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C.1 G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO, plaintiff-
appellant, vs.SEVERIANO
LIZARRAGA, defendant-appellee.
Facts
The plaintiff brought an action for the rescission of a
partnership contract between himself and the
defendant, entered into on October 15, 1920, the
reimbursement by the latter of his 50,000 peso
investment therein.
Defendant’s contention
The defendant denies generally and specifically all the
allegations of the complaint which are incompatible
with his special defenses, cross-complaint and
counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him
as its manager and administrator.
The CFI found that the defendant had not contributed
all the capital he had bound himself to invest hence it
demanded that the defendant liquidate the
partnership, declared it dissolved on account of the
expiration of the period for which it was constituted,
and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the
court the result of the liquidation together with the
accounts and vouchers within the period of thirty days
from receipt of notice of said judgment. The plaintiff
appealed from said decision praying for the rescission
of the partnership contract between him and the
defendant in accordance with Art. 1124 of the Civil
Code.
Issue
Whether or not the plaintiff acquired the right to
demand rescission of the partnership contract
according to article 1124 of the Civil Code.
Ruling
The Supreme Court ruled that plaintiff has not
acquired the right to demand rescission of the
partnership contract according to Article 1124 of the
Civil Code. But even going into the merits of the case,
the affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings
referred to above, which we cannot revise because
the parol evidence has not been forwarded to this
court, articles 1681 and 1682 of the Civil Code have
been properly applied. Owing to the defendant's
failure to pay to the partnership the whole amount
which he bound himself to pay, he became indebted
to it for the remainder, with interest and any damages
occasioned thereby, but the plaintiff did not thereby
acquire the right to demand rescission of the
partnership contract according to article 1124 of the
Code. This article cannot be applied to the case in
question, because it refers to the resolution of
obligations in general, whereas article 1681 and 1682
specifically refer to the contract of partnership in
particular. And it is a well-known principle that special
provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby
dismissed, leaving the decision appealed from in
full force, without special pronouncement of
costs. So ordered.
C2 - SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO
PUZON, defendant-appellant.
CONCEPCION JR., J.:
FACTS:
 Bartolome Puzon had two contracts with the
government for the construction of roads and
bridges. (Bureau of Public Highways). He
sought the financial assistance of William Uy, so
he proposed that they create a partnership
which would be the sub-contractor of the
projects.They also agreed that the profits will be
divided among themselves.
 William Uy agreed to the formation of the
partnership "U.P. Construction Company". They
agreed to contribute P50,000 each. (Note:
P40,000 was advanced by William Uy while
Puzon was waiting for the approval of his
P150,000 PNB Loan. Upon release of the loan,
he promised to reimburse William Uy of the
P40,000; pay his share of P50,000 and loan
P60,000 to the partnership).Loan was approved
by November 1956. Note: At the end of 1957,
Uy contributed a total of P115,453.39
 Since Puzon was busy with other projects, Uy
was the one who managed the partnership.
 In order to guarantee the PNB Loan, Puzon,
without the knowledge of Uy, assigned the
payments to the payments to be received from
the projects to PNB.
 Due to the financial demands of the projects, Uy
demanded that Puzon comply with his obligation
to place his capital contribution in the company.
 However, Puzon failed to comply even after
formal demand letters were sent to him.
 Thereafter, Puzon (as the primary contractor of
the projects) wrote terminated the subcontract
agreement with the partnership to which he is
also a partner. (November 27, 1957)
 Thereafter, Uy was not allowed to hold office in
the UP Construction Company and his authority
to negotiate with the Bureau was revoked by
Puzon.
Petitioner’s Allegation:

Uy clamied that Puzon had violated the terms of their
partnership agreement. He sought for the dissolution
of the partnership with damages.
Respondent’s Reply:
Bartolome Puzon, substituted by Franco Puzon
(administrator of his estate), after the former’s death,
alleged that he is not guilty of breach of contract, and
that Uy must pay Puzon his share in the losses
suffered by the partnership.
The RTC ruled in favor of Uy. Puzon failed to
contribute his share capital based on their partnership
agreement and applied the partnership funds to his
own personal use, ousted Uy from the management
of the firm and caused failure of the partnership to
realize the expected profits of at least P400,000. The
RTC ordered Puzon to pay Uy the amount of
P320,103.13.
ISSUE:Whether or not Puzon failed to comply with his
obligations of paying the capital contribution of the
partnership
HELD:
YES
According to the court, there was failure on the part of
Puzon to contribute capital to the partnership. When
his load with PNB was approved, he only gave
P60,000 to Uy; P40,000 was for reimbursement to the
payments made by Uy and the other P20,000 was for
the capital contribution. Thereafter, Puzon never
made additional contribution.
Also, it was found by the Supreme Court that Puzon
misapplied partnership funds by assigning all
payments for the projects to PNB.
Such assignment was prejudicial to the partnership
since the partnership only received a small share from
the total payments made by the Bureau of Public
Highways. As a result, the partnership was unable to
discharge its obligations.
Here, the Court ordered Puzon to reimburse whatever
amount Uy had invested in or spent for the
partnership on account of construction projects. The
amount P200,000 as compensatory damages was
also awarded in favor of Uy.
Had the appellant not been remiss in his obligations
as partner and as prime contractor of the construction
projects in question as he was bound to perform
pursuant to the partnership and subcontract
agreements, and considering the fact that the total
contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The
award, therefore, made by the trial court of the
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amount of P200,000.00, as compensatory damages,
is not speculative, but based on reasonable estimate.
FALLO:
WHEREFORE, finding no error in the decision
appealed from, the said decision is hereby affirmed
with costs against the appellant, it being understood
that the liability mentioned herein shall be borne by
the estate of the deceased Bartolome Puzon,
represented in this instance by the administrator
thereof, Franco Puzon.
C3 - ISABELO MORAN JR. V. COURT OF
APPEALS
G.R. No. L-59956 October 31, 1984
FACTS: On February 22, 1971, Mariano Pecson and
Isabelo Moran Jr. entered into an agreement whereby
both would contribute P 15,000 each for the purpose
of printing 95,000 posters featuring the delegates of
the 1971 Constitutional Convention. In their
stipulation, all of the 95,000 posters are ought to be
sold at P 2.00 each wherein Moran will supervise the
work while Pecson will receive P 1,000 monthly
commission. Pecson gave Moran P 10,000 for which
Moran issued a receipt.
However, of the expected 95,000 copies of posters to
be printed, only 2,000 copies were actually printed
which were sold at P 5.00 each.
In view of the foregoing, Moran executed a
promissory note in the amount of P 20,000 payable in
two equal installments. Pecson then filed an action for
the recovery of a sum of money for the return of his P
10,000 contribution and payment of his share in the
profits that the partnership would have earned.
The trial court held that: ‖Each party is entitled to
rescind the contract which right is implied in reciprocal
obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return
the things which were the object of the contract‖. This
is in consideration of the fact that Pecson failed to
give his full contribution as he only contributed P
10,000 not P 15,000 as stipulated and Moran was
able to print only 2,000 copies out of the expected
95,000 copies.
CA held adversely against Moran making him liable
for the payment of P 47,500 which is the amount that
could have accrued to Pecson under their agreement.
Petitioner’s Allegation: THE HONORABLE COURT
OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM
OF P47,500 AS THE SUPPOSED EXPECTED
PROFITS DUE HIM. The petitioner contends that the

award is highly speculative. The petitioner maintains
that the respondent court did not take into account the
great risks involved in the business undertaking.
ISSUE: WON Moran is obliged to give Pecson the
amount of expected profits from the partnership
HELD: No. The rule is, when a partner who has
undertaken to contribute a sum of money fails to
do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute
(Art. 1786, Civil Code) and for interests and
damages from the time he should have complied
with his obligation (Art. 1788, Civil Code). In this
case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the
amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any
of the amount expected of him. He further failed to
comply with the agreement to print 95,000 copies of
the posters. Instead, he printed only 2,000 copies.
There is therefore no basis for the award of
speculative damages in favor of the private
respondent unlike that in the case of UY V. PUZON
(which was cited by the SC in this case) wherein the
SC awarded compensatory damages because only
the the appellant therein was remiss in his obligations
as a partner and as prime contractor of the
construction projects in question - only Puzon failed to
give his full contribution while Uy contributed much
more than what was expected of him.
Being a contract of partnership, each partner
must share in the profits and losses of the
venture. That is the essence of a partnership. And
even with an assurance made by one of the
partners that they would earn a huge amount of
profits, in the absence of fraud, the other partner
cannot claim a right to recover the highly
speculative profits.
Re: The amount that Pecson is entitled to recover
Pecson is entitled to the SIX THOUSAND (P6,000.00)
PESOS representing the amount of the private
respondent's contribution to the partnership but which
remained unused; and THREE THOUSAND
(P3,000.00) PESOS representing one half (1/2) of the
net profits gained by the partnership in the sale of the
two thousand (2,000) copies of the posters
FALLO: WHEREFORE, the petition is GRANTED.
The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE
and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano
Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's
contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00)
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PESOS representing one half (1/2) of the net profits
gained by the partnership in the sale of the two
thousand (2,000) copies of the posters, with interests
at the legal rate on both amounts from the date the
complaint was filed until full payment is made.
C.4 MAURO LOZANA, plaintiff-appellee, vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Facts
Plaintiff Mauro Lozana entered into a contract
with defendant Serafin Depakakibo wherein they
established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the
defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in
the Municipality of Dumangas, Province of Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor.
However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs.
Piadosa Buenaflor was cancelled and revoked by the
Public Service Commission.
Evidently because of the cancellation of the
franchise in the name of Mrs. Piadosa Buenaflor,
plaintiff herein Mauro Lozana sold a generator, Buda
(diesel), 75 hp. 30 KVA capacity, Serial No. 479, to
the new grantee Olimpia D. Decolongon, by a deed
dated October 30, 1955 (Exhibit "C"). Defendant
Serafin Depakakibo, on the other hand, sold one
Crossly Diesel Engine, 25 h. p., Serial No. 141758, to
the spouses Felix Jimenea and Felina Harder.
PLAINTIFF LOZANA’S ALLEGATION
Mauro Lozana brought an action against the
defendant, alleging that he is the owner of the
Generator Buda (Diesel), valued at P8,000 and 70
wooden posts with the wires connecting the generator
to the different houses supplied by electric current in
the Municipality of Dumangas, and that he is entitled
to the possession thereof, but that the defendant has
wrongfully detained them as a consequence of which
plaintiff suffered damages. Plaintiff prayed that said
properties be delivered back to him.
DEFENDANT DEPAKAKIBO’S ANSWER
Defendant filed an answer, denying that the
generator and the equipment mentioned in the
complaint belong to the plaintiff and alleging that the
same had been contributed by the plaintiff to the
partnership entered into between them in the same
manner that defendant had contributed equipment
also, and therefore that he is not unlawfully detaining
them. By way of counterclaim, defendant alleged that
under the partnership agreement the parties were to
contribute equipment, plaintiff contributing the
generator and the defendant, the wires for the
purpose of installing the main and delivery lines; that

the plaintiff sold his contribution to the partnership, in
violation of the terms of their agreement.
RULING OF THE RTC
The judge entered a decision declaring
plaintiff owner of the equipment and entitled to the
possession thereof. The lower court declared that the
contract of partnership was null and void, because by
the contract of partnership, the parties thereto have
become dummies of the owner of the franchise. The
reason for this holding was the admission by
defendant when being cross-examined by the court
that he and the plaintiff are dummies.
Issues
1. Whether or not the contract of partnership
is void
2. Whether or not the partners can claim
back the assets they contributed to the
partnership
Rulings
1. The Supreme Court do not find the agreement
to be illegal, or contrary to law and public
policy such as to make the contract of
partnership, null and void ab initio. The SC
found that the admission by the defendant is
an error of law, not a statement of a fact. The
Anti-Dummy law has not been violated as
parties, plaintiff and defendant are not aliens
but Filipinos. The Anti-Dummy law refers to
aliens only (Commonwealth Act 108 as
amended).
The SC did not find also that the agreement,
especially the provision thereon wherein the
parties agreed to maintain, operate and
distribute electric light and power under the
franchise belonging to Mrs. Buenaflor to be
illegal, or contrary to law and public policy
such as to make the contract of partnership,
null and void ab initio. The fact of furnishing
to the current holder of the franchise alone,
without the previous approval of the Public
Service Commission, does not per se make
the contract of partnership null and void from
the beginning and render the partnership
entered into by the parties for the purpose
also void and non-existent.
2. The SC held that the partners cannot claim
back the assets they contributed to the
partnership. The proper remedy is to dissolve
the partnership and liquidate its assets.
FALLO
For the foregoing considerations, the
judgment appealed from as well as the order of the
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court for the taking of the property into custody by the
sheriff must be, as they hereby are set aside and the
case remanded to the court below for further
proceedings in accordance with law.
C. 5 G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, plaintiffs-
appellees, vs. LO SENG, defendant-appellant.
FACTS:
Plaintiff Pang Lim and Defendant Lo Seng were
partners in a firm named Lo Seng & Co. They were in
the business of running a distillery known as ―El
Progreso‖. The land on which the distillery was
located was leased from a certain Lo Yao through Lo
Shui as his attorney in fact for a term of three years.
Upon the expiration of the lease, a new written
contract was entered into by the parties extending the
lease for 15 years because the BIR required the
distillery to make expensive improvements which
were at the expense of the lessees. Neither the
original contract of lease nor the agreement extending
the same was inscribed in the property registry.
Plaintiff Pang Lim eventually sold all his interest in the
distillery to defendant, making the latter the sole
owner thereof.
Lo Shui, again acting as attorney in fact of Lo Yao,
executed and acknowledged before a notary public a
deed purporting to convey to Pang Lim and another
Chinaman named Benito Galvez, an employee, the
entire distillery plant including the land used in
connection therewith. The document of conveyance
was also never recorded in the registry of property.
Plaintiffs demanded possession of the distillery from
defendant, but the latter refused so an action of
unlawful detainer was initiated against him.
PLAINTIFFS-APPELLEES’S ALLEGATION:
They are at liberty to terminate the lease as
purchasers of the estate under Article1571 of the Old
Civil Code which provides that:
ART. 1571. The purchaser of a leased estate shall be
entitled to terminate any lease in force at the time of
making the sale, unless the contrary is stipulated, and
subject to the provisions of the Mortgage Law
DEFENDANT-APPELLANT’S ALLEGATION:
The lease is binding on all persons who participate
therein.
ISSUE: whether or not a partner who has left the
partnership may, after his departure, use information
known to him by reason of the partnership for his own
benefit.

RULING: No. Above all other persons in business
relations, partners are required to exhibit towards
each other the highest degree of good faith. In fact the
relation between partners is essentially fiduciary, each
being considered in law, as he is in fact, the
confidential agent of the other. It is therefore accepted
as fundamental in equity jurisprudence that one
partner cannot, to the detriment of another, apply
exclusively to his own benefit the results of the
knowledge and information gained in the character of
partner. Thus, it has been held that if one partner
obtains in his own name and for his own benefit the
renewal of a lease on property used by the firm, to
commence at a date subsequent to the expiration of
the firm's lease, the partner obtaining the renewal is
held to be a constructive trustee of the firm as to such
lease. And this rule has even been applied to a
renewal taken in the name of one partner after the
dissolution of the firm and pending its liquidation.
Pang Lim had been partner with Lo Seng and Benito
Galvez an employee. Both therefore had been in
relations of confidence with Lo Seng and in that
position had acquired knowledge of the possibilities of
the property and possibly an experience which would
have enabled them, in case they had acquired
possession, to exploit the distillery with profit. On
account of his status as partner in the firm of Lo Seng
and Co., Pang Lim knew that the original lease had
been extended for fifteen years; and he knew the
extent of valuable improvements that had been made
thereon. Certainly, as observed in the appellant's
brief, it would be shocking to the moral sense if the
condition of the law were found to be such that Pang
Lim, after profiting by the sale of his interest in a
business, worthless without the lease, could intervene
as purchaser of the property and confiscate for his
own benefit the property which he had sold for a
valuable consideration to Lo Seng.
While yet a partner in the firm of Lo Seng and Co.,
Pang Lim participated in the creation of this lease,
and when he sold out his interest in that firm to Lo
Seng this operated as a transfer to Lo Seng of Pang
Lim's interest in the firm assets, including the lease;
and Pang Lim cannot now be permitted, in the guise
of a purchaser of the estate, to destroy an interest
derived from himself, and for which he has received
full value. Pang Lim, having been a participant in the
contract of lease now in question, is not in a position
to terminate it.
It follows that as Lo Seng is vested with the
possessory right as against Pang Lim, he cannot be
ousted either by Pang Lim or Benito Galvez. Having
lawful possession as against one cotenant, he is
entitled to retain it against both. Both Pang Lim and
Benito Galvez are bound to respect Lo Seng's lease,
at least in so far as the present action is concerned
FALLO:
The judgment appealed from will be reversed, and the
defendant will be absolved from the complaint. It is so
ordered, without express adjudication as to costs.
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C. 6. EVANGELISTA & CO., DOMINGO C.
EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD
SANTOS, petitioners, vs. ESTRELLA ABAD
SANTOS, respondent.
G.R. No. L-31684 June 28, 1973. MAKALINTAL, J.:
Facts:
 On October 9, 1954 a co-partnership was formed
under the name of "Evangelista & Co."
 On June 7, 1955 the Articles of Co-partnership was
amended as to include herein respondent, Estrella
Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo
Atienza Abad Santos and Conchita P. Navarro, the
original capitalist partners, remaining in that
capacity, with a contribution of P17,500 each.
 The amended Articles providedthat "the
contribution of Estrella Abad Santos consists of her
industry being an industrial partner", and that the
profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for
the first three partners, Domingo C. Evangelista,
Jr., Conchita P. Navarro and Leonardo Atienza
Abad Santos to be divided among them equally;
and 30% for the fourth partner Estrella Abad
Santos."
 On December 17, 1963 herein respondent filed suit
against the three other partners in the Court of
First Instance of Manila, alleging that the
partnership, which was also made a party-
defendant, had been paying dividends to the
partners except to her; and that notwithstanding
her demands the defendants had refused and
continued to refuse and let her examine the
partnership books or to give her information
regarding the partnership affairs to pay her any
share in the dividends declared by the partnership.
She therefore prayed that the defendants be
ordered to render accounting to her of the
partnership business and to pay her corresponding
share in the partnership profits after such
accounting, plus attorney's fees and costs.
 The defendants, in their answer, denied ever
having declared dividends or distributed profits of
the partnership; denied likewise that the plaintiff
ever demanded that she be allowed to examine
the partnership books; and byway of affirmative
defense alleged that the amended Articles of Co-
partnership did not express the true agreement of
the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute
industry to the partnership; and that her share of
30% was to be based on the profits which might be
realized by the partnership only until full payment
of the loan which it had obtained in December,
1955 from the Rehabilitation Finance Corporation
in the sum of P30,000, for which the plaintiff had
signed a promisory note as co-maker and
mortgaged her property as security.
 The Court of First Instance found for the plaintiff
and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the

defendants to render an accounting of the
business operations of the said partnership from
June 7, 1955; to pay the plaintiff such amounts as
may be due as her share in the partnership profits
and/or dividends after such an accounting has
been properly made; to pay plaintiff attorney's fees
in the sum of P2,000.00 and the costs of this suit.
 The defendants appealed to the Court of Appeals,
which thereafter affirmed judgments of the court a
quo. Hence, the petitioners filed a petition before
the SC.
Contention of Petitioners:
 Respondent did not bind herself to contribute her
industry, and she could not because she was one
of the judges of the City Court of Manila since 1954
and she is also teaching in a law school in Manila.
Issues:
1. WON Estrella Abad Santos (respondent) is an
industrial partner.
2. WON Estrella Abad Santos has the right to
demand for a formal accounting.
Ruling:
1. YES, respondent is an industrial partner.The
appellants admitted the genuineness and due
execution of the exhibits that were considered by
the CA and the lower court. The exhibits
indubitably show the appellee is an industrial
partner of appellant company. Appellants are
virtually estopped from attempting to detract from
the probative force of the said exhibits because
they all bear the imprint of their knowledge and
consent, and there is no credible showing that they
ever protested against or opposed their contents
prior of the filing of their answer to appellee's
complaint.
2. YES, respondent has the right to demand for a
formal accounting since she is an industrial
partner.
As an industrial partner, A has the right under
Article 1809 for a formal accounting and to receive
her share in the net profit that may result from such
an accounting.
C7. RAMNANI VS COURT OF APPEALS , 196
SCRA 731 (1991)
FACTS:
 Ishwar Jethmal Ramnani and his wife
Sonya had their main business based in
New York. Ishwar received US $150,000.00
from his father-in-law in Switzerland. In 1965,
Ishwar Jethmal Ramnani sent the amount of
US $150,000.00 to Choithram in two bank
drafts of US$65,000.00 and US$85,000.00 for
the purpose of investing the same in real
estate in the Philippines.
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 Subsequently, spouses Ishwar executed
a general power of attorney appointing
Ishwar’fsull blood brothers Choithram and
Navalrai as attorneys-in-fact, empowering
them to manage and conduct their business
concerns in the Philippines. Choithram, as
attorney-in-factr, entered into two agreements
for the purchase of two parcels of land located
in Pasig Rizal from Ortigas & Company, Ltd.
Partnership (Ortigas Ltd.) with a total area of
approximately 10,048 square meters. Three
buildings were constructed thereon and were
leased out by Choithram as attorney-in-fact of
spouses Ishwar. Two of these buildings were
later burned. In 1970 Ishwar asked Choithram
to account for the income and expenses
relative to these properties during the period
1967 to 1970. Choithram failed and refused to
render such accounting which prompted
Ishwar to revoke the general power of
attorney. Choithram and Ortigas Ltd. were
duly notified by notice in writing of such
revocation. It was also registered with the
Securities and Exchange Commission and
published in The Manila Times.
 Nevertheless, Choithram as such attorney-in-
fact of Ishwar, transferred all rights and
interests of Ishwar spouses in favor of Nirmla
Ramnani, the wife of Choitram’s son, Moti.
 Ortigas also executed the corresponding
deeds of sale in favor of Nirmla and the TCT
ISSUED in her favor. Thus, spouses Ishwar
filed a complaint in the Court of First Instance
of Rizal against Choithram and spouses
Nirmla and Moti (Choithram et al.) and Ortigas
Ltd. for reconveyance of said properties or
payment of its value and damages.
 ALLEGATIONS OF ISHWAR RAMANANI:
Respondents Choithram Jethmal Ramnani,
Nirmla Ramnani and Moti G. Ramnani have
fraudulently executed a simulated mortgage of
the properties subject of this litigation dated
June 20, 1989, in favor of Overseas Holding
Co., Ltd. which appears to be a corporation
organized in Cayman Islands, for the amount
of $ 3,000,000.00, which is much more than
the value of the properties in litigation; that
said alleged mortgagee appears to be a
"shell" corporation with a capital of only
$100.00; and that this alleged transaction
appears to be intended to defraud petitioners
Ishwar and Sonya Jethmal Ramnani of any
favorable judgment that this Court may render
in this case;
 RTC dismissed the complaint ruling that the
lone testimony of Ishwar regarding the cash
remittance is unworthy of faith and credit
because the cash remittance was made
before the execution of the general power of
attorney. Ishwar also failed to corroborate this

lone testimony and did not exhibit any
commercial document as regard to the alleged
remittances. It believed the claim of
Choitram that he and Ishwar entered into
a temporary arrangement in order to
enable Choithram, then a British citizen, to
purchase the properties in the name of Ishwar
who was an American citizen and who was
then qualified to purchase property in the
Philippines under the then Parity
Amendment.
 Upon appeal, the CA reversed the decision
and gave credence to Ishwar. It upheld the
validity of Ishwar’s testimony and gave
cognizance to a letter written by
Choihtram imploring Ishwar to renew the
power of attorney after it was revoked. It
states therein that Choithram reassures his
brother that he is not after his money and that
the revocation is hurting the reputation of
Ishwar. Choithram also made no mention of
his claimed temporary arrangement in the
letter.
 The CA ruled that Choithram is also estopped in
pais or by deed from claiming an interest over the
properties. Because of Choitram’s admissions
from (1) power of attorney, (2) the Agreements,
and (3) the Contract of Lease It furthermore HELD
that Choithram's 'temporary arrangement, by
which he claimed purchasing the two (2) parcels
in question in 1966 and placing them in the name
of Ishwar who is an American citizen circumvents
the disqualification provision of aliens acquiring
real properties in the Philippines. Upholding the
supposed "temporary arrangement" with Ishwar
would be sanctioning the perpetration of an illegal
act and culpable violation of the Constitution.
During the pendency of the case, Choithram
made several attempts to dispose of his
properties by way of donation and also mortgaged
the properties under litigation for 3 million USD to
a shell partnership with a mere capital of 100
USD. The Supreme Court affirms the findings of
the Court of Appeals.
ISSUE:
1. Whether or not there was a partnership
between the brothers Ishwar and Choithram
HELD: Yes, Even without a written agreement, the
scenario is clear. Spouses Ishwar supplied the capital
of $150,000.00 for the business. They entrusted the
money to Choithram to invest in a profitable business
venture in the Philippines. For this purpose they
appointed Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate
business. He bought the two (2) parcels of land in
question from Ortigas as attorney-in-fact of Ishwar-
Instead of paying for the lots in cash, he paid in
installments and used the balance of the capital
entrusted to him, plus a loan, to build two buildings.
7
Although the buildings were burned later, Choithram
was able to build two other buildings on the property.
He rented them out and collected the rentals. Through
the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is
now a valuable asset worth millions of pesos. We
have a situation where two brothers engaged in a
business venture. One furnished the capital, the other
contributed his industry and talent. Justice and equity
dictate that the two share equally the fruit of their joint
investment and efforts. Perhaps this Solomonic
solution may pave the way towards their
reconciliation. Both would stand to gain. No one would
end up the loser. After all, blood is thicker than water.
However, because of the devious machinations and
schemes that Choithram employed he should pay
moral and exemplary damages as well as attorney's
fees to spouses Ishwar.
2. Whether Ishram can recover the entire
properties subject in the ligitation
HELD: No, Ishram cannot recover the entire
properties subject.
Verily, the acts of Choithram, et al. of disposing
the properties subject of the litigation disclose a
scheme to defraud spouses Ishwar so they may not
be able to recover at all given a judgment in their
favor, the requiring the issuance of the writ of
attachment in this instance. The Supreme Court held
that despite the fact that Choithram, et al., have
committed acts which demonstrate their bad faith and
scheme to defraud spouses Ishwar and Sonya of their
rightful share in the properties in litigation, the Court
cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial
partner in the acquisition of said assets he has as
much claim to said properties as Ishwar, the capitalist
partner in the joint venture.
Choithram in turn decided to invest in the real estate
business. He bought the two (2) parcels of land in
question from Ortigas as attorney-in-fact of Ishwar.
Instead of paying for the lots in cash, he paid in
installments and used the balance of the capital
entrusted to him, plus a loan, to build two buildings.
Although the buildings were burned later, Choithram
was able to build two other buildings on the property.
He rented them out and collected the rentals. Through
the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is
now.
Justice and equity dictate that the two share
equally the fruit of their joint investment and efforts.
Perhaps this Solomonic solution may pave the way
towards their reconciliation. Both would stand to gain.

No one would end up the loser. After all, blood is
thicker than water.
C8. G.R. No. 70926 January 31, 1989 DAN FUE
LEUNG, petitioner,
vs.HON. INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
THE 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.
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.
EVIDENCE FOR RESPONDENT
 About the time the Sun Wah Panciteria started
to become operational, the private respondent
gave P4,000.00 as his contribution to the
partnership. This is evidenced by a receipt
identified as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the
P4,000.00 by affixing his signature thereto.
 Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents
testimony to the effect that they were both
present when the receipt (Exhibit "A") was
signed by the petitioner. So Sia further
testified that he himself received from the
petitioner a similar receipt (Exhibit D)
evidencing delivery of his own investment in
another amount of P4,000.00
 Examination by PC Crime Laboratory:
The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner
appearing in the pay envelopes of employees
of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that
the signatures in the two receipts were indeed
the signatures of the petitioner.
 Furthermore, the private respondent received
from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the
profits of the operation of the restaurant
for the year 1974
EVIDENCE FOR PETITIONER
 denied having received from the private
respondent the amount of P4,000.00. He
contested and impugned the genuineness of
the receipt (Exhibit D).
8
 The petitioner did not receive any contribution
at the time he started the Sun Wah Panciteria.
He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field
and later as waiter at the Toho Restaurant
amounting to a little more than P2,000.00 as
capital in establishing Sun Wah Panciteria.
 Sole proprietorship daw. the petitioner
presented various government licenses and
permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned
and operated by himself alone. Fue Leung
also flatly denied having issued to the private
respondent the receipt (Exhibit G) and the
Equitable Banking Corporation's Check No.
13389470 B in the amount of P12,000.00
(Exhibit B).
RTC and CA:
Decided for plaintiff(now respondent).
Plaintiff(petitioner) to pay the sum of 22% of the
net profit pkus interest and attorney’s fees.
Both the trial court and the appellate court found that
the private respondent is a partner of the petitioner in
the setting up and operations of the panciteria. While
the dispositive portions merely ordered the payment
of the respondents share, there is no question from
the factual findings that the respondent invested in the
business as a partner. Hence, the two courts declared
that the private petitioner is entitled to a share of the
annual profits of the restaurant.
Petitioner’s Argument:
Thus, the petitioner argues: "The complaint avers that
private respondent extended 'financial assistance' to
herein petitioner at the time of the establishment of
the Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits
of the restaurant. The same complaint did not claim
that private respondent is a partner of the business
ISSUE: Whether or not Defendant is a partner?
HELD: YES.
1. As to the use of term “Financial
Assistance”
Therefore, the lower courts did not err in construing
the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial
assistance therein. We agree with the appellate
court's observation to the effect that "... given its
ordinary meaning,financial assistance is the giving
out of money to another without the expectation
of any returns therefrom'. It connotes an ex
gratia dole out in favor of someone driven into a state
of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain
in this case.' (p. 99, Rollo) The complaint explicitly

stated that "as a return for such financial
assistance, plaintiff (private respondent) would be
entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the
said panciteria.' (p. 107, Rollo) The well-settled
doctrine is that the '"... nature of the action filed in
court is determined by the facts alleged in the
complaint as constituting the cause of action."
2. As to the findings of the PC Crime
Laboratory and the Pay envelopes
(procedural)
The records also show that when the pay envelopes
(Exhibits "H", "H-1" to "H-24") were presented by the
private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did
the petitioner file an opposition to the motion of the
private respondent to have these exhibits together
with the two receipts examined by the PC Crime
Laboratory despite due notice to him. Likewise, no
explanation has been offered for his silence nor was
any hint of objection registered for that purpose.
3. Petitioner also invokes prescription in the
claim of respondent. He relies on Art. 1144
of the Civil Code, that actions upon a
written contract, obligation crated by law,
or upon a judgment must be brought
within 10 years.
The alleged receipt is dated October 1, 1955 and the
complaint was filed only on July 13, 1978 or after the
lapse of twenty-two (22) years, nine (9) months and
twelve (12) days. From October 1, 1955 to July 13,
1978, no written demands were ever made by private
respondent.
Not correct.
 The private respondent is a partner of the
petitioner in Sun Wah Panciteria. The
requisites of a partnership which are — 1) two
or more persons bind themselves to contribute
money, property, or industry to a common
fund; and 2) intention on the part of the
partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v.
Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a
partner shares not only in profits but also in
the losses of the firm.
 If excellent relations exist among the partners
at the start of business and all the partners
are more interested in seeing the firm grow
rather than get immediate returns, a
deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a
partner does not assert his rights anytime
within ten years from the start of operations,
such rights are irretrievably lost. 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
9
was asking for an accounting of his interests
in the partnership.
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his interest
shall accrue to any partner, or his legal
representative as against the winding
up partners or the surviving partners
or the person or partnership
continuing the business, at the date of
dissolution, in the absence or any
agreement to the contrary.
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.
WHEREFORE, the petition for review is hereby
DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.
SO ORDERED.
C9. G.R. No. L-6304 December 29, 1953
SERGIO V. SISON, plaintiff-appellant,
vs.
HELEN J. MCQUAID, defendant-appellee.
Facts
 On March 28, 1951, plaintiff brought an action
in the Court of First Instance of Manila against
defendant, alleging that during the year 1938
the latter borrowed from him various sums of
money, aggregating P2,210, to enable her to
pay her obligation to the Bureau of Forestry
and to add to her capital in her lumber
business, receipt of the amounts advanced
being acknowledged in a document, executed
by her on November 10, 1938.
 Defendant was not able to pay the loan in
1938, as she had promised, she proposed to
take in plaintiff as a partner in her lumber
business, plaintiff to contribute to the
partnership the said sum of P2,210 due him
from defendant in addition to his personal
services; that plaintiff agreed to defendant's
proposal and, as a result, there was formed
between them, under the provisions of the
Civil Code, a partnership in which they were to
share alike in the income or profits of the
business, each to get one-half thereof.

 In accordance with said contract, plaintiff,
together with defendant, rendered services to
the partnership without compensation from
June 15, 1938 to December, 1941
 Before the last World War, the partnership
sold to the United States Army 230,000 board
feet of lumber for P13,800, for the collection of
which sum defendant, as manager of the
partnership, filed the corresponding claim with
the said army after the war; that the claim was
"finally" approved and the full amount paid —
the complaint does not say when — but
defendant has persistently refused to deliver
one-half of it, or P6,900, to plaintiff
notwithstanding repeated demands, investing
the whole sum of P13,800 for her own benefit.
Petitioners’ Allegation
 Plaintiff, therefore, prays for judgment
declaring the existence of the alleged
partnership and requiring the defendant to pay
him the said sum of P6,900, in addition to
damages and costs.
Defendant’s answer
 Defendant filed a motion to dismiss on the
grounds that plaintiff's action had already
prescribed, that plaintiff's claim was not
provable under the Statute of Frauds, and that
the complaint stated no cause of action.
Issue: Whether or not plaintiff is entitled of the
½ of the purchase price of the lumber sold in
the partnership?
Ruling: NO
 Plaintiff seeks to recover from defendant one-
half of the purchase price of lumber sold by
the partnership to the United States Army. But
his complaint does not show why he should
be entitled to the sum he claims.
 It does not allege that there has been a
liquidation of the partnership business and the
said sum has been found to be due him as his
share of the profits. The proceeds from the
sale of a certain amount of lumber cannot be
considered profits until costs and expenses
have been deducted. Moreover, the profits of
the business cannot be determined by taking
into account the result of one particular
transaction instead of all the transactions had.
Hence, the need for a general liquidation
before a member of a partnership may claim a
specific sum as his share of the profits.
10
Fallo.
 In view of the foregoing, the order of dismissal
is affirmed, but on the ground that the
complaint states no cause of action and
without prejudice to the filing of an action for
accounting or liquidation should that be what
plaintiff really wants. Without costs in this
instance. 1awphil.ne
C10. G.R. No. L-47823 July 26, 1943
JOSE ORNUM and EMERENCIANA ORNUM,
petitioners, vs. MARIANO, LASALA, et al.,
respondent.
(Point: Without objecting to a statement of accounts, a
partner promised to sign the same after receiving his
shares, and after he has been paid, refused to sign
and instead demanded a liquidation. Is he entitled for
further liquidation? SC HELD: No.)
FACTS:
 In 1908 Pedro Lasala, father of the
respondents, and Emerenciano Ornum
formed a partnership, whereby the former, as
capitalist, delivered the sum of P1,000 to
the latter who, as industrial partner, was to
conduct a business at his place of
residence in Romblon.
 In 1912, when the assets of the partnership
consisted of outstanding accounts and old
stock of merchandise, Emerenciano Ornum,
following the wishes of his wife, asked for the
dissolution of the Lasala
 Emerenciano Ornum looked for some one
who could take his place and he suggested
the names of the petitioners who
accordingly became the new partners.
 Upon joining the business, the petitioners,
contributed P505.54 as their capital
 With the result that in the new partnership
Pedro Lasala had a capital of P1,000,
appraised value of the assets of the former
partnership, plus the said P505.54 invested by
the petitioners who, as industrial partners,
were to run the business in Romblon.
 After the death of Pedro Lasala, his children
(the respondents) succeeded to all his
rights and interest in the partnership.
 The partners never knew each other
personally. No formal partnership agreement
was ever executed.
 The petitioners, as managing partners, were
received one-half of the net gains, and the
other half was to be divided between them
and the Lasala group in proportion to the
capital put in by each group.
 During the course divided, but the partners
were given the election, to invest their
respective shares in such profits as additional
capital.

 The petitioners accordingly let a greater part
of their profits as additional investment in
the partnership.
 After twenty years the business had grown to
such an extent that is total value, including
profits, amounted to P44,618.67.
 Statements of accounts were periodically
prepared by the petitioners and sent to the
respondents who invariably did not make any
objection thereto. Before the last statement
of accounts was made, the respondents had
received P5,387.29 by way of profits.
 The last and final statement of accounts,
dated May 27, 1932, and prepared by the
petitioners after the respondents had
announced their desire to dissolve the
partnership. (refer to FULLTEXT about the
statements of accounts)
 After the receipt of the foregoing statement of
accounts, Father Mariano Lasala, spokesman
for the respondents, wrote the following letter
to the petitioners on July 19, 1932:
(TRANSLATED by Google: We already
manifest you frankly here, as a consort, and
we also authorize you to repeat it to your
sister Mering, widow, that the reason why we
collect the capital and profits of our society in
all our business that is in your care, is that we
have a great commitment that we can hardly
avoid. For this we pray again that by any
means before the end of this month of July,
1932, we await your consideration. Thank
you.
Once we have received this, then we will sign
the balance that you have made there, whose
copy you have left here. Regards all there and
send.)
 Pursuant to the request contained in this
letter, the petitioners remitted and paid to the
respondents the total amount corresponding
to them under the above-quoted statement of
accounts which, however, was not signed by
the latter.
 Thereafter the complaint in this case was filed
by the respondents, praying for an
accounting and final liquidation of the
assets of the partnership.
PETITIONER
The petitioners accordingly let a greater part of their
profits as additional investment in the partnership.
After twenty years the business had grown to such an
extent that is total value, including profits, amounted
to P44,618.67. Statements of accounts were
periodically prepared by the petitioners and sent to
the respondents who invariably did not make any
objection thereto.
Pursuant to the request contained in this letter, the
petitioners remitted and paid to the respondents the
total amount corresponding to them under the above-
quoted statement of accounts which, however, was
not signed by the latter.
COMPLAINT BY THE RESPONDENTS
11
Praying for an accounting and final liquidation of the
assets of the partnership.
RULING OF THE COURT OF FIRST INSTANCE
MANILA
The last and final statement of accounts prepared by
the petitioners was tacitly approved and accepted
by the respondents who, by virtue of the above-
quoted letter of Father Mariano Lasala, lost their right
to a further accounting from the moment they received
and accepted their shares as itemized in said
statement.
RULING OF THE COURT OF APPEALS
REVERSED principally on the ground that as the final
statement of accounts remains unsigned by the
respondents, the same stands disapproved.
DECISION APPEALED BY THE PETITIONER
To support a plea of a stated account so as to
conclude the parties in relation to all dealings between
them, the accounting must be shown to have been
final. (1 Cyc. 366.) All the first nine statements which
the defendants sent the plaintiffs were partial
settlements, while the last, although intended to be
final, has not been signed.
ISSUE/S:
1. Whether or not the accounting stated in the letter
including the last and final statement of account was
tacitly accepted by the petitioners as the final
liquidation and accounting of the partnership?
2. Whether or not there are really mistakes and
misinterpretations made in the statement of accounts
made?
RULING
1. We hold that the last and final statement of
accounts hereinabove quoted, had been approved
by the respondents. This approval resulted, by virtue
of the letter of Father Mariano Lasala of July 19, 1932,
quoted in part in the appealed decision from the
failure of the respondents to object to the
statement and from their promise to sign the same
as soon as they received their shares as shown in
said statement.
After such shares had been paid by the petitioners
and accepted by the respondents without any
reservation, the approval of the statement of
accounts was virtually confirmed and its signing
thereby became a mere formality to be complied with
by the respondents exclusively. Their refusal to sign,
after receiving their shares, amounted to a waiver
to that formality in favor of the petitioners who
has already performed their obligation.
This approval precludes any right on the part of the
respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or
mistake in said approval. (Pastor, vs. Nicasio, 6 Phil.,
152; Aldecoa & Co., vs. Warner, Barnes & Co., 16
Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.)
2. The pronouncement that the evidence tends to
prove that there were mistakes in the petitioners'

statements of accounts, without specifying the
mistakes, merely intimates as suspicion and is not
such a positive and unmistakable finding of fact
(Cf. Concepcion vs. People, G.R. No. 48169,
promulgated December 28, 1942) as to justify a
revision, especially because the Court of Appeals
has relied on the bare allegations of the parties.
Even admitting that, as alleged by the petitioners in
their counterclaim, they overpaid the respondents in
the sum of P575.12, this error is essentially fatal to
the latter's theory what the statement of accounts
shows, and is therefore not the kind of error that
calls for another accounting which will serve the
purpose of the respondent's suit.
FALLO
We are reversing the appealed decision on the
legal ground that the petitioners' final statement of
accounts had been approved by the respondents and
no justifiable reason (fraud, deceit, error or mistake)
has been positively and unmistakably found by the
Court of Appeals so as to warrant the liquidations
sought by the respondents.
Indeed, we feel justified in stating that the petitioners
have here given a remarkable demonstration of the
legendary honesty, good faith and industry with which
the natives of Taal pursue business arrangements
similar to the partnership in question, and we would
hate, in the absence of any sufficient reason, to let
such a beautiful legend have a distateful ending.
C.11
G.R. No. 114398 October 24, 1997
CARMEN LIWANAG, petitioner,
vs.
THE HON. COURT OF APPEALS and THE PEOPLE
OF THE PHILIPPINES, represented by the Solicitor
General, respondents.
Doctrine: WHEN MONEY OR PROPERTY HAVE
BEEN RECEIVED BY A PARTNER FOR A
SPECIFIC PURPOSE, AND HE LATER
MISAPPROPRIATED IT, SUCH PARTNER IS
GUILTY OF ESTAFA. — Even assuming that a
contract of partnership was indeed entered into by
and between the parties, we have ruled that when
money or property have been received by a partner
for a specific purpose (such as that obtaining in the
instant case) and he later misappropriated it, such
partner is guilty of estafa.
FACTS:
Petitioner Carmen Liwanag was charged with the
crime of estafa before the RTC of Quezon City. The
complaint alleged that petitioner Liwanag and certain
Thelma Tabligan went to the house of complainant
Isidora Rosales and offered her to join them in the
business of buying and selling of cigarettes. Rosales
agreed to give the money needed to buy the
12
cigarettes while Liwanag and Tabligan will act as her
agents with the corresponding 40% commission to her
if the goods are sold. It was also agreed that in the
event that the cigarettes are not sold, the proceeds of
the sale or the said products shall be returned to
Rosales. Liwanag failed to comply with the above
agreements and ceased to make periodic reports to
Rosales prompting the latter to file an estafa case
against her.
The trial court found Liwanag guilty as charged. When
brought on appeal, the appellate court affirmed the
decision.And when her motion for reconsideration
denied,the petitioner filed this petition.
Petitioner’s Contention:
She advances the theory that the parties intended to
enter into a contract of partnership, wherein Rosales
would contribute the funds while she would buy and
sell the cigarettes, and later divide the profits between
them. She also argues that the transaction can also
be interpreted as a simple loan, with Rosales lending
to her the amount stated on an installment basis.
ISSUE:
Whether or not a partner maybe sued for estafa
for misappropriation of partnership funds?
RULING:
YES.
All the elements of estafa are attendant in the present
case: (1) that the accused defrauded another by
abuse of confidence or deceit; and (2) that damage or
prejudice capable of pecuniary estimation is caused to
the offended party or third party, and it is essential
that there be a fiduciary relation between them either
in the form of a trust, commission or administration.
The language of the receipt signed by petitioner could
not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that
is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be
returned to Rosales. Thus, even assuming that a
contract of partnership was indeed entered into
by and between the parties, we have ruled that
when money or property have been received by a
partner for a specific purpose (such as that
obtaining in the instant case) and he later
misappropriated it, such partner is guilty of
estafa.
Neither can the transaction be considered a loan,
since in a contract of loan once the money is received
by the debtor, ownership over the same is
transferred. Being the owner, the borrower can
dispose of it for whatever purpose he may deem
proper. In the instant petition, however, it is evident
that Liwanag could not dispose of the money as she
pleased because it was only delivered to her for a
single purpose, namely, for the purchase of
cigarettes, and if this was not possible then to return
the money to Rosales. Since in this case there was no
transfer of ownership of the money delivered, Liwanag

is liable for conversion under Art. 315, par. l(b) of the
Revised Penal Code.
FALLO:
WHEREFORE. In view of the foregoing, the
appealed decision of the Court of Appeals dated
November 29, 1993, is AFFIRMED. Cost against
petitioner.
C12. G.R. No. 5840 September 17, 1910
THE UNITED STATES, plaintiff-appellee, vs.
EUSEBIO CLARIN, defendant-appellant
FACTS:
Pedro Larin delivered to Pedro Tarug P172, in order
for Tarug, with Eusebio Clarin and Carlos de Guzman,
to buy and sell mangoes, and, believing that he could
make some money in this business. Larin made an
agreement with the three men by which the profits
were to be divided equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman
did in fact trade in mangoes and obtained P203 from
the business, but did not comply with the terms of the
contract by delivering to Larin his half of the profits;
neither did they render him any account of the capital.
Larin charged them with the crime of estafa, but the
provincial fiscal filed an information only against
Eusebio Clarin in which he accused him of
appropriating to himself not only the P172 but also the
share of the profits that belonged to Larin, amounting
to P15.50. Pedro Tarug and Carlos de Guzman
appeared in the case as witnesses and assumed that
the facts presented concerned the defendant and
themselves together.
ISSUE: WON a criminal action for estafa is proper
against a co-partner who failed to deliver half of the
profits from the partnership venture.
RULING:
When two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves, a contract is formed which is called
partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which
he formed with Tarug, Clarin, and Guzman, he
invested his capital in the risks or benefits of the
business of the purchase and sale of mangoes, and,
even though he had reserved the capital and
conveyed only the usufruct of his money, it would not
devolve upon of his three partners to return his capital
to him, but upon the partnership of which he himself
formed part, or if it were to be done by one of the
three specifically, it would be Tarug, who, according to
13
the evidence, was the person who received the
money directly from Larin.
The P172 having been received by the partnership,
the business commenced and profits accrued, the
action that lies with the partner who furnished the
capital for the recovery of his money is not a criminal
action for estafa, but a civil one arising from the
partnership contract for a liquidation of the partnership
and a levy on its assets if there should be any.
No. 5 of article 535 of the Penal Code, according to
which those are guilty of estafa "who, to the prejudice
of another, shall appropriate or misapply any money,
goods, or any kind of personal property which they
may have received as a deposit on commission for
administration or in any other character producing the
obligation to deliver or return the same," (as, for
example, in commodatum, precarium, and other
unilateral contracts which require the return of the
same thing received) does not include money
received for a partnership; otherwise the result
would be that, if the partnership, instead of obtaining
profits, suffered losses, as it could not be held liable
civilly for the share of the capitalist partner who
reserved the ownership of the money brought in by
him, it would have to answer to the charge of estafa,
for which it would be sufficient to argue that the
partnership had received the money under obligation
to return it.
FALLO:
We therefore freely acquit Eusebio Clarin, with the
costs de oficio. The complaint for estafa is dismissed
without prejudice to the institution of a civil action.
C13 - PEDRO MARTINEZ V. ONG PONG CO AND
ONG LAY
G.R. No. L-5236 January 10, 1910
FACTS: On the 12th of December, 1900, the plaintiff
herein delivered P1,500 to the defendants who, in a
private document, acknowledged that they had
received the same with the agreement, as stated by
them, "that we are to invest the amount in a store, the
profits or losses of which we are to divide with the
former, in equal shares‖.
The plaintiff filed a complaint on April 25, 1907, in
order to compel the defendants to render him an
accounting of the partnership as agreed to, or else to
refund him the P1,500 that he had given them for the
said purpose. Ong Pong Co alone appeared to
answer the complaint wherein he admitted of the
agreement and the delivery of the P 1,500 to him and
Ong Lay. However, he alleged that it was Ong Lay
who managed the business and that no profit was
realized therefrom.
The Trial Court rendered its decision ordering Ong
Pong Co to return to plaintiff a total of P 840, with
legal interest from when the business was terminated

until full payment thereof, representing ½ of the
capital which the plaintiff contributed and ½ of the
profits calculated at the rate of 12 per cent per annum
for the six months that the store was supposed to
have been open.
Defendant’s allegation: The reason for the closing of
the store was the ejectment from the premises
occupied by it in view of the losses incurred by it.
ISSUE: WON Ong Pong Co and Ong Lay are liable
and up to what extent.
HELD: YES. The partners are jointly liable. The
whole action is based upon the fact that the
defendants received certain capital from the
plaintiff for the purpose of organizing a company.
With this, they are deemed as the apparent
administrators of the partnership and acted as agents
for the capitalist partner (in this case, Martinez) and
by virtue thereof are bound to fulfill the contract which
implies the management of the business. As such
administrators they were the agent of the company
and incurred the liabilities peculiar to every agent,
among which is that of rendering account to the
principal of their transactions, and paying him
everything they may have received by virtue of
the mandatum (A Contract of Mandatum requires that
agents shall account to the principal for all their
transactions and pay him whatever sum they received
by virtue thereof. By not accounting for it, or otherwise
justifying the investment of the money received and
administered, the parties who received it become
debtors and are under obligation to make restitution of
the money to the person who entrusted it to them.
FALLO: In view of the foregoing judgment appealed
from is hereby affirmed, provided, however, that the
defendant Ong Pong Co shall only pay the plaintiff the
sum of P750 with the legal interest thereon at the rate
of 6 per cent per annum from the time of the filing of
the complaint, and the costs, without special ruling as
to the costs of this instance. So ordered.
C14_ EN BANC
G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN, plaintiff-appellant,
vs.
FELICIANO VELEZ, defendant-appellee.
FACTS:
Pabalan owned two lots, a rural estate devoted to
agricultural purposes and an urban lot. In his desire to
put the two lots to productive use, he agreed to enter
into a regular mercantile partnership with Walter
Fitton.
14
The agreement stipulates that they form a partnership
known by the name ―AM Pabalan and Company‖, with
capital at P9,000; that Pabalan would contribute
P3,000 in cash while Fitton contribute real property;
that Pabalan would sell his two lots to Fitton for
P6,000; that Pabalan would receive P3,000 of the
purchase price and the remaining will be his
contribution to the capital; and that Fitton would
contribute the said two lots as his agreed capital.
Pabalan received P3,000 of the purchase price. When
Fitton died, he failed to pay the partnership funds the
remaining P3,000. Owing to the failure of Fitton to
comply with his obligation, the properties in question
had been entirely unproductive, resulting in losses
and damages to Pabalan. Plaintiff prayed for the
rescission of the double contract (partnership and
sale) entered into. Defendant Velez is the
administrator of Fitton’s estate.
Plaintiff-Appellant’s Contention:
The plaintiff's claim is founded on the alleged fact that
the said Walter A. Fitton failed to comply with his
obligations as stipulated in the said double contract,
inasmuch as he did not pay into the funds of the
company entitled "A. M. Pabalan and Company," as
the capital of the partner Pabalan, the sum of P3,000,
or the remainder of P6,000, the price of the properties
which he had purchased from the plaintiff, did not pay
to the latter the said amount, nor any part thereof, nor
was such payment made, after the said Fitton's death,
by the administrator of the latter's estate.
Defendant-Appellee’s Contention:
As a special defense the defendant alleged that the
action prosecuted by the plaintiff had prescribed; that
the fact that the properties of the company known as
"A. M. Pabalan and Company" had been unproductive
was exclusively due to the great negligence of the
plaintiff, since he had had more than sufficient time,
from June 27, 1900, to the date of the death of Fitton,
to have demanded from his copartner the sum offered
by the latter and which he was to contribute to the
common assets, and that, notwithstanding all the time
that had elapsed since the execution of the articles of
partnership, up to the date of the presentation of the
complaint the plaintiff had never required his
copartner to turn into the partnership funds the capital
pledged.
ISSUE:
Whether or not Pabaln can have the rescission of
both the partnership and sales contract.
RULING:
YES. In bilateral contracts, when one of the parties
failed to comply with the agreement, the party
prejudiced is entitled to choose between enforcement
of the obligation or a rescission of the contract, with
the payment of damages and interest in either case.

In this case, enforcement cannot be done because
the defaulting party/partner is already dead. Justice
requires the dissolution of the Company and the
rescission of the said sale.
C15 - EN BANC
G.R. No. 30286 September 12, 1929
M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H.
GOLUCKE, defendants-appellees.
FACTS:
All the parties agreed that there was a partnership
between them. What the plaintiff is asking is for the
dissolution of the partnership and the appointment of
a receiver pendente lite.
Plaintiff-Appellant’s (TEAGUE) Allegation:
He alleged that he and the defendants formed a
partnership for the operation of a fish business and
similar commercial transactions, which was called
―Malangpaya Fish Co.‖ with a capital of P35,000 of
which the plaintiff paid P25,000, the defendant Martin
P5,000, Maddy P2,500, and Golucke P2,500. That
they will share in the profits and losses of the
business in proportion to the amount of capital
contributed. That he was named the general manager
to take charge of the business, with full power to do
and perform all acts necessary to carry out the
purposes of the partnership. That the Lapu-Lapu
(lighter – a ship) and Barracuda (motorship) are in the
possession of the defendants who are making use of
them, to the damage and prejudice of the plaintiff.
Defendant-AppelleesReply:
Defendants agreed that they formed a partnership for
the purpose of the equipment of the Manila Fish Co.,
Inc., and the conduct of a fish business. That the
partnership agreement was never signed but each of
them received copies thereof. That by its terms the
amount of capital was P45,000, of which the plaintiff
agreed to contribute P35,000. That P20,000 of the
capital was to be used for the purchase of equipment
of the Manila Fish Co., Inc. and the balance placed to
the checking account of the new company.
That terms of the agreement were as follows:
1. Capt. Maddy will have charger of the
Barracuda and the navigating of the same
salary P300 per month;
2. Mr. Martin will have charge of the southern
station, cold stores, commissary and
procuring fish. Salary P300 per month;
15
3. Mr. Teague will have charge of selling fish in
Manila and purchasing supplies.
4. No salary until business is on paying basis,
then the same as Maddy or Martin.
The Court of First Instance (CFI) issued the following
decision:
1. Dissolving the partnership and liquidating its
assets;
2. That the barge Lapu-Lapu as well as the Ford
Truck and adding machine belong exclusively
to Teague, but he must return to and
reimburse the partnership the amount which
was taken from its funds for the purchase of
the Lapu-Lapu and the Ford Truck.
Upon appeal, the plaintiff further contended that he is
the managing partner of the partnership and that the
three (3) properties (Lapu-Lapu, Ford Truck & the
adding machine) are the properties of the partnership
since they were paid from the partnership; thus does
not belong to him.
ISSUES:
1. Whether or not Teague was the manager of
the unregistered partnership.
2. Whether or not three properties are owned by
the partnership.
HELD:
1. YES. The powers and duties of the three
partners are specifically defined, and that
each of them was more or less the general
manager in his particular part of the business.
The plaintiff’s powers and duties were
confined and limited to ―selling fish in Manila
and the purchase of supplies.‖
2. NO. The Lapu-Lapu, Barracuda, and the
adding machine, although paid for by the
partnership funds, are owned by plaintiff for it
was registered in his own name. He is
estopped from claiming otherwise. The
purchase of the properties in question are not
within the authority of the plaintiff. It is but right
that the plaintiff reimburse the partnership for
the use of its funds. However, it is to be noted
that the partnership also made use of the
Lapu-Lapu. In the interest of justice, the
plaintiff should be compensated for such use.
FALLO:
All things considered, we are of the opinion that
P2,000 is a reasonable, amount which the plaintiff
should receive for its use.
In all things and respects, the judgment of the lower
court as to the merits is affirmed, with the modification

only that P2,000 shall be deducted from the amount of
the judgment which was awarded against the plaintiff,
such deduction to be made for and on account of
such use of the Lapu-Lapu by the partnership, with
costs against the appellant. So ordered.
C.16. G.R. No. L-45624 April 25,
1939GEORGELITTON, petitioner-appellant, vs.
HILL & CERON, ET AL., respondents-appellees.
Facts
On February 14, 1934, the plaintiff sold and delivered
to Carlos Ceron, who is one of the managing partners
of Hill & Ceron, a certain number of mining claims,
and by virtue of said transaction, the defendant Carlos
Ceron delivered to the plaintiff a document that the
latter receives from the petitioner certificates Nos.
4428, 4429 and 6699 for 5,000, 5,000 and 7,000
shares respectively — total 17,000 shares of Big
Wedge Mining Company, which we have sold at
P0.11 (eleven centavos) per share or P1,870.00 less
1/2 per cent brokerage.
Ceron paid to the plaintiff the sum or P1,150 leaving
an unpaid balance of P720. Plaintiff failed to collect
the sum of money from Hill & Ceron or from its surety
Visayan Surety & Insurance Corporation. Litton filed
a complaint against the said defendants for the
recovery of the said balance.
Robert Hill testified at the trial that he and Ceron,
during the partnership, had the same power to buy
and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that
on the date of the transaction, February 14, 1934, the
partnership between Hill and Ceron was in existence.
Argument of the Private Respondent
The respondent argues in its brief that even admitting
that one of the partners could not, in his individual
capacity, engage in a transaction similar to that in
which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a
partner in the stock brokerage business for engaging
in other transactions different from those of the
partnership, as it happens in the present case,
because the transaction made by Ceron is a mere
personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals.
The CFI ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety &
Insurance Corporation.
On appeal to the Court of Appeals, the latter
affirmed the decision of the court on May 29, 1937,
having reached the conclusion that Ceron did not
intend to represent and did not act for the firm Hill
& Ceron in the transaction involved in this
litigation.
16
Issue
Whether or not the consent of the partner is
necessary to bind the partnership.
Ruling
The SC favored Litton. The appealed decision is
reversed and the defendants are ordered to pay to the
plaintiff, jointly and severally, the sum of P720, with
legal interest.
Based on the Articles of Partnership, business of the
partnership has been entrusted to both partners
thereof, but we dissent from the view of the Court of
Appeals that for one of the partners to bind the
partnership the consent of the other is necessary.
Third persons, like the plaintiff, are not bound in
entering into a contract with any of the two partners,
to ascertain whether or not this partner with whom the
transaction is made has the consent of the other
partner. The public need not make inquires as to the
agreements had between the partners. Its knowledge,
is enough that it is contracting with the partnership
which under Article 130 of the Code of Commerce,
may legally engage in the business of brokerage in
general as stock brokers, security brokers and other
activities pertaining to the business of the partnership.
Ceron, therefore, could not have entered into the
contract of sale of shares with Litton as a private
individual, but as a managing partner of Hill & Ceron.
C. 17. E. M. BACHRACH, plaintiff-appellee,
vs. "LA PROTECTORA", ET AL., defendants-
appellants.
G.R. No. L-11624. January 21, 1918. STREET, J.:
Facts:
 In the year 1913, the individuals named as
defendants in this action formed a civil partnership,
called "La Protectora," for the purpose of engaging
in the business of transporting passengers and
freight at Laoag, Ilocos Norte.
 In order to provide the enterprise with means of
transportation, Marcelo Barba, acting as manager,
came to Manila and upon June 23, 1913,
negotiated the purchase of two automobile trucks
from the plaintiff, E. M. Bachrach, for the agree
price of P16,500. He paid the sum of 3,000 in
cash, and for the balance executed promissory
notes representing the deferred payments. Three
of these notes, for the sum of P3,375 each, have
been made the subject of the present action, and
there are exhibited with the complaint in the cause.
One was signed by Marcelo Barba in the following
manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
 As preliminary to the purchase of these trucks, the
defendants Nicolas Segundo, Antonio Adiarte,
Ignacio Flores, and Modesto Serrano, upon June

12, 1913, executed in due form a document in
which they declared that they were members of the
firm "La Protectora" and that they had granted to
its president full authority "in the name and
representation of said partnership to contract for
the purchase of two automobiles" (en nombre y
representacion de la mencionada sociedad
contratante la compra de dos automoviles).
 From time to time after this purchase was made,
Marcelo Barba purchased of the plaintiff various
automobile effects and accessories to be used in
the business of "La Protectora." Upon May 21,
1914, the indebtedness resulting from these
additional purchases amounted to the sum of
P2,916.57
 In May, 1914, the plaintiff foreclosed a chattel
mortgage which he had retained on the trucks in
order to secure the purchase price. The amount
realized from this sale was P1,000. This was
credited unpaid. To recover this balance, together
with the sum due for additional purchases, the
present action was instituted in the Court of First
Instance of the city of Manila, upon May 29, 1914,
against "La Protectora" and the five individuals
Marcelo Barba, Nicolas Segundo, Antonio Adiarte,
Ignacio Flores, and Modesto Serrano. No question
has been made as to the propriety of impleading
"La Protectora" as if it were a legal entity.
 At the hearing, judgment was rendered against all
of the defendants.
Issue:
Whether or not these individuals are liable for the firm
debts and if so to what extent.
Held:
YES, they are liable for the firm debts. Their liability is
based on the fact that they are members of the civil
partnership and as such are liable for its debts. The
appellants are severally liable (not solidary) for their
respective shares of the entire indebtedness found to
be due.
D. PROPERTY RIGHTS OF A PARTNER
D1. CATALAN vs. GATCHALIAN
105 Phil 1270, G.R. No. L-11648, April 22, 1959
FACTS:
Catalan and Gatchalian are partners. They mortgaged
two lots to Dr. Maravetogether with the improvements
thereon to secure a credit from the latter. Thepartnership
failed to pay the obligation. The properties were sold to
Dr. Marave at apublic auction. Catalan redeemed the
property and he contends that title should becancelled
and a new one must be issued in his name.
ISSUE:
17
Did Catalan’s redemption of the properties make him the
absolute owner of thelands?
HELD:
No. Under Article 1807 of the NCC every partner
becomes a trustee for hiscopartner with regard to any
benefits or profits derived from his act as a
partner.Consequently, when Catalan redeemed the
properties in question, he became a trusteeand held the
same in trust for his copartner Gatchalian, subject to his
right to demandfrom the latter his contribution to the
amount of redemption
D. 2. G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY
CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER
MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND
SURETY CORPORATION, BORDER MACHINERY
and HEAVY EQUIPMENT CO., INC,, FRANCISCO
and MODESTO CERVANTES and CONSTANCIO
MAGLANA, respondents.
Facts:
 In 1965, Jacob S. Lim (petitioner in G.R. No.
84157) was engaged in the airline business as
owner-operator of Southern Air Lines (SAL) a
single proprietorship.
 On May 17, 1965, at Tokyo, Japan, Japan
Domestic Airlines (JDA) and Lim entered into
and executed a sales contract (Exhibit A) for
the sale and purchase of two (2) DC-3A Type
aircrafts and one (1) set of necessary spare
parts for the total agreed price of US
$109,000.00 to be paid in installments.
 On May 22, 1965, Pioneer Insurance and
Surety Corporation (Pioneer, petitioner in G.R.
No. 84197) as surety executed and issued its
Surety Bond No. 6639 (Exhibit C) in favor of
JDA, in behalf of its principal, Lim, for the
balance price of the aircrafts and spare parts.
 Border Machinery and Heavy Equipment
Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both
petitions) contributed some funds used in the
purchase of the above aircrafts and spare
parts. The funds were supposed to be their

contributions to a new corporation proposed
by Lim to expand his airline business. They
executed two (2) separate indemnity
agreements (Exhibits D-1 and D-2) in favor of
Pioneer, one signed by Maglana and the other
jointly signed by Lim for SAL, Bormaheco and
the Cervanteses.
 On June 10, 1965, Lim doing business under
the name and style of SAL executed in favor
of Pioneer as deed of chattel mortgage as
security for the latter's suretyship in favor of
the former. It was stipulated therein that Lim
transfer and convey to the surety the two
aircrafts. The deed (Exhibit D) was duly
registered with the Office of the Register of
Deeds of the City of Manila and with the Civil
Aeronautics Administration pursuant to the
Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776),
respectively.
 Lim defaulted on his subsequent installment
payments prompting JDA to request payments
from the surety. Pioneer paid a total sum of
P298,626.12.
 Pioneer then filed a petition for the
extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City.
The Cervanteses and Maglana, however, filed
a third party claim alleging that they are co-
owners of the aircrafts,
 On July 19, 1966, Pioneer filed an action for
judicial foreclosure with an application for a
writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco
and Maglana.
 In their Answers, Maglana, Bormaheco and
the Cervanteses filed cross-claims against
Lim alleging that they were not privies to the
contracts signed by Lim and, by way of
counterclaim, sought for damages for being
exposed to litigation and for recovery of the
sums of money they advanced to Lim for the
purchase of the aircrafts in question.
G.R. No. 84157
PETITIONER:
as a result of the failure of respondents Bormaheco,
Spouses Cervantes, Constancio Maglana and
petitioner Lim to incorporate, a de facto partnership
among them was created, and that as a consequence
of such relationship all must share in the losses
and/or gains of the venture in proportion to their
contribution. The petitioner, therefore, questions the
appellate court's findings ordering him to reimburse
certain amounts given by the respondents to the
petitioner as their contributions to the intended
corporation.
Issues:
1. What legal rules govern the relationship
among co-investors whose agreement was to
do business through the corporate vehicle but
18
who failed to incorporate the entity in which
they had chosen to invest?
2. How are the losses to be treated in situations
where their contributions to the intended
'corporation' were invested not through the
corporate form?
Ruling:
1. While it has been held that as between
themselves the rights of the stockholders in a
defectively incorporated association should be
governed by the supposed charter and the
laws of the state relating thereto and not by
the rules governing partners (Cannon v. Brush
Electric Co., 54 A. 121, 96 Md. 446, 94 Am.
S.R. 584), it is ordinarily held that persons
who attempt, but fail, to form a corporation
and who carry on business under the
corporate name occupy the position of
partners inter se
Thus, where persons associate themselves together
under articles to purchase property to carry on a
business, and their organization is so defective as to
come short of creating a corporation within the statute,
they become in legal effect partners inter se, and their
rights as members of the company to the property
acquired by the company will be recognized.
It is therefore clear that the petitioner never had
the intention to form a corporation with the
respondents despite his representations to them.
This gives credence to the cross-claims of the
respondents to the effect that they were induced and
lured by the petitioner to make contributions to a
proposed corporation which was never formed
because the petitioner reneged on their agreement
(Lim in an undertaking sometime on or about August
9,1965, promised to incorporate his airline in
accordance with their agreement and proceeded to
acquire the planes on his own account. Since then up
to the filing of this answer, Lim has refused, failed and
still refuses to set up the corporation or return the
money of Maglana.)
Applying therefore the principles of law earlier cited to
the facts of the case, necessarily, no de facto
partnership was created among the parties which
would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The
record shows that the petitioner was acting on his own
and not in behalf of his other would-be incorporators
in transacting the sale of the airplanes and spare
parts.
WHEREFORE, the instant petitions are DISMISSED.
The questioned decision of the Court of Appeals is
AFFIRMED
(Decision of CA:)
Gipabayad si jacob lim kay respondents.

D.3
G.R. No. L-45464 April 28, 1939
JOSUE SONCUYA, plaintiff-appellant,
vs.
CARMEN DE LUNA, defendant-appellee.
Doctrine:
GENERAL CIVIL PARTNERSHIP; CLAIMS OF
PARTNERS AGAINST EACH OTHER.—For a
partner to be able to claim from another partner who
manages the general civil partnership, damages
allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of
said partnership is necessary.
FACTS:
On September 11, 1936, plaintiff Josue
Soncuya filed with the Court of First Instance of
Manila and amended complaint against Carmen de
Luna in her own name and as co-administratrix of the
intestate estate, of Librada Avelino, in which, upon the
facts therein alleged, he prayed that defendant be
sentenced to pay him the sum of P700,432 as
damages and costs.
In the amended complaint it is prayed that
defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result
of the administration, said to be fraudulent, of the
partnership, "Centro Escolar de Señoritas", of which
plaintiff, defendant and the deceased Librada Avelino
were members.
Defendant:
To the aforesaid amended complaint
defendant Carmen de Luna interposed a demurrer
based on the following grounds: (1) That the
complaint does not contain facts sufficient to
constitute a cause of action; and (2) that the complaint
is ambiguous, unintelligible and vague.
Trial court found the same well-founded and
sustained it, ordering the plaintiff to amend his
complaint. However the plaintiff manifested that he
would not prefer to amend his amended complaint.
Carmen de Luna filed a motion to dismiss the said
amended complaint which was granted by the Court
of First Instance of Manila. Hence, this petition.
ISSUE:
Whether or not the plaintiff can claim damages
against Carmen based on the complaint.
RULING:
NO.
For the purpose of adjudicating to plaintiff
damages which he alleges to have suffered as a
19
partner by reason of the supposed fraudulent
management of he partnership referred to, it is first
necessary that a liquidation of the business
thereof be made to the end that the profits and
losses may be known and the causes of the latter
and the responsibility of the defendant as well as
the damages which each partner may have
suffered, may be determined. It is not alleged in the
complaint that such a liquidation has been effected
nor is it prayed that it be made. Consequently, there is
no reason or cause for plaintiff to institute the action
for damages which he claims from the managing
partner Carmen de Luna (Po Yeng Cheo vs. Lim Ka
Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged
in the complaint are not sufficient to constitute a
cause of action on the part of plaintiff as member of
the partnership "Centro Escolar de Señoritas" to
collect damages from defendant as managing partner
thereof, without a previous liquidation, we do not
deem it necessary to discuss the remaining question
of whether or not the complaint is ambiguous,
unintelligible and vague.
In view of the foregoing considerations, we are of the
opinion and so hold that for a partner to be able to
claim from another partner who manages the
general copartnership, damages allegedly
suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation
of said partnership is necessary.
FALLO:
Wherefore, finding no error in the order appealed
from the same is affirmed in all its parts, with
costs against the appellant.
D4. AGUSTIN VS INOCENCIO
EN BANC
G.R. No. L-3745 October 26, 1907
JUAN AGUSTIN, ET AL., plaintiffs; VICTOR DEL
ROSARIO, appellant, vs. BARTOLOME
INOCENCIO, defendant-appellee.
(Point: Advances allowed managing partner - On the
adjustment of the accounts of a partnership, the
managing partner may be allowed funds borrowed or
advanced and necessary to the completion of the
work, within the scope of the business and expressly
provided for by agreement among the partners.)
FACTS
 The parties to this controversy, as industrial
partners without capital, contributed from its
profits the sum of P807.28 as a fund toward
the construction of a casco for use in their
business
 Bartolome Inocencio, he being the managing
partner borrowed P3,500, borrowed from
Maria del Rosario, his wife.
 It is admitted that this total, a little over
P4,300, was the estimated cost of the casco.

The amount is necessary in order to complete
the work undertaken.
 Inocencio failed to notify his partners of the
borrowing of money and payment of the
various items from time to time, but it was
shown that the books were at all times open
for their inspection.
 Juan Agustin, representing all the partners,
was also present at the construction of the
casco, in charge of the practical work and
cognizant of its needs and its progress.
 The note was passed into the hands of
Inocencio by reason of the successive deaths
of his wife and their only child.
ISSUE
Whether or not Inocencio, in borrowing money and
advancing funds, was acting within the scope of his
authority as a managing partner
RULING
Yes. The work done in the casco having been within
the scope of the association and necessary to carry
out its express object, the borrowing of the money
required to carry it on, with the acquiescence if not
with the affirmative consent of his associates, was
not outside the powers of the managing partner
and constitutes a debt for which all the associates
are liable.
The trial court treated his claim on this note, as well
as the sum of P2,024.49 furnished by him, as an
addition to his capital in the firm, rather than as a loan.
We do not deem it necessary to pass upon this
objection, for the reason that, considered as a loan,
this sum would place the defendant as a creditor in a
stronger position as against his associates than if
regarded as a mere contribution to capital. The error,
if it be an error, is not, therefore, prejudicial to the
plaintiff, but is rather beneficial to him. The
respondent did not except to it.
D.5 ENRIQUE CLEMENTE, plaintiff-appellee, vs.
DIONISIO GALVAN, defendant-appellee. JOSE
ECHEVARRIA, appellant
Facts
Plaintiff and defendant organized a civil
partnership which they named "Galvan y Compañia"
to engage in the manufacture and sale of paper and
other stationery. They agreed to invest therein a
capital of P100,000, but as a matter of fact they did
not cover more than one-fifth thereof, each
contributing P10,000.
Plaintiff’s allegation
After a year of organization, plaintiff
commenced the present case to ask for the
dissolution of the partnership and to compel
defendant to whom the management thereof was
20
entrusted to submit an accounting of his
administration and to deliver to him his share as such
partner.
Defendant’s answer
In his answer defendant expressed his
conformity to the dissolution of the partnership and
the liquidation of its affairs; but by way of counterclaim
he asked that, having covered a deficit incurred by the
partnership amounting to P4,000 with his own money,
plaintiff reimburse him of one-half of said sum.
The plaintiff filed a petition for receivership
and a liquidator is appointed to take charge of the
properties and business for the partnership while the
same was not yet definitely dissolved. However, the
plaintiff executed a deed of mortgage in favor of the
intervenor mortgaging the said machines contributed
in the partnership. After a year, the intervenor
(mortgagee) commence a case to collect his
mortgage credit. The plaintiff did not take actual
possession of the machine due to the strong
opposition of the defendant and the machine is still in
the possession of receivership.
Cfi’s ruling
CFI of Manila rendered decision declaring the
mortgage void executed by the plaintiff(Clemente) to
Echevarria citing that the has not adduced any
evidence nor has he testified to show that the
machines mortgaged by him to the intervenor have
ever belonged to him, as well as the counterclaim filed
by the defendant against the intervenor.
Issue
Whether or not the plaintiff (clemente) can
mortgage the machine belonging to the partnership
under liquidation
Ruling
The evidence of record shows that the
machines in contention originally belonged to the
defendant and from him were transferred to the
partnership Galvan y Compania. This being the case,
said machines belong to the partnership and not to
him, and shall belong to it until partition is effected
according to the result thereof after the liquidation.
As properties of the partnership, the same
could not be disposed of by the party contributing the
same without the consent or approval of the
partnership or of the other partner.
FALLO

In view of all the foregoing, the judgment
appealed from is affirmed, with costs against the
appellant. So ordered.
D6. G.R. No. L-5963 May 20, 1953
THE LEYTE-SAMAR SALES CO., and RAYMUNDO
TOMASSI, petitioners,
vs.
SULPICIO V. CEA, in his capacity as Judge of the
Court of First Instance of Leyte and OLEGARIO
LASTRILLA,respondents.
Facts
 In civil case, of the Court of First Instance of
Leyte, which is a suit for damages by the
Leyte-Samar Sales Co. (hereinafter called
LESSCO) and Raymond Tomassi against the
Far Eastern Lumber & Commercial Co.
(unregistered commercial partnership
hereinafter called FELCO), Arnold Hall, Fred
Brown and Jean Roxas, judgment against
defendants jointly and severally for the
amount of P31,589.14 plus costs was
rendered on October 29, 1948.
 The Court of Appeals confirmed the award in
November 1950, minus P2,000 representing
attorney's fees mistakenly included.
 The decision having become final, the sheriff
sold at auction on June 9, 1951 to Robert
Dorfe and Pepito Asturias "all the rights,
interests, titles and participation" of the
defendants in certain buildings and properties
described in the certificate, for a total price of
eight thousand and one hundred pesos.
ALLEGATION
 On June 4, 1951 Olegario Lastrilla filed in the
case a motion, wherein he claimed to be the
owner by purchase on September 29, 1949, of
all the "shares and interests" of defendant
Fred Brown in the FELCO, and requested
"under the law of preference of credits" that
the sheriff be required to retain in his
possession so much of the deeds of the
auction sale as may be necessary "to pay his
right". Over the plaintiffs' objection the judge in
his order of June 13, 1951, granted Lastrilla's
motion by requiring the sheriff to retain 17 per
cent of the money "for delivery to the
assignee, administrator or receiver" of the
FELCO. And on motion of Lastrilla, the court
on August 14, 1951, modified its order of
21
delivery and merely declared that Lastrilla was
entitled to 17 per cent of the properties sold.
Issue:
Does Lastrilla have any proper claim to
the proceeds of the sale?
Ruling: No
 If he was a creditor of the FELCO, perhaps or
maybe. But he was not. The partner of a
partnership is not a creditor of such partnership
for the amount of his shares. That is too...
elementary to need elaboration.
 Why was it necessary to hear them on the merits
of Lastrilla's motion?
 Because Dorfe and Asturias might be unwilling
to recognize the validity of Lastrilla's purchase,
or, if valid, they may want him not to forsake the
partnership that might have some obligations in
connection with the partnership properties. And
what is more important, if... the motion is
granted, when the time for redemption comes,
Dorfe and Asturias will receive from
redemptioners seventeen per cent (17%) less
than the amount they had paid for the same
properties.
 The defendants Arnold Hall and Jean Roxas,
eyeing Lastrilla's financial assets, might also
oppose the substitution by Lastrilla of Fred
Brown, the judgment against them being joint
and several. They might entertain misgivings
about Brown's slipping out of their... common
predicament through the disposal of his shares.
 Now, these varied interests of necessity make
Dorfe, Asturias and the defendants
indispensable parties to the motion of Lastrilla
granting it was a step allowable under our
regulations on execution. Yet these parties were
not notified, and obviously took no part in... the
proceedings on the motion.
 Wherefore, the orders of the court recognizing
Lastrilla's right and ordering payment to him of a
part of the proceeds were patently erroneous,
because promulgated in excess or outside of its
jurisdiction. For this reason the respondents'
argument resting on plaintiffs'... failure to appeal
from the orders on time, although ordinarily
decisive, carries no persuasive force in this
instance.
Fallo
 In view of the foregoing,... we so hold, that all
orders of the respondent judge requiring delivery
of 17 per cent of the proceeds of the auction
sale to respondent Lastrilla are null and void.

E. RELATIONS AND DEALINGS WITH THIRD
PERSONS
E.1
G.R. No. L-26937 October 5, 1927
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP
SENG, appellants.
FACTS:
On September 2,1916 – Severo Eugenio Lo and Ng
Khey Ling together with J.A. Say Lian Ping, Ko Tiao
Hun, On Yem Ke Lam and Co Sieng Peng formed a
commercial partnership under the name of ―Tai Sing
Co.,‖ with a capital of P40,000 contributed by said
partners.
Articles of Copartnership states that:
o Partnership was to last for 5 years
from after the date of its organization
o Purpose: to do business in the City of
Iloilo or in any other part of the
Philippines the partners might desire;
purchase and sale of merchandise,
goods, and native, as well as Chinese
and Japanese products
o J.A. Say Lian Ping was appointed
general manager
 A. Say Lian Ping executed a power of attorney
in favor of A. Y. Kelam, authorizing him to act
in his stead as manager and administrator of
―Tai Sing & Co.‖ and to obtain a loan of
P8,000 in current account from PNB.
 Kelam mortgaged certain personal property of
the partnership.
 The credit was renewed several times and
Kelam, as attorney-in-fact of ―Tai Sing & Co.,
executed a chattel mortgage in favor of PNB
as security as security for a loan P20,000.
 This mortgage was again renewed and Kelam
as attorney-in-fact of ―Tai Sing & Co.‖
executed another chattel mortgage for the
said sum of P20,000.
 1920 – Yap Seng, Severo Lo, Kelam and Ng
Khey Ling, the latter represented by M.
Pineda Tayenko, executed a power of
attorney in favor of Sy Tit.
 By virtue of the power of attorney, Sy Tit
representing ―Tai Sing & Co.‖ obtained a
22
credit of P20,000 from PNB in 1921 and
executed a chattel mortgage on certain
personal property belonging to the
partnership.
 Defendants had been using this commercial
credit in a current account with the plaintiff
bank from 1918 – 1922 and as of December
31, 1924 the debit balance of this account P
20, 239.
 PNB claims in the complaint this amount and
an interest of P16, 518.74.
Defendant Eugenio LO’s defense:
Defendant Eugenio Lo sets up, as a general
defense, that "Tai Sing & Co. was not a general
partnership, and that the commercial credit in current
account which "Tai Sing & Co. obtained from the
plaintiff bank had not been authorized by the board of
directors of the company, nor was the person who
subscribed said contract authorized to make the
same, under the article of copartnership. The other
defendants, Yap Sing and Ng Khey Ling, answered
the complaint denying each and every one of the
allegations contained therein.
After the hearing, the trial court rendered
its decision against the defendants.The latter
appealed.
Appellants allege that such of their property as is not
included in the partnership assets cannot-be seized
for the payment of the debts contracted by the
partnership until after the partnership property has
been exhausted. They also allege that trial court erred
in finding that the death of J. A. Say Lian Ping cannot
extinguish the defendants' obligation to the plaintiff
bank, because the last debt incurred by the
commercial partnership "Tai Sing & Co., was that
evidence by Exhibit F, signed by Sy Tit as attorney-in-
fact of the members of "Tai Sing & Co.,
ISSUE:
Whether or not ―Tai Sing & Co.‖ is a general
partnership in that the appellants can be held liable to
pay PNB.
RULING:
Yes. “Tai Sing & Co.” is a general partnership.
 Appellants admit and it appears from the
articles of copartnership that ―Tai Sing & Co.‖
is a general partnership and it was registered
in the mercantile register of Iloilo.
 The fact that the partners opt to use ―Tai Sing
& Co.‖ as the firm name does not affect the
liability of the general partners to third parties
under Article127 of the Code of Commerce.
Jurisprudence states that:

o The object of article 126 of the Code
of Commerce in requiring a general
partnership to transact business under
the name of all its members, of several
of them, or of one only, is to protect
the public from imposition and fraud
o It is for the protection of the creditors
rather than of the partners themselves.
o The law must be unlawful and
unenforceable only as between the
partners and at the instance of the
violating party, but not in the sense of
depriving innocent parties of their
rights who may have dealt with the
offenders in ignorance of the latter
having violated the law.
o Contracts entered into by commercial
associations defectively organized are
valid when voluntarily executed by the
parties, and the only question is
whether or not they complied with the
agreement. Therefore, the defendants
cannot invoke in their defense the
anomaly in the firm name which they
themselves adopted.
 As to the alleged death of the manager,
Say Lian Ping before Kelam executed the
contracts of mortgage with PNB, this would
not affect the liability of the partnership.
o Kelam was a partner who contracted
in the name of the partnership and the
other partners did not object
o Lo, Khey Ling, and Yap Seng
appointed Sy Tit as manager, and he
obtained from PNB the credit in
current account
 Trial Court correctly held defendants to be
jointly and severally liable to PNB.
 This is in accordance with Article 127 of the
Code of Commerce “all the members of a
general partnership, be they managing
partners thereof or not, shall be personally
and solidarily liable with all their property,
for the results of the transactions made in
the name and for the account of the
partnership, under the signature of the
latter, and by a person authorized to use
it.”
FALLO:
The judgment appealed from is in accordance
with the law, and must therefore be, as it is
hereby, affirmed with costs against the appellants.
So ordered.
23
E.3 (Pangit kaayo pagkasulat ni nga case yawa)
G.R. No. L-3704 December 12, 1907
LA COMPAÑIA MARITIMA, plaintiff-appellant,
vs.
FRANCISCO MUÑOZ, ET AL., defendants-
appellees.
The plaintiff brought this action in the Court of First
Instance of Manila against the partnership of Franciso
Muñoz & Sons, and against Francisco Muñoz de
Bustillo, Emilio Muñoz de Bustillo, and Rafael Naval to
recover the sum of P26,828.30, with interest and
costs. Judgment was rendered in the court below
acquitting Emilio Muñoz de Bustillo and Rafael Naval
of the complaint, and in favor of the plaintiff and
against the defendant partnership, Francisco Muñoz &
Sons, and Francisco Muñoz de Bustillo form the sum
of P26,828.30 with interest at the rate of 8 per cent
per annum from the 31st day of March, 1905, and
costs. From this judgment the plaintiff appealed.
Facts:
 Appellees formed on ordinary general
mercantile partnership under the name of
Francisco Muñoz & Sons for the purpose of
carrying on the mercantile business in the
Province of Albay which had formerly been
carried on by Francisco Muñoz. Francisco
Muñoz was a capitalist partner and Emilio
Muñoz and Rafael Naval were industrial
partners.
 Paragraph 12 of the articles of partnership is
as follows:
Twelfth. All profits arising from mercantile transactions
carried on, as well as such as may be obtained from
the sale of property and other assets which constitute
the corporate capital, shall be distributed, on
completion of the term of five years agreed to for the
continuation of the partnership, in the following
manner: Three-fourths thereof for the capitalist
partner Francisco Muñoz de Bustillo and one-eighth
thereof for the industrial partner Emilio Muñoz de
Bustillo y Carpiso, and the remaining one-eighth
thereof for the partner Rafael Naval y Garcia. If, in lieu
of profits, losses should result in the winding up of the
partnership, the same shall be for the sole and
exclusive account of the capitalist partner Francisco
Muñoz de Bustillo, without either of the two industrial
partners participating in such losses.
Appellees:
 the articles of partnership it was NOT
called an ordinary, general mercantile
partnership;
 Emilio Muñoz contributed nothing to the
partnership, either in property, money, or
industry
 Emilio Muñoz was entirely excluded from
the management of the business. It rather
should be said that he excluded himself
from such management, for he signed the
articles of partnership by the terms of
which the management was expressly

conferred by him and the others upon the
persons therein named.
 article 141 fixes the liability of the
industrial partners to third persons for the
obligations of the company. If it does, then
it also fixes the liability of the capitalist
partners to the same persons for the same
obligations. If this article says that
industrial partners are not liable for the
debts of the concern, it also says that the
capitalist partners shall be only liable for
such debts in proportion to the amount of
the money which they have contributed to
the partnership; that is to say, that if there
are only two capitalist partners, one of
whom has contributed two-thirds of the
capital and the other one-third, the latter is
liable to a creditor of the company for only
one-third of the debt and the former for
only two-thirds.
Issues:
1. Whether or not the partnership is a
general mercantile partnership?
2. Whether or not Emilio Muñoz contributed
to the partnership?
3. Whether or not Emilio Muñoz as a general
partner, is liable to third persons for
obligations contracted by the partnership?
4. or whether he relieved from such liability,
either because he is an industrial partner
or because he was so relieved by the
express terms of the articles of
partnership.
Ruling:
1. YES. In the articles of partnership signed by
the partners it is expressly stated that they
have agreed to form, and do form, an ordinary,
general mercantile partnership. The object of
the partnership, as stated in the fourth
paragraph of the articles, is a purely
mercantile one and all the requirements of the
Code of Commerce in reference to such
partnership were complied with. The articles
of partnership were recorded in the mercantile
registry in the Province of Albay. If it should be
held that the contract made in this case did
not create an ordinary, general mercantile
partnership we do not see how one could be
created.
2. YES. . He contributed as much as did the
other industrial partner, Rafael Naval, the
difference between the two being that Rafael
Naval was entitled by the articles of
agreement to a fixed salary of P2,500 as long
as he was in charge of the branch office
established at Ligao. If he had left that branch
office soon after the partnership was
organized, he would have been in the same
condition then that Emilio Muñoz was from the
beginning. Such a change would have
deprived him of the salary P2,500, but would
not have affected in any way the partnership
nor have produced the effect of relieving him
24
from liability as a partner. The argument of the
appellees seems to be that, because no
yearly or monthly salary was assigned to
Emilio Muñoz, he contributed nothing to the
partnership and received nothing from it. By
the articles themselves he was to receive at
the end of five years one-eighth of the profits.
It can not be said, therefore, that he received
nothing from the partnership. The fact that the
receipt of this money was postponed for five
years is not important. If the contention of the
appellees were sound, it would result that,
where the articles of partnership provided for
a distribution of profits at the end of each year,
but did not assign any specific salary to an
industrial partner during that time, he would
not be a member of the partnership.
Industrial partners, by signing the articles,
agree to contribute their work to the
partnership and article 138 of the Code of
Commerce prohibits them from engaging
in other work except by the express
consent of the partnership. With reference
to civil partnerships, section 1683 of the
Civil Code relates to the same manner.
3. AND 4.
In limited partnership the Code of Commerce
recognizes a difference between general and special
partners, but in a general partnership there is no such
distinction-- all the members are general partners.
The fact that some may be industrial and some
capitalist partners does not make the members of
either of these classes alone such general partners.
There is nothing in the code which says that the
industrial partners shall be the only general partners,
nor is there anything which says that the capitalist
partners shall be the only general partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they
or be they not managing partners of the same, are
liable personally and in solidum with all their property
for the results of the transactions made in the name
and for the account of the partnership, under the
signature of the latter, and by a person authorized to
make use thereof.
(THE COURT CITED DIFF ARTICLES OF THE
CODE OF COMMERCE RE. MANAGEMENT, USE
OF FIRM NAME, EXAMINATION OF BOOKS OF ALL
PARTNERS. It ruled that industrial partners also have
all thes rights)
While this is a commercial partnership and must be
governed therefore by the rules of the Code of
Commerce, yet an examination of the provisions of
the Civil Code in reference to partnerships may throw
some light upon the question here to be resolved.
Articles 1689 and 1691 contain, in substance, the
provisions of articles 140 and 141 of the Code of
Commerce. It is to be noticed that these articles are
found in section 1 of Chapter II [Title VIII] of Book IV.
That section treats of the obligations of the partners
between themselves. The liability of the partners as to
third persons is treated in a distinct section, namely,
section 2, comprising articles from 1697 to 1699.

If industrial partners in commercial partnerships are
not responsible to third persons for the debts of the
firm, then industrial partners in civil partnerships are
not. Waiving the question as to whether there can be
a commercial partnership composed entirely of
industrial partners, it seems clear that there can be
such civil partnership, for article 1678 of the Civil
Code provides as follows:
A particular partnership has for its object specified
things only, their use of profits, or a specified
undertaking, or the exercise of a profession or art.
It might very easily happen, therefor, that a civil
partnership could be composed entirely of industrial
partners. If it were, according to the claim of the
appellees, there would be no personal responsibility
whatever for the debts of the partnership. Creditors
could rely only upon the property which the
partnership had, which in the case of a partnership
organized for the practice of any art or profession
would be practically nothing. In the case of Agustin vs.
Inocencio, 1 just decided by this court, it was alleged
in the complaint, and admitted by the answer —
That is partnership has been formed without articles
of association or capital other than the personal work
of each one of the partners, whose profits are to be
equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the
partners may acquire by their by their industry or work
during the continuation of the partnership.
Personal or real property which each of the partners
may possess at the time of the celebration of the
agreement shall continue to be their private property,
the usufruct only passing to the partnership.
It might very well happen in partnership of this kind
that no one of the partners would have any private
property and that if they did the usufruct thereof would
be inconsiderable.
Having in mind these different cases which may arise
in the practice, that construction of the law should
be avoided which would enable two persons, each
with a large amount of private property, to form
and carry on a partnership and, upon the
bankruptcy of the latter, to say to its creditors that
they contributed no capital to the company but
only their services, and that their private property
is not, therefore, liable for its debts.
Our conclusion is upon this branch of the case
that neither on principle nor on authority can the
industrial partner be relieved from liability to third
persons for the debts of the partnership.
5. Re. the claim in Art 141 of Code of
Commerce.
Our construction of the article is that it relates
exclusively to the settlement of the partnership affairs
among the partners themselves and has nothing to do
with the liability of the partners to third persons; that
25
each one of the industrial partners is liable to third
persons for the debts of the firm; that if he has paid
such debts out of his private property during the life of
the partnership, when its affairs are settled he is
entitled to credit for the amount so paid, and if it
results that there is not enough property in the
partnership to pay him, then the capitalist partners
must pay him. In this particular case that view is
strengthened by the provisions of article 12, above
quoted.
FALLO
The judgment of the court below is reversed and
judgment is ordered against all of the defendants for
the sum of P26,828.30, with interest thereon at the
rate of 8 per cent per annum since the 31st day of
March, 1905, and for the cost of this action. Execution
of such judgment shall not issue against the private
property of the defendants Francisco Muñoz, Emilio
Muñoz, or Rafael Naval until the property of the
defendant Francisco Muñoz & Sons is exhausted. No
costs will be allowed to their party in this court. So
ordered.
E. 4. GEORGE O. DIETRICH, Plaintiff-Appellee,
vs. O.K. FREEMAN, JAMES L. PIERCE, and
BURTON WHITCOMB, defendants.
G.R. No. L-6252 January 28, 1911. TRENT, J.
Facts:
 Plaintiff was employed by defendants Freeman
and Whitcomb as owners and operators of the
Manila Steam Laundry. He filed the actionto
recover the sum of P952 alleged to be the balance
due the plaintiff for services performed during the
period from January 9, 1907, to December 31,
1908.
 Judgment was rendered in favor of the plaintiff and
against Freeman and Whitcomb, jointly and
severally, for the sum of P752, with interest at the
rate of 6 per cent per annum.
 Whitcomb appealed the decision insisting that he
should not be held jointly and severally liable with
Freeman.
Issue:
WON the defendants are jointly and severally liable.
Held:
NO, the liability of the partners is pro-rata based on
the interest in the business.
The plaintiff was employed by and performed services
for the Manila Steam Laundry and was not employed
by nor did he perform services for Freeman alone.
The public did not deal with Freeman and Whitcomb
personally, but with the Manila Steam Laundry. These
two partners were doing business under this name

and, as we have said, it was not a commercial
partnership.
Therefore, by the express provisions of articles 1698
and 1137 of the Civil Code the partners are not liable
individually for the entire amount due the plaintiff. The
liability is pro rata and in this case the appellant is
responsible to the plaintiff for only one-half of the
debt.
E-5
SANTIAGO SYJUCO, INC v. CASTRO
G.R. No. 70403; July 7, 1989
FACTS:
 Back in November 1964, the Lims, borrowed
from petitioner Santiago Syjuco, Inc., the sum
of P800,000.00. The loan was given on the
security of a first mortgage on property
registered in the names of said borrowers as
owners in common under Transfer Certificates
of Title Numbered 75413 and 75415 of the
Registry of Deeds of Manila. Thereafter
additional loans on the same security were
obtained by the Lims from Syjuco, so that as
of May 8, 1967, the aggregate of the loans
stood at P2,460,000.00, exclusive of interest,
and the security had been augmented by
bringing into the mortgage other property, also
registered as owned pro indiviso by the Lims
under two titles: TCT Nos. 75416 and 75418
of the Manila Registry.
 On November 8, 1967, the Lims failed to pay
it despite demands therefore; that Syjuco
consequently caused extra-judicial
proceedings for the foreclosure of the
mortgage to be commenced by the Sheriff of
Manila; and that the latter scheduled the
auction sale of the mortgaged property on
December 27, 1968.
 The attempt to foreclose triggered off a legal
battle that has dragged on for more than
twenty years now, fought through five (5)
cases in the trial courts, two (2) in the Court
of Appeals, and three (3) more in the
Supreme Court.
 One of the complaints filed by the Lims was
filed not in their individual names, but in the
name of a partnership of which they
themselves were the only partners: "Heirs of
Hugo Lim." The complaint advocated the
theory that the mortgage which they, together
with their mother, had individually constituted
(and thereafter amended during the period
from 1964 to 1967) over lands standing in
their names in the Property Registry as
owners pro indiviso, in fact no longer
belonged to them at that time, having been
26
earlier deeded over by them to the
partnership, "Heirs of Hugo Lim," more
precisely, on March 30, 1959, hence, said
mortgage was void because executed by
them without authority from the partnership.
ISSUE:
Whether the mortgage executed by the Lims
be attributable to their partnership
HELD:
Yes, the mortgage executed by the Lims is
attributable to their partnership.
The Supreme Court held that the legal fiction of a
separate juridical personality and existence will not
shield it from the conclusion of having such
knowledge which naturally and irresistibly flows from
the undenied facts. It would violate all precepts of
reason, ordinary experience and common sense to
propose that a partnership, as such, cannot be held
accountable with knowledge of matters commonly
known to all the partners or of acts in which all of the
latter, without exception, have taken part, where such
matters or acts affect property claimed as its own by
said partnership.
The silence and failure of the partnership to impugn
said mortgage within a reasonable time, let alone a
space of more than seventeen years, brought into
play the doctrine of estoppel to preclude any attempt
to avoid the mortgage as allegedly unauthorized.
The principles of equitable estoppel, sometimes called
estoppel in pais, are made part of our law by Art. 1432
of the Civil Code. Coming under this class is estoppel
by silence, which obtains here and as to which it has
been held that:
... an estoppel may arise from silence as well as from
words. 'Estoppel by silence' arises where a person,
who by force of circumstances is under a duty to
another to speak, refrains from doing so and thereby
leads the other to believe in the existence of a state of
facts in reliance on which he acts to his prejudice.
Silence may support an estoppel whether the failure
to speak is intentional or negligent.
Inaction or silence may under some circumstances
amount to a misrepresentation and concealment of
the facts, so as to raise an equitable estoppel. When
the silence is of such a character and under such
circumstances that it would become a fraud on the
other party to permit the party who has kept silent to
deny what his silence has induced the other to believe
and act on, it will operate as an estoppel. This
doctrine rests on the principle that if one maintains

silence, when in conscience he ought to speak, equity
will debar him from speaking when in conscience he
ought to remain silent. He who remains silent when he
ought to speak cannot be heard to speak when he
should be silent.
And more to the point:
A property owner who knowingly permits another to
sell or encumber the property, without disclosing his
title or objecting to the transaction, is estopped to set
up his title or interest as against a person who has
been thereby misled to his injury.
An owner of real property who stands by and sees a
third person selling or mortgaging it under claim of title
without asserting his own title or giving the purchaser
or mortgagee any notice thereof is estopped, as
against such purchaser or mortgagee, afterward to
assert his title; and, although title does not pass under
these circumstances, a conveyance will be decreed
by a court of equity. Especially is the rule applicable
where the party against whom the estoppel is
claimed, in addition to standing by, takes part in
malting the sale or mortgage.
More specifically, the concept to which that species of
estoppel which results from the non-disclosure of an
estate or interest in real property has ordinarily been
referred is fraud, actual or constructive. ... Although
fraud is not an essential element of the original
conduct working the estoppel, it may with perfect
property be said that it would be fraudulent for the
party to repudiate his conduct, and to assert a right or
claim in contravention thereof.
Equally or even more preclusive of the respondent
partnership's claim to the mortgaged property is the
last paragraph of Article 1819 of the Civil Code, which
contemplates a situation duplicating the
circumstances that attended the execution of the
mortgage in favor of Syjuco and therefore applies
foursquare thereto:
Where the title to real property is in the names of all
the partners a conveyance executed by all the
partners passes all their rights in such property. The
term "conveyance" used in said provision, which is
taken from Section 10 of the American Uniform
Partnership Act, includes a mortgage.
Interpreting Sec. 10 of the Uniform Partnership Act, it
has been held that the right to mortgage is included in
the right to convey. This is different from the rule in
agency that a special power to sell excludes the
power to mortgage (Art. 1879).
There is no reason to distinguish between the Lims,
as individuals, and the partnership itself, since the
former constituted the entire membership of the latter.
In other words, despite the concealment of the
existence of the partnership, for all intents and
purposes and consistently with the Lims' own theory,
it was that partnership which was the real party in
interest in all the actions; it was actually represented
in said actions by all the individual members thereof,
27
and consequently, those members' acts, declarations
and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law,
those of the partnership.
E-6
G.R. No. L-12164 May 22, 1959
BENITO LIWANAG and MARIA LIWANAG
REYES, petitioners-appellants,
vs.
WORKMEN'S COMPENSATION COMMISSION, ET
AL., respondents-appellees.
Facts:
Appellants Benito Liwanag and Maria Liwanag Reyes
are co-owners of Liwanag Auto Supply, a commercial
guard who while in line of duty, was killed. His widow
Ciriaca Vda. de Balderama and minor children
Genara, Carlos and Leogardo, all surnamed
Balderama, in due time filed a claim for compensation
with the Workmen's Compensation Commission,
which was granted in an award.
Contention of the appellant
Appellants do not question the right of appellees to
compensation nor the amount awarded. They only
claim that, under the Workmen's Compensation Act,
the compensation is divisible, hence the commission
erred in ordering appellants to pay jointly and
severally the amount awarded. They argue that there
is nothing in the compensation Act which provides
that the obligation of an employer arising from
compensable injury or death of an employee should
be solidary obligation, the same should have been
specifically provided, and that, in absence of such
clear provision, the responsibility of appellants should
not be solidary but merely joint.
Issue: Are the co-partners liable solidarily or jointly?
Ruling:
Wherefore, finding no error in the award appealed
from, the same is hereby affirmed, THERE IS
SOLIDARY LIABILITY. Although the Workmen's
Compensation Act does not contain any provision
expressly declaring solidary obligation of business
partners like the herein appellants, there are other
provisions of law from which it could be gathered that
their liability must be solidary. Arts. 1711 and 1712 of
the new Civil Code provide: ART. 1711. Owners of
enterprises and other employers are obliged to pay
compensation for the death of or injuries to their
laborers, workmen, mechanics or other employees,
even though the event may have been purely
accidental or entirely due to a fortuitous cause, if the
death or personal injury arose out of and in the course
of the employment.

ART. 1712. If the death or injury is due to the
negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. . .
. .And section 2 of the Workmen's Compensation Act,
as amended reads in part as follows:
. . . The right to compensation as provided in this Act
shall not be defeated or impaired on the ground that
the death, injury or disease was due to the negligence
of a fellow servant or employee, without prejudice to
the right of the employer to proceed against the
negligence party.
The provisions of the new Civil Code above quoted
taken together with those of Section 2 of the
Workmen's Compensation Act, reasonably indicate
that in compensation cases, the liability of business
partners, like appellants, should be solidary;
otherwise, the right of the employee may be defeated,
or at least crippled. If the responsibility of appellants
were to be merely joint and solidary, and one of them
happens to be insolvent, the amount awarded to the
appellees would only be partially satisfied, which is
evidently contrary to the intent and purposes of the
Act.
Moreover, Art. 1207 of the new Civil Code provides: . .
. . There is solidary liability only when the obligation
expressly so states, or when the law or the nature of
the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted
to give full protection to the employee, reason
demands that the nature of the obligation of the
employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary;
otherwise, the purpose of the law could not be
attained.
E-7
PIONEER INSURANCE & SURETY CORPORATION,
petitioner, vs. THE HON. COURT OF APPEALS, BORDER
MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and
JACOB S. LIM, respondents. and
JACOB S. LIM, petitioner, vs. COURT OF APPEALS,
PIONEER INSURANCE AND SURETY CORPORATION,
BORDER MACHINERY and HEAVY EQUIPMENT CO.,
INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
FACTS
Jacob S. Lim was engaged in the airline business
as owner-operator of Southern Air Lines (SAL) a single
proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan
Domestic Airlines (JDA) and Lim entered into and
executed a sales contract for the sale and purchase of
two (2) DC-3A Type aircrafts and one (1) set of
28
necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments.
On May 22, 1965, Pioneer Insurance and Surety
executed and issued its Surety Bond in favor of JDA, in
behalf of its principal, Lim, for the balance price of the
aircrafts and spare parts. It appears that Border
Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes
(Cervanteses) and Constancio Maglana (respondents in
both petitions) contributed some funds used in the
purchase of the above aircrafts and spare parts. The
funds were supposed to be their contributions to a new
corporation proposed by Lim to expand his airline
business.
They executed two (2) separate indemnity
agreements in favor of Pioneer, one signed by Maglana
and the other jointly signed by Lim for SAL, Bormaheco
and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and
hold and save harmless Pioneer from and against
any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and
nature which Pioneer may incur in consequence of
having become surety upon the bond/note and to pay,
reimburse and make good to Pioneer, its successors and
assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid
or become liable to pay on them of whatever kind and
nature.
On June 10, 1965, Lim doing business under the
name and style of SAL executed in favor of Pioneer as
deed of chattel mortgage as security for the latter's
suretyship in favor of the former. It was stipulated
therein that Lim transfer and convey to the surety the
two aircrafts.
Lim defaulted on his subsequent installment
payments prompting JDA to request payments from the
surety. Pioneer paid a total sum of P298,626.12.
PETITIONER(PIONEER) ALLEGATIONS/ACTIONS
Pioneer then filed a petition for the extrajudicial
foreclosure of the said chattel mortgage before the
Sheriff of Davao City and subsequently filed an action
for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana.
Petitioner also alleged that as a result of the
failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate,
a de facto partnership among them was created, and
that as a consequence of such relationship all must
share in the losses and/or gains of the venture in
proportion to their contribution.

RESPONDENTS ANSWER
In their Answers, Maglana, Bormaheco and the
Cervanteses filed cross-claims against Lim alleging that
they were not privies to the contracts signed by Lim
and, by way of counterclaim, sought for damages for
being exposed to litigation and for recovery of the sums
of money they advanced to Lim for the purchase of the
aircrafts in question.
RTC RULINGS
RTC rendered a decision holding Lim liable to
pay Pioneer but dismissed Pioneer's complaint against
all other defendants.
CA RULINGS
CA modified the trial court's decision in that the
plaintiffs(PIONEER) complaint against all the defendants
was dismissed. In all other respects the trial court's
decision was affirmed.
ISSUE
Whether or not formed a de facto partnership
RULINGS
NO. While it has been held that as between
themselves the rights of the stockholders in a
defectively incorporated association should be
governed by the supposed charter and the laws of the
state relating thereto and not by the rules governing
partners, it is ordinarily held that persons who attempt,
but fail, to form a corporation and who carry on
business under the corporate name occupy the position
of partners inter se. Thus, where persons associate
themselves together under articles to purchase
property to carry on a business, and their organization is
so defective as to come short of creating a corporation
within the statute, they become in legal effect partners
inter se, and their rights as members of the company to
the property acquired by the company will be
recognized.
However, such a relation does not necessarily
exist, for ordinarily persons cannot be made to assume
the relation of partners, as between themselves, when
their purpose is that no partnership shall exist and it
should be implied only when necessary to do justice
between the parties; thus, one who takes no part except
to subscribe for stock in a proposed corporation which is
never legally formed does not become a partner with
other subscribers who engage in business under the
name of the pretended corporation, so as to be liable as
such in an action for settlement of the alleged
partnership and contribution.
Applying therefore the principles of law cited to
the facts of the case, necessarily, no de facto
29
partnership was created among the parties which would
entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The
record shows that the petitioner was acting on his own
and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
FALLO
WHEREFORE, the instant petitions are
DISMISSED. The questioned decision of the Court of
Appeals is AFFIRMED.
E8 - EN BANC
G.R. No. L-29182 October 24, 1928
LEONCIA VIUDA DE CHAN DIACO (alias LAO
LIONG NAW) appellee,
vs.
JOSE S. Y. PENG, assignee, appellant.
OSTRAND, J.:
FACTS:
San Miguel Brewery, Porta Pueco & Co., and Ruiz &
Rementaria S. en C. alleged, among other things, that
Leoncia, owner of a grocery store on Calle Nueva,
Binondo, known as the store of "La Viuda de G. G.
Chan Diaco,‖ was indebted to them in the sum of
P26,234.47. It further appears that other creditors
have filed claims against the estate to the amount of
P50,000.
After hearing, the insolvent Leoncia was ordered to
deliver to the assignee (Jose Peng) the following:
(a) The sum of P56,000 more or less that the
"encargado" (in charge) of the insolvent's
business, Chan Chiao Wa, had delivered to
her on the 18th of April, 1925, which amount
was in fact, on the 19th day of April, 1925,
about P56,102.65.
(b) The accounts receivable as of June 19,
1925, or that is to say, two months after the
insolvent took charge of her store, amounting
to P40,000.
(c) The amount taken for her own use and out
of the business on June 8, 1925, to wit,
P2,000.
(d) Another P2,000 that on June 5, 1925, and
being already insolvent, the widow of Chan
Diaco had taken from the China Banking
corporation for her personal use.
(e) Certain books of account.

Appellee’s Allegation:
Leoncia alleged that the proceedings should have
been brought against the partnership "Lao Liong Naw
& 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 Liong Naw (Leoncia), Chan Chiaco Wa, Cua
Yuk, Chan Bun Suy, Cahn Bun Le, and Juan
Maquitan Chan had formed a partnership with a
capital of P21,000, of which only P4,000 was
contributed by Leoncia.
Referee’s Findings:
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 creditors can collect
individually from the partners the amount of debt of
the insolvent partnership
HELD:
YES. All the partners of the general co-partnership,
whether they or not a managing partner of the same,
are personally and severally liable with all their
properties as a result of the transactions made in the
name and for the account of the partnership, under
the signature of the latter, and by the person
authorized to make use thereof.
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 (Comapnia Maritima 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.
FALLO:
The decision appealed from is hereby reversed, the
reports and recommendations of the referee are
approved, the order for the dismissal of the case is set
aside, and the decision of Judge Simplicio Del
Rosario dated July 23, 1926, will remain in full force
and effect. No costs will be allowed. So ordered.
30
F4. ABONG VS CA
FIRST DIVISION
G.R. No. L-32347-53. December 26, 1973.
AGUSTIN ABONG, Petitioner, v. THE WORKMEN’S
COMPENSATION COMMISSION, NELLY BALLARES,
ANACORITA DAHIL-DAHIL, MANUEL LAHAO-LAHAO,
CONCHITA MONTEROYO, SHIRLEY LOZADA and
ROSARIO ALOVA, Respondents.
FACTS
 Aladino Dionson, Filomeno Umbria, Noel Lahao-
lahao, Juanito Monteroyo and Wilfredo
Monteroyo and Demetrio Escoreal, all
deceased, were members of a fishing outfit, the
IWAG or more popularly called the "ALEX",
owned by the petitioner herein, Dr. Agustino R.
Abong.
 May 15, 1966, this fishing outfit set out to sea
somewhere the coast of Northern Negros.
 While they were, thus, fishing, typhoon "IRMA"
passed along their way, scattering the boats and
blowing them far out into the open sea. The
tragedy netted eight (8) dead while some sixty
(60) men survived the disaster.
 As a consequence of the incident seven (7)
notices and claims for death compensation
were filed with the Bacolod Sub-Regional Office
(or Regional Office No. VII) of the Department
of Labor by herein private respondents on June
1, 1966.
 A copy of the notices and claims were sent to
petitioner Dr. Agustino R. Abong but the
envelopes containing said notices and claims
were returned unclaimed, although petitioner
was personally notified thrice.
 Counsel for private respondents on July 6, 1966,
and July 14, 1966, respectively, filed an ex-parte
motion with the Bacolod Sub-Regional Office of
the Workmen’s Compensation Commission to
declare petitioner in default, which motion was
granted.
ACTING REFEREE, BERTITO D. DADIVAS' DECISION
"In the light of the testimonies of herein claimants and
their principal witness, Filomeno Pason, who is a
survivor of that unfortunate tragedy and who personally
witnessed the deaths of all eight (8) deceased workers
of respondent, there is no doubt at all that their deaths
arose out of and in the course of their employment as
‘washing’ or helpers and light tenders of respondent Dr.
Agustino R. Abong. Under Sections 2 and 8 of the
Workmen’s Compensation Act, as amended, the deaths
of above deceased persons are, therefore,
compensable.
"Section 4-A of the Workmen’s Compensation Act
provides for payment of an additional compensation
equal to fifty percentum of the compensation to be
awarded, in case of failure of the employer to comply
with any order, rule or regulation of the Workmen’s

Compensation Act in the event of the death of the
employee or employees concerned.
"Wherefore, under the law, the claimants are entitled
to compensation and respondent is hereby ordered”
 September 14, 1966 petitioner filed a (1)
motion to set aside the order declaring him in
default and a (2) separate motion to set aside
the Decision of the Acting Referee, to which
seasonable oppositions were interposed by
private respondents on September 26, 1966.
 October 25, 1966 Acting Referee Bertito D.
Dadivas issued an Order denying both motions
of petitioner.
 November 4, 1966, a motion for
reconsideration was then filed by petitioner
raising, inter alia, the fundamental question of
jurisdiction and denial of due process.
 An opposition thereto was interposed by
private respondents on November 10, 1966
 March 23, 1970, Associate (Medical)
Commissioner Herminia Castelo-Sotto, M.D., of
the Workmen’s Compensation Commission
rendered a decision affirming the earlier
decision of the referee.
 April 17, 1970 petitioner sought the review of
the decision of Associate (Medical)
Commission Castelo-Sotto by the respondent
Workmen’s Compensation Commission sitting
en banc, but the latter however affirmed the
decision with the modification that the 50%
additional compensation earlier imposed as
penalty was eliminated, in its resolution of July
7, 1970.
 Dissatisfied with the verdict, petitioner came to
this Court for reversal of the adverse decision
against him.
COMMISSION’S RULING
After a careful review of the evidence and the records,
We are inclined to agree with the proposition, advanced
by the claimant’s counsel that there existed an
employer-employee relationship between the
respondent and the decedents. Not only that the said
deceased workers worked for and in the interest of the
business of the herein Respondent. But that they were
subject to the control, supervision, and dismissal of the
respondent, thru its agent, Simplicio Panganiban, the
alleged ‘partner’ of herein Respondent. And while these
workers were paid in kind, or by ‘pakiao basis’ still that
fact did not alter the character of their relationship with
the respondent as employees of the latter. The
intervention of Simplicio Panganiban, in this case, is
merely that of an agent or intermediary between the
owner of the fishing boat and the members of its crew.
In short, Panganiban is merely the person charged by
Dr. Abong to recruit the said fishermen to work for and
for the enforcement of the business venture of herein
Respondent.
31
ACTION BY PETITIONER
Appeal by certiorari from the decision of the
Workmen’s compensation Commission, awarding
compensation to the private respondents.
PIVOTAL ISSUE
Who is the statutory employer of the decedents and
who should be liable for their death compensation?
OTHER ISSUES
1. Commission erred in holding that there was Existence
of Ee-Er Rel.
2. Commission erred in not declaring itself without
jurisdiction over claims of death benefits
3. Commission erred in finding that death of the
deceased crew member is compensable under the
Workmen's Compensation Act, as amended.
CONTENTION OF PETITIONER
As regards the first three interrelated assigned errors,
there is a faint attempt by petitioner Agustino R. Abong
to evade liability by advancing the theory that he had
absolutely no voice or intervention in the choice, hiring,
dismissing, control, supervision and compensation of
the fishermen-crew members, and that these matters,
which are the essence of employer-employee
relationship, are the sole responsibility of the team-
leader, Simplicio Panganiban, and the team-members or
crew pursuant to their Agreement.
COURT
The contention of petitioner is devoid of merit. In this
class of proceedings, only questions of law should be
raised, the findings of facts made by the Commission
being conclusive and binding upon this Court. In the
case at bar, however, this Court finds the findings of
fact made by Associate (Medical) Commissioner
Herminia Castelo-Sotto M.D., and concurred in by the
Commission en banc to be fully supported by the
evidence on record which clearly points out that
petitioner Agustino R. Abong is the statutory employer
of the decedents.
"The proposition, on the other hand, of the
respondent’s counsel, that Dr. Abong was not the
employer of the decedents, simply because of an
alleged partnership agreement, executed on March 23,
1962, between the respondent, Dr. Agustino R. Abong,
as ‘Financier’ and Simplicio Panganiban, as his
‘Teamleader’, is intended certainly as a very clever
device designed primarily to exempt the employer
from answering any liability under the provisions of
the Workmen’s Compensation Act, as amended.
Nowhere in that said agreement did the decedents or
their heirs in interests take any participation or
manifested their conformity to the said covenant. Thus,
even if we consider this contract as valid and
enforceable between them, it cannot bind the non-
signatories thereto, like the deceased fishermen.

For here, the contract of partnership, if valid, only binds
the parties thereto, and the decedents in this case, as
the records will show, were never a party signatory
thereto. How then can we tie them to that partnership
agreement when it only holds the two-party, Abong and
Panganiban, as the sole `partners’ in that agreement?
As pointed out by the Commission’s findings, the
fundamental bases showing that petitioner, Dr.
Agustino R. Abong, is the employer, are present,
namely, the selection and engagement of the employee;
the payment of wages; the power of dismissal and the
employer’s power to control the employees’ conduct.
13 These powers were lodged in petitioner Abong, thru
his agent, Simplicio Panganiban, whom he alleges to be
his "partner."
RELATIONSHIP OF THE DECEDENTS AND ABONG
Employer-employee
PETITIONER’S ARGUMENT/4th ISSUE
4. Petitioner also argues that he was denied his right to
be heard.
COURT
The assigned error merits scant consideration. Proper
notices and claims for compensation together with a
formal letter to accomplish WCC Form No. 3 —
Employer’s Report of Accident or Sickness — were duly
served upon petitioner at his place of business in Sagay,
Negros Occidental. His failure to claim his mail and to
answer the claims or controvert the same, and to
accomplish WCC Form No. 3, are fatal errors which
cannot be repaired at this time.
Clearly, there was no error in sending petitioner’s mails
to his place of business at Sagay, Negros Occidental.
PETITIONER ON COMMISSION GRANTING EXCESSIVE
CLAIMS/ 5th ISSUE
5. Commission erred in granting excessive awards to the
claimants
COURT ON 5th ISSUE
We, therefore, find no cogent reason to disturb the
Commission’s findings on this point.
CONCLUSION
Private respondents’ claim should be upheld not only
because they are supported by the evidence on record,
but also because the Workmen’s Compensation Act is a
social legislation designed to give relief to the workman
who has been the victim of an accident in the pursuit of
his employment, and the law must be liberally
construed to attain the purpose for which it was
enacted.
FALLO
ACCORDINGLY, the assailed decision is hereby fully
affirmed. Costs against the petitioner.
32
F. 7. COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs. WILLIAM J. SUTER and THE COURT OF TAX
APPEALS, respondents.
G.R. No. L-25532. February 28, 1969. REYES,
J.B.L.
Facts:
 A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the
general partner, and Julia Spirig and Gustav
Carlson, as the limited partners.
 The firm engaged, among other activities, in the
importation, marketing, distribution and operation
of automatic phonographs, radios, television sets
and amusement machines, their parts and
accessories
 In 1948, general partner Suter and limited partner
Spirig got married and, thereafter, on 18 December
1948, limited partner Carlson sold his share in the
partnership to Suter and his wife.
Issue:
Whether or not the partnership was dissolved after the
marriage of the partners, respondent William J. Suter
and Julia Spirig.
Held:
The marriage of Suter and limited partner Spirig and
their acquisition of Carlson's interests in the
partnership is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the
New Civil Code.
Since the type of partnership that they have is that of
a limited partnership, it was not a partnership that
spouses were forbidden to enter under the NCC.
It is also a basic tenet of the Spanish and Philippine
law that the partnership has a juridical personality of
its own, distinct and separate from that of its partners.
F8 - G.R. No. L-27010 April 30, 1969
MARLENE DAUDEN-HERNAEZ, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the
Court of First Instance of Quezon City,
HOLLYWOOD FAR EAST PRODUCTIONS, INC.,
and RAMON VALENZUELA, respondents.
FACTS: Marlene Dauden-Hernaez, a motion picture
actress, filed a complaint against herein private
respondents to recover P 14,700 representing a
balance allegedly due said petitioner for her services
as leading actress in two motion pictures produced by
the company, and to recover damages. The
respondent court ordered the complaint dismissed,
mainly because the "claim of plaintiff was not
evidenced by any written document, either public or

private", and the complaint "was defective on its face"
for violating Articles 1356 and 1358 of the Civil, Code
of the Philippines. Herein petitioner sought for
reconsideration but was denied by the court.
Respondent’s allegation: The complaint holds no
water since the contract sued upon was not alleged to
be in writing; that by Article 1358 the writing was
absolute and indispensable, because the amount
involved exceeds five hundred pesos
ISSUE: WON the contract between herein petitioner
and private respondents (with regards to the
petitioner’s services as leading actress in two motion
pictures) be in writing for it to be valid and
enforceable.
HELD: NO. The trial court’s ruling herein contested
betrays a basic and lamentable misunderstanding of
the role of the written form in contracts, as ordained in
the present Civil Code. In the matter of formalities, the
contractual system of our Civil Code still follows that
of the Spanish Civil Code of 1889 and of the
"Ordenamiento de Alcala" 2 of upholding the spirit and
intent of the parties over formalities: hence, in
general, contracts are valid and binding from their
perfection regardless of form whether they be oral
or written. This is plain from Articles 1315 and 1356
of the present Civil Code
ART. 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only
to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage
and law. (Emphasis supplied)
ART. 1356. Contracts shall be obligatory in whatever
form they may have been entered into, provided all
the essential requisites for their validity are present....
(Emphasis supplied)
To this general rule, the Code admits exceptions, set
forth in the second portion of Article 1356, namely: (a)
Contracts for which the law itself requires that they be
in some particular form (writing) in order to make
them valid and enforceable (the so-
called solemn contracts); and (b) Contracts that the
law requires to be proved by some writing
(memorandum) of its terms, as in those covered by
the old Statute of Frauds, now Article 1403(2) of the
Civil Code.
The contract sued upon by petitioner herein
(compensation for services) does not come under
either exception. Hence, the contract between herein
petitioner and private respondents could be sued
upon.
FALLO: WHEREFORE, the order dismissing the
complaint is set aside, and the case is ordered
33
remanded to the court of origin for further proceedings
not at variance with this decision.
Costs to be solidarity paid by private respondents
Hollywood Far East Productions, Inc., and Ramon
Valenzuela.
F12. G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
Facts:
 On April 22, 1961, the defendant company, a
general partnership duly registered under the
laws of the Philippines, purchased from the
plaintiff a motor vehicle on the installment
basis and for this purpose executed a
promissory note for P9,440.00, payable in
twelve (12) equal monthly installments of
P786.63, the first installment payable on or
before May 22, 1961 and the subsequent
installments on the 22nd day of every month
thereafter, until fully paid, with the condition
that failure to pay any of said installments as
they fall due would render the whole unpaid
balance immediately due and demandable.
Point of controversy
 Having failed to receive the installment due on
July 22, 1961, the plaintiff sued the defendant
company for the unpaid balance amounting to
P7,119.07. Benjamin C. Daco, Daniel A.
Guizona, Noel C. Sim, Romulo B. Lumauig,
and Augusto Palisoc were included as co-
defendants in their capacity as general
partners of the defendant company.
 Daniel A. Guizona failed to file an answer and
was consequently declared in default.1
 Subsequently, on motion of the plaintiff, the
complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned.2
 When the case was called for hearing, the
defendants and their counsels failed to appear
notwithstanding the notices sent to them.
 Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte3 , after

which the trial court rendered the decision
appealed from.
Defendants’ defense
The defendants Benjamin C. Daco and Noel C. Sim
moved to reconsider the decision claiming that since
there are five (5) general partners, the joint and
subsidiary liability of each partner should not exceed
one-fifth (1/5 ) of the obligations of the defendant
company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit
the liability of the defendants Daco and Sim to only
one-fifth (1/5 ) of the obligations of the defendant
company.4
Issue
Whether or not the dismissal of the complaint to favor
one of the general partners of a partnership increases
the joint and subsidiary liability of each of the
remaining partners for the obligations of the
partnership?
Ruling: No.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including
industrial ones, shall be liable pro
rata with all their property and after all
the partnership assets have been
exhausted, for the contracts which
may be entered into in the name and
for the account of the partnership,
under its signature and by a person
authorized to act for the partnership.
However, any partner may enter into a
separate obligation to perform a
partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this
Court held:
The partnership of Yulo and Palacios
was engaged in the operation of a
sugar estate in Negros. It was,
therefore, a civil partnership as
distinguished from a mercantile
partnership. Being a civil partnership,
by the express provisions of articles
l698 and 1137 of the Civil Code, the
partners are not liable each for the
whole debt of the partnership. The
liability is pro rata and in this case
Pedro Yulo is responsible to plaintiff
for only one-half of the debt. The fact
that the other partner, Jaime Palacios,
had left the country cannot increase
the liability of Pedro Yulo.
 In the instant case, there were five (5) general
partners when the promissory note in question
was executed for and in behalf of the
34
partnership. Since the liability of the partners
is pro rata, the liability of the appellant
Benjamin C. Daco shall be limited to only one-
fifth (1/5 ) of the obligations of the defendant
company. The fact that the complaint against
the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does
not unmake the said Lumauig as a general
partner in the defendant company. In so
moving to dismiss the complaint, the plaintiff
merely condoned Lumauig's individual liability
to the plaintiff.
Fallo
WHEREFORE, the appealed decision as thus clarified
is hereby AFFIRMED, without pronouncement as to
costs.
F15 - G.R. No. L-3518 February 29, 1952
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 said partnership was entered into by and
between the plaintiff and defendant in 1918 whereby
both agreed to engage in general business in
Batangas and to divide the profits and losses share
alike and defendant to be manager of the partnership.
The plaintiff alleges that from 1929 to 1937, defendant
has refused to rendered annual accounting which
prompted the plaintiff to file the abovementioned
complaint.
In 1938, the plaintiff died. He was eventually
substituted by the administrator of his estate,
Solomon Lota
In 1939, the defendant died. As a consequence of
such, the Court, on January 9, 1940, gave the plaintiff
30 days to amend the complaint by substituting for the
deceased defendant the administrator of his estate or
his legal representative. However, from the
defendant’s death to almost ten years thereafter 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 praying
that defendant's heirs be substituted for him as parties
defendant.
ISSUE: Whether or not, after the death of the
defendant Benigno Tolentino, plaintiff's action for

accounting and liquidation of the partnership formed
between Urbano Lota and Benigno Tolentino may be
continued against the heirs of Benigno Tolentino
HELD: NO. The applicable authority is the case of Po
Yeng Cheo vs. Lim Ka Yam which held that, ―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.” Henc,
the action for accounting and liquidation can no
longer be pursued after Tolentino’s death.
Re: Additional Ground for Dismissing the present
action for accounting
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. 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 another
administrator. 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.
FALLO: The resolution herein complained of will
therefore be as it is hereby affirmed, with costs
against the appellant. So ordered.
F-21
G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE,
AGUSTIN E. TONSAY, JOSE L. ESPINOS,
BACOLOD SOUTHERN LUMBER YARD, and
OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO
and her husband CECILIO SALDAJENO LEON
GARIBAY, TIMOTEO TUBUNGBANUA, and THE
PROVINCIAL SHERIFF OF NEGROS
OCCIDENTAL, defendants, MARGARITA G.
SALDAJENO and her husband CECILIO
SALDAJENO, defendants-appellants.
Facts:
In 195, defendants entered into a contract of
partnership under the firm name ―Isabela Sawmill‖.
In 1956 the plaintiff sold to the partnership a motor
truck and two tractors. The partnership was not able
to pay their whole balance even after demand was
made. One of the partners withdrew from the
partnership but instead of terminating the said
partnership it was continued by the two remaining
partners under the same firm name.
35
Plaintiffs also seek the annulment of the assignment
of right with chattel mortgage entered into by the
withdrawing partner and the remaining partners.
The appellants contend that the chattel mortgage may
no longer be nullified because it had been judicially
approved and said chattel mortgage had been
judicially foreclosed.
Issue: Whether the withdrawal of one of the partners
dissolved the partnership.
Ruling:
On dissolution, the partnership is not terminated
but continues until the winding up of the
business.
It does not appear that the withdrawal of the partner
was not published in the newspapers. The appellees
and the public in general had a right to expect that
whatever, credit they extended to the remaining
partners could be enforced against the properties of
the partnership. The withdrawing partner cannot be
relieved from her liability to the creditor of the
partnership due to her own fault by not insisting on the
liquidation of the partnership. Though she had acted
in good faith, the appellees also 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. Technically, the partnership was
dissolved by the withdrawal of one of the partners.
Through her acts of entering into a memorandum with
the remaining partners misled the creditors that they
were doing business with the partnership. Hence,
from the order of the lower court ordering the
withdrawing partner to pay the plaintiffs, she is thus
entitled for reimbursement from the remaining
partners.
WHEREFORE, the decision appealed from is hereby
affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the
modification that the defendsants, Leon Garibay and
Timoteo Tubungbanua, should reimburse the
defendants-appellants, Margarita G. Saldajeno and
her husband Cecilio Saldajeno, whatever they shall
pay to the plaintiffs-appellees, without pronouncement
as to costs.
F. 22. G.R. No. L-18707 December 9, 1922
PO YENG CHEO, plaintiff-appellee,
vs.
LIM KA YAM, defendant-appellant.
Facts
The plaintiff, Po Yeng Cheo, is the sole heir of one
Po Gui Yao, deceased, and as such Po Yeng Cheo
inherited the interest left by Po Gui Yao in a business

conducted in Manila under the style of Kwong Cheong
Tay. This business had been in existence in Manila
for many years prior to 1903, as a mercantile
partnership engaged in the import and export trade;
and after the death of Po Gui Yao the following seven
persons were interested therein as partners in the
amounts set opposite their respective names, to wit:
Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000;
Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley
Wing Kwong, P10,000; Chan Liong Chao, P10,000;
Lee Ho Yuen, P10,000. The manager of Kwong
Cheong Tay, for many years prior of its complete
cessation from business in 1910, was Lim Ka
Yam, the original defendant herein.
Among the properties pertaining to Kwong Cheong
Tay and consisting part of its assets were ten shares
of a total par value of P10,000 in an enterprise
conducted under the name of Yut Siong Chyip Konski
and certain shares to the among of P1,000 in the
Manila Electric Railroad and Light Company, of
Manila.
In the year 1910 (exact date unstated) Kwong Cheong
Tay ceased to do business, owing principally to the
fact that the plaintiff ceased at that time to transmit
merchandise from Hongkong, where he then resided.
Lim Ka Yam appears at no time to have submitted
to the partners any formal liquidation of the
business, though repeated demands to that effect
have been made upon him by the plaintiff.
RTC Decision
In view of the facts above stated, the trial judge
rendered judgment in favor of the plaintiff, Po Yeng
Cheo, to recover of the defendant Lim Yock Tock, as
administrator of Lim Ka Yam, the sum of sixty
thousand pesos (P60,000).
Issue
Whether or not one partner can recover to the
managing partner the values of the latter’s individual
interest.
Ruling
NO, the petition is denied. The SC ruled in favor of
the defendant, Lim Ka Yam. In the first place, it was
erroneous in any event to give judgment in favor of
the plaintiff to the extent of his share of the capital of
Kwong Cheong Tay. The managing partner of a
mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the
business; and he can only be made liable for the
capital when, upon liquidation of the business, there
are found to be assets in his hands applicable to
capital account. in no wise chargeable to the
negligence or misfeasance of the manager.
Under the circumstances revealed in this case, it was
erroneous to give judgment in favor of the plaintiff for
his aliquot part of the par value of said shares. It is
elementary that one partner, suing alone, cannot
recover of the managing partner the value of such
36
partner's individual interest; and a liquidation of
the business is an essential prerequisite. In the
present case, the shares referred to--constituting the
only assets of Kwong Cheong Tay--have not been
converted into ready money and doubtless still remain
in the name of Kwong Cheong Tay as owner. Under
these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot
part of the par value of said shares, which would
be equivalent to allowing one of several coowners
to recover from another, without process of
division, a part of an undivided property.
In the first place, it is well settled that when a member
of a mercantile partnership dies, the duty of liquidating
its affair devolves upon the surviving member, or
members, of the firm, not upon the legal
representative of the deceased partner. Upon the
death of Lim Ka Yam it therefore became the duty of
his surviving associates to take the proper steps to
settle the affairs of the firm, and any claim against
him, or his estate, for a sum of money due to the
partnership by reason of any misappropriation of its
funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted
against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the
Code of
F. 24. GREGORIO MAGDUSA, ET AL., petitioners,
vs. GERUNDIO ALBARAN, ET AL., respondents.
G.R. No. L-17526. June 30, 1962. REYES, J.B.L.
Facts:
Appeal from a decision of the Court of Appeals (G.R.
No. 24248-R) reversing a judgment of the Court of
First Instance of Bohol and ordering appellant
Gregorio Magdusa to pay to appellees, by way of
refund of their shares as partners, the following
amounts: Gerundio Albaran, P8,979.10; Pascual
Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and
Telesforo Bebero, P3,020.27; plus legal interests from
the filing of the complaint, and costs.
Facts:
 Appellant and appellees, together with various
other persons, had verbally formed a
partnership de facto, for the sale of general
merchandise in Surigaoto which appellant
contributed P2,000 as capital, and the others
contributed their labor, under the condition that out
of the net profits of the business 25% would be
added to the original capital, and the remaining
75% would be divided among the members in
proportion to the length of service of each.
 Sometime in 1953 and 1954, the appellees
expressed their desire to withdraw from the
partnership, and appellant thereupon made a
computation to determine the value of the partners'
shares to that date.
 The results of the computation were embodied in
the document drawn in the handwriting of
appellant.
 Appellees thereafter made demands upon
appellant for payment, but appellant having

refused, they filed the initial complaint in the court
below.
 Appellant defended by denying any partnership
with appellees, whom he claimed to be mere
employees of his.
 The Court of First Instance of Bohol dismissed the
complaint on the ground that the other were
indispensable parties but hid not been impleaded.
 Upon appeal, the Court of Appeals reversed the
decision, ruling that it is not an action for a
dissolution of a partnership and winding up of its
affairs or liquidation of its assets in which the
interest of other partners who are not brought into
the case may be affected.
 The action of the plaintiffs is one for the recovery of
a sum of money with Gregorio Magdusa as the
principal defendant.
Issue:
WON the appellees' action can be entertained and a
decree of distribution can be validly entered without
the intervention of all the indispensable parties.
Held:
NO, it cannot be entertained and a decree of
distribution cannot be validly entered without the
intervention of all the indispensable parties.
This is not an action for a dissolution of a partnership
and winding up of its affairs or liquidation of its assets
in which the interest of other partners who are not
brought into the case may be affected.
The action of the plaintiffs is one for the recovery of a
sum of money with Gregorio Magdusa as the principal
defendant. The partnership, with Gregorio Magdusa
as managing partner, was brought into the case as an
alternative defendant only. Plaintiffs' action was based
on the allegation, substantiated in evidence, that
Gregorio Magdusa, having taken delivery of their
shares, failed and refused and still fails and refuses to
pay them their claims. The liability, therefore, is
personal to Gregorio Magdusa, and the judgment
should be against his sole interest, not against the
partnership's although the judgment creditors may
satisfy the judgment against the interest of Gregorio
Magdusa in the partnership subject to the condition
imposed by Article 1814 of the Civil Code.
A partner's share cannot be returned without first
dissolving and liquidating the partnership, for the
return is dependent on the discharge of the creditors,
whose claims enjoy preference over those of the
partners; and it is self-evident that all members of the
partnership are interested in his assets and business,
and are entitled to be heard in the matter of the firm's
liquidation and the distribution of its property. The
liquidation is not signed by the other members of the
partnership besides appellees and appellant; it does
not appear that they have approved, authorized, or
ratified the same, and, therefore, it is not binding upon
them. At the very least, they are entitled to be heard
upon its correctness.
37
In addition, unless a proper accounting and liquidation
of the partnership affairs is first had, the capital shares
of the appellees, as retiring partners, can not be
repaid, for the firm's outside creditors have preference
over the assets of the enterprise (Civ. Code, Art.
1839), and the firm's property can not be diminished
to their prejudice.
F26 - G.R. No. L-5837 May 31, 1954
CRISTOBAL BONNEVIE, ET AL., plaintiffs-
appellants,
vs.
JAIME HERNANDEZ, defendant-appellee.
FACTS: Prior to January, 1947, plaintiffs with other
associates formed a syndicate or secret partnership
for the purpose of acquiring the plants, franchises and
other properties of the Manila Electric Co. No formal
articles were drawn for it was the purpose of the
members to incorporate once the deal had been
consummated. But in the meantime they elected
Pedro Serranzana and David Serrano general
manager and secretary-treasurer, respectively, of the
partnership.
Negotiation for the purchase was commenced, but as
it made no headway, defendant was taken in as a
member of the partnership so that he could push the
deal through, and to that end he was given the
necessary power of attorney.
Using partnership funds, defendant was able to buy
the Meralco properties. Although defendant was the
one named vendee in the deed of sale, there is no
question that the transaction was in penalty made for
the partnership so that the latter assumed control of
the business the day following the sale.
About the latter half of the following month the
members of the partnership proceeded with the
formation of the proposed corporation, apportioning
among themselves its shares of stock in proportion to
their respective contributions to the capital of the
partnership and their individual efforts in bringing
about the acquisition of the Meralco properties. But
before the incorporation, Judge Jaime Reyes and the
plaintiffs withdrew from the partnership for the reason
that the business was not going well which caused the
dissolution of the partnership. Following the
dissolution of the partnership, the members who
preferred to remain in the business went ahead with
the formation of the corporation, taking in new
associates as stockholders. And defendant, on his
part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer
of the corporation, giving them a book value of
P365,000, in return for which the corporation issued,
to the various subscribers to its capital stock, shares
of stock of the total face value of P225,000 and
assumed the obligation of paying what was still due
the Meralco on the purchase price.
Two years from their withdrawal from the partnership,
when the corporate business was already in a
prosperous condition, plaintiffs brought the present
 38

suit against Jaime Hernandez, claiming a share in the

profit the latter is supposed to have made from the
assignment of the Meralco properties to the
corporation. Defendant's answer denies that he has
made any profit out of the assignment in question and
alleges that in any event plaintiffs, after their
withdrawal from the partnership, ceased to have any
further interest in the subsequent transactions of the
remaining members. The trial court held against the
plaintiffs.

ISSUE: WON, assuming that the partnership realized

profit out of the Meralco properties, the plaintiffs are
entitled for their share out of such profit.

HELD: NO. As a general rule, when a partner retires

from the firm, he is entitled to the payment of what
may be due him after a liquidation. But certainly
no liquidation is necessary where there is already
a settlement or an agreement as to what the
retiring partner shall receive. In the instant case, it
appears that a settlement was agreed upon on the
very day the partnership was dissolved. For when
plaintiffs and Judge Jaime Reyes withdrew from
the partnership on that day they did so as agreed
to by all the partners, subject to the only condition
that they were to be repaid their contributions or
investments within three days from said date. And
this condition was fulfilled when on the following
day they were reimbursed the respective amounts
due them pursuant to the agreement.

There is evidence that the partnership was at that

time operating its business at a loss and that the
partnership did not have necessary funds to meet its
obligation to Meralco for the balance of the purchase
price. Because of these circumstances there is every
reason to believe that plaintiffs together with Judge
Jaime Reyes, withdrew from the partnership for fear
that they might lose their entire investment should
they choose to remain. As testified to by Judge
Reyes, one of the withdrawing partners, it was
clearly understood that upon their withdrawal and
return to them of their investment they would
have nothing more to do with the association. It
must, therefore, have been the intention or
understanding of the parties that the withdrawing
partners were relinquishing all their rights and
interest in the partnership upon the return to them
of their investment. It is, therefore, our conclusion
that the acceptance by the withdrawing partners,
including the plaintiffs, of their investment in the
instant case was understood and intended by all the
parties as a final settlement of whatever rights or
claim the withdrawing partners might have in the
dissolved partnership

FALLO: In view of the foregoing, we find plaintiffs'

claim against defendant to be without legal basis so
that the judgment of dismissal rendered by the court
below should be, as it is hereby, affirmed, with costs
against the appellants.