted a valid obligation with a partnership, is
exempt from complying with his obligation by the mere
fact of the dissolution of the partnership. Defendant's
contention is untenable.
Main Issue: WON the partnership is terminated,
hence, no legal rights can be derived therefrom?
Ruling: the partnership is terminated but continues
until the winding up of partnership affairs is
completed. (Art. 1829)
The dissolution of a partnership must not be understood
in the absolute and strict sense so that at the termination
of the object for which it was created the partnership is
extinguished, pending the winding up of some incidents
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
and obligations of the partnership, but in such case, the
partnership will be reputed as existing until the juridical
relations arising out of the contract are dissolved. This
doctrine has been upheld by the supreme court of Spain
in its decision of February 6, 1903, in the following case:
There was a partnership formed between several persons
to purchase some lands sold by the state. The partnership
paid the purchase price and distributed among its
members the lands so acquired, but after the lapse of
some time, one of the partners instituted an action in the
court of Badajoz, praying that he be accepted as a
partner with the same rights and obligations as the
others, for the reason that he had not been allowed all
that he had a right to. The court granted the petition,
which judgment was affirmed by the Audiencia de
Caceres.
From that decision the defendant sued out a writ of error
alleging infringement of articles 1680 and 1700 of the
Civil Code, on the proposition that all contracts are
reputed consummated and therefore extinguished, when
the contracting parties fulfill all the obligations arising
therefrom and that by the payment of the money and the
granting and distribution of the lands without any
opposition, the juridical relations between the
contracting parties become extinguished and none of the
parties has any right of action under the contract. The
supreme court, holding that some corrections and
liquidations asked by the actor were still pending,
denied the writ, ruling that the articles cited were not
infringed because a partnership cannot be considered
as extinguished until all the obligations pertaining to
it are fulfilled. (11 Manresa, page 312.)
The dissolution of a firm does not relieve any of its
members from liability for existing obligations,
although it does save them from new obligations to
which they have not expressly or impliedly assented,
Atty. Paolo Dimayuga
and any of them may be discharged from old
obligations by novation of other form of release. It is
often said that a partnership continues, even after
dissolution, for the purpose of winding up its affairs.
(30 Cyc., page 659.)
For all of the foregoing, the judgment appealed from
is reversed, and we hold that the defendant Salvador
Serra is indebted to the plaintiffs, the Testate Estate
of Lazaro Mota, et al., in the amount of P113,046.46,
and said defendant is hereby sentenced to pay the
plaintiffs the said amount, together with the agreed
interest at the rate of 10 per cent per annum from the
date of the filing of the complaint.
1st issue: WON there was novation?
Ruling: NO.
It should be noted that in order to give novation its legal
effect, the law requires that the creditor should consent
to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation
extinguishes the personality of the first debtor who is to
be substituted by new one, it implies on the part of the
creditor a waiver of the right that he had before the
novation which waiver must be express under the
principle that renuntiatio non praesumitur, recognized by
the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown
by him who holds the right.
The fact that Phil. C. Whitaker and Venancio
Concepcion were willing to assume the defendant's
obligation to the plaintiffs is of no avail, if the latter have
not expressly consented to the substitution of the first
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

debtor. Neither can the letter, Exhibit 6, on page 87 of
the record be considered as proof of the consent of the
plaintiffs to the substitution of the debtor, because that
exhibit is a letter written by plaintiffs to Phil. C.
Whitaker and Venancio Concepcion for the very reason
that the defendant had told them (plaintiffs) that after the
sale of the "Hacienda Palma" to Messrs. Phil. C.
Whitaker and Venancio Concepcion, the latter from then
on would bear the cost of the repairs and maintenance of
the railroad line and of the construction of whatever
addition thereto might be necessary.
said railroad line, and since the plaintiffs did not include
in the sale, evidenced by Exhibit 5, the credit that they
had against the defendant, the allegation that the
obligation of the defendant became extinguished by the
merger of the rights of creditor and debtor by the
purchase of Messrs. Phil. C. Whitaker and Venancio
Concepcion is wholly untenable.

But in all of the evidence presented, there was nothing to

show the express consent, the manifest and deliberate
intention of the plaintiffs to exempt the defendant from
his obligation and to transfer it to his successors in
interest, Messrs. Phil. C. Whitaker and Venancio
Concepcion.

2nd issue: WON there was a merger of the rights of

debtor and creditor?

Ruling: NO.

Phil. C. Whitaker and Venancio Concepcion mortgaged

unto the plaintiffs what they had bought from the
plaintiffs and also what they had bought from Salvador
Serra. If Messrs. Phil. C. Whitaker and Venancio
Concepcion had purchased something from Mr. 8.

Salvador Serra, the herein defendant, regarding the Singsonvs Isabella Sawmill
railroad line, it was undoubtedly the one-half thereof
pertaining to Mr. Salvador Serra. This clearly shows Facts:

that the rights and titles transferred by the plaintiffs

to Phil. C. Whitaker and Venancio Concepcion were
only those they had over the other half of the railroad
line. Therefore, as already stated, since there was no
novation of the contract between the plaintiffs and the
defendant, as regards the obligation of the latter to pay
the former one-half of the cost of the construction of the
On January 30, 1951 the defendants Leon Garibay,
Margarita G. Saldejeno, and TimoteoTubungbanua
entered into a Contract of Partnership under the firm
name "Isabela Sawmill.
On February 3, 1956 the plaintiff Oppen, Esteban, Inc.
sold a Motor Truck and two Tractors to the partnership
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Isabela Sawmill for the sum of P20,500.00. In order to
pay the said purcahse price, the said partnership agreed
to make arrangements with the International Harvester
Company at Bacolod City so that the latter would sell
farm machinery to Oppen, Esteban, Inc. with the
understanding that the price was to be paid by the
partnership.
The International Harvester Company has been paid a
total of P19,211.11, leaving an unpaid balance of
P1,288.89. Other creditors also claimed for unpaid
balance by the partnership.
On April 25, 1958 Civil Case No. 4797 was filed by the
spouses CecilioSaldajeno and Margarita G. Saldajeno
against the Isabela Sawmill, Leon Garibay, and
TimoteoTubungbanua.
On April 27, 1958 the defendants Leon Garibay,
TimoteoTubungbanua and Margarita G. Saldajeno
entered into a "Memorandum Agreement" allowing the
former to continue the business under the name of the
partnership after the withdrawal of Margarita from the
same.
On May 26, 1958 the defendants Leon Garibay,
TimoteoTubungbanua and Margarita G. Saldajeno
executed a document entitled "Assignment of Rights
with Chattel Mortgage". Thereafter the defendants Leon
Garibay and TimoteoTubungbanua did not divide the
assets and properties of the "Isabela Sawmill" between
them, but they continued the business of said partnership
under the same firm name "Isabela Sawmill".
On May 18, 1959 the Provincial Sheriff of Negros
Occidental published two (2) notices that he would sell
at public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery, office
equipment and other things that were involved in Civil
Atty. Paolo Dimayuga
Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon
Garibay, et al
On October 15, 1969 the Provincial Sheriff of Negros
Occidental executed a Certificate of Sale in favor of the
defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the
enforcement of the judgment rendered in Civil Case No.
5223 of the Court of First Instance of Negros Occidental.
On October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
Oriental Lumber Company transfering to the latter for
the sum of P45,000.00 the trucks, tractors, machinery,
and other things that she had purchased at a public
auction referred to in the foregoing paragraph.
The plaintiffs and the defendants CecilioSaldajeno and
Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.
The plaintiffs and the defendants Cecilio and Margarita
G. Saldajeno presented additional evidence, mostly
documentary, while the cross-defendants did not present
any evidence. The case hardly involves questions of fact
at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted
to the plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89 as the unpaid balance of an obligation of
P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation.
Issue: Whether or not Isabela Sawmill ceased to be a
partnership and that the creditors could no longer
demand payment
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Ruling: No. Isabella Sawmill remains a partnership
despite the withdrawal of Margarita G. Saldajeno and
the creditors can demand payment from them.
It is true that the dissolution of a partnership is caused by
any partner ceasing to be associated in the carrying on of
the business. However, on dissolution, the partnership is
not terminated but continuous until the winding up to the
business.
The remaining partners did not terminate the business of
the partnership "Isabela Sawmill". Instead of winding up
the business of the partnership, they continued the
business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that
the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill".
There was no liquidation of the assets of the partnership.
The remaining partners, Leon Garibay
TimoteoTubungbanua, continued doing the business of
the partnership in the name of "Isabela Sawmill". They
used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by
the remaining partners, Leon Garibay
TimoteoTubungbanua, belonged to the partnership
"Isabela Sawmill." The appellant, Margarita
Saldajeno, was correctly held liable by the trial court
because she purchased at public auction the properties of
the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G.
Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had
a right to expect that whatever, credit they extended to
Leon Garibay and TimoteoTubungbanua doing the
business in the name of the partnership "Isabela
Sawmill" could be enforced against the properties of said
Atty. Paolo Dimayuga
partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno
did not relieve her from liability to the creditors of the
partnership.
The appellant, Margrita G. Saldajeno, cannot complain.
She is partly to blame for not insisting on the liquidaiton
of the assets of the partnership. She even agreed to let
Leon Garibay and TimoteoTubungbanua continue doing
the business of the partnership "Isabela Sawmill" by
entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G.
Saldajeno had action in good faith, the appellees aslo
acted in good faith in extending credit to the partnership.
Where one of two innocent persons must suffer, that
person who gave occasion for the damages to be caused
must bear the consequences. Had Margarita G. Saldajeno
not entered into the memorandum-agreement allowing
and
Leon Garibay and TimoteoTubungbanua to continue
doing the business of the partnership, the appellees
would not have been misled into thinking that they were
still dealing with the partnership "Isabela Sawmill".
Under the facts, it is of no moment that technically
and speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G.
G. Saldajeno. The partnership was not terminated and it
continued doping business through the two remaining
partners.
The contention of the appellant that the appllees cannot
bring an action to annul the chattel mortgage of the
propertiesof the partnership executed by Leon Garibay
and TimoteoTubungbanua in favor of Margarita G.
Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is
not a party thereto. However, when a contract prejudices
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

the rights of a third person, he may file an action to

annul the contract.

This Court has held that a person, who is not a party

obliged principally or subsidiarily under a contract, may
exercised an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would
positively result to him from the contract in which he has
no intervention.

The plaintiffs-appellees were prejudiced in their rights

by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favor
of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and TimoteoTubungbanua. Hence, said
appelees have a right to file the action to nullify the
chattel mortgage in question.

The portion of the decision appealed from ordering the

appellants to pay attorney's fees to the plaintiffs-
appellees cannot be sustained. There is no showing that
the appellants displayed a wanton disregard of the rights
of the plaintiffs. Indeed, the appellants believed in good
faith, albeit erroneously, that they are not liable to pay
the claims.

The defendants-appellants have a right to be reimbursed

whatever amounts they shall pay the appellees by their
co-defendants Leon Garibay and TimoteoTubungbanua.
In the memorandum-agreement, Leon Garibay and
TimoteoTubungbaun undertook to release Margarita G.
Saldajeno from any obligation of "Isabela Sawmill" to
third persons.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
9.
NG CHO CIO ET AL., plaintiffs-appellants,
vs.
NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
FACTS:
On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng
Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng
Due King(6 people) entered into a contract of general
co-partnership under the name NG CHIN BENG
HERMANOS. The partnership was to exist for a period
of 10 years from May 23, 1925 and Ng Diong was
named as managing partner. On May 10, 1935, the
articles of co-partnership were amended by extending its
life to 16 years more to be counted from May 23, 1925,
or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the
National Loan and Investment Board a loan in the
amount of P30,000.00, and to guarantee its payment it
executed in its favor a mortgage on Lots Nos. 236-B,
317-A, 233 and 540 (4 parcels) of the cadastral survey of
Iloilo. On the same date, the partnership also obtained
from the same entity another loan in the amount of
P50,000.00 to secure which it also executed in its favor a
mortgage on Lots Nos. 386, 829 and 237 (3 parcels) of
the same cadastral survey.
Atty. Paolo Dimayuga
Sometime in 1938, the partnership was declared
insolvent upon petition of its creditors in the Court of
First Instance of Iloilo wherein one Crispino Melocoton
was elected as assignee. As a consequence, on June 21,
1939, the titles to the seven parcels of land
abovementioned were issued in his name as assignee. In
due time, the creditors filed their claims in said
proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with
claims amounting to P139,704.81, and the partners of
the firm, acting thru counsel, entered into a composition
agreement whereby it was agreed that said creditors
would receive 20% of the amount of their claims in full
payment thereof. Prior to this agreement, however,
defendant Julian Go had already acquired the rights of
24 of the creditors of the insolvent whose total claims
amounted to P139,323.10. Said composition agreement
was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial
Bank which had succeeded the National Loan and
Investment Board assigned its rights and interests in the
loans obtained from it by the partnership in the
aggregate amount of P80,000.00 in favor of C.N.
Hodges, together with the right and interest in the
mortgage executed to secure the loans. Since said loans
became due and no payment was forthcoming, Hodges
asked permission from the insolvency court to file a
complaint against the assignee to foreclose the mortgage
executed to secure the same in a separate proceeding,
and permission having been granted, Hodges filed a
complaint for that purpose on May 13, 1941. In his
complaint, Hodges prayed that the assignee be ordered
to pay him the sum of P75,622.90, with interest at 8%
per annum thereon from March 6, 1941, plus P8,000.00
attorney's fees, exclusive of costs and charges.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Meanwhile, war broke out and nothing appears to have
been done in the insolvency proceedings. The court
records were destroyed. However, they were
reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm
and Julian Go, who acquired most of the claims of the
creditors, filed a petition with the insolvency court
praying at the insolvency proceedings be closed or
terminated cause the composition agreement the
creditors had submitted relative to the settlement of the
claims had already been approved on October 10, 1940.
And on October 6, 1946, the court, acting favorably on
the petition, ordered, closure of the proceedings directing
the assignee to turn and reconvey all the properties of the
partnership back to the latter as required by law. In
accordance with this order of the court, the assignee
executed a deed of reconveyance of the properties to the
partnership on April 2, 1946 and by virtue thereof, the
register of deeds cancelled the titles issued in the name
of the assignee and issued new ones in lieu thereof in the
name of the partnership.
As of said date, April 2, 1946, the indebtedness of the
partnership to C. N. Hodges which was the subject of the
foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise
necessary funds to pay the other obligations of the
partnership, it was deemed proper and wise by Ng
Diong, who continued to be the manager of the
partnership, to sell all its properties mortgaged to
Hodges in order that the excess may be applied to the
Payment of said other obligations, and to that effect Ng
Diong executed on April 2, 1946 a deed of sale thereof
in favor of Hodges for the sum of P124,580.00. Out of
this price; the sum of P103,883.34 was applied to the
payment of the debt of the partnership to Hodges and the
Atty. Paolo Dimayuga
balance was paid to the other creditors of the
partnership. On the same date, Hodges executed another
contract giving the partnership the right to repurchase
Lots Nos. 237, 386 and 829 in installments for the sum
of P26,000.00 within three years with interest the rate of
1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its
indebtedness to Julian Go in the amount of P24,864.62
under the composition agreement, nor did it have any
money to repurchase Lots Nos. 237, 386 and 829 and so
Ng Diong, in behalf of the partnership, transferred the
right of the latter to repurchase the same from Hodges to
Julian Go in full payment of the partnership's
indebtedness to him. And having Julian Go exercised the
option January 6, 1948, Hodges executed a deed of sale
of the properties in his favor, and pursuant thereto the
register of deeds issued new titles' in his name covering
said lots. On May 29, 1948, Hodges executed another
deed of sale covering Lots Nos. 317-A, 236-B, 233 and
540 for the sum of P119,067.79 in favor of Jose C.
Tayengco. And on August 31, 1948, Tayengco
mortgaged said lots, together with three other lots of his,
to the Bank of the Philippine Islands to secure a loan of
P126,000.00 to be used in the construction of a
commercial building on said lots.
ISSUE:
(1) The sale made by Ng Diong in behalf of the
partnership NG CHIN BENG HERMANOS of the seven
lots belonging to it in favor of C. N. Hodges on April 2,
1946 is null and void because at that time said parcels
were still in the custody of the assignee of the insolvency
proceedings, or in custodia legis, and, hence, the same is
null and void;
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
(2) Said sale is also null and void "because of the
disparity, irrationality and unreasonableness between the
consideration and the real value of the properties when
sold"; and
(3) The lower court erred in not finding that the two
deeds of mortgage executed by the partnership in favor
of the National Loan and Investment Board which were
later assigned to C. N. Hodges can no longer be enforced
because the action to foreclose the same has already
prescribed.
RULING:
(1) NO.
Anent the first issue, it would be well to state the
following facts by way of clarification: It should be
recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the representatives
of the latter, submitted to the court taking cognizance of
the insolvency proceedings a composition
agreement whereby it was agreed that said creditors
would receive 20% of the amount of their claims in full
payment thereof. This agreement was approved on
October 10, 1940 which, in contemplation of law, has
the effect of putting an end to the insolvency
proceedings. However, no further step was taken thereon
because of the outbreak of the war. Later, the record of
the case was reconstituted and the parties on August 15,
1945 filed a petition with the court praying for the
dismissal and closure of the proceedings in view of the
approval of the aforesaid composition agreement, and
acting favorably thereon, the court on October 6, 1945,
issued an order declaring the proceedings terminated and
ordering the assignee to return and reconvey the
properties the partnership. The actual re-conveyance was
done by an assignee on April 2, 1946.
Atty. Paolo Dimayuga
It would, therefore, appear that for legal and practical
purposes the insolvency ended on said date. Since then
partnership became, restored to its status quo. It again
reacquired its personality as such with Ng Diong as its
general manager. From that date on its properties ceased
to be in custodia legis. Such being the case, it is obvious
that when Ng Diong as manager of the partnership sold
the seven parcels of land to C. N. Hodges on April 2,
1946 by virtue of a deed of sale acknowledged before a
notary public on April 6, 1946, the properties were
already was at liberty to do what it may deem convenient
and proper to protect its interest. And acting accordingly,
Ng Diong made the sale in the exercise of the power
granted to him by the partnership in its articles of co-
partnership. We do not, therefore, find anything irregular
in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership
had already expired, the question may be fixed: Who
shall wind up it business affairs? May its manager still
execute the sale of its properties to C. N. Hodges as was
done by Ng Diong? The answer to this question cannot
but be in the affirmative because Ng Diong was still the
managing partner of the partnership and he had the
necessary authority to liquidate its affairs under its
articles of co-partnership. And considering that war had
intervened and the affairs of the partnership were placed
under receivership up to October 6, 1945, we are of the
opinion that Ng Diong could still exercise his power as
liquidator when he executed the sale in question in favor
of C. N. Hodges. This is sanctioned by Article 228 of the
Code of Commerce which was the law in force at the
time.1
(2) NO.
With regard to the second issue, it is contended that the
trial court should have declared the sale of the lots made
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
to C. N. Hodges null and void "because of the disparity,
irrationality and unreasonableness between the
consideration and real value of the properties when
sold." In stressing his point, counsel contends that the
lands in question, which are located in a commercial
section of the City of Iloilo, were frittered away only for
a "pittance of P124,580.00" when, borrowing his words
they could have been sold like hot cakes to any resident
of the city of regular financial standing upon proper
approaches and representations, because at that time
those properties were fairly worth one-half of a million
pesos."
This claim may be true, but the same is unsupported.
Appellants have failed to introduce any evidence to
show that they could have secured better offers for the
properties if given a chance to do so and that they
advance now is a mere speculation or conjecture which
had no place in our judicial system. Since every claim
must be substantiated by sufficient evidence, and this
appellants have failed to do, their pretense cannot be
entertained.
(3) NO.
Neither can we give any value to the claim that the
action for the foreclosure of the mortgage executed by
the partnership in favor of C. N. Hodges has already
prescribed not only because the same is immaterial but
because it is an issue that appellants are raising for the
first time in this appeal. Such issue has never been raised
in their pleadings, nor in the trial court. Verily, this
claim has no merit.
With regard to the appeal taken by the heirs of defendant
Ng Diong whose main claim is that the trial court failed
to adjudicate to the partnership the properties which
were bought by Julian Go from C. N. Hodges, suffice it
Atty. Paolo Dimayuga
to say that the same could not be done, firstly, because
no such claim was made by them in their pleadings in
the trial court, and, secondly, because the evidence
shows that said properties were bought by Julian Go by
virtue of the option given to him by the partnership for a
valuable consideration in full payment of the credits
assigned to him by a good number of creditors of said
partnership. There is no evidence that he promised to
reconvey the same to the partnership.
10.
CRISANTO LICHAUCO, ET AL., vs. RAYMUNDA
SORIANOG.R. No. L-8450January 29, 1914
FACTS:
This is an appeal from a judgment of the Court
of Land Registration, ordering the registration of
several parcels of land in the names of the
petitioners. The appeal is limited to parcels A
and C, there being no questions as to the
location or identity of the same under the proofs
offered by either party. The objection to the
registration of these two parcels is based
principally on the following notarial
instrument.
The undersigned scriptory creditors of the
spouses Don Ramon Henson and Doa
MatildeMagdagal, residents of the pueblo of
Arayat, Province of Pampanga, have entered
into the following agreement for effecting the
transfer by sale and delivery of their
property, as payment, on the grounds:

o 1. Don Ceferino Revilla,
representation of the spouses Don Lino
Cardenas Reyes, and Doa Raymunda
Soriano under power of attorney duly
acknowledged, obligates himself to
withdraw the complaint in the court of
the Province of Pampanga, which Don
Manuel Murciano filed, raising the
attachment levied on the hacienda
belonging to those spouses, Don Ramon
Henson and Doa MatildeMagdagal
situated in the barrio of Lacmit of the
pueblo of Arayat, and leaving it free to
the disposition of the undersigned.
o 2. The amount of P7400, the subject
matter of Don Manuel Murciano's
complaint wherein Don Lino Cardenas
Reyes was subrogated, shall fix the
proportion in which he shall participate
in both the expenses and the assets of
said hacienda; likewise,
JoaquinaCaldes shall participate
proportion to her P2090;
Concepcion Gruet de Atayde and Doa
Cornelia Laochanco, in both expenses
and assets, and these last two credits
shall be liquidated on the current thirty-
first of December, and all these credits
shall be passed upon the creditors
themselves in order to determine the
total liabilities, as the joint partnership
capital.
o 3. After the expenses have been
deducted, Messrs. Cardenas and Caldes
shall take note from the net profits the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga
in proportionate part corresponding to
each, while the remainder shall be
divided equally between the two
creditors, Doa Concepcion Gruet de
Atayde and Doa Cornelia Laochanco,
without reference to the amounts of their
credits.
o 4. These allotments of assets shall serve
for extinguisher their respective credits,
with the rate of interest made uniform at
six per cent a year.
o 5. Care shall be taken by all the
interested parties that the management
be the most economical possible, with
the maximum of production, and sale of
the products of the hacienda at the best
price.
o 6. Doa JoaquinaCaldes also agrees to
withdraw the complaint she has filed in
Doa the said court of Pampanga, raising the
in attachment levied in part on the products
Doa of said land, leaving them free to the
disposition of the interested parties
themselves.
o 7. A book of minutes shall be kept for
administration and management of the
hacienda, which book shall be in care of
a person chosen by the creditors
themselves; and they will submit,
without appeal, to the decision of
friendly arbitrators, whenever they may
disagree in a tie vote on subjects not
expressly provided for in this
agreement, each partner to have in the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
meeting only one vote, regardless of the
amount of his credit; and all are
obligated to perform what the majority
decides.
o 8. With reference to his general credit of
P8000, Mr. Cardenas agrees to collect
the same after the undersigned shall
have secured their respective credits.
o 9. As the first expense charged against
the products of the hacienda, there shall
be assigned to the spouses Henson and
Magdagal a pension of P30/month
from the first of January, 1889.
o 10. When everything shall have been
paidthe hacienda and its dependencies
shall be restored to the spouses Henson
and Magdagal.
o 11. Spouses Henson and Magdagal
shall be obligated to direct and to aid in
the care of the hacienda, if the
partnership so deem expedient, in order
to utilize the knowledge and experience
they may have of it.
o 12. In case need should arise for an
administrator or manager of said
hacienda to look after the cultivation
and kindred labors, including milling,
with the status of a genuine manager,
action shall likewise be taken by vote
among the creditors.
o 13. Each partner in person or by proxy
shall have the same intervention and
Atty. Paolo Dimayuga
inspection for all the operations of the
hacienda, but shall cease to have any
right or participation under this
agreement after his credit has been paid.
o 14. If, as is not to be expected in view of
the new management and resources the
hacienda will have, and there should not
have intervened any public calamity
or force majeure, it should be seen that
in two and excluding the present one,
not even enough should have been
produced to pay the indispensable cost
of cultivation, with merely unproductive
expense to the undersigned, the creditors
shall agree among themselves upon the
best plan they may deem expedient in
accord with the instrument of delivery.
o 15. Any one failing to comply with the
decisions reached and with these
conditions shall be liable on his
proportionate share of profits and on his
credit for the damages his negligence or
opposition may cause.
o 16. The parties to this agreement shall
seek the best method of arranging with
Messrs. Smith, Bell & Co. in regard to
the debt of Don Ramon Henson for the
machinery installed on the hacienda.
o 17. The present instrument shall be
made a public document after execution
of the instrument of sale and delivery.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

By a notarial document of the same date,
numbered 16, the two spouses attempted to
make an absolute sale of parcels A and C to
Concepcion Gruet and Cornelia Laochanco. The
former assigned her rights in the premises to the
latter, who was the mother of the present
petitioners.
ISSUE: WON the subject parcels of land in question
may be registered under the name of petitioners.
termination of the partnership at the expense of the
partnership, an act which was expressly prohibited
by Law 12, Title 10, Fifth Partida, and is now
prohibited by article 1706, of the Civil Code. The
notarial document of January 12, 1889, did not therefore
convey the title to the land in dispute to the would-be
purchasers, and as the claim of ownership of the
petitioners is necessarily based on that document, it
results that the certificate of registration ought not to
include those parcels.

RULING: The claim of ownership on the part of the

petitioners to parcels A and C cannot be sustained.
The document copied above, constituted a novation of
the preexisting claims of the creditors who affixed their
names thereto, regardless of whether such claims were
secured by mortgage liens on the real property of the
spouses, or were merely personal debts. It is a self-
evident from this document, that a contract of
antichresis was created upon the property of the
spouses; and that, as between the creditors
themselves, a partnership was formed, as is
specifically stated in clause No. 2 thereof. The
attempted sale of the property to two of these creditors
shortly thereafter appears to have been made, on the part
of the spouses, under a misunderstanding of its
signification. It was made without the consent of the
11.
other parties to the original contract. The fact that at the
time this contract of sale entered in the property registry, G.R. No. L-28920 October 24, 1928
the original contract did not appear therein, can make no
difference under the facts of this case. The original MAXIMO-GUIDOTE, plaintiff-appellant,

contract was binding on the parties thereto and their vs.

privies, without registration. ROMANA BORJA, as administratrix of the estate of

Narciso Santos, deceased, defendant-appellee.

The sale of January 12, 1889, was an attempt on the OSTRAND, J.:
part of two of the partners to withdraw from the
partnership for their own personal profit before the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Plaintiff Maximo Guidote brought an action against
Romana Borja, the administratrix of the estate of
Narciso Santos, deceased, to recover P9,534.14, a part of
which was alleged to be the net profits due the plaintiff
in a partnership business conducted under the name of
"Taller Sinukuan," in which Santos was the capitalist
partner and the plaintiff the industrial partner
The defendant in her answer admitted the existence of
the partnership and in a cross-complaint and counter-
claim prayed that the plaintiff be ordered to render an
accounting of the partnership business and to pay to the
estate of the deceased the sum of P25,000 as net profits,
credits, and property pertaining to said deceased.
Due to the plaintiffs failure to liquidate the affairs of the
partnership and to render an account thereof to the
administratrix of Santos estate, the trial court dismissed
the case and absolved Borja. After rendering an account
prepared by Tomas Alfonso (public accountant) in
behalf of Guidote, the court disproved the account
stating that it was unreliable. The court then ordered that
Borja must submit to the court an accounting of the
partnership business from the date of the commencement
of the partnership, June 15, 1918, up to the time the
business was closed.
Borja presented an account and liquidation prepared by a
public accountant, Santiago A. Lindaya, showing a
balance of P29,088.95 in favor of the defendant. At the
hearing, the defendant introduced the public accountant
Jose Turiano Santiago to testify as to the results of an
audit made by him of the accounts of the partnership.
Santiago testified that he had examined the exhibits
offered in evidence of the case by both parties and that
he had prepared a separate accounting or liquidation
similar in results to that prepared by Lindaya, but with a
few differences in the sums total.
Atty. Paolo Dimayuga
The court therefore, found that the conclusions reached
by Santiago A. Lindaya as modified by Jose Turinao
Santiago were just and correct and ordered the plaintiff
to pay the defendant the sum of P26,020.89, Philippine
currency, with legal interest thereon from April 2, 1921,
the date of the defendant's answer, and to pay the costs
In order to contradict the conclusions of Lindaya and
Jose Turiano Santiago, the plaintiff presented Tomas
Alfonso and the bookkeeper, Pio Gaudier, as witnesses
in his favor. In regard to the character of the testimony
of these witnesses, His Honor, the trial judge, says:
The testimony of these two witnesses is so unreliable
that the court can place no reliance thereon. Mr. Tomas
Alfonso is the same public accountant who filed the
liquidation Exhibit O on behalf of the plaintiff, in
relation to the partnership business, which liquidation
was disapproved by this court in its decision of August
20, 1923. It is also to be noted that Mr. Alfonso would
have this court believe the proposition that the plaintiff,
a mere industrial partner, notwithstanding his having
received the sum of P21,649.61 on the various jobs and
contracts of the "Taller Sinukuan," had actually
expended and paid out the sum of P63,360.27, of
P44,710.66 in excess of the gross receipts of the
business. This proposition is not only improbable on its
face, but it materially contradicts the allegations of
plaintiff's complaint to the effect that the advances made
by the plaintiff only the amount to P2,017.50.
Mr. Pio Gaudier is the same bookkeeper who prepared
three entirely separate and distinct liquidation for the
same partnership business all of which were repeated by
the court in its decisions of September 1, 1922 and the
court finds that the testimony given by him at the last
hearing is confusing, contradictory and
unreliable.1awph!l.net
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
As to the other witnesses for the plaintiff His Honor
further says:
The testimony of the other witnesses for the plaintiff
deserves but scant consideration as evidence to
overcome the testimony of Mr. Santiago, as a whole
particularly that of the witness Chua Chak, who, after
identifying and testifying as to a certain exhibit shown
him by counsel for plaintiff, showed that he could
neither read nor write English, Spanish, or Tagalog, and
that of the witness Mr. Claro Reyes, who, after
positively assuring the court that a certain exhibit
tendered him for identification was an original
document, was forced to admit that it was but a mere
copy.
ISSUE: Do the legal representatives of the deceased
partner have the obligation to render accounts of the
operations of the partnership, as contended by Guidote?
HELD: No. In the case of Wahl vs. Donaldson Sim &
Co. (5 Phil., 11, 14), it was held that the death of one of
the partners dissolves the partnership, but that the
liquidation of its affairs is by law entrusted, not to the
executors of the deceased partner, but to the surviving
partners or the liquidators appointed by them. The same
rule is laid down by the Supreme Court of Spain in
sentence of October 12, 1870.
The other assignments of error have reference only to
questions of fact in regard to which the findings of the
court below seem to be as nearly correct as possible
upon the evidence presented. There may be errors in the
interpretation of the accounts, and it is possible that the
amount of P26,020.89 charged against the plaintiff is
excessive, but the evidence presented by him is so
confusing and unreliable as to be practically of no
weight and cannot serve as a basis for a readjustment of
Atty. Paolo Dimayuga
the accounts prepared by the accountant Lindaya and the
apparently reliable witness, Jose Turiano Santiago.
We should, perhaps, have been more inclined to question
the conclusions of Lindaya and Santiago if the plaintiff
had shown a disposition to render an honest account of
the business and to effect a fair liquidation of the
partnership but instead of doing so, he has by means of
very questionable, and apparently false, evidence sought
to mulct his deceased partner's estate to the extent of
over P9,000. The rule for the conduct of a surviving
partner is thus stated in 20 R. C. L., 1003:
In equity surviving partners are treated as trustees of the
representatives of the deceased partner, in regard to the
interest of the deceased partner in the firm. As a
consequence of this trusteeship, surviving partners are
held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing
and that strictness of accountability required of and
incident to the position of one occupying a confidential
relation. It is the duty of surviving partners to render an
account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over
to them the share of such deceased member in the
surplus of firm property, whether it consists of real or
personal assets.
The appellant has completely failed to observe the rule
quoted, and he is not in position to complain if his
testimony and that of his witnesses is discredited.
12.
G.R. No. L-29182 October 24, 1928
LEONCIA VIUDA DE CHAN DIACO (alias LAO
LIONG NAW) appellee,
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
vs.
JOSE S. Y. PENG, assignee, appellant
FACTS:
It appears from the record that on June 13, 1925, the
San Miguel Brewery, Porta Pueco& Co., and Ruiz
&Rementaria S. en C. instituted insolvency
proceedings against LeonciaVda. de Chan Diaco (alias
Lao LiongNaw), alleged to be the owner of a grocery
store on Calle Nueva, Binondo, known as the store of
"La Viuda de G. G. Chan Diaco."
The above-mentioned firms alleged, among other things,
that Leoncia was indebted to them in the sum of
P26,234.47, which debt was incurred within thirty days
prior to the filing of said petition. It further appears that
other creditors have filed claims against the estate to the
amount of P50,000.
The petition for the declaration of insolvency was set
down for hearing on June 25, 1925. Leoncia did not
appear at the hearing, notwithstanding the fact that she
was duly notified, and the court (CFI Manila) declared
her insolvent. Judge Simplicio del Rosario, in an order
dated September 12, 11925, appointed Ricardo
Summers, the clerk of the Court of First Instance of
Manila, referee, authorizing him to take further evidence
in regard to the questions of fact raised by the motions of
August 5th and 19th. The report was approved by Judge
del Rosario on April 14, 1926.
On April 22, 1926, the attorney for the insolvent filed
her exception to the report of the referee, which had
already been approved on April 14, and on July 23,
1926, the court rendered a decision, reaffirming its
order of April 14, and ordered the insolvent to deliver to
the assignee the sum of P56,000, more or less.
Atty. Paolo Dimayuga
On August 4, 1926, attorney for the insolvent filed a
motion asking the court to dismiss the proceedings
against her on the ground that they should have been
brought against the partnership "Lao LiongNaw& Co.,"
of which she was only a member. The alleged
partnership was evidenced by an agreement dated July
22, 1922, and from which it appeared that on that date
Lao LiongNaw (Leoncia), Chan ChiacoWa, Cua Yuk,
Chan Bun Suy, Cahn Bun Le, and Juan Maquitan
Chan(6 all in all) had formed a partnership with a capital
of P21,000, of which only P4,000 was contributed by
Leoncia.
After several hearings in which various witnesses were
examined and documents presented on behalf of both
sides, the referee, on February 28, 1927, rendered a
second report, in which he found as facts that the alleged
partnership between the insolvent and some of her
relatives and employees was only a fictitious
organization created for the purpose of deceiving the
Bureau of Customs and enable some of the aforesaid
relatives, who were mere coolies, to come to the
Philippines under the status of merchants. He, therefore,
recommended that the motion of the insolvent to dismiss
the proceedings against her be denied.
ISSUE: Whether or not the lower court erred in ordering
the filing of a new petition of insolvency against the
fictitious partnership Lao LiongNiew& Co. and the
delivery to the sheriff of all the property of the
insolvency
RULING:
As to the second and third assignments of error it is to be
observed that conceding for the sake of the argument
that the debts in question were incurred by the alleged
partnership, it clearly appears from the record that
said partnership, as such, has no visible assets that,
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
therefore, the partners individually must, jointly and
severally, respond for its debts (Code of Commerce,
art. 127). As the appellee is one of the partners and
admits that she is insolvent, we can see no reason for
the dismissal of the proceedings against her. It is
further to be noted that both the partnership and the
separate partners thereof may be joined in the same
action, though the private property of the latter
cannot be taken in payment of the partnership debts
until the common property of the concern is
exhausted (ComapniaMaritima vs. Munoz, 9 Phil., 326)
and, under this rule, it seems clear that the alleged
partnership here in question may, if necessary, be
included in the case by amendments to the insolvency
petition.
We also call attention to the fact that the evidence
clearly shows that the business, alleged to have been that
of the partnership, was carried on under the name
"LeonciaVda. de Chan Diaco" or "La Vda. de G. G.
Chan Diaco," both of which are names of the appellee,
and we think it can be safely held that a partnership may
be adjudged bankrupt in the name of an ostensible
partner, when such name is the name under which the
partnership did business.
The decision appealed from is hereby reversed, the
reports and recommendations of the referee are
approved.
Atty. Paolo Dimayuga
13.
EUGENIA LICHAUCO, ET AL., plaintiffs-appellants,
vs.
FAUSTINO LICHAUCO, defendant-appellant. G.R.
No. L-10040 January 31, 1916
In October, 1901, a notarial instrument was
executed in Manila, by the terms of which a partnership
was duly organized for the purpose of carrying on a rice-
cleaning business at Dagupan, and for the purchase and
sale of "palay" and rice.
The articles of association, which were not
recorded in the mercantile registry, contain, among
others, the following provisions:
2. The association will be named F.
LichaucoHermanos and will be domiciled in the
center of its operations, that is, in the pueblo of
Dagupan, Province of Pangasinan.
3. The association cannot be dissolved
except by the consent and agreement of two-
thirds of its partners and in the event of the death
of any of the latter, the heirs of the deceased, if
they be minors or otherwise incapacitated, shall
be represented in the association by their legal
representatives or if two-thirds of the surviving
partners agree thereto, the participation of the
deceased partner may be liquidated.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
4. The management and direction of the
association shall be in charged of Don Faustino
Lichauco y Santos, who shall be domiciled in
this city of Manila, with ample powers to direct
and manage the business; to carry out all manner
of purchases and sales of "palay," rice, chattels,
machinery and whatsoever may be necessary
and proper for the business of the association;
The articles disclose that the capital invested in
the enterprise was fixed at P100,000, of which amount
P60,000 was contributed by the defendant and his
brothers in the form of machinery in a mill at Dagupan
and the good will of the milling business formerly
conducted at the place, the balance of the capital being
contributed by the plaintiffs and others in cash, in the
following proportions: Eugenia Lichauco, P13,000;
CatalinoArevalo, P8,000; Mariano Nable Jose, P5,000;
Tomas Roux, P4,000; JulitaLichauco, P10,000.(5 all in
all)(40k for these people)
The business thus organized was carried on until
May, 1904, when it was found to be unprofitable and
discontinued by the defendant manager (gestor); and
thereafter, the machinery of the rice mil was dismantled
by his orders, and offered for sale. No accounting ever
was made to his associates by the defendant until this
action was instituted in October, 1912. It further
appears that during all that time the defendant manager
of the defunct enterprise had in his possession not less
than P20,000, the cash balance on hand, over and above
all claims of indebtedness after suspending operations in
1904; and that since that time he received or should have
received substantial sums of money from the sale of the
machinery of the dismantled mill.
The action was brought by two of the partners of
an enterprise of which the defendant was manager
Atty. Paolo Dimayuga
(gestor), to secure an accounting of its affairs, and the
payment to the plaintiffs of their respective shares of
capital and profits.
The defendant admitted the allegations of the
complaint as to the organization of the enterprise and the
participation of the plaintiffs therein, but he contended
that the plaintiffs could not maintain this action under
the terms of the written contract by virtue of which the
enterprise was organized.
The trial court ruled in favour on the plaintiffs
stating that there is doubt that from the time the
defendant concluded the operations of the business in
1904 until the date of the institution of this action in
1912, the defendant made no attempt to account to his
associates or to turn over to them the amount due them
on a proper accounting.
ISSUE:
Isthe dissolution and liquidation of the
association is absolutely prohibited by the articles of
association,except by and with the conformity and
agreement of two-thirds of the partners.
RULING: NO.
The contentions of counsels for the defendant
take no account of the provisions of both the Civil and
Commercial Codes for the dissolution and liquidation
of the different classes of partnerships and
mercantile associations upon the occurrence of
certain contingencies not within the control of the
partners. The provisions of the articles of partnership
prohibiting the dissolution of the association under
review, except by the consent and agreement of two-
thirds of its partners, denied the right to a less number
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
of the partners to effect a dissolution of the
partnership through judicial intervention or
otherwise; but in no wise limited or restricted the rights
of the individual partners in the event the dissolution of
the association was effected, not by any act of theirs, but
by the express mandate of statutory law. It would be
absurd and unreasonable to hold that such an
association could never be dissolved and liquidated
without the consent and agreement of two-thirds of
its partners notwithstanding that it had lost all its
capital, or had become bankrupt, or that the
enterprise for which it had been organized had been
concluded or utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil
Code prescribes the means by which partnership
(sociedades) as defined in that code, may be
terminated. The first article of that chapter is as
follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted
expires.
(2) When the thing is lost, or the business for
which it was constituted ends.
(3) By the natural death, civil interdiction, or
insolvency of any of the partners, and in the case
provided for in article 1699.
(4) By the will of any of the partners, subject to
the provisions of articles 1705 and 1707.
Partnerships, to which article 1670 refers, are
excepted from the provisions of Nos. 3 and 4 of
this article, in the cases in which they should
exist, according to the Code of Commerce.
Atty. Paolo Dimayuga
1670. Civil partnerships, on account of the
objects for which they are destined, may adopt
all the forms accepted by the Code of
Commerce. In this case, the provisions of the
same shall be applicable, in so far as they are not
in conflict with those of the present Code.
Articles 221 and 222 of the Code of Commerce are as
follows:
221. Associations of any kind whatsoever shall
be completely dissolved for the following
reasons:
(1) The termination of the period fixed in the
articles of association of the conclusion of the
enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall
furthermore be totally dissolved for the
following reasons:
(1) The death of one of the general partners if
the articles of copartnership do not contain an
express agreement that the heirs of deceased
partner are to continue in the copartnership, or
an agreement to the effect that said
copartnership will continue between the
surviving partners.
(2) The insanity of a managing partner or any
other cause which renders him incapable of
administering his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions
of law the association of which the defendant was
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
nominated manager (gestor) was totally dissolved in the
year 1904, when the rice mill for the operation of which
it was organized was dismantled, the machinery offered
for sale and the whole enterprise concluded and
abandoned.
Upon the dissolution of the association in
1904, it became the duty of the defendant to liquidate
its affairs and account to his associates for their
respective shares in the capital invested this not
merely from the very nature of his relation to the
enterprise and of his duties to those associated with
him as partners, but also by the express mandate of
the law. The association having been dissolved by the
termination and abandonment of the enterprise for which
it was organized, he owed this duty to liquidate and
account to all and to each of his associates, and upon his
failure to perform that duty, all or any of them had a
clear legal right to compel him to fulfill it.
Each of his associates had a perfect right to
demand for himself a full, complete and satisfactory
accounting, and in the event that he conceived
himself aggrieved in this regard, to institute the
appropriate judicial proceedings to secure relief.
Doubtless, in order to avoid a multiplicity of actions, the
defendant in such an action could require all the
associates to be made parties, but the right of an
individual member of the association to recover his share
in the enterprise and to assert his individual claim for
redress, wholly independent of the action or attitudes of
his associates, could be in no wise affected thereby. The
other associates would be proper, but not necessary,
parties to an action of this kind; and when, as in the case
at bar, the defendant proceeds to trial without objection
on the express ground that all the associates in the
enterprise have not been made parties to the action, he
Atty. Paolo Dimayuga
cannot thereafter be heard to raise such an objection for
the purpose of challenging any judgment which may be
rendered therein.
Although the enterprise was organized in the
year 1901 for the purpose of conducting mercantile
operations, including the buying and selling of "palay"
and rice, the articles of partnership or association
were not registered in the mercantile registry in
accordance with the provisions of articles 17 and 119
of the Commercial Code. It was therefore a mere
unregistered commercial partnership, and the
association never became in the legal sense a juridical
person, nor did it attain the dignity, rights or
privileges accorded the different classes of
compaiasmercantiles(mercantile partnerships),
discussed in Title 1 of Book 2 of the Commercial
Code.
The duty of the defendant to liquidate the
affairs of the enterprise and to account to his
associates promptly upon the dissolution of the
association in the year 1904 is expressly prescribed in
the Commercial Code, whether we regard the
association, so far as it affects the mutual rights and
obligations of the partners, as clothed with the forms
of a "sociedad de cuentas en participacion" (joint
account partnership) or a "sociedad en comindata."
We conclude that an express statutory
obligation imposed upon the defendant an imperative
obligation to proceed without delay to the liquidation
of the association in the year 1904 and the further
duty to account to his associates for the result of that
liquidation. While he appears to have gone forward
with the liquidation far enough to collect all the cash
resources of the association into his own hands, how
utterly failed neglected to account therefor to his
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
associates or to make any attempt so to do, and we are of
opinion that the plaintiffs were clearly entitled to bring
this action to compel an accounting, and the payment of
their respective shares of the capital invested, together
with damages resulting from the failure of the defendant
to perform the duty expressly imposed upon him by
statute.
14.
NICOLAS GATDULA, plaintiff-appellee,
vs.SIMPLICIO SANTOS and MODESTO SANTOS,
defendants-appellants. JOSE SANTIAGO and
POLICARPIA DE LOS SANTOS, interveners-
appellants.
Counsel for Nicolas Gatdula filed a complaint in the
Court of First Instance of Manila, alleging as a cause of
action that in the month of January, 1907, for the
purpose of securing the good name and interests thereof
the joint-account company denominated "Los Obreros
Pescadores" was constituted; articles of partnership were
drawn up among the partners Simplicio Santos, Modesto
Santos, Mateo Felix, Andres Antonio, and the plaintiff
Nicolas Gatdula(5 all in all), to engage in buying and
selling fish and shipping and selling same on
commission; that the plaintiff, being a partner and
possessing stock of the value of P500, was eliminated as
such partner from the said company "Los Obreros
Pescadores" by the manager thereof, Simplicio Santos,
who put in his place third parties who were not
legitimate partners; that notwithstanding the repeated
demands of the other partners, the manager Simplicio
Santos never distributed dividends among the
shareholders, because there were no funds to distribute,
as the former cashier, Mateo Felix, had embezzled over
P25,000; that this alleged embezzlement of P25,000, the
reason for the failure to distribute dividends, was wholly
Atty. Paolo Dimayuga
pretended and fictitious; that the manager, Simplicio
Santos, in connivance with the present cashier, Modesto
Santos, had falsely made debts to appear against the
company to its prejudice; that the manager Simplicio
Santos and the cashier Modesto Santos made the fish-
salting establishment, called "Umbuyan Katagalugan,"
located in the barrio of Bancusay of the Tondo district of
the city of Manila, appear as a separate industry,
capitalized independently of the company, although it
was the property of the company "Los Obreros
Pescadores.
The defendants, Simplicio Santos and Modesto Santos,
in answer to the complaint, denied the facts therein
contained, and alleged that the defendant Simplicio
Santos had never been required to distribute dividends;
that he had never handled money of the company, nor
had he ever had anything to do with the company funds,
just as he had embezzled; that the plaintiff Nicolas
Gatdula is not a partner in "Los Obreros Pescadores,"
but a mere employee in said company on a fixed salary;
that although it was true that the plaintiff Nicolas
Gatdula had been included as a partner in the articles of
partnership it was at his own request, and that after said
articles had been signed the plaintiff Gatdula informed
the defendants that he had given up the idea of becoming
a partner in said company, wherefore he did not pay any
part of the amount of his share. As a counterclaim, they
set forth that the plaintiff well knew that he was not a
partner in "Los Obreros Pescadores," although with
unheard-of audacity he had instituted this action against
the defendants, thereby damaging them in the sum of
P2,000, incurred for expenses of defense.
The defendants, Andres Antonio, Jose Flor Mata, and
Mateo Felix, answered the complaint filed by Nicolas
Gatdula, admitting that the latter is a partner in "Los
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Obreros Pescadores; that since its formation the said
company had never paid dividends among the
shareholders, the manager Simplicio Santos alleging that
there were no funds because the cashier Mateo Felix had
embezzled over P25,000; as a special defense they
alleged that they never had any share in the management
of the business of the company, except that from the
year 1905 until August 4, 1907, Andres Antonio had
held the office of collector, Jose Flor Mata that of
secretary, and Mateo Felix that of cashier, this last one
having been sued by the board of directors in the year
1908 for a shortage of over P25,000 of the company's
funds, the complaint being afterwards dismissed.
In the motion opposing the appointment of Mateo Felix
as receiver, filed by the defendants on December 3,
1912, Jose Santiago set up a claim of intervention,
alleging that he was a profit- sharing partner in "Los
Obreros Pescadores," he having two shares, worth
P1,000.
After the property of the company had been turned over
to the receiver Mateo Felix, Policarpia de los Santos set
up a claim of intervention, alleging that she was the
owner of said fish-salting establishment, she having
expended in its construction the sum of P3,709.75,
which she had given her sons Simplicio and Modesto
Santos for that purpose; that when the receiver Mateo
Felix took over the said establishment the business was
in bad repute with the public; that from December 3,
1912, until the date of the filing of this claim of
intervention, scarcely any business could be transacted
in said fish-salting establishment, owing to the discredit
caused by the receiver and by Jose Flor Mata and Andres
A. Felix, she having been damaged thereby in an amount
not less than P2,500; wherefore she prayed that the court
order the establishment "Umbayan Katagalugan" to be
Atty. Paolo Dimayuga
excluded from the property of the company "Los
Obreros Pescadores".
After trial of the case and examination of the evidence
submitted by both parties, the court rendered the
decision in favor of the plaintiff, Nicolas Gatdula,
declaring him to be a partner in the joint-account
partnership "Los Obreros Pescadores," with an interest
therein of P500; ordering the defendants, Simplicio
Santos, Modesto Santos, and Jose Santiago to make an
accounting of the management and administration of the
business of said company since the commencement
thereof, and ordering the said defendants, Simplicio
Santos and Modesto Santos, to pay the costs; declaring
the intervener Jose Santiago a partner in the said joint-
account company with an interest of P1,000, without
cost in his favor; declaring that the intervener Policarpia
de los Santos has an interest of P3,709.75, with a
mortgage for that amount on the building belonging to
the company, which is now in the receiver's charged,
without costs in her favour.
ISSUES:
1) WON the plaintiff Nicolas Gatdula and the intervener
Jose Santiago form part as members of the joint-stock
company denominated "Los Obreros Pescadores"
2) WON the defendants Simplicio Santos, Modesto
Santos and the said Jose Santiago should be ordered to
make an accounting, the company be dissolved, and the
property thereof be distributed among the stockholders.
3) whether the other intervener, Policarpia de los Santos,
is entitled to share in the property of said company to the
extent of P3,709.75, as proprietor of the fishing-salt
establishment in Bancusay, Tondo
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Held:
1) Yes. It has been duly proven in the case that Nicolas
Gatdula is a member of the joint-account partnership
"Los Obreros Pescadores," for that is demonstrated by
the articles of partnership of said company. It appears in
the second clause of said articles of partnership that the
net capital of the company was P5,250 Philippine
currency; and according to the twelfth clause thereof the
plaintiff Nicolas Gatdula was elected a member of the
board of directors of "Los Obreros Pescadores" with
voice and vote therein. Although the respective amounts
contributed by each partner to the capital does not
appear, the plaintiff has shown by parol evidence that
each of the partners executing those articles contributed
P500, Philippine currency, which added to the capital of
its predessor "La Consignataria," constituted the assets
of the company "Los Obreros Pecadores." According to
the evidence submitted by the plaintiff Nicolas Gatdula,
that all the subscribers to the articles of partnership paid
their respective quotas or shares, since otherwise they
would not have been permitted to sign those articles. The
only partner who exhibited a receipt for payment to the
company of the value of his shares is the intervener Jose
Santiago. He presented the receipt Exhibit A-1 (p. 196)
and treasurer respectively of the company "Los Obreros
Pescadore," showing that he had purchased two shares in
the said company and had paid their value of 1,000. The
existence of this receipt is examined by the simple
reason that Jose Santiago did not sign the articles of
partnership, Exhibit B, and it does not appear therein
that he was a partner in "Los Obreros Pescadores," so
when he purchased two shares in the company it was
necessary to issue a receipt for the two shares he had
paid in, the receipt to serve at the same time as a
certificate of partnership in said company. From the
foregoing we must conclude that the partners executing
Atty. Paolo Dimayuga
the articles of partnership of the company "Los Obreros
Pecadores" paid their respective shares, although no
receipts were issued to them therefor, their fact that they
had executed and signed said instrument being sufficient
as acknowledging them to be such partners and as
having paid in their respective quotas. This is the
situation of the plaintiff Gatdula, who signed those
articles.
2) During the five years and a half and more that said
company was in operation, that is, from January 17,
1907, until the filing of the complaint herein on August
28, 1912, no regular meeting of stockholders was held,
but there were two extraordinary meetings, the first in
the house of the bookkeeper Avellana on September 4,
1907 (Exhibit 2, p. 206), and the second in the house of
the director Jose Santiago (sten. notes, 32), solely to
consider the alleged embezzlement of over P25,000
committed by the cashier Mateo A. Felix; that monthly
and semi-annual balances were not struck, nor was the
cash counted, something which the cashier ought to have
done three times a week, for it appears that the accounts
of the company were not properly kept, as the record
shows; and that since the formation of the said company
dividends were never paid, in spite of the demands
therefor made by various partners. For these reasons the
plaintiff Nicolas Gatdula and the defendants Andres
Antonio, Jose Flor Mata, and Mateo A. Felix prayed that
the company be dissolved, and that an accounting be
had, a prayer that has been opposed by the other
defendants, Simplicio Santos and Modesto Santos, and
the intervener Jose Santiago. There can be no question
that the majority of the partners seek an accounting, and
the dissolution and liquidation of the company, because
of the violation of certain clauses in the articles of
partnership, whereby the company and its members have
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

been damaged. The court found said claim to be just,

since the grounds therefor were held to be established.

3) The intervener, Policarpia de los Santos, mother of

the defendants Simplicio and Modesto Santos, claims to
be the exclusive owner of the building in question,
although in her claim of intervention she alleged that her
sons Simplicio and Modesto Santos, as her
representatives, asked her permission to employ some of
her capital in its erection. It is proven that the intervener
has been paying the rental of the ground on which said
building is erected (pp. 231-236); that she spent the sum
of P3,709.75 in the construction thereof (p. 225), which
appears to have been built by Santiago Reyes in 1911;
and that after its completion a notarial instrument was
executed, in which it was set forth under date of
November 16, 1911, that the said building was the
property of the intervener Policarpia de los Santos. This
document is not inscribed in the property registry as
proof of the intervener's claim.

The witness Mateo Buson testified that the company

"Los Obreros Pescadores" paid a monthly rental of P15
for the use of the building, but aside from this testimony
it has not been satisfactorily demonstrated that the
company was her lessee in the occupation thereof. The
mere fact that "Los Obreros Pescadores" occupied the
building without paying rent gives rise to the
presumption that it belongs to the said company.
Policarpia de los Santos is entitled to collect the sum of
P3,709.75, which she lent to the company for
constructing the building, but in the absence of proof of
her claim she cannot be considered the owner thereof.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
15.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12371 March 23, 1918
LEOPOLDO CRIADO, plaintiff-appellant,
vs.
GUTIERREZ HERMANOS, defendant-appellant.
TORRES, J.:
Back ground: Leopoldo Criado filed a complaint
against the firm of Gutierrez Hermanos for the recovery
of a sum of money. Criado wanted to recover his share
of the capital stock of the firm of Gutierrez Hermanos,
since he began his connection therewith, on January 1,
1900, until his separation on December 31, 1911.
Leopoldo Criado alleged that accounts presented by the
defendant referring to his capital in that firm were based
upon a false debit balance of P26,349.13 a balance
which had been previously impeached by the affiant as
well as the accounts from which said sum is sought to be
derived. Wherefore he again assailed them in their
totality on the grounds that some of the entries thereof
were improper, other fraudulent, and still other false.
Therefore Criados counsel moved that defendant be
ordered to place immediately at the disposal of
Commissioner Wicks all the books, accounts, bills,
vouchers, and other documents that might be necessary,
in order that said liquidation might be made by
defendants counsel, by an order of September 2, 1915,
the court ruled in conformity therewith, authorizing the
Atty. Paolo Dimayuga
firm of Gutierrez Hermanos to appoint another expert
accountant who, together with the one already
designated.
After a rehearing of the case and an examination of
George B. Wicks was made regarding the contents of the
report that he submitted after studying for that purpose
the books and other documents placed at his disposal by
the defendant. In view of the result and the evidence
adduced by the parties, and by the said commissioner's
report duly supported by vouchers, the court rendered
the judgment aforementioned, on September 11, 1916.
Counsel for the firm of Gutierrez Hermanos assails in
general the judgment appealed from because the trial
court did not determine the issues raised in the first,
second, third, fourth, sixth, seventh, eighth, ninth, and
tenth causes of action, and in defendant's cross-
complaint.
Second Cause of Action:
Facts: In the second cause of action Criado demands the
payment of P43,410.86, and alleges that, pursuant to a
notarial instrument of March 29, 1900, he became a
partner of the firm of Gutierrez Hermanos; and that said
document stipulated that the partnership should last for
four years from January 1, 1900, and, among other
conditions, it contained the following:
Second. Therefore the partnership is organized
among the parties to this instrument, Don
Placido Gutierrez de Celis, Don Miguel
Gutierrez de Celis, Don Miguel Alonso y
Gutierrez, Don Daniel Perez y Alberto, and Don
Leopoldo Criado y Garcia,(5 all in all) the first
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
three as capitalist partners, and the last two as
industrial partners.
Eighth. All earnings or profits that may be
obtained shall be distributed among the partners
in the following proportion: 37 per cent shall go
to Don Placido Gutierrez de Celis; 37 per cent to
Don Miguel Gutierrez de Celis; 16 per cent to
Don Miguel Alfonso y Gutierrez; 5 per cent, to
Don Daniel Perez y Alberto; and 5 per cent to
Don Leopoldo Criado y Garcia. In the same
proportion above established for the profits the
capitalist partners shall be liable for all losses or
damages that may be sustained.
Plaintiff also alleged that his capital was P56,796.25 in
1902 and, according to the balance had on December 31,
1903, the profits obtained amounted to P256,025.31, 5
per cent of which, or P12,801.26, belonged to him,
although the manager Miguel Gutierrez de Celis, by
means of false and erroneous entries in the books,
succeeded in concealing such profits, thereby injuring
him in said amount of P43,410.86. Plaintiff testified that
as soon as he learned of such entries, he at once
protested, but that said manager assured him that as soon
as the probate proceedings concerning the estate of the
decedent Miguel Alfonso should be determined said
amount would be refunded although in spite of his
efforts said promise has not been fulfilled.
In its answer the defendant firm admitted that plaintiff
Criado was an industrial partner entitled to 5 per cent of
the profits, but denied all the other averments of the
complaint. In special defense it alleged that on
December 31, 1903, there was made a liquidation and
balance of the business of the firm operations which
were approved by all the partners with no protest made
by the plaintiff before or after said liquidation, but
Atty. Paolo Dimayuga
contrary, he gave his assent thereto and without reserve
whatsoever he executed a new partnership contract,
inasmuch as the sum shown by said liquidation and
balance of the business of the firm at the end of
December, 1903, formed the basis of the capital
mentioned in the articles of partnership executed before
a notary on May 9, 1904.
In order to determine whether plaintiff still has a right to
demand the sum that is the subject of his complaint in
the second cause of action, it becomes necessary first too
decide whether in fact the plaintiff is in estoppel and
unable to oppose any valid objection against said
liquidation and balance; inasmuch as, according to the
inventory of the firm's business, made on December 31,
1903, which was signed by Leopoldo Criado, Miguel
Gutierrez de Celis and Daniel Perez de Celis, plaintiff
Criado's capital on that date was only P25,129.09 which
were in force during the second period from January,
1904. From clause 7 of said contract, and according to
said inventory of December 31, 1903, it appears that the
firm's capital stock amounted to P1,605,497.30, of which
the sum of P25,129.09 belonged to Leopoldo Criado.
In an affidavit plaintiff stated that when he learned of the
contents of the firm's books, he protested against the
entries therein, but that the manager Guiterrez de Celis
assured him that he would lose nothing by those entries
made in connection with a serious matter then pending.
Criado alleged that the reason why said false and
erroneous entries were made in the firm's books by
Gutierrez de Celis was to show the family of the
deceased Miguel Alonso that the losses of the firm of
Gutierrez Hermanos were due to his poor management
of the firm's business
Where there appears an entry which reads thus:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
P501,513.57, amount of the bills cancelled in the
books in this date which should have been
cancelled in previous years on account of
difficulty in their collection, some of these bills
being of such a nature that they should be
charged to the account of the management as
they are contrary to the provisions of the 5th and
10th clauses of the partnership contract . . . but,
in view of the fact that the author of these
irregularities is not living so that compliance
with the contract may be demanded of him, we
have distributed the losses equally among the
three principal partners . . . and 5 per cent
against each of the industrial partners, Leopoldo
Criado's share of the losses being P25,080.68.
Issue: WON the losses of the firm of Gutierrez
Hermanos was duly deducted from the share of Criado.
Ruling: No, without doubt this entry was made for the
purpose of showing that Miguel Alonso, former manger
of the partnership, was to blame for these losses. It is to
be noted that, according to the contract that plaintiff
Criado, as one of the industrial partners is not liable for
the losses which the firm may have sustained according
to the eighth clause of the notarial instrument of May 29,
1900. The allotment to the industrial partner Leopoldo
Criado of the amount of P25,080.68 as losses suffered
by the firm in its business during the years 1900 to 1903
was notoriously illegal, inasmuch as he, being merely an
industrial partner, was not liable for any loss whatever.
For the practical application and the fulfillment of the
stipulations made by the partners, in the second and
eighth clauses of said articles of partnership of March
29, 1900, it should be understood that, for the purpose of
determining the profits that correspond to an industrial
partner who shares in the profits from the different
Atty. Paolo Dimayuga
transactions carried on by the firm must be added
together from which sum must be subtracted that of the
losses sustained in its business, and in the difference
which represents the net profits if these are greater
than the losses the industrial partner shares, i. e., in
the sum total of the profits. But if, on the contrary, the
losses are greater and exceed the profits in said
difference the industrial partner should not be liable, for
this constitutes a real loss to the firm.
Wherefore, according to the articles of partnership, it
follows that, at the termination of the partnership in
1903, plaintiff's assets were P56,793.25, and his
liabilities P1,054.56, there being in his favor
consequently a balance of P55,738.69; but as in the
instrument of May, 1904, he was credited with only
P25,129.09, as capital brought into the new company,
the plaintiff is entitled to demand that the firm of
Gutierrez Hermanos pay him in the sum of P30,609.60.
Fifth Cause of Action:
Facts: According to the document presented by the
defendant, which appears to be a copy of plaintiff's stock
account, certified as authentic by the defendant's
bookkeeper, the capital stock of the plaintiff Leopoldo
Criado, prior to December 29, 1911, was P73,147.87, an
amount which also appears in the document and tends to
prove that on December 31, 1911, plaintiff's capital was
the amount stated, before the annotation of the entries
assailed as false and fraudulent by plaintiff.
The eighth and sixteenth clauses of the articles of
partnership executed in May, 1904, which ratified and
approved the transactions of the firm of Gutierrez
Hermanos from January of that year state the following:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Eighth. The earnings or profits which may be
obtained shall be distributed among the partners
in the following proportion:
Forty per cent to D. Placido Gutierrez de Celis;
Forty per cent to D. Miguel Gutierrez de Celis;
Ten per cent to D. Daniel Perez Albertos; and
Ten per cent to D. Leopoldo Criado Garcia.
In the same proportion provided for the profits,
the partners shall be liable for the losses that
may be incurred.
the proportion fixed in the 8th clause; but that, in case
such losses should be of so great importance as to
prevent a continuation of the partnership business, or to
make advisable the dissolution of the partnership, then
due action should be taken in conformity with the
provisions of said clause 16, and the partners should be
liable from the losses in a proportion pro rata to their
share in the partnership assets. The firm of Hermanos
Gutierrez shows a loss of P56,716.57. Consequently,
there should be deducted from plaintiff's capital 10 per
cent of this sum or P5,671.64 as his share of the loss.

Sixteenth. In case the partnership business

should incur such losses as to prevent a
continuance of the business or to make a
dissolution of the partnership advisable, same
shall be liquidated, each capitalist partner
bearing such loss in a pro rata proportion to the
capital he represents, the expenses necessary for
the prosecution of the business being chargeable
to the firm as a whole. Notwithstanding these
provisions the partners Don Placido and Don
Miguel as principal capitalist partners may
liquidate the partnership or alienate its rights
whenever they deem proper so to do.

By a notarial instrument of January 2, 1908, the life of

the partnership was extended to another term of four
years, upon the same bases and conditions (Exh. X, p.
100).

Issue: WON Criado having a capital stock with the firm

of Hermanos Gutierrez should be liable for the losses.

Ruling: Yes, from the two preinstated clauses of the

partnership contract it is deduced that the partners should
be liable for all the losses incurred by the partnership in
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
16.
URBANO LOTA (Substituted by SOLOMON LOTA
in his capacity as Administrator of the Estate of
URBANO LOTA), plaintiff-appellant,
vs.
BENIGNO TOLENTINO, defendant-appellee.
FACTS:
On March 3, 1937, plaintiff filed an action against
defendant to order the latter (a) to render an accounting
of his management of their partnership, and (b) to
deliver the plaintiff whatever share he may have in the
assets of the partnership after the liquidation has been
approved by the Court.
The partnership above-mentioned was entered into by
and between plaintiff and defendant in the year 1918,
whereby they agreed to engage in general business in the
municipality of Alabat, province of Batangas, both to
divide the profits and losses share alike, and defendant to
be manager of the partnership. Plaintiff alleges that from
1918 until 1928 defendant had rendered an annual
accounting, but has refused to do so from 1929 to 1937,
hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer,
alleging that defendant was the industrial partner in said
partnership; that he rendered a yearly accounting and
liquidation thereof from 1918 to 1932, and that in the
latter year, 1932, the partnership was dissolved and
defendant delivered all its properties and assets to the
plaintiff. Hence, defendant prays for the dismissal of
plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939,
he was substituted by the administrator of his estate,
Solomon Lota.
Atty. Paolo Dimayuga
On December 8, 1939, defendant's counsel made a
suggestion upon the record that defendant died on
November 26, 1939. On January 9, 1940, the Court gave
plaintiff 30 days to amend the complaint by substituting
for the deceased defendant the administrator of his estate
or his legal representative.
On January 28, 1941, the Court ordered the dismissal of
the case for lack of prosecution. This order was
reconsidered and set aside upon a showing by plaintiff
that on March 28, 1941, he had filed a petition for the
issuance of letters of administration to deceased
defendant's surviving spouse, Marta Sadiasa, for the
purpose of substituting her for the deceased defendant,
said petition being Special Proceedings No. 3859 of this
Court entitled "Intestate Estate of the late
BenignoTolentino, Solomon Lota, petitioner." This
special proceedings was, however, dismissed for failure
of the administratrix to file a bond and to take her oath.
It will thus be seen that from defendant's death on
November 26, 1939, to the present, or almost ten years,
no administrator or legal representative had been
actually substituted to take the place of said defendant. It
was only on April 6, 1949, that plaintiff made another
try to substitute said deceased by filing his motion,
referred to in the first paragraph of this resolution,
praying that defendant's heirs be substituted for him as
parties defendant.
The following considerations stand in the way of
plaintiff's motion for substitution:
1. It being undisputed that defendant was the manager of
the partnership formed by and between him and the
plaintiff, and that said defendant died on November 26,
1939, during the pendency of the present for accounting
and liquidation against defendant, the said action should
have been discontinued as it could no longer be
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
maintained against deceased defendant. Under these
circumstances, the remedy and duty of the plaintiff are
as set out in the following ruling of the Supreme Court
in Po YengCheo vs. Lim Ka Yam, (44 Phil. 172, 178):
In the first place, it is well settled that when a member of
a mercantile partnership dies, the duty of liquidating its
affairs devolves upon the surviving member, or members
of the firm, not upon the legal representative of the
deceased partner. (Wahl vs. Donaldson Sim and Co., 5
Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744). And
the same rule must be equally applicable to a civil
partnership clothed with the form of the commercial
association (Art. 1670, Civil Code; Lichauco vs.
Lichauco, 33 Phil., 350).
If, as it appears of record, plaintiff died prior to
defendant's death, the duty to liquidate devolved upon
the legal representative of the plaintiff because it was the
latter who sought to establish a claim against the
defendant.
2. If after such liquidation, there should be found money
or property due the partnership from the deceased
defendant, a claim therefor should be filed against the
latter's estate in administration. Again, this is the
procedure marked out in the case just cited:
Upon the death of Lim Ka Yam it therefore become the
duty of his surviving associates to take the proper steps
to settle the affairs of the firms, and any claim against
him, or his estate, for a sum of money due to the
partnership by reason of any misappropriation of its
funds by him or damages resulting from his wrongful
acts as a manager, should be prosecuted against his
estate in administration in the manner pointed out in
sections 686 to 701, inclusive, of the Code of Civil
Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the
Atty. Paolo Dimayuga
shares in the YasiengChyipKonski and Manila Electric
Railroad and Light Company, are in the possession of
the deceased partner, the proper step for the surviving
associates to take would be to make application to the
court having charge of the administration to require the
administration to surrender such property. (Po
YengCheo vs. Lim Ka Yam, supra.)
This procedure was not also followed in the case at bar
because plaintiff, or his legal representative, did not
procure the appointment and qualification of an
administrator of the estate of deceased defendant, altho
he had already filed a petition looking towards such
administration. This plaintiff was under a duty to do if
he considered himself a creditor with a legitimate claim
enforceable against the estate of deceased defendant.
3. What plaintiff, or his legal representative, insisted on
doing in the present case is to continue and press his
action for accounting and liquidation against the heirs of
deceased defendant, a procedure which, as above stated,
runs counter to that set out in the Po YengCheo vs. Lim
Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he
only filed a petition for the appointment of an
administrator for the estate of deceased defendant, but
did not see to it that administrator filed a bond and
qualify as such. Hence, the said petition for
administration was dismissed.
4. Also, conceding, without admitting, that the present
action for accounting would lie against defendant, it is
this Court's opinion that such a duty to account died with
the defendant, was extinguished upon his death, and was
not shifted upon his heirs. The heirs of the defendant
have never been partners in the partnership formed by
and between plaintiff and defendant, and said heirs are
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
hardly in a position and hardly called upon to effect an
accounting of said partnership.
5. Finally, it will be recalled that the partnership in
question was organized in 1918 and dissolved in 1932.
The action for accounting was commenced on March 3,
1937. And the present motion for substitution was filed
on April 6, 1949, only. Trial on the merits at this late
date might prove futile and fruitless if no partnership
property is found in the possession of defendant's heirs,
let alone the allegation of said defendant in his answer to
the complaint back in 1937 that he had already delivered
all the properties and assets of the partnership to the
plaintiff. If the principle of laches is ever to be applied, it
should be applied to this case.
Wherefore, the plaintiff's action for substitution is denied
and defendant's prayer for the dismissal for this case
against the plaintiff.
The present appellant is Solomon Lota, in his capacity as
administrator of the estate of UrbanoLota, original
plaintiff, who died in l938.
ISSUE:
Whether or not after the death of the defendant
BenignoTolentino on November 22, 1939, plaintiff's
action for accounting and liquidation of the partnership
formed in l918 between UrbanoLota and
BenignoTolentino, of which the latter was the industrial
and managing partner, may be continued against the
heirs of BenignoTolentino.
RULING:
NO.
The applicable authority is the case of Po YengCheo vs.
Lim Ka Yam, 44 Phil. 172, in which the following
pronouncements were made:
Atty. Paolo Dimayuga
In the first place, it is well settled that when a member of
a mercantile partnership dies, the duty of liquidating its
affairs devolves upon the surviving member, or
members, of the firm, not upon the legal representatives
of the deceased partner. (Wahl vs. Donaldson Sim and
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744.) And the same rule must be equally applicable to a
civil partnership clothed with the form of a commercial
association (art. 1670, Civil Code: Lichaucovs.Licahuco,
33 Phil., 350). Upon the death of Lim Ka Yam it
therefore become the duty of his surviving associates to
take the proper steps to settle the affairs of the firm, and
any claim against him, or his state, for a sum of money
due to the partnership by reason of any misappropriation
of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against
his estate in administration in the manner pointed out in
sections 686 to 701, inclusive, of the Code of Civil
Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the
shares in the YutSiongChyipKonski and Manila Electric
Railroad and Light Company, are in the possession of
the partner, the proper step for the surviving associates
to take would be to make application to the court having
charge of the administration to require the administrator
to surrender such property.
But in the second place, as already indicated, the
proceedings in this cause, considered in the character of
an action for an accounting, were futile; and the court,
abandoning entirely the effort to obtain an accounting,
gave judgment against the administrator upon the
supposed liability of his intestate to respond for the
plaintiffs proportionate share of the capital and assets.
But of course the action was not maintenable in this
aspect after the death of the defendant; and the motion to

discontinue the action against the administrator should
have been granted. (pp. 178-179.)
Another ground equally decisive against the appellant
correctly advanced by the lower court in dismissing
the present action for accounting, is lack of prosecution
on the part of the appellant. It may be fittingly recalled
that the action for accounting and liquidation was filed
on March 3, l937. No sooner had the defendant
BenignoTolentino died on November 22, l939, than said
fact was made record by his attorney. On January 9,
1940, the lower court gave the plaintiff (who had then
died and was substituted on September 28, 1939, by the
administrator of his estate, Solomon Lota), 30 days to
amend the complaint by substituting the administrator or
legal representative of the deceased
BenignoTolentino. On January 28, 1941, the lower court
dismissed the case for lack of prosecution on the part of
the plaintiff, but the order of dismissal was reconsidered,
upon a showing by the plaintiff that on March 28, 1941,
an administration proceeding for the estate
BenignoTolentino was instituted by the plaintiff. On
August 8, 1941 the lower court issued, at the instance of
the plaintiff, letters of administration to Tolentino's
surviving spouse, Marta Sadiasa, who however failed to
qualify. Accordingly, the court dismissed
administration proceeding on January 3, 1949, for lack
of interest. It was only as late as April 6, l949, that the
plaintiff filed the motion to substitute, not even the legal
representative of BenignoTolentino but his heirs.
If the plaintiff was genuinely interested in substituting
the proper party, assuming that plaintiff's action may still
be pursued after Tolentino's death, he should have taken
timely measures to have the administratrix appointed on
August 8, 1941, qualify or, in case of her failure or
refusal, to procure the appointment of
administrator; because the plaintiff could have availed
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga
himself of section 6, Rule 80, of the Rules of Court,
providing that "letters of administration may be granted
to any qualified applicant, though it appears that there
are other competent persons having better right to the
administration, if such persons fail to appear when
notified and claim the issuance of letters to themselves."
Certainly, inaction for almost eight years (after the
issuance of letters of administration) on the part of the
appellant, sufficiently implies indifference to or
desistance from its suit.
The theory of the appellant is that the heirs may properly
be substituted for the deceased BenignoTolentino,
because they are in possession of property allegedly
belonging to the partnership in question, and the
defendant appellant seeks the recovery thereof. Apart from the fact
that said allegation seems to refer to cause of action
foreign to the claim for accounting and liquidation
against Tolentino, and should have been made in proper
pleading to duly admitted by the lower court, the filing
of of appellant's motion for substitution more than twelve
years after the institution of the complaint came too late
and already called for the prosecution. It is immaterial
that, before the appealed resolution was issued by the
lower court, the appellant attempted to have the deceased
the defendant had not yet been properly substituted.
another