04 - D. Articles 1815 To 1827

PARTNERSHIP, AGENCY AND TRUSTS - Case Digests
Prof. Ramon Quintin Claudio C. Allado

II. Partnership – D. Obligations of the Partners to Third Persons - Articles 1815 to 1827
Case Title Phil National Bank v Lo, 50 Phil 803 (Arnel)

Memory Aid
Full Case Name PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Docket No. & Date G.R. No. L-26937, October 5, 1927
Ponente VILLAMOR, J.
Topic Obligations of Partners to Third Persons
Synopsis
Doctrine 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; and that the provision of said
article 126 is for the protection of the creditors rather than of the partners themselves.
And consequently the doctrine was enunciated that 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.
I. NATURE
Appeal from a Judgment of CFI Iloilo
II. FACTS
1. Severo Eugenio Lo, Ng Khey Ling, 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 and Co.," with
a capital of P40,000. The partnership was to last for five years and its purpose was to do
business in the City of Iloilo, Province of Iloilo, or in any other part of the Philippine Islands
the partners might desire, under the name of "Tai Sing & Co.," for the purchase and sale of
merchandise, goods, and native, as well as Chinese and Japanese, products, and to carry on
such business and speculations as they might consider profitable. The partnership was
registered in the mercantil register of IloIlo.
2. J. A. Say Lian Ping was appointed general manager (GM) of the partnership, with the appointed
general manager of the partnership, with the powers specified in the articles of copartnership.
3. The company contracted a series of loans from PNB.
4. On June 4, 1917, GM executed a power of attorney in favor of A. Y. Kelam, authorizing him
to act as manager and administrator of "Tai Sing & Co.” From this, AY Kelam obtained a loan
of P8,000 from PNB and mortgaged personal property of the partnership to secure the loan.
This credit was renewed several times.
5. On March 25, 1919, GM executed a chattel mortgage in favor of PNB to secure a loan of
P20,000 with interest at 9% p.a.
6. On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. 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 which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank
on January 7, 1921, executing a chattel mortgage on certain personal property belonging to
"Tai Sing & Co.
7. Using the commercial credit from 1918 to 1921, the partners learned that their debit balance
was now at P16,518.74 plus 9% interest at P3,720.86. Thus, the total amount PNB sought to
claim from them in a court action was P20,239.60.
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8. One of the partners, Eugenio Lo, set up the defense that Tai Sing & Co. wasn’t a general
partnership and that the loans were not authorized by the board of directors. Even so, the CFI
held that Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng are indebted to PNB in
sum of P22,595.26 and that they were to pay jointly and severally the amount of P22,727.74
with P4.14 daily interest from August 31, 1926.
III. ISSUES/HELD/RATIONALE
1. W/N “Tai Sing & Co.” is a general partnership
YES, it was a registered partnership in the mercantil register of IloIlo and carried on
business contracting debts. The anomaly here is that the partnership made use of a firm
name, “Tai Sing & Co.” that didn’t contain any of the names of the partners. Nevertheless,
this should not affect the liability of the partners to third parties under Art 127 of the Code of
Commerce (COC). In addition, as held in Jo Chung Cang v Pacific Commercial, the purpose
of Art 126 COC, in requiring a general partnership to transact business under the names of all
its members, of several of them or of one only, is to protect the public from fraud and
imposition. It is really meant to protect creditors rather than the partners themselves. Thus
the law must be construed in rendering contracts made in violation of it as unlawful and
unenforceable only as between the partners, but it should not affect innocent parties.
2. W/N the death of Say Lian Ping, the GM, should have extinguished the partnership' liability
NO, the alleged death of the GM before Kelam executed the loans was not proven at
the hearing. But even if the court erred, the judgment can’t be reversed for 2 reasons: 1)
Because Ou Yong Kelam was a partner who contracted in the name of the partnership,
without any objection of the other partners; and (2) because it appears in the record that Severo
Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and he obtained from
PNB the credit in current account.
3. W/N the personal properties of the partners cannot be seized for the payment of debts until
the partnership assets have been exhausted
NO, the partnership property subject of the mortgage no longer existed at the time of
the filing of the complaint. Its existence has actually never been proven was not offered to
the PNB for sale.
4. W/N the partners should pay jointly and severally
YES. Art 127 COC says that all members of a general partnership shall be personally
and solidarily liable with all their property, for the transaction made in the name of the
partnership.
5. W/N the amount of interest is correct - YES. The credit was renewed, and in the renewal, the
interest rate was changed from 8% to 9%.
IV. DISPOSITIVE PORTION

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.
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Case Title Co-Pitco v Yulo, 8 Phil 544

Memory Aid NEGROS SUGAR HOUSE
Full Case Name NICOLAS CO-PITCO, plaintiff-appellee,
vs.
PEDRO YULO, defendant-appellant.
Docket No. & Date G.R. No. L-3146 September 14, 1907
Ponente WILLIARD, J.:
Topic Liability of partners
Synopsis Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the
operation of a sugar estate in Victorias, Island of Negros.
They had commercial dealings with a Chinaman named Dy-Sianco, who furnished
them with money and goods, and used to buy their crop of sugar.
In February, 1903, Pedro Yulo, father of Florencio, took charge of the latter's interest
in the partnership. He became a general partner with Jaime Palacios in the same
business; and he continued as such partner until about the end of 1904, dealing with
Dy-Sianco in the same manner as the old partnership had dealt with the latter.
Nicolas Co-Pitco found that the balance due from the firm was 1,638.40 pesos.
Consequently, he ordered judgment against the defendant, Pedro Yulo, for the entire
amount with interest SINCE Jaime Palacios had left the country.
CFI RULING: Ruled in favor of Co-Pitco

SC RULING: Reversed - in favor of Pedro Yulo
Pedro Yulo is not solidarily liable for the entire amount. Being a civil partnership, by
the express provisions of articles 1698 and 1137 of the Civil Code, the partners are
not liable each for the whole debt of the partnership.
The liability is PRO RATA. n 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 can not increase the liability of Pedro Yulo.
Doctrine Partners are not liable each for the whole debt of the partnership. 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 can not increase the liability of Pedro
Yulo.
I. NATURE
● Petition for Review - For the purpose of this review, therefore, SC can only consider the facts admitted
by the pleadings and those stated in the decision of the court below.
II. FACTS
● Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the operation of a sugar
estate in Victorias, Island of Negros
○ They had commercial dealings with a Chinaman named Dy-Sianco, who furnished them with
money and goods, and used to buy their crop of sugar.
● In February, 1903, the defendant, Pedro Yulo, father of Florencio, took charge of the latter's interest
in the partnership
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○ He became a general partner with Jaime Palacios in the same business; and
○ He continued as such partner until about the end of 1904, dealing with Dy-Sianco in the
same manner as the old partnership had dealt with the latter.
● Nicolas Co-Pitco found that the balance due from the firm was 1,638.40 pesos.
● Consequently, he ordered judgment against the defendant, Pedro Yulo, for the entire amount with
interest SINCE Jaime Palacios had left the country.
a. WON Pedro Yulo is liable for the entire amount - NO

i. No because the partnership between Yulo and Palacios was a CIVIL
PARTNERSHIP (was engaged in the operation of a sugar estate in Negros) and NOT
a mercantile partnership.
ii. Being a civil partnership, by the express provisions of articles 1698 and 1137 of the
Civil Code, the partners are not liable each for the whole debt of the partnership.
iii. The liability is pro rata
1. In this case Pedro Yulo is responsible to plaintiff for only one-half of the
debt.
2. The fact that the other partner, Jaime Palacios, had left the country can not
increase the liability of Pedro Yulo.
The judgment of the court below is REVERSED and judgment is ordered in favor of the plaintiff and against
the defendant, Pedro Yulo, for the sum of P819.20 pesos, Philippine Currency, with interest thereon at the rate
of 6 per cent per annum from the 12th day of January, 1905, and the costs of the Court of First Instance. No
costs will be allowed to either party in this court. So ordered.
Case Title Island Sales, Inc v United Pioneers Gen. Construction Co., 65 SCRA 544
Memory Aid 1/5
Full Case Name ISLAND SALES, INC (ISI)., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY (UPGCC), ET.
AL defendants. BENJAMIN C. DACO, defendant-appellant.
Docket No. & Date No. L-22493. July 31, 1975.
Ponente CONCEPCION JR., J.
Topic Obligations of Partners to Third Persons
Synopsis UPGCC had 5 general partners. It purchased a motor vehicle from ISI but failed to
pay. The latter field a collection suit against UPGCC with the partners as co-
defendants. Subsequently, ISI moved to dismiss the case against one of the partners.
The CFI adjudged UPGCC liable, and the 4 remaining partners subsidiarily liable.
Several partners moved to reconsider saying that they shouldn’t be held liable for
more than ⅕ of the partnership debt. HELD - affirmed. Each partner shall be liable
for only 1/5 . The fact that the complaint against the Lumauig was dismissed, does
not unmake the said Lumauig as a general partner in UPGCC.
Doctrine Since the liability of the partners is pro rata, the liability of one of them shall be limited
to only his proportionate share of the obligations of partnership. The fact that the
complaint against one of them was dismissed, upon motion of the plaintiff, does not
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unmake the said partner as a general partner in partnership. In so moving to dismiss

the complaint, the creditor merely condoned said partner’s individual liability to it.
I. NATURE
APPEAL from a decision of the CFI.
II. FACTS
1. UPGCC is a general partnership with the following partners:

a. Benjamin C. Daco,
b. Daniel A. Guizona,
c. Noel C. Sim,
d. Romulo R. Lumauig, and
e. Augusto Palisoc
2. Apr 1961 - UPGCC purchases a motor vehicle from ISI on installment. Terms:
a. Purchase price - P9,440.00;
b. Payable 786.63 for 12 mos;
c. First installment due - May 22, 1961, subsequent every 22nd of the month thereafter;
d. Condition - failure to pay any installment when due will render the whole unpaid
balance due and demandable.
3. UPGCC failed to pay the installment due on July 22, 1961;
4. ISI filed a case for the collection of the unpaid balance. Included as co-defendants were the
partners mentioned in [1], in their capacity as general partners. (Case for Lumauig dismissed
on ISI’s motion).
a. UPGCC + partners failed to appear despite notice so ISI was allowed to present
evidence ex-parte;
5. Lower court ruling: CFI
a. UPGCC liable + interest and costs
b. Daco, Guizona, Sim and Palisoc are also held liable subject to the exhaustion of the
property UPGCC first.
6. Daco and Sim filed an MR claiming they cannot be held for more than ⅕ of the obligation
of UPGCC (since there are 5 partners, but in the decision only 4 partners were named
susidiarily liable). - DENIED
Does the dismissal of the complaint to favor one of the general partners of a partnership increase
the joint and subsidiary liability of each of the remaining partners for the obligations of the
partnership? - NO
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 instant case, there were 5 general partners when the promissory note in question was executed
for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the
Daco shall be limited to only 1/5 of the obligations of UPGCC. The fact that the complaint against
the Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a
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general partner in UPGCC. In so moving to dismiss the complaint, ISI merely condoned Lumauig’s
individual liability to it.
Decision affirmed.
Case Title Compania Maritima v Munoz, 9 Phil 326

Memory Aid
Full Case Name
Docket No. & Date
Ponente
Topic
Synopsis
Doctrine
Francisco Munoz, Emilio Munoz, and Rafael Naval formed an ordinary general mercantile partnership called
Francisco Munoz and Sons. La Compania Maritima, the creditor, seeks to recover a sum of money from the
defendants and the partnership. Emilio Munoz contests that the industrial partners are not liable for the debts
and obligations contracted by the partnership. The Court explained that Article 127 of the Code of Commerce
provides: 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 phrase “all the members”: does not distinguish between industrial or capitalist partner.
Case Title Dietrich v Freeman, 18 Phil 341

Memory Aid Employee-Employer (Non-payment of services)
Full Case Name George O. Dietrich, plaintiff-appellee v. O.K. Freeman, James L. Pierce, and Burton
Whitcomb, defendants. Burton Whitcomb, appellant
Docket No. & Date G.R. No. L-6252 | January 28, 1911
Ponente Trent, J.
Topic
Synopsis Dietrich was employed by Manila Steam Laundry, which was initially owned by
Freeman and Pierce but eventually by Freeman and Whitcomb. Dietrich filed an action
to recover a sum of money representing balance due for his services from Freeman,
Pierce, and Whitcomb (as owners of MSL). Lower Court ruled that Whitcomb and
Freeman are jointly and severally liable to Dietrich. Whitcomb filed an appeal. SC
modified this ruling – Whitcomb only liable pro rata to Dietrich because MSL was a
civil partnership, therefore the provisions of Civil Code applies (as opposed to a
commercial partnership and accidental partnership wherein Code of Commerce
applies).
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Doctrine ART 1698, 1137, Old Civil Code:

When a contract of service is entered into between an employee and the manager,
in the firm name, the partners composing the firm are liable pro rata for the damages
arising of such contract.
NCC 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 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
I. FACTS
a. Jan 9, 1907 – Dietrich was employed by Manila Steam Laundry “MSL” (initially owned by
Freeman and Pierce)
i. Jan 18 – Pierce sold his rights, title, and interest in MSL to Whitcomb
1. Thus owners of MSL: Freeman + Whitcomb
b. Dietrich filed an action v. Freeman, Pierce, Whitcomb as owners of MSL
i. To recover P952 (balance due for his services)
ii. Court rules in favor of Dietrich
1. Freeman, Whitcomb to pay P752 [joint and severally liable] (Note: lower
amount bec supported by evidence)
2. Pierce – dismissed (not a partner anymore)
c. Whitcomb appeals to SC
i. Whitcomb never knew Dietrich; nothing to do with him personally;
ii. Dietrich’s contract was with Freeman as Managing Partner of MSL
II. ISSUES/HELD
a. WON Whitcomb is liable to Dietrich – YES
i. To what extent – liable pro rata
III. RATIO
a. MSL is not a commercial partnership and not an accidental partnership ( cuentas en
patricipacion)
i. MSL not a commercial partnership
1. Code of Commerce, Art 17 and 119
a. Art 17: record in commercial registry compulsory for associations
b. Art 119: Every commercial association obliged to record its
establishment, agreements in a public instrument (in commercial
registry)
2. Application to case:
a. Art 17 and 119 not complied with
i. No formal partnership was ever entered
ii. Notwithstanding that they engaged in the operation of MSL
b. Purpose of partnership not a commercial one (not expounded by the
Court
ii. MSL not an accidental partnership
1. Ang Quian Cieg v. Te Chico / Code of Commerce, Art. 239
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a. Accidental partnership (cuentas en participacion), defined – a partnership

constituted in such manner that:
i. Existence only known to those who had interest in the same
ii. No mutual agreement between the parties
iii. Without a corporate name – indicating to the public that
there were other people besides the one managing the
company
2. Code of Commerce, Art 242: contract with person in whose name the
business of such partnership was conducted
a. Right of actions against such person and not against other persons
interested
3. Application to case:
Accidental Partnership Civil Partnership
Ang Quian Cieg v. Te Chico Dietrich v Freeman (this case)
Hung-Man-Yoc v. Kieng-Chiong-
Seng
No corporate name With corporate name – Manila Steam
Laundry
b. Since it is not a commercial partnership and not an accidental partnership, the
provisions of Civil Code apply.
i. Art 1698 and 1137, Old Civil Code
1. When a contract of service is entered into between an employee and the
manager, in the firm name:
2. Partners are not liable individually for entire amount > liable pro rata for
the damages arising of such contract.
ii. Application to case:
1. Whitcomb responsible to Dietrich for only ½ of the debt
2. Dietrich was employed by MSL and not by Freeman alone
3. Public did not deal with Freeman and Whitcomb personally but with MSL
a. Freeman and Whitcomb doing business under this name; not a
commercial partnership
IV. DISPOSITIVE PORTION: Judgment reversed; Judgment entered in favor of Dietrich and
against Whitcomb for the sum of P376, with interest as fixed by the court below.
CASE TITLE Santiago Syjuco v. Castro
FULL CASE NAME SANTIAGO SYJUCO, INC., petitioner,

vs.
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL
COURT OF THE NATIONAL CAPITAL JUDICIAL REGION, BRANCH
LXXXV, QUEZON CITY, THE CITY SHERIFF OF THE CITY OF MANILA,
THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA, EUGENIO
LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM
and/ or THE PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY
PATERNO P. CANLAS, respondents.
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DOCKET NO. & DATE G.R. No. 70403 | July 7, 1989
PONENTE Narvasa, J.
TOPIC
NATURE
DOCTRINE
SYNOPSIS Eugenio Lim, his mother, and his siblings borrowed money from Santiago Syjuco,
putting as security their property. When they failed to pay, Santiago Syjuco foreclosed
the property. This triggered 20 years of litigation (and forum shopping). One of the issues
raised by the Lims was that the mortgage was void because it was entered into by the
siblings individually WITHOUT the consent / knowledge of the partnership (Heirs of
Lim). Thereafter, they began filing the complaints in the name of the individual siblings
and in the name of the partnership.
SC HELD: The mortgage is valid. A mortgage entered into in the names of the individual
siblings was considered a mortgage entered into by the partnership (because the siblings
were also the members of the partnership). Additionally, the siblings could have filed the
complaints on behalf of the partnership instead of them individually, because 1) the
property was allegedly owned by the partnership, 2) the partnership was the real party-
in-interest, and 3) filing individually for the same cause of action violates the rule that 1
cause of action = 1 suit (i think this is from rules of court? not sure).
FACTS
1. November 1964 – Eugenio Lim (in his own behalf + as attorney-in-fact of his mother Maria Moreno and his
siblings Lorenzo, Aramis, Mario, Paulino, and Nila) borrowed from Santiago Syjuco P800,000. Subsequently,
the Lims borrowed more from Santiago Syjuco until their aggregate loan was P2,460,000 (still without interest).
a. Same security for all the loans (1st MORTGAGE): property registered in the names of the Lim
siblings as owner in common
b. For the subsequent loans, the Lims added other property, also registered as owned pro indiviso by the
Lims
2. The loan matured on November 8, 1967. The Lims failed to pay it despite demands therefor.
3. Santiago Syjuco caused extrajudicial proceedings for the foreclosure of the mortgage. The sheriff scheduled the
auction on December 27, 1968.
4. This attempt to foreclose (#3) triggered off a legal battle (dami nangyari kakaiyaq) that dragged on FOR
MORE THAN 20 YEARS.
a. 5 cases in the trial courts
b. 2 cases in the CA
c. 3 cases in the SC
5. Cases were discussed in chronological order. (Sa sobrang dami ng cases, di ko sure kung alin yung binilang as 5
in the trial courts, 2 in the CA, and 3 in the SC.)
Civil Case No. 75180 (CFI of Manila) – December 24, 1968

- Filed by the Lims through Atty. Marcial Mendiola (who was later joined by Atty. Raul Correa) TO STOP THE
FORECLOSURE
- They alleged that their mortgage was void, being usurious for stipulating interest of 23% on top of 11 % that
they had been required to pay as "kickback."
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- CFI ruling: Usury tainted the mortgage without, however, rendering it void, declaring the amount due to be only
Pl,136,235.00 and allowing the foreclosure to proceed for satisfaction of the obligation reckoned at only said
amount.
- Santiago Syjuco moved for new trial to enable it to present additional evidence, and the Court ordered the case
reopened for that purpose. The Lims tried to negate that order of reopening in the CA, but they failed.
- CA ruling: CFI ruling upheld.
- The Lims then sought to nullify this action of the CA by filing with the SC a petition for certiorari and
prohibition.
- SC ruling: Petition dismissed.
- Case was remanded to the CFI (because of the additional evidence by Santiago Syjuco). CFI promulgated an
amended decision (August 16, 1972), reversing its previous holding that usury had flawed the Lims' loan
obligation. It declared that the principal of said obligation indeed amounted to P2,460,000.00, exclusive of interest
at the rate of 12% per annum from November 8, 1967, and, that obligation being already due, the defendants
(Syjuco and the Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to
secure its satisfaction.
Appeal from Civil Case No. 75180 (CA) – September 9, 1972
- Atty. Paterno R. Canlas entered his appearance as counsel for the Lims in collaboration with Atty. Raul Correa.
They appealed to the CA from the amended decision of August 16, 1972 (see last bullet in the above). They
prayed:
o That the loans be declared usurious
o That the principal of the loans be found to be in the total amount of P1,269,505.00 only, and the
interest thereon fixed at only 6% per annum from the filing of the complaint
o That the mortgage be also pronounced void ab initio.
- CA: CFI’s amended decision affirmed.
- The Lims came to the SC seeking reversal of the CA decision.
- SC: Petition for review was denied for lack of merit.
- The Lims' motion for reconsideration was denied and entry of judgment was made on September 24,1977.
- Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the mortgaged
property to be scheduled on December 20, 1977, only to be frustrated again by another action filed by the
Lims.
- The action sought TO STOP THE SALE on the ground that the notice of foreclosure had not been
republished; this, notwithstanding that as earlier stressed in the first case, the Lims waived "their rights to the
notice and republication of the notice of sale which may be conducted at some future date."
- An order restraining the sale was issued in the case (RESTRAINING ORDER # 1), although the petition for
preliminary injunction was subsequently denied.
- A supplemental complaint was also filed by the Lims seeking recovery of some P1 million in damages allegedly
suffered by reason of said lack of republication.
- The claim that there had been no republication of the notice of sale was made by the Lims as basis of an urgent
motion.
- The earlier judgment authorizing the foreclosure had been affirmed by both the CA and SC, and had become
final and executory.
- This motion sought exactly the same remedy prayed for in the civil case above (CC No. 112762), i.e., the
prevention of the auction sale.
- CFI: Restraining order granted on December 19, 1977 (RESTRAINING ORDER # 2)
- The Lims' counsel thus brought about the anomalous situation of 2 restraining orders directed against the same
auction sale, based on the same ground, issued by different courts having cognizance of 2 separate proceedings
instituted for identical objectives.
- This situation lasted for 3 years, despite the republication of the notice of sale caused by Syjuco, and despite the
judge having been made aware of Civil Case No. 112762. The judge should have only enforced the earlier
judgment, already final and executory, authorizing the extrajudicial foreclosure of the mortgage.
- However, not only did the judge refuse to allow the holding of the auction sale, he authorized the Lims to sell
the mortgaged property in a private sale, with the evident intention that the proceeds of the sale, which he
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directed to be deposited in court, would be divided between Syjuco and the Lims. This, in line with the patently
specious theory advocated by the Lims' counsel that the bond filed by them for the postponement of the sale,
set at P6 million by the Court (later increased by P 3 million) had superseded and caused novation of the
mortgage.
- On January 28, 1981, Syjuco betook itself to the SC and filed a petition for certiorari and prohibition, alleging
that in Civil Case No. 75180, the judge had gravely abused his discretion.
- SC: SC decreed that the Sheriff of Manila should proceed with the mortgage sale, there being no further
impediment thereto.
- Notice of the decision was served on the Lims. A motion for reconsideration was filed, but the same was
denied with finality for lack of merit and entry of final judgment was made on March 22,1983.
(Secret) Civil Case No. Q-36845 (RTC of Quezon City (naabutan na sila ng pagpapalit ng CFI to RTC kklk) –
October 14, 1982
- The Lims filed this case to preclude enforcement of the mortgage held by Syjuco.
- This time the complaint was presented, 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 had individually constituted over lands standing in their names in fact no longer belonged
to them at that time, because they already devoted said lands to the partnership, "Heirs of Hugo Lim”. Hence,
said mortgage was void because executed by them without authority from the partnership. (Main
issue in the present case)
- The RTC judge (Judge Castro) issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G.
Dalangin submitted a return of summons saying that he “served personally and left a copy of summons
together with a copy of Complaint and its annexes x x upon defendant's office formerly at 313 Quirino Ave.,
Paranaque, Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft Avenue,
Manila, through the Manager, a person of sufficient age and discretion duly authorized to receive service of
such nature, but who refused to accept service and signed receipt thereof.”
o SC comment LOL: It is impossible to discern from it where precisely the summons was served,
whether at Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is inexplicable that the name
of the person that the sheriff had been able to identify as the manager is not stated, the latter being
described merely as "a person of sufficient age and discretion." In any event, Syjuco asserts that it was
never so served with summons, or with any other notice, pleading, or motion relative to the case, for
that matter.
o PAGOD NA KO HA.
- RTC: Mortgage is void because it was executed by the Lims without authority from the partnership. Service of
notice of the default judgment was, according to the return of the same Sheriff Perfecto Dalangin, effected on
the following day, February 23, 1983. His return is a virtual copy of his earlier one regarding service of
summons: it also states the place of service as the defendant's office, either at its former location, 313 Quirino
Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco Building, Taft Avenue, Manila; and it also
fails to identify the person on whom service was made, describing him only as "the clerk or person in charge"
of the office.
Civil Case No. 83-19018 (RTC of Manila)
- While Civil Case No. Q-36845 was ongoing, Syjuco once again tried to proceed with the foreclosure. It
scheduled the auction sale on July 30, 1983. But once again it was frustrated.
- The Lims filed Civil Case No. 83-19018 TO STOP THE SALE on the theory that what was sought to be
realized from the sale was much in excess of the judgment in Civil Case No. 75180, and that there was absence
of the requisite notice.
- RTC: Restraining order was issued. FORUM SHOPPING GALORE NA ITO TALAGA
Civil Case No. Q-32924 (RTC of Quezon City)
- No other salient details about these 2 cases are available in the voluminous records before the Court, except
that it was Atty. Canlas who had filed them.
- The outcome of this case was also not clear.
Re-activation of Civil Case No. Q-36485 (RTC of Quezon City)
- Syjuco once more resumed its efforts to effect the mortgage sale which had already been stymied for more than
15 years. At its instance, the sheriff once again set a date for the auction sale. But on the date of the sale, a letter
11
of Atty. Canlas was handed to the sheriff drawing attention to the permanent injunction of the sale embodied
in the judgment by default rendered in Civil Case No. Q- 36485.
- Syjuco lost no time in inquiring about Civil Case No. Q-36485 (kasi nga hindi naman nya nareceive yung
summons from the sheriff), and was very quickly made aware of the judgment by default therein promulgated
and the antecedent events leading thereto.
- It was also made known that the judge (Judge Castro) had ordered execution of the judgment, granted Atty.
Canlas' motion to declare cancelled the titles to the Lims' mortgaged properties and as null and void the
annotation of the mortgage and its amendments on said titles, and to direct the Register of Deeds of Manila to
issue new titles, in lieu of the old, in the name of the partnership, "Heirs of Hugo Lim."
- Syjuco filed 3 motions:
o A motion for reconsideration of the decision and for dismissal of the action, alleging that it had never
been served with summons; that granting arguendo that service had somehow been made, it had
never received notice of the decision and therefore the same had not and could not have become
final; and that the action should be dismissed on the ground of bar by prior judgment premised on the
final decisions of the SC.
o A motion that prayed for abatement of Judge Castro's order decreeing the issuance of new certificates
of title over the mortgaged lands in the name of the plaintiff partnership.
o A motion that was a supplement to the motion to dismiss earlier filed, asserting another ground for
the dismissal of the action, i.e., failure to state a cause of action, it appearing that the mortgaged
property remained registered in the names of the individual members of the Lim family
notwithstanding that the property had supposedly been conveyed to the plaintiff partnership long
before the execution of the mortgage and its amendments,-and that even assuming ownership of the
property by the partnership, the mortgage executed by all the partners was valid and binding under
Articles 1811 and 1819 of the Civil Code.
- The motions having been opposed in due course by the Lims, they remained pending until Syjuco moved for
their immediate resolution. Syjuco now claims that Judge Castro never acted on the motions. The latter
however states that that he did issue an order declaring that he had lost jurisdiction to act thereon because,
petitio principii, his decision had already become final and executory.
Present case finally huhu G.R.NO.L-70403 – April 3, 1985
- Syjuco prays in its petition:
o that the default judgment rendered against it by Judge Castro in said Civil Case No. Q-36485 be
annulled on the ground of lack of service of summons, res judicata and laches, and failure of the
complaint to state a cause of action
o that the sheriff be commanded to proceed with the foreclosure of the mortgage
o that the respondents the Lims, Judge Castro, the Sheriff and the Register of Deeds of Manila, the
partnership known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas be perpetually enjoined from
taking any further steps to prevent the foreclosure.
ISSUES/RATIO/HELD
● ISSUE 1: WON the mortgage is void as it was entered into only by the individual partners without the
knowledge of the partnership – NO.
o Because all the individual partners knew about the mortgage, the partnership is also considered to
know about the mortgage.
■ The original mortgage deed of November 14,1964 was executed by the Lims as such owners,
as were all subsequent amendments of the mortgage.
■ In those circumstances, the partnership was chargeable with knowledge of the mortgage from
the moment of its execution. 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 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.
■ If, therefore, the respondent partnership was inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, its silence and failure to impugn said mortgage
12
within a reasonable time, let alone a space of more than 17 years, brought into play the doctrine
of estoppel to preclude any attempt to avoid the mortgage as allegedly unauthorized.
○ A conveyance made in the names of all of the individual partners is considered valid.
■ The last paragraph of Article 1819 of the Civil Code 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).
○ The complaint filed in the name of all of the Lims is considered as a complaint filed by the
partnership.
■ The claim could have been set up by the Lims, as members composing the partnership, "Heirs
of Hugo Lim." It could very well have been put forth by the partnership itself, as co-plaintiff
in the corresponding complaints, considering that the actions involved property supposedly
belonging to it and were being prosecuted by the entire membership of the partnership, and
therefore, the partnership was in actuality, the real party in interest.
■ In fact, consistently with the Lims' theory, they should be regarded, in all the actions presented
by them, as having sued for vindication, not of their individual rights over the property
mortgaged, but those of the partnership. There is thus 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, 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.
■ What was done by the Lims — or by the partnership of which they were the only members
— was to split their cause of action in violation of the well-known rule that only one suit may
be instituted for a single cause of action. They instituted four (4) actions for the same purpose
on one ground or the other, making each ground the subject of a separate action. Upon these
premises, application of the sanction indicated by law is caned for, i.e., the judgment on the
merits in any one is available as a bar in the others.
■ The first judgment-rendered in Civil Case No. 75180 and affirmed by both the CA and SC
should therefore have barred all the others, all the requisites of res judicata being present.
Under the doctrine of res judicata, the judgment in the first was and should have been regarded
as conclusive in all other, actions not only "with respect to the matter directly adjudged," but
also "as to any other matter that could have been raised in relation thereto. " It being
indisputable that the matter of the partnership's being the owner of the mortgaged properties
"could have been raised in relation" to those expressly made issuable in the first action, it
follows that that matter could not be re-litigated in the last action, the fifth.
DISPOSITIVE
WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that end, all the matters
and incidents with which these proceedings are concerned may be brought to a swift conclusion:
(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of execution and all other
orders issued in implementation thereof, and all proceedings in the case leading to said judgment after
the filing of the complaint are DECLARED null and void and are hereby SET ASIDE; and the
complaint in said case is DISMISSED for being barred by prior judgment and estoppel, and for lack
of merit;
13
(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule forthwith and
thereafter conduct with all due dispatch the sale at public auction of the mortgaged property in
question for the satisfaction of the mortgage debt of the respondents Lims to petitioner, in the
principal amount of P2,460,000.00 as found in the amended decision in Civil Case No. 75180 of the
Court of First Instance of Manila, interests thereon at the rate of twelve (12%) percent per annum
from November 8, 1967 until the date of sale, plus such other and additional sums for commissions,
expenses, fees, etc. as may be lawfully chargeable in extrajudicial foreclosure and sale proceedings;
(3) the private respondents, their successors and assigns, are PERPETUALLY ENJOINED from
taking any action whatsoever to obstruct, delay or prevent said auction sale;
(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo Lim and Atty. Paterno R.
Canlas) are sentenced, jointly and severally, to pay the petitioner P25,000.00 as nominal damages and
P100,000.00 as exemplary damages, as well as treble costs; and
(5) let this matter be referred to the Integrated Bar of the Philippines for investigation, report, and
recommendation insofar as the conduct of Atty. Canlas as counsel in this case and in the other cases
hereinabove referred to is concerned.
SO ORDERED.
LIWANAG AND REYES vs. WORKMEN’S COMPENSATION COMMISSION

Endencia, J. | May 22, 1959
Topic 1: Obligations of the Partners to Third Persons
Nature: PETITION for review by certiorari of a decision of the Workmen's Compensation Commission.
PARTIES:
BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants,
vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-appellees.
DISPUTED MATTER: Nature of obligation of co-owners arising from compensable injury or death
of an employee - SOLIDARY
FACTS:
 Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply. A commercial
guard who while in line of duty, was killed by criminal hands. His widow Ciriaca Vda. de
Balderama and minor children Genara, Carlos and Leogardo, all surnamed Balderama, in due time
filed a claim for compensation with the Workmen's Compensation Commission, which was
granted in an award worded as follows:
WHEREFORE, the order of the referee under consideration should be, as it is hereby, affirmed and
respondents Benito Liwanag and Maria Liwanag Reyes, ordered.
1. To pay jointly and severally the amount of three thousand Four Hundred Ninety Four and
40/100 (P3,494.40) Pesos to the claimants in lump sum; and
14
2. To pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00 for this
review) as fees, pursuant to Section 55 of the Act.
 In appealing the case to this Tribunal, appellants do not question the right of appellees to
compensation nor the amount awarded. They only claim that, under the Workmen's Compensation
Act, the compensation is divisible, hence the commission erred in ordering appellants to pay jointly
and severally the amount awarded. They argue that there is nothing in the compensation Act which
provides that the obligation of an employer arising from compensable injury or death of an
employee should be solidary obligation, the same should have been specifically provided, and that,
in absence of such clear provision, the responsibility of appellants should not be solidary but merely
joint.
ISSUES/HELD:
 W/N the obligation of co-owners arising from compensable injury or death of an employee
should be solidary obligation – YES.
At first blush appellants' contention would seem to be well, for ordinarily, the liability of the partners
in a partnership is not solidary; but the law governing the liability of partners is not applicable to the
case at bar wherein a claim for compensation by dependents of an employee who died in line of
duty is involved. And although the Workmen's Compensation Act does not contain any provision
expressly declaring solidary obligation of business partners like the herein appellants, there are
other provisions of law from which it could be gathered that their liability must be solidary.
Arts. 1711 and 1712 of the new Civil Code provide:
ART. 1711. Owners of enterprises and other employers are obliged to pay compensation
for the death of or injuries to their laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely due to a fortuitous cause, if the
death or personal injury arose out of and in the course of the employment. . .
ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. . .
And section 2 of the Workmen's Compensation Act, as amended reads in part as follows:
. . . The right to compensation as provided in this Act shall not be defeated or impaired on the
ground that the death, injury or disease was due to the negligence of a fellow servant or
employee, without prejudice to the right of the employer to proceed against the negligence
party.
The provisions of the new Civil Code above quoted taken together with those of Section 2
of the Workmen's Compensation Act, reasonably indicate that in compensation cases, the
liability of business partners, like appellants, should be solidary; otherwise, the right of the
employee may be defeated, or at least crippled. If the responsibility of appellants were to be merely
joint and solidary, and one of them happens to be insolvent, the amount awarded to the appellees
would only be partially satisfied, which is evidently contrary to the intent and purposes of the Act.
In the previous cases we have already held that the Workmen's Compensation Act should be
construed fairly, reasonably and liberally in favor of and for the benefit of the employee and his
dependents; that all doubts as to the right of compensation resolved in his favor; and that it should
be interpreted to promote its purpose. Accordingly, the present controversy should be decided in
favor of the appellees.
15
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.
DISPOSITIVE:
Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs against
appellants.
OPINIONS:
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere co-owners, their liability for the
indemnity due their deceased employee would not be solidary but only pro rata (Arts. 485 and 1815, new
Civil Code). The Workmen's Compensation Act does not change the nature of that liability either expressly
or by intendment. To hold that it does, is to read into the Act something that is not there. For this Court,
therefore, to declare that under the said Act the defendants herein are liable solidarily is to play the role of
legislator.
The injustice of the rule sought to be established in the majority opinion may readily be made obvious with
an example. Suppose that one of two co-partners or co-owners owns 99 percent of the business while his
co-partner or co-owners own only 1 percent. To hold that in such case the latter's liability may run up to 100
percent although his interest is only 1 percent would not only be illogical but also inequitable.
MCDONALD v. NATIONAL CITY BANK OF NEW YORK PARAS | May

21, 1956 Topic: Unregistered Partnership Nature: Petition for review by
certiorari of a decision of the Court of Appeals
PARTIES:
1. Petitioners - PAUL MACDONALD, ET AL.
2. Respondent - THE NATIONAL CITY BANK OF NEW YORK
DISPUTED
MATTER:
Juridical personality of an unregistered commercial

partnership.
FACTS
:
16
● Stasikinocey is a partnership formed by Alan Gorcey, Louis Da Costa Jr., William Kusik
and Emma Badong Gavino.
● It was denied registration in the SEC due to the confusion between this partnership and the
business Cardinal Rattan, which is treated as a co-partnership where Gorcey and Da Costa
are the general partners. It appears that Cardinal Rattan is merely the business name or style
used by the partnership, Stasikinocey.
● Prior to June 3, 1949 - Stasikinocey had an overdraft account with the National City Bank
of New York, a foreign banking association duly licensed to do business in the Philippines.
● June 3, 1949 - said overdraft account has a P6,134.92 balance. Due to the failure of
Stasikinocey to make the required payment, said balance was converted into an ordinary loan
for which a promissory joint note, non-negotiable was executed on the same day by Da Costa
for and in the name of Cardinal Rattan, himself and Gorcey.
● June 7, 1949 - said promissory note was secured by a chattel mortgage executed by Da
Costa, general partner for and in the name of Stasikinocey. Said mortgage was constituted
over the following: - Fargo truck with motor No. T-118-202839, Serial No. 81410206 and
with plate No. T-
7333 (1949) - Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and
with plate
No. 10372 - Fargo Pick-Up FKI-16, with motor No. T-112800032, Serial No. 8869225 and with
plate
No. T-7222
(1949)
● The mortgage deed was duly registered with the Office of the Register of Deeds Pasig,
Rizal. It has the following stipulations: - mortgagor shall not sell or otherwise dispose of the
said chattels without the mortgagee’s
written consent - mortgagee may foreclose the mortgage at any time, after breach of any
condition
thereof, the mortgagor waiving the 30- day notice of
foreclosure
● June 7, 1949 - Gorcey and Da Costa executed an agreement purporting to convey and
transfer all their rights, title and participation in Stasikinocey to Shaeffer, allegedly in
consideration of the cancellation of an indebtedness of P25,000 owed by them and
Stasikinocey to the latter. Said agreement is said to be in violation of the Bulk Sales Law.
● June 24, 1949 - during the subsistence of the loan and chattel mortgage, Stasikinocey,,
through Gorcey and Da Costa transferred to MacDonald the Fargo truck and Plymouth sedan
● June 28, 1949 - Shaeffer sold the Fargo pick-up to MacDonald
● July 19, 1944 [what the case stated but I guess it should be 1949] - Paul MacDonald sold
the Fargo truck and Plymouth sedan to Benjamin Gonzales
● When the National City Bank learned of these transactions, it filed an action against
Stasikinocey, Da Costa, Gorcey, MacDonald and Gonzales to recover its credit and to
foreclose the chattel mortgage.
● CFI Ruling - Annulled the sale of the vehicles to Gonzales; ordered Da Costa and
Gorcey to pay the Bank jointly and severally P6,132.92 with legal interest; ordered Gonzales
to deliver the vehicles to the Bank for sale at public auction if Da Costa and Gorcey fails to
pay; ordered Da Costa, Gorcey and MacDonald to pay the Bank jointly and severally any
deficiency that remains unpaid should the proceeds of the auction sale be insufficient
● MacDonald and Gonzales appealed to the CA.
17
● CA Ruling - Modified the CFI decision by ruling that MacDonald is not jointly and
severally liable
with Gorcey and Da Costa to pay any
deficiency
ISSUES/HELD
:
● [Main Issue] WON the partnership, Stasikinocey is estopped from asserting that it
does not have juridical personality since it is an unregistered commercial partnership.
YES.
- While an unregistered commercial partnership has no juridical personality,

nevertheless, where two or more persons attempt to create a partnership failing to
comply with all the legal formalities, the law considers them as partners and the
association is a partnership in so far as it is a favorable to third persons, by reason of the
equitable principle of estoppel. - Da Costa and Gorcey cannot deny that they are
partners of the partnership Stasikinocey, because in all their transactions with the
National City Bank they represented themselves as such. McDonald cannot disclaim
knowledge of the partnership Stasikinocey because he dealt with said entity in
purchasing two of the vehicles in question through Gorcey and Da Costa. The sale of the
vehicles to MacDonald being void, the sale to Gonzales is also void since a buyer
cannot have a better right than the seller. - As was held in Behn Meyer & Co. vs.
Rosatzin, where a partnership not duly organized has been recognized as such in its
dealings with certain persons, it shall be considered as “partnership by estoppel” and the
persons dealing with it are estopped from denying its partnership existence. - If the law
recognizes a defectively organized partnership as de facto as far as third persons are
concerned, for purposes of its de facto existence it should have such attribute of a
partnership as domicile.
● On the Validity of the Chattel Mortgage - The chattel mortgage is in the form required
by law, and there is therefore the presumption of its due execution which cannot be easily
destroyed by the biased testimony of the one who executed it.
- The interested version of Da Costa that the affidavit of good faith appearing in the
chattel mortgage was executed in Quezon City before a notary public for and in the City
of Manila was correctly rejected by the trial court and the Court of Appeals. - In view of
the conclusion that Stasikinocey is a de facto partnership, and Da Costa appears as a
co-manager in the letter of Gorcey to the National City Bank and in the promissory note
executed by Da Costa, and that even the partners considered him as such1, the “partner”
who executed the chattel mortgage in question must be deemed to be so fully
authorized. - Section 6 of the Chattel Mortgage Law provides that when a partnership is
a party to the mortgage, the affidavit may be made and subscribed by one member
thereof. - In this case the affidavit was executed and subscribed by Da Costa, not only
as a
partner but as a managing
partner.
18
DISPOSITIVE: Wherefore, the appealed decision of the Court of Appeals is affirmed with costs
against the petitioners. (CA decision affirmed)
OPINIONS
: None.
____________________________________________________________________________
HELPFUL
INFORMATION
DOCTRINE
:
While an unregistered commercial partnership has no juridical personality, nevertheless, where

two or more persons attempt to create a partnership failing to comply with all the legal
formalities, the law considers them as partners and the association is a partnership in so far as
it is a favorable to third persons, by reason of the equitable principle of estoppel.
PIONEER INSURANCE v. CA
GUTIERREZ, JR., J. | July 28, 1989.
Obligations of Partners to Third Persons
Petitions for review (consolidated)
PARTIES:
G.R. No. 84197

Petitioner –
1. Pioneer Insurance & Surety Corporation (Pioneer)
Respondents – 1. CA, 2. Border Machinery & Heavy Equipment,

Inc., (BORMAHECO), 3. Constancio M. Maglana and 4. Jacob S.
Lim
G.R. No. 84157

Petitioner –
1. Jacob S. Lim
Respondents – 2. CA, 3. Pioneer, 4.

BORMAHECO, 5. Francisco and Modesto
Cervantes and 6. Constancio Maglana
19
RELEVANT DISPUTED MATTER: Obligation of the private respondents in G.R. No. 84157 to
share in the loses of the supposed venture on ground of formation of a de facto partnership.
HELD – no de facto partnership created, private respondents not liable to share in the losses.
FACTS
:
1. Jacob Lim (Lim) owns and operates Southern Air Lines (SAL) – airline business;
2. May 1965 –
a. Lim purchased 2 aircrafts from Japan Domestic Airlines (JDA) and 1 set of spare
parts
for $109k, payable in installments; b. Pioneer executed a surety bond for the payment of the
balance in [2(a)] above; 3. The ff also contributed for the payment as contributions to Lim’s
proposed corporation
(collectively, Contributors): a. Bormaheco; b. Francisco + Modesto Cervantes (Cervanteses);
c. Constancio Maglana (Maglana); 4. 2 indemnity agreement were signed in favor of Pioneer
[to pay Pioneer should it be made
to pay to JDA]: a. Signed by Maglana; b. Jointly signed by Lim (for
SAL), Bormaheco and Cervanteses; 5. June 1965 – Lim mortgaged
the aircrafts to Pioneer;
6. Lim defaulted on its payments to JDA; 7. Pioneer paid JDA P298,626.12 (it appears that
Pioneer reinsured this and was able to
collect from the reinsurance company P295k – finding of the CA); 8. Pioneer sought for the
extrajudicial foreclosure of the aircrafts. Maglana and Cervanteses
refused saying they were co-owners of the property; 9.
Cases filed
a. By Pioneer
i. Judicial foreclosure with writ of prelim attachment ii.
Against Lim, Bormaheco, Cervanteses, Magalana b. By
Bormaheco, Cervanteses, Magalana
i. Cross-claim; ii. Against Lim iii. Ground – they are not privies to
contracts entered by Lim; 10. Lower court rulings:
a. RTC – Lim liable to pay Pioneer; complaint against other defendants dismissed; b. CA
– modified; complaint against all defendants dismissed; in G.R. No. 84157, Lim was
ordered to reimburse Bormaheco, Cervanteses, Magalana for their contributions
in the intended corporation; i. Pioneer was able to collect proceeds of the reinsurance
claims; ii. Pioneer not a real party in interest since it doesn’t appear that it was the
attorney-
in-fact of the reinsurance company; iii. Pioneer
was able to foreclose the mortgage.
ISSUES-HELD-
RATIO:
G.R. No. 84197: Claims of

Pioneer
20
1. Had the claim that Pioneer received reinsurance money been raised and duly established
at trial? – YES. This was admitted at trial based on records. Affirmed by the CA. 2. Was the
reinsurance strictly between Pioneer and the reinsurer, and that collection (hypothetical)
from the reinsurer will not bar recovery from the Lim, et al pursuant to the indemnity
agreements? – NO. a. In general a reinsurer, on payment of a loss acquires the same rights
by subrogation
as are acquired in similar cases where the original insurer pays a loss; b. In other words, when
the reinsurer paid Pioneer, the former is subrogated to the latter’s
rights and is the real party in interest; c. Pioneer brought the action in its own name, not in the
name of the reinsurer, it is not
a real party in interest, and had no cause of action against Lim, et al. 3. Was the principle of
unjust enrichment not applicable since Pioneer will be paying what it
will be collecting from Lim, et al to the reinsurer? – NO. 4. Were the co-indemnitors
(Bormaheco, Cervanteses, Magalana) still liable to Pioneer? – NO. Upon execution of the
mortgage, the indemnity bonds ceased to be valid and effective. This was admitted and
established on trial.
G.R. No. 84157: Claim of Lim [This is the relevant
issue]
1. Was there a de facto partnership created as a result of Lim and Contributors’ failure to
incorporate, and as such the Contributors’ are bound to share in the profits and loss of the
venture in proportion to their contribution? – NO. a. GR – 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. XPN – No partnership is created if the purpose is that no
partnership shall exist as persons cannot be made to assume the relation of
partners.
Partnership 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.
i. The contributions of the Contributors had been established on record;
ii. Lim never had the intention to form a corporation with the respondents despite his
representations to them. They were just lured to make the contributions to a proposed
corporation which was never incorporated because Lim reneged on the agreement;
▪ After receiving contributions, Lim proceeded with transacting the purchase

of aircrafts in its own name without effecting the incorporation as promised;
▪ Contributors were not aware of the Surety Bond and chattel mortgage
agreement entered into by Lim and Pioneer. These were made in his personal
capacity as alleged proprietor of SAL. When they learned about such and
demanded Lim to surrender possession of the aircrafts or returned their
contributions, Lim simply ignored.
21
iii. Lim was acting on his own and not in behalf of his other would-be incorporators
transacting the sale of the airplanes and spare parts. No de facto partnership was
created.
DISPOSITIVE
Petitions dismissed. Decision

affirmed.
Case Title Viuda de Chan v Pen, 53 Phil 906 (Telle)

Memory Aid Insolvent Widow
Full Case Name LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG NAW) appellee,
vs.
JOSE S. Y. PENG, assignee, appellant.
Docket No. & Date G.R. No. L-29182 | October 24, 1928
Ponente OSTRAND, J.
Topic Obligations of the Partners to Third Persons
Synopsis 3 private corporations filed insolvency proceedings against Leoncia. The lower court
declared her insolvent, but she appealed on the ground that the proceedings should’ve
been filed against the partnership of which she was part of. Her appeal was granted,
and the court ordered that the property of Leoncia earlier taken by the sheriff and
delivered to the assignee Jose Peng, be returned to Leoncia. From this, the Jose Peng
appeal.
HELD: the insolvency proceedings should be filed against Leoncia since the alleged
partnership was just fictitious and nonexistent. And even if it exists, Leoncia, as a
partner still has solidary liability to the partnership’s creditors.
Doctrine Partners individually must, jointly and severally, respond for its debts (Code of
Commerce, art. 127). Furthermore, 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 (Compania Maritima vs. Munoz, 9 Phil., 326).
I. NATURE
This is an appeal from a decision of the Court of First Instance of Manila dismissing an
insolvency proceeding
II. FACTS
a. On June 13, 1925, San Miguel Brewery and two other companies instituted insolvency
proceedings against Leoncia Vda. de Chan Diaco (alias Lao Liong Naw),a merchant who owns
a grocery store in Binondo
b. The companies alleged, inter alia that Leoncia was indebted to them in the sum of P26,234.47,
and that other creditors have filed claims against the estate to the amount of P50,000.
c. Leoncia never appeared in the hearings, so the court declared her insolvent and ordered the
sheriff to take possession of her property, consisting of some merchandise, afterwards sold at
public auction for P3,300
d. On April 14, 1926, the court through Judge Del Rosario approved the report and
recommendation of its appointed referee Summers, and ordered that Leoncia deliver the
following to herein assignee Jose Peng:
22
i. The sum of P56,000 more or less;

ii. The accounts receivable as of June 19, 1925, amounting to P40,000;
iii. The amount of P4,000 taken by Leoncia out of the business for her own use; and
iv. The account books of the business
e. On August 4, 1926, Leoncia’s lawyer filed for the dismissal of the proceedings against her on
the ground that they should have been brought against the partnership "Lao Liong Naw &
Co.," of which she was only a member
f. This alleged partnership was later on found by court referee Summers as only a fictitious
organization created for the purpose of deceiving the Bureau of Customs
g. Nevertheless, the court through Judge Francisco Zandueta, rendered a decision on June 6,
1927 in favor of Leoncia, and ordered the assignee to return to the sheriff all the property of
the insolvent
h. The decision further suggested that the petitioners file a new petition in insolvency against the
partnership Lao Liong Naw & Co. if they so desired. From this assignee appeals
● Whether or not the insolvency proceedings should be filed against Leoncia or against
the alleged partnership- the proceedings should be filed against Leoncia; the partnership is
not even actually existing.
The Court accepts the findings of fact of the lower court that the alleged partnership was
fictitious. Conceding for the sake of the argument that the debts in question were incurred by
the alleged partnership, the partners must still individually, jointly and severally, respond for
its debts since it appears from the record that said partnership has no assets (Code of
Commerce, art. 127).
As the appellee is one of the partners and admits that she is insolvent, there is no reason for
the dismissal of the proceedings against her. Furthermore, 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 (Compania 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.
We also call attention to the fact that the evidence clearly shows that the business, alleged to
have been that of the partnership, was carried on under the name "Leoncia Vda. de Chan
Diaco" or "La Vda. de G. G. Chan Diaco," both of which are names of the appellee, and we
think it can be safely held that a partnership may be adjudged bankrupt in the name of an
ostensible partner, when such name is the name under which the partnership did business.

The decision appealed from is hereby reversed, the reports and recommendations of the referee
are approved, 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.
23

04 - D. Articles 1815 To 1827

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PARTNERSHIP, AGENCY AND TRUSTS - Case Digests

Prof. Ramon Quintin Claudio C. Allado

Case Title Phil National Bank v Lo, 50 Phil 803 (Arnel)

4. W/N the partners should pay jointly and severally

IV. DISPOSITIVE PORTION

Case Title Co-Pitco v Yulo, 8 Phil 544

CFI RULING: Ruled in favor of Co-Pitco

a. WON Pedro Yulo is liable for the entire amount - NO

IV. DISPOSITIVE PORTION

unmake the said partner as a general partner in partnership. In so moving to dismiss

APPEAL from a decision of the CFI.

1. UPGCC is a general partnership with the following partners:

IV. DISPOSITIVE PORTION

Case Title Compania Maritima v Munoz, 9 Phil 326

Case Title Dietrich v Freeman, 18 Phil 341

Doctrine ART 1698, 1137, Old Civil Code:

a. Accidental partnership (cuentas en participacion), defined – a partnership

CASE TITLE Santiago Syjuco v. Castro

FULL CASE NAME SANTIAGO SYJUCO, INC., petitioner,

DOCKET NO. & DATE G.R. No. 70403 | July 7, 1989

Civil Case No. 75180 (CFI of Manila) – December 24, 1968

LIWANAG AND REYES vs. WORKMEN’S COMPENSATION COMMISSION

Moreover, Art. 1207 of the new Civil Code provides:

MCDONALD v. NATIONAL CITY BANK OF NEW YORK PARAS | May

1. Petitioners - PAUL MACDONALD, ET AL.

2. Respondent - THE NATIONAL CITY BANK OF NEW YORK

Juridical personality of an unregistered commercial

- While an unregistered commercial partnership has no juridical personality,

While an unregistered commercial partnership has no juridical personality, nevertheless, where

G.R. No. 84197

Respondents – 1. CA, 2. Border Machinery & Heavy Equipment,

G.R. No. 84157

Respondents – 2. CA, 3. Pioneer, 4.

G.R. No. 84197: Claims of

Partnership should be implied only when necessary to do justice between the

i. The contributions of the Contributors had been established on record;

▪ After receiving contributions, Lim proceeded with transacting the purchase

Petitions dismissed. Decision

Case Title Viuda de Chan v Pen, 53 Phil 906 (Telle)

i. The sum of P56,000 more or less;

IV. DISPOSITIVE PORTION

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