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San Beda College Alabang

8 Don Manolo Blvd., Alabang Hills Village, Muntinlupa City

School of Law

Digested Cases
In
Partnership

Submitted by: Byron Jon Angeles Tulod

Student no.: 2016400264

Submitted to: Atty. Myra Angeli A. Gallardo-Batungbakal

Date of Submission: 2/10/17

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Table of Contents:
Fernando Santos vs. Sps. Arsenio & Nieves Reyes

G.R. 135813, October 25, 2011 ………………………………………………………………………… 4

SEVILLA VS. COURT OF APPEALS

G.R. No. L-41182-3, April 16, 1988 ………………………………………………………………………………. 5

ELIGIO ESTANISLAO, JR. VS. COURT OF APPEALS

G.R. No. L-49982, April 27, 1988 ………………………………………………………………………………….6

DAN FUE LEUNG VS. INTERMEDIATE APPELLATE COURT and LEUNG YIU

G.R. No. 70926, January 31, 1989 ………………………………………………………………………………..7

Fernando Santos VS. Spouses Arsenio and Nieves Reyes

Gr No. 135813. October 25, 2001 …………………………………………………………………………………8

Lilibeth Sunga-Chan & Cecilia Sunga vs Lamberto T. Chua

GR 143340, August 15, 2001 ………………………………………………………………………………………9

PEDRO R. PALTING vs. SAN JOSE PETROLEUM INCORPORATED

G.R. NO. L-14441, DECEMBER 17, 1966 ………………………………………………………………………..10

BASTIDA VS. MENZI AND CO.

58 Phil 188 ……………………………………………………………………………………………………………11

ENCARNACION MAGALONA, ET AL., VS. JUAN PESAYCO

G.R. No. L-39607 ……………………………………………………………………………………………………..12

AGAD VS. MABATO

G.R. NO. L-24193, JUNE 28, 1968 ………………………………………………………………………………13

RED MEN VS. VETERAN ARMY

Phil 685 ………………………………………………………………………………………………………………14

Criado vs Gutierrez Hermanos

37 Phil 883 ……………………………………………………………………………………………………………15

JOSE GARRIDO VS. AGUSTIN ASENCIO

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G.R. No. L-4281. March 30, 1908 ………………………………………………………………………………...16

Dan Fue Leung v. Intermediate Appellate Court and Leung Yiu

G.R. No. 70926, January 31, 1989 ………………………………………………………………………………17

SHARRUF & CO VS. BALOISE FIRE INSURANCE CO

G.R. No. 44119, March 30, 1937 …………………………………………………………………………………18

Island Sales, Inc., vs. United Pioneers General Construction Company, Benjamin C. Daco

G.R. No. L-22493, July 31, 1975 ………………………………………………………………………………….18

De la Rosa v. Ortega Go-Cotay

48 Phil 605 ……………………………………………………………………………………………………………19

Goquiolay vs. Sycip

G.R. No. L-11840, July 26, 1960 …………………………………………………………………………………..20

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General Provisions

1. Fernando Santos vs. Sps. Arsenio & Nieves Reyes


G.R. 135813, October 25, 2011

Importance: The sharing of gross return does not automatically establish a partnership

Facts:

Santos and Nieves Reyes verbally agreed that Santos would act as financier while Nieves and Meliton
Zabat would act as solicitors for membership and collectors of loan payment. 70% of the profits would go to
Santos while Nieves and Zabat would get 15% each. It was a lending venture business. Nieves introduced
Gragera of Monte Maria Corp, who obtained short term loans for the partnership in consideration of
commissions. In 1986, Nieves and Zabat executed an agreement which formalized their earlier verbal
agreement. But, Santis and Nieves later discovered that Zabat engaged in the same lending business.
Hence, Zabat was expelled from the partnership. On June 1987, Santos filed a complaint for recovery of
sum of money and damages against the respondents, alleging them as employees who misappropriated
the funds. Respondents assert they were partners and not mere employees. Santos claimed that after
discovery of Zabat's activities, he ceased infusing funds thereby extinguishing the partnership.

RULING OF THE LOWER COURT: The Trial Court held that respondents were partners, not merely
employees of petitioner

DECISION OF THE CA: The CA ruled that a partnership was established between petitioner and
respondents based on the following circumstances: 1) It was Nieves who broached to petitioner the idea of
starting a money-lending business and introduced him to Gragera 2.) Arsenio received dividends or profit-
shares 3) The partnership contract was executed after the Agreement with Gragera and petitioner and thus
showed the parties intention to consider it as transaction of the partnership. In their common venture,
petitioner invested capital while respondents contributed industry or services, with the intention of sharing in
the profits of the business.

Issue:

Whether or not the parties' relationship was one of partnership or of employer-employee

Whether or not Petitioner and Gregara are partners.

Held:

Yes, they were partners. By the contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits among themselves.
The "Articles of Agreement" stipulated that the signatories shall share the profits of the business in a 70-15-
15 manner, with petitioner getting the lion's share. This stipulation clearly proved the establishment of a

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partnership. Indeed, the partnership was established to engage in a money-lending business, despite the
fact that it was formalized only after the Memorandum of Agreement had been signed by petitioner and
Gragera.

NO. Gragera and petitioner were not partners. The money-lending activities undertaken with Monte Maria
was done in pursuit of the business for which the partnership between petitioner, Nieves and Zabat (later
Arsenio) was organized. Gragera who represented Monte Maria was merely paid commissions in exchange
for the collection of loans. The commissions were fixed on gross returns, regardless of the expenses
incurred in the operation of the business. The sharing of gross returns does not in itself establish a
partnership.

2. SEVILLA VS. COURT OF APPEALS


G.R. No. L-41182-3, April 16, 1988

Importance: No partnership contract when there is unequal rights among the partners

Facts:

This case is about a contract by and between Noguera and Tourist World Service (TWS), represented by Canilao,
wherein TWS leased the premises belonging to Noguera as branch office of TWS. When the branch office was
opened, it was runby appellant Sevilla payable to TWS by any airline for any fare brought in on the efforts of Mrs.
Sevilla, 4% was togo to Sevilla and 3% was to be withheld by the TWS. Later, TWS was informed that Sevilla was
connected with rival firm, and since the branch office was losing, TWS considered closing down its office. On January
3, 1962, the contract with appellee for the use of the branch office premises was terminated and while the effectivity
thereof was January 31, 1962, the appellees no longer used it. Because of this, Canilao, the secretary of TWS, went
over to the branch office, and finding the premises locked, he padlocked the premises. When neither appellant
Sevilla nor any of his employees could enter, a complaint was filed by the appellants against the appellees. TWS
insisted that Sevilla was a mere employee, being the “branch manager” of its branch office and thatshe had no say
on the lease executed with the private respondent, Noguera.

RULING OF THE TRIAL COURT: Trial court dismissed the case for lack of interest of the parties therein. Trial Court
held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and padlock the premises. It likewise found the petitioner,
Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of
her employer.

RULING OF THE COURT OF APPEALS: Court of Appeals affirmed the Ruling of the Trial Court

ISSUE: Whether or not Lina Sevilla entered into a joint business venture with Tourist World Service.

HELD:

No, the contract entered into was a contract of agency not a partnership. Neither was she an employee of Tourist
World Services. The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As Supreme Court (SC) said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.

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In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's
own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla
herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly
'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting
Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a
partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has
an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in
the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent,
Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence
of this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar,
Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself
based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that
the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership.

3. ELIGIO ESTANISLAO, JR. VS. COURT OF APPEALS


G.R. No. L-49982, April 27, 1988

Importance: A partnership may exist among members of the same family for as long as they bind themselves
to contribute money to a common fund with the intention of dividing the profits among themselves.

Facts:

Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of
Annapolis and Aurora Blvd., Quezon City which were then being leased to the Shell Company of the Philippines
Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service
Station with an initial investment of P15,000.00 to be taken from the advance rentals due to them from SHELL for the
occupancy of the said lots owned in common by them. On May 26, 1966, the parties herein entered into an Additional
Agreement with a proviso that said agreement cancels and supersedes the original agreement executed by the co-
owners. For sometime, the petitioner submitted financial statements regarding the operation of the business to
private respondents, but thereafter petitioner failed to render subsequent accounting.

A demand was made on petitioner: to render an accounting of the profits; to execute a public document embodying
all the provisions of the partnership agreement; to pay the plaintiffs their lawful shares and participation in the net
profits of the business.

RULING OF THE TRIAL COURT: Dismissed the complaint and counterclaim and ordering private respondents to
pay petitioner P 3,000.00 attorney's fee and costs. MR was filed. The new judge set aside the aforesaid decision and
rendered another decision in favor of said respondents.

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RULING OF THE COURT OF APPEALS: CA affirmed in toto the decision of the lower court with costs against
petitioner

Issue:

Whether or not there is a partnership formed where members of the same family bind themselves to contribute
money to a common fund with the intention of dividing the profits among themselves

Held:

Yes, there is a partnership. It is clearly stipulated by the parties that the P 15,000.00 advance rental due to them from
SHELL shall augment their "capital investment" in the operation of the gasoline station. Other evidence in the record
shows that there was in fact such partnership agreement between the parties. This is attested by the testimonies of
private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents’ periodic
accounting of the business. Petitioner gave a written authority to private respondent Remedies Estanislao, his sister,
to examine and audit the books of their "common business' aming negosyo). Respondent Remedios assisted in the
running of the business. There is no doubt that the parties hereto formed a partnership when they bound themselves
to contribute money to a common fund with the intention of dividing the profits among themselves.

4. DAN FUE LEUNG VS. INTERMEDIATE APPELLATE COURT and LEUNG YIU
G.R. No. 70926, January 31, 1989

Importance: Substantial evidence to prove one as a partner will prevail over the registration of the business
as a single proprietorship

Facts:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881
which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring
private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and
ordering the petitioner to pay to the private respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila,
Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation
of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to
and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners
having contributed P4,000.00 to its initial establishment.

RULING OF THE LOWER COURT: Lower court ruled in favor of the private respondent.

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RULING OF THE APPELLATE COURT: The questioned decision was further modified and affirmed by the appellate
court. Both the trial court and the appellate court declared that the private petitioner is a partner and is entitled to a
share of the annual profits of the restaurant.

ISSUE: Whether or not the private respondent is a partner of the petitioner in the establishment of Sun Wah
Panciteria.

HELD:

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the
petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived
from the operation of the said panciteria. These allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that
"By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among themselves". Therefore, the lower courts did not err in
construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. SC
affirmed appellate court’s decision and ordered the dissolution of the partnership.

5. Fernando Santos VS. Spouses Arsenio and Nieves Reyes


Gr No. 135813. October 25, 2001

Importance: Effects of substitution and expulsion of a partner, relationship of partners to third persons

Facts:

FACTS: Santos (Capitalist partner), Nieves and Zabat (Industrial Partners) decided to form a partnership of lending
business with the intention of splitting the profits in a 70% (Santos)/ 15% (Nieves, who recorded the cash-flow), 15%
(Zabat, loan investigator). Nieves introduced Gragera, the chairman of Monte Maria Development Corporation, who
sought short-term loans for the members of the corporation, to Santos. Later on, it was discovered that Zabat was
also working in another lending business that was in competition with their own. Zabat, who was the loan
investigator, was expelled from the partnership. He was substituted by Arsenio Reyes, the husband of Nieves who
resigned from his job at Asian Development bank. The transaction with Gragera pushed on but later on, Santos
accused the spouses of embezzling the commission of Gragera and sued them for the collection of the money. The
spouses countered Santos’ claim stating that the latter didn’t want them to collect their share in the profits of the
partnership. Santos stated that Nieves and Arsenio are not partners in the lending business.

RULING OF THE TRIAL COURT: Santos is ordered to pay the spouses their respective shares in the partnership,
moral and exemplary damages as well as the attorney’s fees and the cost of the suit. I

ISSUE:

1. Whether or not the partnership was dissolved when Zabat was expelled.

2. Whether or not Nieves and Arsenio are partners in the lending business.

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3. Whether or not Gragera is a partner in the lending business.

4. Wheter or not the spouses embezzled money belonging to the partnership.

HELD:

1. The CA stated that the partnership between Nieves and Santos continued despite the expulsion of Zabat from it.
The expulsion of a partner does not dissolve the partnership.

2. Nieves, nevertheless, is a partner in the lending business because she performed her duties as stated upon the
Articles of Agreement as the one who recorded the cash-flow of the lending business. Arsenio on the other hand,
substituted Zabat’s position as the loan investigator.

3. Gragera on the other hand, is not a partner in the business as he merely collects commission from the collection of
the loans. The Court stated that sharing of gross returns does not establish a partnership.

4. The Court found it hard to believe that the spouses could embezzle the commission of Gragera as the latter
collects his money on a daily basis and that the spouses do not have access to money because Nieves merely
records the cash flow and Arsenio was a loan investigator. Furthermore, the commissions of Gragera were paid in
cash vouchers and not in cash. Upon further investigation, the Court ruled that the evidence presented by the
spouses are accurate.

IMPORTANCE OF THE CASE: 1. To know the effect of expulsion/substitution of a partner in partnership. 2. Reason
why a partner may be expelled. 3. Relationship of partnership to third person.

6. Lilibeth Sunga-Chan & Cecilia Sunga vs Lamberto T. Chua


GR 143340, August 15, 2001

Importance: Non-registration of the contract of partnership does not invalidate the partnership for as long as
the essential requisites of a partnership are present

Facts:

On June 22, 1992, respondent Lamberto T. Chua filed a complaint against petitioners, Lilibeth Sunga Sunga Chan
and Cecilia Sunga, daughter and wife, respectively of the deceased Jacinto L. Sunga, for winding up of Partnership
Affairs, accounting, appraisal and recovery of Shares and Damages with Writ of Preliminary Attachment with the
Regional Trial Court, Branch 11, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila with initial capital contribution of Php100,000.00 each, with the intention
that the profits would be equally divided between them. For business convenience, respondent and Jacinto agreed to
register the business name of their partnership SHELLITE GAS APPLIANCE CENTER under the name of Jacinto as
sole proprietorship.

Petitioners question the correctness of the finding of the Trial Court and the Court of Appeals that a partnership
existed in the absence of any written document to show partnership between respondent and Jacinto from 1977 until
Jacinto’s death.

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RULING OF THE LOWER COURT: The trial court rendered its Decision ruling for respondent.

RULING OF THE COURT OF APPEALS: The Court of Appeals dismissed the appeal. The decision is AFFIRMED in
all respects.

Issue:

Whether or not respondent Lamberto Chua and Jacinto L. Sunga has entered into a partnership

Held:

Yes. The court ruled that a partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary. Also, Article 1772 of the Civil
Code requires that partnership with a capital of Php3,000.00 or more must register with the Securities and Exchange
Commission, however this registration requirement is not mandatory. Article 1768 of the Civil Code explicitly provides
that the partnership retains its juridical personality even if it fails register. The failure to register the contract of
partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites,
because the main purpose of registration is to give notice to third parties, and it can be assumed that the members
themselves knew of the contents of their contract.

7. PEDRO R. PALTING vs. SAN JOSE PETROLEUM INCORPORATED


G.R. NO. L-14441, DECEMBER 17, 1966

Importance: The parity rights are only granted to American business enterprises or enterprises directly or
indirectly controlled by US citizens

Facts:

On September 7, 1956, San Jose Petroleum, Inc, a corporation organized under the law of Panama, filed with the
Philippine Securities and Exchange Commission a sworn registration statement for the registration and licensing for
sale in the Philippines Voting Trust Certificates. Apparently, the proceeds of such sale shall be invested in San Jose
Oil Company, Inc. (SJO), a domestic mining corporation. Pedro Palting opposed the authorization granted to SJP
because said tie up between SJP and SJO is violative of the constitution; that SJO is 90% owned by SJP; that the
other 10% is owned by another foreign corporation; that a mining corporation cannot be interested in another mining
corporation. SJP on the other hand invoked that under the parity rights agreement (Laurel-Langley Agreement), SJP,
a foreign corporation, is allowed to invest in a domestic corporation.

RULING OF THE SECURITIES AND EXCHANGE COMMISSION:

San Jose Petroleum, Inc. (SJP) was allowed by the Securities and Exchange Commission (SEC) to sell its shares of
stocks in the Philippines.

Issue:

Whether or not the tie-up violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of
1949

Held:

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Yes, it is violative of the Constitution. San Jose Petroleum is not a business enterprise that is authorized to exercise
the parity privilege under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. The parity
rights are only granted to two types of persons; natural persons (Filipino and American citizen) and juridical persons
(corporations 60% of which capital is owned by Filipinos and business enterprises owned or controlled directly or
indirectly by citizens of the United States). San Jose Petroleum is a Panamanian Corporation and neither is it
indirectly owned or controlled by American citizens through Oil Investments, Inc., which is owned and controlled, not
by citizens of the United States, but by two Venezuelan corporations. There is no showing that the stockholders in
these two corporations are citizens of the United States. But even granting that they are, it is still necessary to
establish that the different states of which they are citizens allow Filipino citizens or corporations or associations
owned or controlled by Filipino citizens to engage in the exploitation, etc. of the natural resources of these states
(par. 3, Art. VI of the Laurel-Langley Agreement). And even if these requirements are satisfied, to hold that the set-up
disclosed in the present case, with a long chain of intervening foreign corporations, comes within the purview of the
Parity Amendment regarding business enterprises indirectly owned or controlled by citizens of the United States, is to
unduly stretch and strain the language and intent of the law.

8. BASTIDA VS. MENZI AND CO.


58 Phil 188

Importance: No common fund belonging to the co-partners, no partnership.

Facts:

Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agency and to supervise the mixing of
the fertilizer and to obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might derive therefrom. J. M.
Menzi (gen. manager of Menzi & Co.) accepted the offer. The agreement between the parties was verbal and was
confirmed by the letter of Menzi to the plaintiff on January 10, 1922.

Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a written contract with the
plaintiff, marked Exhibit A, which is the basis of the present action. Still, the fertilizer business as carried on in the
same manner as it was prior to the written contract, but the net profit that the plaintiff herein shall get would only be
35%. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in the bodegas of Menzi.

Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the plaintiff that the contract for
his services would not be renewed. Subsequently, when the contract expired, Menzi proceeded to liquidate the
fertilizer business in question. The plaintiff refused to agree to this. It argued, among others, that the written contract
entered into by the parties is a contract of general regular commercial partnership, wherein Menzi was the capitalist
and the plaintiff the industrial partner.

Issue:

Whether or not the relationship established between the defendant corporation and the plaintiff by their contract was
that of partners

Held:

The relationship established between the parties was not that of partners, but that of employer and employee,
whereby the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi in compensation for his

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services for supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the
parties prior or subsequent to its execution justified the finding that it was a contract of co-partnership. The written
contract was, in fact, a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the
defendant corporation for one-half of the net profits derived by the corporation form certain fertilizer contracts.

According to Art. 116 of the Code of Commerce, articles of association by which two or more persons obligate
themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what it class may be, provided it has been established in accordance with the provisions of the
Code. However in this case, there was no common fund. The business belonged to Menzi & Co. The plaintiff was
working for Menzi, and instead of receiving a fixed salary, he was to receive 35% of the net profits as compensation
for his services. The phrase in the written contract “en sociedad con”, which is used as a basis of the plaintiff to prove
partnership in this case, merely means “en reunion con” or in association with.

It is also important to note that although Menzi agreed to furnish the necessary financial aid for the fertilizer business,
it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the
necessary credit.

9. ENCARNACION MAGALONA, ET AL., VS. JUAN PESAYCO


G.R. No. L-39607

Importance: Written agreement is not essential in partnership agreements. Verbal or oral partnership
agreements may suffice.

Facts:

Encarnacion Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed a partnership for the purpose of
catching "semillas de bañgus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose,
Antique Province, for the year 1931. For being the highest bidder, the defendant, Pesayco, was awarded by the
municipality the desired privilege. It was agreed that the partners should each supply one third of the capital, and that
the defendant, having had experience in this line, was to be the manager.

The defendant managed the business from January 1,1931, and with the exception of the two accounted sales given
to Tiburcio Lutero (representative of the plaintiff Magalona), he never gave any account of his catches or sales to his
partners. In view of this, a complaint was filed praying that a receiver be appointed by the court to take charge and
manage the funds and the affairs of the partnership, as well as for the defendant to render account and pay his
partners their part in the profits.

At the trial it was proven that the defendant obtained and sold a total of 975,000 "semillas de bañgus". The defendant
made no report of this nor did he pay the plaintiffs any part of the P2,925 realized by him on the sales thereof. The
defendant filed two counter-complaints which denies that there was a partnership and the fact that the partnership
agreement was not in writing. The counterclaims were overridden and the trial court ordered the defendant to pay the
costs.

Issue:

Whether or not the partnership entered into by the parties should be in writing

Held:

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No. Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form whatever,
unlessreal property or real rights are contributed to the same, in which case a public instrument shall be necessary."
Articles of partnership are not required to be in writing except in the cases mentioned in article 1667, Civil Code,
which controls article 1280 of the same Code. A verbal partnership agreement is valid between the parties and can
be enforced without bringing action under article 1279, Civil Code, to compel execution of a written instrument.

10. AGAD VS. MABATO


G.R. NO. L-24193, JUNE 28, 1968

Importance: Partnerships formed through contribution of money

Facts:

Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners in a fish pond business to
which they contributed P1000 each. As managing partner, Mabato yearly rendered the accounts of the operations of
the partnership. However, for the years 1957-1963, defendant failed to render the accounts despite repeated
demands. Petitioner filed a complaint against Mabato to which a copy of the public instrument evidencing their
partnership is attached. Aside from the share of profits (P14,000) and attorney’s fees (P1000), petitioner prayed for
the dissolution of the partnership and winding up of its affairs. Mabato denied the existence of the partnership
alleging that Agad failed to pay his P1000 contribution. He then filed a motion to dismiss on the ground of lack of
cause of action.

RULING OF THE LOWER COURT: The lower court dismissed the complaint finding a failure to state a cause of
action predicated upon the theory that the contract of partnership is null and void, pursuant to Art. 1773 of our Civil
Code, because an inventory of the fish pond referred in said instrument had not been attached thereto.

Issue:

Whether or not there exists a partnership

Whether or not Art. 1773 is applicable

Held:

Yes. The partnership was established "to operate a fishpond", not to "engage in a fishpond business". Moreover,
none of the partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited to
the sum of P1,000 each.

No. The operation of the fishpond was the purpose of the partnership. Neither said fishpond nor a real right thereto
was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto
could become part of its assets. Article 1773 of the Civil Code is not applicable and that, the order appealed from
should be, as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs
of this instance against defendant- appellee, Severino Mabato.

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Obligations of partners
11. RED MEN VS. VETERAN ARMY
Phil 685

Importance: The provision on a partner being an agent of a partnership is not applicable to that organization
when an organization’s constitution has a provision on how management of its affairs would be

Facts:

Constitution of the Veteran Army states the objective of the association, composition and organization of post.
Among the posts thus organized is the General Henry W. Lawton Post, No. 1. On March 1, 1903 a contract of lease
of parts of a certain buildings in the city of Manila was signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as
trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and on
behalf of Lawton Post, Veteran Army of the Philippines as lessee. The lease was for 2 terms, the Lawton Post
occupied the premises in controversy for thirteen months, and paid the rent for that time. It then abandoned them and
this action was commenced to recover the rent for the unexpired term. Judgment was rendered in the court below on
favor of the defendant McCabe, acquitting him of the complaint. Judgment was rendered also against the Veteran
Army of the Philippines. From this judgment, the last named defendant has appealed. The plaintiff did not appeal
from the judgment acquitting defendant McCabe of the complaint.

ISSUE: Whether or not Veteran Army is a partnership

HELD:

No. We should consider the old ruling in Council of Red Men v. Veterans Army , 7 Phil. 685 (1907), where the Court
interpreted the original provision of Article 1803 of the Civil Code (then Article 1695 of the old Civil Code), that
allowed one partner to act to bind the partnership, to apply only when there has been no provision at all in the articles
of partnership on the exercise of power or management, thus: One partner, therefore, is empowered to contract in
the name of the partnership only when the articles of partnership make no provision for the management of the
partnership business. In the case at bar, the articles of the Veteran Army of the Philippines do so provide. It is true
that an express disposition to that effect is not found therein, but one may be fairly deduced from the contents of
those articles. They declare what the duties of the several officers are. In these various provisions there is nothing
said about the power of making contracts, and that faculty is not expressly given to any officer. To think that it was,
therefore, reserved to the department as a whole; that is, that in any case not covered expressly by the rules
prescribing the duties of the officers, the department were present. It is hardly conceivable that the members who
formed this organization should have had the intention of giving to any one of the sixteen or more persons who
composed the department the power to make any contract relating to the society which that particular officer saw fit
to make, or that a contract when so made without consultation with, or knowledge of the other members of the
department should bind it. We therefore, hold that no contract, such as the one in question, is binding on the Veteran
Army of the Philippines unless it was authorized at a meeting of the department. No evidence was offered to show
that the department had never taken any such action. In fact, the proof shows that the transaction in question was
entirely between Apache Tribe, No. 1, and the Lawton Post, and there is nothing to show that any member of the
department ever knew anything about it, or had anything to do with it. The liability of the Lawton Post is not presented
in this appeal.

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12. Criado vs Gutierrez Hermanos
37 Phil 883

Importance: The private act of a partner is an independent act; not that of a partnership.

Facts:

In January 1900, Placido Gutierrez de Celis, Miguel Gutierrez de Celis, Miguel Alfonso, Daniel Perez, and Leopoldo
Criado formed a partnership called Gutierrez Hermanos. Perez and Criado were the industrialist partners while the
other three are the capitalist partners. In 1903, with the death of one partner (Alfonso), they agreed to liquidate the
partnership. In the liquidation, it was put into record in the partnership’s books that Criado only had a balance of
P25,129.09. Criado immediately protested as he claimed that his balance in the partnership should be P55,738.69,
but Miguel persuaded Criado not to protest anymore as he made assurances that the difference shall be paid later on
by the new partnership that they will be forming. Miguel convinced Criado to make it appear that the partnership has
incurred losses from 1900 to 1903 and that his share in the losses, based on Criado’s 5% share in profits is deducted
from his actual P55k+ balance. Miguel said they have to do this in order to avoid some creditor claims against them,
among others. Incidentally, Alfonso also owe P1k from Criado but Miguel assured that the same shall be paid by the
new partnership. So in 1904, a new partnership was formed involving the remaining 4 original partners. They still
called themselves Hermanos Guttierez. This time they are all capitalist partners and Criado contributed his
P25,129.09 from the first phase of the partnership. The second phase of the partnership went on until such time that
Criado got tired of it because Miguel never made good his word to reimburse him of his remaining balance from the
first phase of the partnership. And so a liquidation was made and in December 1911, Criado left the firm. Miguel
requested Criado to render service in lieu of the liquidation which Criado complied until the partnership was fully
liquidated in March 1912.

RULING OF THE LOWER COURT: After full trial, judgment was rendered on July 8, 1913, by which, dismissing
plaintiff's first cause of action

ISSUE: Whether or not the defendant firm is liable to pay plaintiff Criado for the amount claimed as loan

HELD:

No. The Court ruled that the defendant be absolved from the complaint by the first cause of action. The first cause of
action of the plaintiff consists of the obligation assumed by Miguel Alonzo, formerly one of the general partners and
the manager of the firm of Gutierrez Hermanos, to pay to the plaintiff Leopoldo Criado the sum of P1,100 by reason
of the contract of loan of said sum executed by Alonzo in behalf of Criado, and to prevent plaintiff from suing for the
recovery of that an action against the testate or intestate estate of the debtor who died without having paid his debt;
the other partner Miguel Gutierrez de Celis, manager of the firm, succeeded in persuading the plaintiff Criado to
refrain from suing for the recovery of his credit by promising to return said sum to Criado. This not being a strange
obligation, for at the time of his death the deceased debtor Miguel Alonzo, was a partner in the firm of Gutierrez
Hermanos and had a share in the firm's assets. But the fact is that from 1889, when settlement had already been
made of the decedent's said share and in spite of the attempts to collect made by the creditor, he was unable to
recover the loan. Even on the supposition that at the time of his death the debtor Miguel Alonzo certainly and
positively left this debt to avoid judicial proceedings on the part of the creditor, Miguel Gutierrez de Celis, who
subrogated and put himself in the place of debtor, binding himself to pay said amount to plaintiff, yet, in view of the
fact that said loan was made as an independent private act, unconnected with the mercantile operations of the firm of

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Gutierrez Hermanos, and that the record does not duly show that such firm, through its manager, assumed the
obligation to reimburse the sum, there is no provision of law to warrant the Court in holding that the firm of Gutierrez
Hermanos is obliged to pay the amount claimed by plaintiff as the subject-matter of his first cause of action.

13. JOSE GARRIDO VS. AGUSTIN ASENCIO


G.R. No. L-4281. March 30, 1908

Importance: All partners have a right to inspect and account for their respective shares in the partnership

Facts:

Plaintiff Garrido and defendant Asencio were members of a partnership doing business under the firm name of
Asencio y Cia. Unfortunately, the business did not prosper and it was soon dissolved by mutual agreement of the
parties. Plaintiff Garrido now brings this action to recover from the defendant Asencio, the amount of the capital
which he had invested in the business. The latter appears to have been left in charge of the books and the funds of
the firm. Defendant Asencio denied that there was anything due the plaintiff as claimed due to the losses that the
partnership had sustained. He then filed a cross complaint wherein he prayed for a judgment against the plaintiff for a
certain amount which he alleged to be due by the plaintiff under the articles of partnership on account of plaintiff's
share of these losses. The plaintiff made no allegation as to profits, but denied defendant's allegation as to the
losses. The defendant in support of his allegations offered in evidence general statement of accounts of the
partnership, supported by a number of vouchers, and by his own testimony under oath as to the accuracy and
correctness of the items set out therein. The plaintiff assigns as error the admission of this account on the ground
that the books of the partnership were not kept in accordance with the provisions of Title III, Book I, of the Code of
Commerce.

RULING OF THE TRIAL COURT: The Trial Court ruled in favor of the defendant. The trial court found that the
evidence substantially sustains the claim of the defendant as to the alleged losses in the business of the partnership
and gave judgment in his favor. The Plaintiff-appellant appealed to the Supreme Court challenging the competency
and sufficiency of the evidence on which the trial court based its findings as to the status of the accounts of the
company.

ISSUE: Whether or not the statement of account submitted by defendant-respondent is competent and sufficient
evidence that would be deemed as admissible in the case at bar.

HELD:

The Supreme Court ruled in the AFFIRMATIVE. The defendant had general supervision and charge over the books
and accounts but it appears that these books were at all times open to the inspection of the plaintiff, and there is
evidence which tends to show that the plaintiff himself made entries in these books touching particular transactions in
which he happened to be interested. While it is clear that the defendant was more especially burdened with the care
of the books and accounts of the partnership, it would appear that the plaintiff had equal rights with the defendant in
this regard, and that during the existence of the partnership they were equally responsible for the mode in which the
books were kept and that the entries made by one had the same effect as if they had been made by the other. In
view of the testimony of record that the plaintiff jointly with the defendant kept these books, made entries therein, and
was responsible with him therefor, the doctrine laid down in Behn, Meyer & Co., vs. Rosatzin (5 Phil. Rep., 660) is
applicable in this case, and the correctness of the entries in these books must be taken to be admitted by him, except

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so far as it is made to appear that they are erroneous as a result of fraud or mistake. It appears from the record that
the statement of account, the vouchers, and the books of the company were placed at the disposition of the plaintiff
for more than six weeks prior to the trial, and that during the trial he was given every opportunity to indicate any
erroneous or fraudulent items appearing in the account, yet he was unable, or in any event he declined to specify
such items, contenting himself with a general statement to the effect that there must be some mistake, as he did not
and could not believe that the business had been conducted at a loss.

14. Dan Fue Leung v. Intermediate Appellate Court and Leung Yiu
G.R. No. 70926, January 31, 1989

Importance: A partner’s right to proper accounting of all partnership affairs exists as long as the partnership
exists

Facts:

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila,
Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from the operation
of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to
and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the
trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the partners
having contributed P4,000.00 to its initial establishment.

The private respondent's cause of action is premised upon the failure of the petitioner to give him the agreed profits
in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests
in the partnership. The petitioner raises the issue of prescription. The alleged receipt is dated October 1, 1955 and
the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve
(12) days. From October 1, 1955 to duly 13, 1978, no written demands were ever made by private respondent.

RULING OF THE TRIAL COURT: CFI Manila declared Private respondent Leung Yiu as a partner of Petitioner Dan
Fue Leung in the business of Sun Wah Panciteria and ordered petitioner to pay to private respondent the share in the
annual profits of said restaurant.

RULING OF THE APPELLATE COURT: IAC affirmed the decision of the Trial Court as it declared Private
respondent Leung Yiu as a partner of Petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordered
petitioner to pay to private respondent the share in the annual profits of said restaurant.

ISSUES:

Whether or not Yiu no longer has the right to demand an accounting due to prescription.

Whether or not there should be liquidation and winding up of the partnership.

HELD:

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Yes, regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806,
1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription
begins to run only upon the dissolution of the partnership when the final accounting is done.

Yes. There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of
dissolution because the continuation of the partnership has become inequitable.

Obligations of the Partners with regard to Third Persons

15. SHARRUF & CO VS. BALOISE FIRE INSURANCE CO


G.R. No. 44119, March 30, 1937

Importance: Subsequent change of the partnership name does not alter the composition of the firm

Facts:

Sharuff and Eskenazi were doing business under the firm name Sharuff and Co. They insured their merchandise with
Baloise. Later on, Sharuff and Eskenazi entered into a contract of partnership and thereby changed the firm name to
Sharuff and Eskenazi. The merchandise insured was subsequently destroyed by fire. Sharuff and Eskenazi filed their
claim against the insurance company. Baloise refused to pay on the ground that the policy was issued in the name of
Sharuff and Co. and not Sharuff and Eskenazi.

RULING OF THE LOWER COURT: Judgment is rendered ordering the defendant insurance companies to pay to the
plaintiffs Salomon Sharruf and Elias Eskenazi the total amount of P40,000 plus interest thereon at 8 per cent annum
from the date of the filing of the complaint, with the costs of the trial.

Issue:

Whether or not the partnership can claim the proceeds of the policy.

Held:

Yes. The subsequent partnership did not alter the composition of the firm. The people involved are actually the same.
Furthermore, such change of firm name was not made to defraud the insurance company or some other person.

16. Island Sales, Inc., vs. United Pioneers General Construction Company, Benjamin C. Daco
G.R. No. L-22493, July 31, 1975

Importance: Article 1816, condonation by creditor of share in partnership debt of one partner does not
increase pro rata liability of other partners

Facts:

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United Pioneers General Construction Company is a general partnership formed by Benjamin Daco, Daniel Guizona,
Noel Sim, Augusto Palisoc and Romulo Lumauig. In 1961, United Pioneers purchased by installment a motor vehicle
from Island Sales, Inc. United Pioneers defaulted in its payment hence it was sued and the 5 partners were
impleaded as co-defendants. Upon motion of Island Sales, Lumauig was removed as a defendant.

RULING OF THE LOWER COURT: United Pioneers lost the civil case and the trial court rendered judgment ordering
United Pioneers to pay the outstanding balance plus interest and costs. It further decreed that the remaining 4 co-
defendants shall pay Island Sales in case United Pioneers’ property will not be enough to satisfy its indebtedness to
Island Sales.

ISSUE: Whether or not the condonation of a partner’s share in the debts of the company increases the remaining
partners’ liability

HELD:

No. In the instant case, there were 5 general partners when the promissory note in question was executed for and in
behalf of the partnership. Their liability is pro-rata pursuant to Article 1816 of the Civil Code. But it should be noted
that since there were 5 partners when the purchase was made in behalf of the partnership, the liability of each
partner should be 1/5th (of the company’s obligation) each. The fact that the complaint against Lumauig was
dismissed, upon motion of the Island Sales, does not unmake Lumauig as a general partner in the company. In so
moving to dismiss the complaint, Island Sales merely condoned Lumauig’s individual liability to them.

17. De la Rosa v. Ortega Go-Cotay


48 Phil 605

Importance: A managing partner ceases to be one from the time he becomes a receiver. A receiver, without
express judicial authority, cannot continue the business of the partnership, being personally liable for the
losses should he do so.

Facts:

Chinamen Go-Lio and Vicente Go-Sengco formed a partnership of purchase and sale of article of commerce in
Nueva Ecija, during Spanish Regime. Go-Lio went to China, where he later on died, leaving a widow and three
children. When Vicente Go-Sengco died his son, defendant Enrique Ortega Go-Cotay took charge of the business.
Plaintiff Ildefonso de la Rosa was appointed as administrator of the estate of Go-Sengco here in the Philippines. As
administrator, he requested for the winding up of the partnership which was refused by defendant. Plaintiff filed a
complaint for the delivery of the one half of all the property of the partnership and his appointment as receiver of the
property. The Court appointed three commissioners to make an inventory and liquidate all of the property in question.
In order to prevent commissioner Cabo-Chan from assuming the office of receiver, the defendant filed a bond. The
court later on adopted the report submitted by commissioner Cabo-Chan, wherein it was stated that the partnership
incurred losses in the amount of P89,099.22, in view of which the plaintiff has nothing to recover, as there was no
profit to divide.

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RULING OF THE LOWER COURT: The lower court disapproved the report of the former, but approved the latter’s
report with slight modifications. Hence, the plaintiff had nothing to recover from defendant, as there was no profit to
divide.

ISSUE: Whether or not the partnership should bear the losses incurred under the management of defendant

RULING:

No. Defendant Ortega Go-Cotay assumed complete responsibility for the business by objecting to the appointment of
a receiver as prayed for by plaintiff de la Rosa, and by giving bond therefore. He ceases to be a managing partner at
that time in order to become a receiver and while before that date the property was liable for his acts, yet that is not
the case with his subsequent acts. Without judicial authority he cannot continue the business of partnership, being
personally liable for the losses.

Dissolution and Winding Up


18. Goquiolay vs. Sycip
G.R. No. L-11840, July 26, 1960

Importance: Partnership does not dissolve if there is a stipulation made by the partners in its articles
effecting such continuation.

Facts:

Tan Sin An and Goquiolay entered into a general commercial partnership under the partnership name “Tan Sin An
and Antonio Goquiolay” for the purpose of dealing in real estate. The agreement lodged upon Tan Sin An the sole
management of the partnership affairs. The lifetime of the partnership was fixed at ten years and the Articles of Co-
partnership stipulated that in the event of death of any of the partners before the expiration of the term, the
partnership will not be dissolved but will be continued by the heirs or assigns of the deceased partner. But the
partnership could be dissolved upon mutual agreement in writing of the partners.

Goquiolay executed a GPA in favor of Tan Sin An. The plaintiff partnership purchased 3 parcels of land which was
mortgaged to “La Urbana” as payment of P25,000. Another 46 parcels of land were purchased by Tan Sin An in his
individual capacity which he assumed payment of a mortgage debt for P35K. A down payment and the amortization
were advanced by Yutivo and Co. The two obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of “Banco Hipotecario” Tan Sin An
died leaving his widow, Kong Chai Pin and four minor children. T

he widow subsequently became the administrator of the estate. Repeated demands were made by Banco
Hipotecario on the partnership and on Tan Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons, paid
the remaining balance of the mortgage debt. The mortgage was cancelled Yutivo Sons and Sing Yee filed their claim
in the intestate proceedings of Tan Sin An for advances, interest and taxes paid in amortizing and discharging their
obligations to “La Urbana” and “Banco Hipotecario.” Kong Chai Pin filed a petition with the probate court for authority
to sell all the 49 parcels of land. She then sold it to Sycip and Lee in consideration of P37K and of the vendees
assuming payment of the claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed in favor of Insular
Development a deed of transfer covering the 49 parcels of land. When Goquiolay learned about the sale to Sycip and

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Lee, he filed a petition in the intestate proceedings to set aside the order of the probate court approving the sale in so
far as his interest over the parcels of land sold was concerned. Probate court annulled the sale executed by the
administrator w/ respect to the 60% interest of Goquiolay over the properties. Administrator appealed. The decision
of probate court was set aside for failure to include the indispensable parties. New pleadings were filed. The second
amended complaint prays for the annulment of the sale in favor of Sycip and Lee and their subsequent conveyance
to Insular Development.

RULING OF THE LOWER COURT: The complaint was dismissed by the lower court hence this appeal.

ISSUE:

Whether or not the stipulation in the articles of partnership as to the continuation by the heirs in the event of death of
the partnership

HELD:

YES. Consonant with the articles of the co-partnership providing for the continuation of the firm notwithstanding the
death of one of the partners, the heirs of the deceased, by never repudiating or refusing to be bound under the said
provision in the articles, became individual partners with Antonio Goquiolay upon Tan’s demise. The validity of like
clauses in partnership agreements is expressly sanctioned under Art 222 of the Code of Commerce.

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