Digested Cases Fo Pat

8/10/2019 Digested Cases Fo Pat

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Article 1811

1.

Casteel vs Deluao

2. CLEMENTE,plaintiff-appellee,vs.

GALVAN,defendant-appellee.

Facts:

The intervenor Jose Echevarria having lost in the Court of

First Instance of manila which rendered judgment against him,

the pertinent portion of which reads: "and with respect to the

complaint of the intervenor, the mortgage executed in his

favor by plaintiff is declared null and void, and said complaint

in intervention, as well as the counterclaim filed by the

defendant against the intervenor, is dismissed, without

pronouncement as to costs," he appealed to this court on the

ground that, according to him, the lower court committed the

errors assigned in his brief as follows:

I. The court a quo erred in finding in the appealed

decision that plaintiff was unable to take possession

of the machines subject of the deed of mortgage

Exhibit B either before or after the execution thereof.

II. The court a quolikewise erred in deciding the

present case against the intervenor-appellant, on the

ground, among others, that "plaintiff has not adduced

any evidence nor has he testified to show that the

machines mortgaged by him to the intervenor have

ever belonged to him, notwithstanding that said

intervenor is his close relative.".

III. The lower court also erred in declaring null and

void the mortgage executed by plaintiff in favor of

the intervenor and, thereby, dismissing the complaint

in intervention.

IV. The lower court lastly erred in ordering the

receiver J. D. Mencarini to deliver to the defendant

the aforesaid machines upon petition of the plaintiff.

In order to have a clear idea of the question, it is proper to

state the facts bearing on the case as they appear in thedecision and judgment of the lower court and in the

documents which constitute all the evidence adduced by the

parties during the trial.

On June 6, 1931, plaintiff and defendant organized a civil

partnership which they named "Galvan y Compaia" 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. Hardly a year after such

organization, the plaintiff commenced the present case in the

above-mentioned court to ask for the dissolution of the

partnership and to compel defendant to whom the

management thereof was entrusted to submit an accounting of

his administration and to deliver to him his share as such

partner. 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. On petition of the plaintiff a receiver and

liquidator to take charge of the properties and business for the

partnership while the same was not yet definitely dissolved

was appointed, the person chosen being Juan D. Mencarini

The latter was already discharging the duties of his office

when the court, by virtue of a petition ex parteof the plaintiff

issued the order of May 24, 1933, requiring said receiver to

deliver to him (plaintiff) certain machines which were then at

Nos. 705-707 Ylaya Street, Manila but authorizing him to

charge their value of P4,500 against the portion which may

eventually be due to said plaintiff. To comply with said order

the receiver delivered to plaintiff the keys to the place where

the machines were found, which was the same place where

defendant had his home; but before he could take actua

possession of said machines, upon the strong opposition o

defendant, the court, on motion of the latter, suspended theeffects of its order of May 24, 1933. In the meantime the

judgments rendered in cases Nos. 42794 and 43070 entitled

"Philippine Education Co., Inc. vs.Enrique Clemente" for the

recovery of a sum of money, and "Jose Echevarria vs.Enrique

Clemente", also for the recovery of a sum of money,

respectively, were made executory; and in order to avoid the

attachment and subsequent sale of the machines by the sheriff

for the satisfaction from the proceeds thereof of the judgments

rendered in the two cases aforecited, plaintiff agreed with the

intervenor, who is his nephew, to execute, as he in fact

executed in favor of the latter, a deed of mortgage Exhibit B

encumbering the machines described in said deed in which i

is stated that "they are situated on Singalong Street No. 1163"which is a place entirely different from the house Nos. 705

and 707 on Ylaya Street hereinbefore mentioned. The one year

agreed upon in the deed of mortgage for the fulfillment by the

plaintiff of the obligation he had contracted with the

intervenor, having expired, the latter commenced case No

49629 to collect his mortgage credit. The intervenor, as

plaintiff in the said case, obtained judgment in his favor

because the defendant did not interpose any defense or

objection, and, moreover, admitted being really indebted to the

intervenor in the amount set forth in the deed of mortgage

Exhibit B. The machines which the intervenor said were

mortgaged to him were then in fact in custodia legis, as they

were under the control of the receiver and liquidator Juan D

Mencarini. It was, therefore, useless for the intervenor to

attach the same in view of the receiver's opposition; and the

question having been brought to court, it decided that nothing

could be done because the receiver was not a party to the case

which the intervenor instituted to collect his aforesaid credit

(Civil case No. 49629.) The question ended thus because the

intervenor did not take any other step until he thought of

joining in this case as intervenor.

1. From the foregoing facts, it is clear that plaintiff

could not obtain possession of the machines in

question. The constructive possession deducible from


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the fact that he had the keys to the place where the

machines were found (Ylaya Street Nos. 705-707), as

they had been delivered to him by the receiver, does

not help him any because the lower court suspended

the effects of the other whereby the keys were

delivered to him a few days after its issuance; and

thereafter revoked it entirely in the appealed decision.

Furthermore, when he attempted to take actual

possession of the machines, the defendant did not

allow him to do so. Consequently, if he did not have

actual possession of the machines, he could not in

any manner mortgage them, for while it is true that

the oft-mentioned deed of mortgage Exhibit B was

annotated in the registry of property, it is no less true

the machines to which it refers are not the same as

those in question because the latter are on Ylaya

Street Nos. 705-707 and the former are on Singalong

Street No. 1163. It can not be said that Exhibit B-1,

allegedly a supplementary contract between the

plaintiff and the intervenor, shows that the machines

referred to in the deed of mortgage are the same as

those in dispute and which are found on Ylaya Street

because said exhibit being merely a private

document, the same cannot vary or alter the terms ofa public document which is Exhibit B or the deed of

mortgage.

2. The second error attributed to the lower court is

baseless. The evidence of record shows that the

machines in contention originally belonged to the

defendant and from him were transferred to the

partnership Galvan y Compania. This being the case,

said machines belong to the partnership and not to

him, and shall belong to it until partition is effected

according to the result thereof after the liquidation.

3. The last two errors attributed by the appellant tothe lower court have already been disposed of by the

considerations above set forth. they are as baseless as

the previous ones.

In view of all the foregoing, the judgment appealed from is

affirmed, with costs against the appellant. So ordered

Article 1812

3. VILLAREAL, vs. RAMIREZ

A share in a partnership can be returned only after the

completion of the latters dissolution, liquidation and winding

up of the business.

Facts: On July 25, 1984Luzviminda J. Villareal, CarmelitoJose and Jesus Jose formed a partnership with a capital of

P750,000 for the operation of a restaurant and catering

business. Villareal was appointed general manager and

Carmelito Jose, operations manager. Respondent

DonaldoEfren C. Ramirez subsequently joined as a partner in

the business.

Jesus Jose withdrew from the partnership in January 1987, his

capital contribution of was refunded to him in cash. In the

same month, without prior knowledge of respondents

petitioners closed down the restaurant, allegedly because o

increased rental. The restaurant furniture and equipment were

deposited in the respondents house for storage.

Respondents informed petitioners of the intention to

discontinue it because of the formers dissatisfaction with, and

loss of trust in, the latters management of the partnership

affairs. Respondents consequently demanded from petitioners

the return of their one-third equity in the partnership.

The RTC ruled that the parties had voluntarily entered into a

partnership, which could be dissolved at any time. The CA

held that, although respondents had no right to demand the

return of their capital contribution, the partnership was

nonetheless dissolved when petitioners lost interest in

continuing the restaurant business with them.

Issue: Whether or not petitioners are liable to respondents for

the latters share in the partnership.

Held: NO. We hold that respondents have no right to demand

from petitioners the return of their equity share. Except a

managers of the partnership, petitioners did not personally

hold its equity or assets. The partnership has a juridica

personality separate and distinct from that of each of the

partners. Since the capital was contributed to the partnership

not to petitioners, it is the partnership that must refund the

equity of the retiring partners.

Since it is the partnership, as a separate and distinct entity, that

must refund the shares of the partners, the amount to berefunded is necessarily limited to its total resources. In othe

words, it can only pay out what it has in its coffers, which

consists of all its assets. However, before the partners can be

paid their shares, the creditors of the partnership must first be

compensated. After all the creditors have been paid, whatever

is left of the partnership assets becomes available for the

payment of the partners shares.

Petitioners argue that respondents acted negligently by

permitting the partnership assets in their custody to deteriorate

to the point of being almost worthless. The delivery of the

store furniture and equipment to private respondents was forthe purpose of storage. They were unaware that the restauran

would no longer be reopened by petitioners. Hence, the

former cannot be faulted for not disposing of the storeditems to recover their capital investment.

Article 1313

4. REALUBIT vs JASO

FACTS:Petitioner Josefina Realubit (Josefina) entered into aJoin


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Venture Agreementwith Francis Eric Amaury Biondo

(Biondo), a French national, for the operation of an ice

manufacturing business. With Josefina as the industrial

partner and Biondo as the capitalist partner, the parties agreed

that they would each receive 40% of the net profit, with the

remaining 20% to be used for the payment of the ice making

machine which was purchased for the business. For and in

consideration of the sum of P500,000.00, however, Biondo

subsequently executed aDeed of Assignment , transferring all

his rights and interests in the business in favor of respondent

Eden Jaso (Eden), the wife of respondent Prosencio Jaso.

With Biondo's eventual departure from the country, the

Spouses Jaso caused their lawyer to send Josefina a letter

dated 19 February 1998, apprising her of their acquisition of

said Frenchman's share in the business and formally

demanding an accounting and inventory thereof as well as the

remittance of their portion of its profits.

Faulting Josefina with unjustified failure to heed their demand,

the Spouses Jaso commenced the instant suit with the filing of

Complaint against Josefina, her husband, Ike Realubit (Ike),

and their alleged dummies, for specific performance,

accounting, examination, audit and inventory of assets and

properties, dissolution of the joint venture, appointment of areceiver and damages.

Spouses Realubit filed their Answer, specifically denying the

material allegations of the foregoing complaint. Claiming that

they have been engaged in the tube ice trading businessunder a single proprietorshipeven before their dealings withBiondo, the Spouses Realubit, in turn, averred that their said

business partner had left the country in May 1997 and could

not have executed theDeed of Assignmentwhich bears a

signature markedly different from that which he affixed on

theirJoint Venture Agreement; that they refused the Spouses

Jaso's demand in view of the dubious circumstances

surrounding their acquisition of Biondo's share in the businesswhich was established at Don Antonio Heights,

Commonwealth Avenue, Quezon City; that said business had

already stopped operations on 13 January 1996 when its plant

shut down after its power supply was disconnected by

MERALCO for non-payment of utility bills; and, that it was

their own tube ice trading business which had been moved to

66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon

City that the Spouses Jaso mistook for the ice manufacturing

business established in partnership with Biondo

RTC ruled in favor of Josefina Realubit ordered defendant

spouses Jaso to submit to plaintiffs a complete accounting and

inventory of the assets and liabilities of the joint venture from

its inception to the present. On appeal before the CA, the

foregoing decision was set set aside upon the finding that

Spouses Jaso validly acquired Biondo's share in the business

which had been transferred to and continued its operations,

hence this petition.

ISSUES:1. Whether or not there was a valid assignment of rights

to the joint venture.

2. Whether the court may order petitioner [josefina

realubit] as partner in the joint venture to render [a]n

accounting to one who is not a partner in said join

venture.

3.

Whether private respondents [spouses jaso] have any

right in the joint venture and in the separate ice

business of petitioner[s]

RULING:

1.

YES. It cannot be gainsaid that, as a public

document, theDeed of AssignmentBiondo executedin favor of Eden Jaso not only enjoys a presumption

of regularity but is also consideredprima

facieevidence of the facts therein stated. A party

assailing the authenticity and due execution of a

notarized document is, consequently, required to

present evidence that is clear, convincing and more

than merely preponderant.

In view of the Spouses Realubit's failure to discharge this

onus, we find that both the RTC and the CA correctly upheld

the authenticity and validity of saidDeed of Assignmentupon

the combined strength of the above-discussed disputable

presumptions and the testimonies elicited from Edenand

Notary Public Rolando Diaz.

2.

& 3. NO. Generally understood to mean an organization

formed for some temporary purpose, a joint venture is

likened to a particular partnership or one which "has for

its object determinate things, their use or fruits, or a

specific undertaking, or the exercise of a profession or

vocation."

Insofar as a partner's conveyance of the entirety of his interest

in the partnership is concerned, Article 1813 provides that

"(t)he transfer by a partner of his partnership interest doesnot make the assignee of such interest a partner of the

firm, nor entitle the assignee to interfere in themanagement of the partnership business or to receiveanything except the assignee's profits. The assignment doesnot purport to transfer an interest in the partnership, but only a

future contingent right to a portion of the ultimate residue as

the assignor may become entitled to receive by virtue of his

proportionate interest in the capital."

Since a partner's interest in the partnership includes his share

in the profits, we find that the CA committed no reversible

error in ruling that the Spouses Jaso are entitled to

Biondo'sshare in the profits, despite Juanita's lack of consen

to the assignment of said Frenchman's interest in the join

venture. Although Eden did not, moreover, become apartner as a consequence of the assignment and/or acquirethe right to require an accounting of the partnershipbusiness, the CA correctly granted her prayer for dissolutionof the joint venture conformably with the right granted to the

purchaser of a partner's interest under Article 1831 of the Civi

Code.

Article 1815

5. PETITION FOR AUTHORITY TO CONTINUE USEOF THE FIRM NAME "SYCIP, SALAZAR


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FELICIANO, HERNANDEZ & CASTILLO" and IN THEMATTER OF THE PETITION FOR AUTHORITY TOCONTINUE USE OF THE FIRM NAME "OZAETA,ROMULO, DE LEON, MABANTA & REYES."1979 / Melencio-Herrera / Obligations of partners with regard

to third persons > Partnership name

Two firms ask that they be allowed to continue using the

names of their firms despite the fact that Attys. Sycip and

Ozaeta died.

PETITIONERS ARGUMENTS1.

Under the law, a partnership is not prohibited fromcontinuing its business under a firm name that

includes the name of a deceased partner. NCC 1840explicitly sanctions the practice.

The use by the person or partnership

continuing the business of the partnership

name, or the name of a deceased partner as

part thereof, shall not of itself make the

individual property of the deceased partner

liable for any debts contracted by such

person or partnership.

2.

In regulating other professions(accountancy andengineering), the legislature has authorized the

adoption of firm names without any restriction asto the useof the name of a deceased partner.Thereis no fundamental policy that is offended by thecontinued use by a firm of professionals of a firmname,which includes the name of a deceased partner,

at least where such firm name has acquired the

characteristics of a "trade name."3. The Canons of Professional Ethics are not

transgressedby the continued use of the name of adeceased partner because Canon 33 of the Canons of

Professional Ethics adopted by the American Bar

Association declares that:The continued use of the name of a deceased

or former partner when permissible by local

custom, is not unethical but care should be

taken that no imposition or deception is

practiced through this use.

4.

There is no possibility of imposition or deception

because the deaths of their respective deceased

partners were well-publicized in all newspapers ofgeneral circulation for several days.Thestationeries now being used by them carry newletterheads indicating the years when theirrespective deceased partners were connected withthe firm.Petitioners will notify all leading nationaland international law directories of the fact of their

deceased partners' deaths.

5.

No local custom prohibits the continued use of adeceased partner's name in a professional firm's

name. There is no Philippine custom or usagethatrecognizes that thename of a law firm identifies thefirms individual members.

6.

The continued use of a deceased partner's name in the

firm name of law partnerships has been consistentlyallowed by U.S. Courtsand is an accepted practicein the legal profession of most countries.

ISSUE & HOLDINGWON they may be allowed to continue using the current

names of their firms. NO. Petitioners advised to drop thenames SYCIP and OZAETA from their respective firm names

Names may be included in the listing of individuals who have

been partners, indicating the years during which they served.

RATIOJURISPRUDENCE

The Deen case [1953] Court advised the firm todesist from including in their firm designation the

name of C. D. Johnston, who has long been dead

Register of Deeds of Manila v. China BankingCorporation[1958] In this case, the law firm ofPerkins & Ponce Enrile moved to intervene as amicus

curiae. The Court in a Resolution stated that it

"would like to be informed why the name of Perkins

is still being used although Atty. E. A. Perkins is

already dead." The Court advised the firm to drop the

name of E. A. Perkins from the firm name, and ruled

that no practice should be allowed which even in a

remote degree could give rise to the possibility of

deception.Deen case cited in the ruling.

Judicial decisions applying or interpreting the laws formpart of the legal system. The Supreme Court in the Deen andPerkins cases laid down a legal rule against which no custom

or practice to the contrary, even if proven, can prevail. This is

not to speak of our civil law which clearly ordains that a

partnership is dissolved by the death of any partner.Custom

which are contrary to law, public order or public policy shal

not be countenanced.

The use in their partnership names of the names ofdeceased partners will run counter to NCC 1815.

Art. 1815. Every partnership shall operate under a

firm name, which may or may not include the nameof one or more of the partners. Those who, not being

members of the partnership, include their names in

the firm name shall be subject to the liability of a

partner.

Names in a firm name of a partnership must either be those of

living partners andin the case of non-partners, should beliving persons who can be subjected to liability.NCC 1825prohibits a third person from including his name in the firm

name under pain of assuming the liability of a partner.

The heirs of a deceased partner in a law firm cannot

be held liable as the old members to the creditors of a firm

particularly where they are non-lawyers.Canon 34 of theCanons of Professional Ethicsprohibits an agreement for thepayment to the widow and heirs of a deceased lawyer of a

percentage, either gross or net, of the fees received from the

future business of the deceased lawyer's clients, both because

the recipients of such division are not lawyers and because

such payments will not represent service or responsibility on

the part of the recipient.Neither the widow nor the heirs can

be held liable for transactions entered into after the death of

their lawyer-predecessor. There being no benefits accruing

there can be no corresponding liability.

The public relations value of the use of an old firmname can tend to create undue advantages and


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disadvantages in the practice of the profession. An ablelawyer without connections will have to make a name for

himself starting from scratch. Another able lawyer, who can

join an old firm, can initially ride on that old firm's reputation

established by deceased partners.

ON ARGUMENT #1NCC 1840 is within Chapter 3 of Title IX entitled"Dissolution and Winding Up."It primarily deals with theexemption from liability in cases of a dissolved partnership, of

the individual property of the deceased partner for debts

contracted by the person or partnership, which continues the

business using the partnership name or the name of the

deceased partner as part thereof. What the law contemplates

therein is a hold-over situation preparatory to formal

reorganization.

Secondly, NCC 1840 treats more of a commercialpartnership with a good will to protect rather than of aprofessional partnership [with no saleable goodwill butwhose reputation depends on the personal qualifications of its

individual members]. A saleable goodwill can exist only in a

commercial partnership, not in a professional partnership

consisting of lawyers.

ON ARGUMENT #2A partnership for the practice of law cannot be likened topartnerships formed by other professionals or forbusiness. The law on accountancy specifically allows the useof a trade name in connection with the practice of

accountancy.

A partnership for the practice of law is not a legal

entity. It is a mere relationship or association for a particular

purpose. It is not a partnership formed to carry on trade or

business or of holding property. The use of a nom de plume,

assumed or trade name in law practice is improper.

Primary characteristics which distinguish the legalprofession from business1.

A duty of public service, of which the emolument is a

byproduct, and in which one may attain the highest

eminence without making much money

2.

A relation as an "officer of court" to the administration of

justice involving thorough sincerity, integrity, and

reliability

3.

A relation to clients in the highest degree fiduciary

4. A relation to colleagues at the bar characterized by

candor, fairness, and unwillingness to resort to current

business methods of advertising and encroachment on

their practice, or dealing directly with their clients

The right to practice law does not only presuppose in its

possessor integrity, legal standing and attainment, but also the

exercise of a special privilege, highly personal and partaking

of the nature of a public trust.

ON ARGUMENT #3Canon 33does not consider as unethical the continued use of

the name of a deceased or former partner when such a practice

is permissible by local custom,but the Canon warns that care

should be taken that no imposition or deception is practiced.

In the Philippines, no local custom permits orallowsthe continued use of a deceased or former partner's

name. Firm names, under our custom, identify the moreactive and/or more senior members or par tners of the law

firm.The possibility of deception upon the public, real or

consequential, where the name of a deceased partner continues

to be used cannot be ruled out. A person in search of lega

counsel might be guided by the familiar ring of a distinguished

name appearing in a firm title.

ON ARGUMENT #6U.S. Courts have allowed the continued use of a deceasedpartner's name because it is sanctioned by custom. Not soin this jurisdiction where there is no local custom thatsanctions the practice.

Custom has been defined as a rule of conduct formed

by repetition of acts, uniformly observed (practiced) as a

social rule, legally binding and obligatory. Courts take no

judicial notice of custom. A custom must be proved as a fact

according to the rules of evidence. A local custom as a source

of right cannot be considered by a court of justice unless such

custom is properly established by competent evidence like any

other fact.Merely because something is done as a matter of

practice does not mean that Courts can rely on the same for

purposes of adjudication as a juridical custom. Juridicacustom must be differentiated from social custom. The former

can supplement statutory law or be applied in the absence of

such statute.Not so with the latter.

The practice of law is related to the administration of justice

and should not be considered like an ordinary "money-making

trade."Petitioners' desire to preserve the identity of theirfirms in the eyes of the public must bow to legal andethical impediment.

Petitions DENIED

CONCURRENCE OF J. FERNANDOIt is out of delicadeza that the undersigned did not participatein the disposition of these petitions. Sycip Salazar started with

partnership of Quisumbing, Sycip, and Quisumbing, the senior

partner, the late Ramon Quisumbing, being the father-in-law

of the undersigned, and the most junior partner then, Norberto

J. Quisumbing, being his brother- in-law.

DISSENT OF J. AQUINOThe petition may be granted with the condition that it be

indicated in the letterheads of the two firms (as the case may

be) that A.Sycip, former J.Ozaeta and H.Ozaeta are dead or

the period when they served as partners should be stated

therein.

The purpose of the two firms in continuing the use of

the names of their deceased founders is to retain the clients

who had customarily sought the legal services of Attys. Sycip

and Ozaeta and to benefit from the goodwill attached to the

names of those respected and esteemed law practitioners. Tha

is a legitimate motivation. The retention of their names is no

illegal per se.

5.

JO CHUNG CANG vs. PACIFIC COMMERCIALCo.


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Facts:

In an insolvency proceedings of petitioner-establishment,

Sociedad Mercantile, Teck Seing &Co., Ltd., creditors,

Pacific Commercial and others filed a motion with the Court

to declare the individualpartners parties to the proceeding,

for each to file an inventory, and for each to be adjudicated as

insolvent debtors.

Issue:What is the nature of the mercantile establishment, Teck Seing

& Co., Ltd.?

Held: The contract of partnership established a general partnership.

By process of elimination, Teck Seing & Co., Ltd. Is not a

corporation nor an accidental partnership (joint account

association). To establish a limited partnership, there must be,

at least, one general partner and the name of at least one of

the general partners must appear in the firm name. This

requirement has not been fulfilled. Those who seek to avail

themselves of the protection of laws permitting the creation

of limited partnerships must the show a substantially full

compliance with such laws. It must be noted that all the

requirement sof the Code have been met w/ the sole exceptionof that relating to the composition of the firm name. The legal

intention deducible from the acts of the parties controls in

determining the existence of a partnership. If they intend to do

a thing w/c in law constitutes a partnership, they are partners

although their very purpose was to avoid the creation of such

relation. Here the intention of the persons making up, Teck

Seing & Co., Ltd. Was to establish partnership w/c they

erroneously denominated as a limited partnership

Article 1816

7.

Island sales vs United pioneers gen construction

This is an appeal interposed by the defendant Benjamin C.

Daco from the decision of the Court of First Instance of

Manila, Branch XVI, in Civil Case No. 50682, the dispositive

portion of which reads:

WHEREFORE, the Court sentences defendant United Pioneer

General Construction Company to pay plaintiff the sum of

P7,119.07 with interest at the rate of 12% per annum until it is

fully paid, plus attorneys fees which the Court fixes in the

sum of Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel

C. Sim and Augusto Palisoc are sentenced to pay the plaintiff

in this case with the understanding that the judgment against

these individual defendants shall be enforced only if the

defendant company has no more leviable properties with

which to satisfy the judgment against it. .

The individual defendants shall also pay the costs.

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.

Having failed to receive the installment due on July 22, 1961

the plaintiff sued the defendant company for the unpaidbalance amounting to P7,119.07. Benjamin C. Daco, Danie

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 tothem. Consequently, the trial court authorized the plaintiff to

present its evidence ex-parte3, after which the trial cour

rendered the decision appealed from.

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 o

the defendant company. But the trial court denied the said

motion notwithstanding the conformity of the plaintiff to limi

the liability of the defendants Daco and Sim to only one-fifth

(1/5 ) of the obligations of the defendant company. 4Hence

this appeal.

The only issue for resolution is 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.

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be

liablepro 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 authorizedto 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 civi

partnership as distinguished from a mercantile partnership

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 and in this case Pedro Yulo is responsible to plaintiff for


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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 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 defendantRomulo 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 Lumauigs

individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is

hereby AFFIRMED, without pronouncement as to costs.

SO ORDERED.

8. Elmo Muasque vs CA

Facts:

Elmo Muasque, in behalf of Galan and Muasque

partnership as Contractor, entered into a written contract with

Tropical Commercial Co., through its branch manager Ramon

Pons, for remodelling of Tropicals building in Cebu. The

consideration for the entire services is P25,000 to be paid:

30% upon signing of contract, and balance on 3 equal

instalments of P6,000 every 15working days.

First payment of check worth P7,000 was payable to

Muasque, who indorsed it to Galan for purposes of

depositing the amount and paying the materials already used.

But since Galan allegedly misappropriated P6,183.37 of thecheck for personal use, Muasque refused to indorse the

second check worth P6,000. Galan then informed Tropical of

the misunderstanding between him and Muasque and this

prompted Tropical to change the payee of the second check

from Muasque to Galan and Associates (the duly registered

name of Galan and Muasque partnership). Despite the

misappropriation, Muasque alone was able to finish the

project. The two remaining checks were properly issued to

Muasque.

Muasque filed a complaint for payment of sum of money

plus damages against Galan, Tropical and Pons for the amount

covered by the first and second checks. Cebu Southern

Hardware Co and Blue Diamond Glass Palace were allowed as

intervenors having legal interest claiming against Muasue

and Galan for materials used.

TC:

- Muasque and Pons jointly and severally liable to

intervenors

- Tropical and Pons absolved

CA affirmed with modification:

- Muasque and Pons jointly liable to intervenors

Issue:

1.

W/N Muasque and Galan are partners?

2.

W/N payment made by Tropical to Galan was good

payment?

3.

W/N Galan should shoulder exclusively the amounts

payable to the intervenors (granting he

misappropriated the amount from the two checks)?

Held:

yes-yes-no!

1.

YES. Tropical had every right to presume the

existence of the partnership:

a.

Contract states that agreement was entered into

by Galan and Muasque

b.

The first check issue in the name of Muasque

was indorsed to Galan

The relationship was made to appear as a partnership.

2.

YES. Muasque and Galan were partners when the

debts to the intervenors were incurred, hence, they

are also liable to third persons who extended credit to

their partnership.

There is a general presumption that each individuapartner is an authorized agent for the firm and that he

has authority to bind the firm in carrying on the

partnership transactions. The presumption is

sufficient to permit third persons to hold the firm

liable on transactions entered into by one of the

members of the firm acting apparently in its behalf

and within the scope of his authority

3. NO. Article 1816 BUT construed together with

Article 1824.

Art. 1816. All partners, including industrial ones

shall be liable pro rata x x x for the contracts whichmay be entered into the name and for the account of

the partnership, under its signature and by a person

authorized x x x

Art. 1824. All partners are liable solidarily with the

partnership for everything chargeable to the

partnership under Articles 1822 and 1823

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

of any partner acting in the ordinary course of the

business x x x or with the authority of his co-partners

loss or injury is caused to any person x x x

Art. 1823. The partnership is bound to make good

the loss:

(1)

Where one partner acting within the

scope of his apparent authority receives

money or property of a third person and

misapplies it, and

(2)

Where the partnership in the course o

its business receives money or property

of a third person x x x is misapplied by

any partner while it is in the custody of

the partnership.


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GR: In transactions entered into by the partnership,

the liability of the partners is merely joint

Exception: In transactions involving third persons

falling under Articles 1822 and 1823, such third

person may hold any partner solidarily liable for the

whole obligation with the partnership.

Reason for exception: the law protects him, who in

good faith relied upon the authority if a partner,

whether real or apparent.

However, as between Muasque and Galan, justice

also dictates reimbursement in favour of Muasque

as Galan was proven to be in bad faith in his dealings

with his partner.

9. PNB v. LoParties:

Philippine National Bank,plaintiff-appellee,

Severo Eugenio Lo, et al. defendants

Severio Eugenio Lo, Ng Khey Ling and Yep Seng, appellants

Facts: 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 ofmerchandise, 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 achattel 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 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.

Eugenio Los defense:

o Tai Sing & Co. was not a genera

partnership.

o Commercial credit in current account which

Tai Sing & Co. obtained from PNB had not

been authorized by the board nor was the

person who subscribed said contrac

authorized under the articles o

copartnership

Trial Court: in favor of PNB

ISSUE:

Whether or not Tai Sing & Co. is a general partnership

in that the appellants can be held liable to pay PNB

HELD:Yes. Tai Sing & Co. is a general partnership

RATIO: Appellants admit and it appears from the articles of

copartnership that Tai Sing & Co. is a genera

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 itsmembers, 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 commerciaassociations 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


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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.

10.

LA COMPAIA MARITIMA,plaintiff-appellant, vs. FRANCISCO MUOZ, ETAL.,defendants-appellees.

FACTS:

On the 31st day of March, 1905, the defendants Francisco

Muoz, Emilio Muoz, and Rafael Naval formed on ordinary

general mercantile partnership under the name of Francisco

Muoz & Sons for the purpose of carrying on the mercantile

business in the Province of Albay which had formerly been

carried on by Francisco Muoz. Francisco Muoz was a

capitalist partner and Emilio Muoz and Rafael Naval were

industrial partners.

The claim of the appellees that Emilio Muoz contributed

nothing to the partnership, either in property, money, or

industry, can not be sustained. He contributed as much as didthe 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 Muoz 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 from liability as a partner. The

argument of the appellees seems to be that, because no yearly

or monthly salary was assigned to Emilio Muoz, he

contributed nothing to the partnership and received nothingfrom 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 civi

partnerships, section 1683 of the Civil Code relates to the

same manner.

It is also said in the brief of the appellees that Emilio Muoz

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. That

partners in their articles can do this, admits of no doubt

Article 125 of the Code of Commerce requires them to state

the partners to whom the management is intrusted. This righ

is recognized also in article 132

ISSUE:

HELD:

Emilio Muoz was, therefore, a general partner, and the

important question in the case is whether, as such genera

partner, he is liable to third persons for the obligationscontracted by the partnership, 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.

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, inthe following manner: Three-fourths thereof for the

capitalist partner Francisco Muoz de Bustillo and

one-eighth thereof for the industrial partner Emilio

Muoz 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 capitalis

partner Francisco Muoz de Bustillo, without either

of the two industrial partners participating in such

losses.

In limited partnership the Code of Commerce recognizes adifference 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:


10/32

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.

Do the words "all the partners" found in this article include

industrial partners? The same expression is found in otherarticles of the code. In article 129 it is said that, if the

management of the partnership has not been limited by special

act to one of the partners, all shall have the right to participate

in the management. Does this mean that the capitalist partners

are the only ones who have that right, or does it include also

industrial partners? Article 132 provides that, when in the

articles of partnership the management has been intrusted to a

particular person, he can not be deprived of such management,

but that in certain cases the remaining partners may appoint a

comanager. Does the phrase "remaining partners" include

industrial partners, or is it limited to capitalist partners, and do

industrial partners have no right to participate in the selection

of the comanager? Article 133 provides that all the partners

shall have the right to examine the books of the partnership.Under this article are the capitalist partners the only ones who

have such right? Article 135 provides that the partners can not

use the firm name in their private business. Does this

limitation apply only to capitalist partners or does it extend

also to industrial partners? Article 222 provides that a general

partnership shall be dissolve by the death of one of the general

partners unless it is otherwise provided in the articles. Would

such a partnership continue if all the industrial partners should

die? Article 229 provides that upon a dissolution of a general

partnership it shall be liquidated by the former managers, but,

if all the partners do not agree to this, a general meeting shall

be called, which shall determine to whom the settlement of the

affairs shall be intrusted. Does this phrase "all the partners"include industrial partners, or are the capitalist partners the

only ones who have a voice in the selection of a manager

during a period of liquidation? Article 237 provides that the

private property of the general partners shall not be taken in

payment of the obligations of the partnership until its property

has been exhausted. Does the phrase "the general partners"

include industrial partners?

In all of these articles the industrial partners must be included.

It can not have been intended that, in such a partnership as the

one in question, where there were two industrial and only one

capitalist partner, the industrial partners should have no voice

in the management of the business when the articles ofpartnership were silent on that subject; that when the manager

appointed mismanages the business the industrial partners

should have no right to appoint a comanager; that they should

have no right to examine the books; that they might use the

firm name in their private business; or that they have no voice

in the liquidation of the business after dissolution. To give a

person who contributed no more than, say, P500, these rights

and to take them away from a person who contributed his

services, worth, perhaps, infinitely more than P500, would be

discriminate unfairly against industrial partners.

If the phrase "all the partners" as found in the articles other

than article 127 includes industrial partners, then article 127

must include them and they are liable by the terms thereof for

the debts of the firm.

But it is said that article 141 expressly declares to the contrary

It is to be noticed in the first place that this article does not say

that they shall not be liable for losses. Article 140 declares

how the profits shall be divided amongthe partners. This

article simply declares how the losses shall be divided amongthe partners. The use of the wordsse imputaran is significant

The verb means abonar una partida a alguno en su cuenta o

deducirla de su debito. Article 141 says nothing about third

persons and nothing about the obligations of the partnership.

While in this section the word "losses" stand's alone, yet in

other articles of the code, where it is clearly intended to

impose the liability to third persons, it is not considered

sufficient, but the word "obligations" is added. Thus article

148, in speaking of the liability of limited partners, uses the

phrase las obligaciones y perdidas. There is the same use of

the two same words in article 153, relating to anonymous

partnership. In article 237 the word "obligations" is used and

not the word "losses."

The claim of the appellees is that this 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. It is apparent that, when given

this construction, article 141 is directly in conflict with article

127. It is not disputed by the appellees that by the terms of

article 127 each one of the capitalist partners is liable for all of

the debts, regardless of the amount of his contribution, but the

construction which they put upon article 141 makes such

capitalist partners liable for only a proportionate part of the

debts.

There is no injustice in imposing this liability upon the

industrial partners. They have a voice in the management of

the business, if no manager has been named in the articles;

they share in the profits and as to third persons it is no more

than right that they should share in the obligations. It is

admitted that if in this case there had been a capitalist partner

who had contributed only P100 he would be liable for this

entire debt of P26,000.

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 each one of the industria

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


11/32

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. There it is stated that if, when the affairs of the

partnership are liquidated that is, at the end of five years

it turns out that there had been losses instead of gains, then the

capitalist partner, Francisco Muoz, shall pay such losses

that is, pay them to the industrial partners if they have been

compelled to disburse their own money in payment of the

debts of the partnership.

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 to1699.

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 ofAgustin vs. Inocencio,1justdecided by this court, it was alleged in the complaint, andadmitted 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 thepractice, 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.

But little light is thrown upon this question by the authorities

No judgment of the supreme court of Spain has been called to

our attention, and we have been able to find none which refers

in any way to this question. There is, therefore, no authority

from the tribunal for saying that an industrial partner is notliable to third persons for the debts of the partnership.

In a work published by Lorenzo Benito in 1889 (Lecciones de

derecho mercantil) it is said that industrial partners are not

liable for debts. The author, at page 127, divides general

partnership into ordinary and irregular. The irregular

partnership are those which include one or more industria

partners. It may be said in passing that his views can not apply

to this case because the articles of partnership directly state

that it is an ordinary partnership and do not state that it is an

irregular one. But his view of the law seems to be derived

from something other than the Code of Commerce now in

force. He says:

. . . but it has not been very fortunate in sketching the

characters of a regular collective partnership (since i

says nothing conclusive in reference to the irregular

partnership) . . . . (p. 127.)

And again:

This article would not need to be commented upon

were it not because the writer entirely overlooked the

fact that there might exist industrial partners who did

not contribute with capital in money, credits, or

goods, which partners generally participate in theprofits but not in the losses, and whose position must

also be determined in the articles of copartnership. (p

128.)

And again: lawphil.net

The only defect that can be pointed out in this article

is the fact that it has been forgotten that in collective

partnerships there are industrial partners who, no

being jointly liable for the obligations of the


12/32

copartnership, should not include their names in that

of the firm. (p. 129.)

As a logical result of his theory he says that an industrial

partner has no right to participate in the administration of the

partnership and that his name can not appear in the firm name.

In this last respect his view is opposed to that of Manresa, who

says (Commentaries on the Spanish Civil Code, vol. 11, p.

330):

It only remains to us to state that a partner who

contributes his industry to the concern can also

confer upon it the name or the corporate name under

which such industry should be carried on. In this

case, so long as the copartnership lasts, it can enjoy

the credit, reputation, and name or corporate name

under which such industry is carried on; but upon

dissolution thereof the aforesaid name or corporate

name pertains to the partner who contributed the

same, and he alone is entitled to use it, because such

a name or style is an accessory to the work of

industrial partner, and upon recovering his work or

his industry he also recovers his name or the style

under which he exercised his activity. It has thus

been decided by the French court of cassation in a

decision dated June 6, 1859.

In speaking of limited partnerships Benito says (p. 144) that

here are found two kinds of partners, one with unlimited

responsibility and the other with limited responsibility, but

adopting his view as to industrial partners, it should be said

that there are three kinds of partners, one with unlimited

responsibility, another with limited responsibility, and the

third, the industrial partner, with no responsibility at all. In

Estasen's recent publication on mercantile partnerships

(Tratado de las Sociedades Mercantiles) he quotes from the

work of Benito, but we do not understand that he commits

himself to the doctrines therein laid down. In fact, in his

former treatise,Instituciones de Derecho Mercantil (vol. 3, pp.

1-99), we find nothing which recognizes the existence of these

irregular general partnerships, or the exemption from the

liability to third persons of the industrial partners. He says in

his latter work (p. 186) that according to Dr. Benito the

irregular general partner originated from the desire of the

partnership to associate with itself some old clerk or employee

as a reward for his services and the interest which he had

shown in the affairs of the partnership, giving him in place of

a fixed salary a proportionate part of the profits of the

business. Article 269 of the Code of Commerce of 1829

relates to this subject and apparently provides that suchpartners shall not be liable for debts. If this article was the

basis for Dr. Benito's view, it can be so no longer, for it does

not appear in the present code. We held in the case of

Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere

agreement of that kind does not make the employee a partner.

An examination of the works of Manresa and Sanchez Roman

on the Civil Code, and of Blanco's Mercantile Law, will shows

that no one of these mentions in any way the irregular general

partnership spoken of by Dr. Benito, nor is there anything

found in any one of these commentaries which in any way

indicates that an industrial partner is not liable to third persons

for the debts of the partnership. An examination of the French

law will also show that no distinction of that kind is therein

anywhere made and nothing can be found therein which

indicates that the industrial partners are not liable for the debts

of the partnership. (Fuzier-Herman,Repertoire de Droi

Francais, vol. 34, pp. 256, 361, 510, and 512.)

Our conclusion is upon this branch of the case that neither on

principle nor on authority can the industrial partner be relievedfrom liability to third persons for the debts of the partnership.

It is apparently claimed by the appellee in his brief

that one action can not be maintained against the

partnership and the individual partners, this claim

being based upon the provisions of article 237 of the

Code of Commerce which provides that the private

property of the partners shall not be taken until the

partnership property has been exhausted. But this

article furnishes to argument in support of the

appellee's claim. An action can be maintained agains

the partnership and partners, but the judgment should

recognize the rights of the individual partners which

are secured by said article 237.

Article1818

11. Mendoza v Paule

Engineer Eduardo M. Paule (PAULE) is the proprietor of

E.M. Paule Construction and Trading (EMPCT). On May 24

1999, PAULE executed a special power of attorney (SPA)

authorizing Zenaida G. Mendoza (MENDOZA) to participate

in the pre-qualification and bidding of a National IrrigationAdministration (NIA) project and to represent him in all

transactions related thereto.

EMPCT, through MENDOZA, participated in the bidding of

the NIA-Casecnan Multi-Purpose Irrigation and Power Project

(NIA-CMIPP) and was awarded Packages A-10 and B-11 of

the NIA-CMIPP Schedule A.

When Manuel de la Cruz (CRUZ) learned that MENDOZA is

in need of heavy equipment for use in the NIA project, he met

up with MENDOZA in Bayuga, Muoz, Nueva Ecija, in an

apartment where the latter was holding office under an

EMPCT signboard.

On April 27, 2000, PAULE revoked the SPA he previously

issued in favor of MENDOZA; consequently, NIA refused to

make payment to MENDOZA on her billings. CRUZ

therefore, could not be paid for the rent of the equipment

Upon advice of MENDOZA, CRUZ addressed his demands

for payment of lease rentals directly to NIA but the latter

refused to acknowledge the same and informed CRUZ that i

would be remitting payment only to EMPCT as the winning

contractor for the project.


13/32

However, without resolving MENDOZAs motion to declare

PAULE non-suited, and without granting her the opportunity

to present her evidence ex parte, the trial court rendered its

decision holding PAULE liable. MENDOZA was duly

constituted as EMPCTs agent for purposes of the NIA proje ct

and that MENDOZA validly contracted with CRUZ for the

rental of heavy equipment that was to be used therefor. It

found unavailing PAULEs assertion that MENDOZA merely

borrowed and used his contractors license in exchange for aconsideration of 3% of the aggregate amount of the project.

The trial court held that through the SPAs he executed,

PAULE clothed MENDOZA with apparent authority and held

her out to the public as his agent; as principal, PAULE must

comply with the obligations which MENDOZA contracted

within the scope of her authority and for his benefit.

Furthermore, PAULE knew of the transactions which

MENDOZA entered into since at various times when she and

CRUZ met at the EMPCT office, PAULE was present and

offered no objections. The trial court declared that it would be

unfair to allow PAULE to enrich himself and disown his acts

at the expense of CRUZ.

CA: The appellate court held that the SPAs issued in

MENDOZAs favor did not grant the latter the authority to

enter into contract with CRUZ for hauling services; the SPAs

limit MENDOZAs authority to only represent EMPCT in its

business transactions with NIA, to participate in the bidding of

the project, to receive and collect payment in behalf of

EMPCT, and to perform such acts as may be necessary and/or

required to make the said authority effective. Thus, the

engagement of CRUZs hauling services was done beyond the

scope of MENDOZAs authority.

SC: Records show that PAULE and MENDOZA had entered

into a partnership in regard to the NIA project. PAULEs

contribution thereto is his contractors license and expertise,

while MENDOZA would provide and secure the needed funds

for labor, materials and services; deal with the suppliers and

sub-contractors; and in general and together with PAULE,

oversee the effective implementation of the project. For this,

PAULE would receive as his share three per cent (3%) of the

project cost while the rest of the profits shall go to

MENDOZA. PAULE admits to this arrangement in all his

pleadings.

Although the SPAs limit MENDOZAs authority to such actsas representing EMPCT in its business transactions with NIA,

participating in the bidding of the project, receiving and

collecting payment in behalf of EMPCT, and performing other

acts in furtherance thereof, the evidence shows that when

MENDOZA and CRUZ met and discussed (at the EMPCT

office in Bayuga, Muoz, Nueva Ecija) the lease of the latters

heavy equipment for use in the project, PAULE was present

and interposed no objection to MENDOZAs actuations. In his

pleadings, PAULE does not even deny this. Quite the

contrary, MENDOZAs actions were in accord with what she

and PAULE originally agreed upon, as to division of labor and

delineation of functions within their partnership. Under the

Civil Code, every partner is an agent of the partnership for the

purpose of its business; each one may separately execute al

acts of administration, unless a specification of their respective

duties has been agreed upon, or else it is stipulated that any

one of them shall not act without the consent of all the

others. At any rate, PAULE does not have any valid cause for

opposition because his only role in the partnership is toprovide his contractors license and expertise, while the

sourcing of funds, materials, labor and equipment has been

relegated to MENDOZA.

Moreover, it does not speak well for PAULE that he reinstated

MENDOZA as his attorney-in-fact, this time with broader

powers to implement, execute, administer and supervise the

NIA project, to collect checks and other payments due on said

project, and act as the Project Manager for EMPCT, even after

CRUZ has already filed his complaint. Despite knowledge tha

he was already being sued on the SPAs, he proceeded to

execute another in MENDOZAs favor, and even granted herbroader powers of administration than in those being sued

upon. If he truly believed that MENDOZA exceeded her

authority with respect to the initial SPA, then he would not

have issued another SPA. If he thought that his trust had been

violated, then he should not have executed another SPA in

favor of MENDOZA, much less grant her broader authority.

There was no valid reason for PAULE to revoke

MENDOZAs SPAs. Since MENDOZA took care of the

funding and sourcing of labor, materials and equipment for the

project, it is only logical that she controls the finances, whichmeans that the SPAs issued to her were necessary for the

proper performance of her role in the partnership, and to

discharge the obligations she had already contracted prior to

revocation. Without the SPAs, she could not collect from NIA

because as far as it is concerned, EMPCT and not the

PAULE-MENDOZA partnership is the entity it had

contracted with. Without these payments from NIA, there

would be no source of funds to complete the project and to

pay off obligations incurred. As MENDOZA correctly argues

an agency cannot be revoked if a bilateral contract depends

upon it, or if it is the means of fulfilling an obligation already

contracted, or if a partner is appointed manager of apartnership in the contract of partnership and his removal from

the management is unjustifiable.

12. Goquiolay vs Sycip

FACTS: Tan Sin An and Goquiolay entered into a genera

commercial partnership under the partnership name


14/32

Tan Sin An and Antonio Goquiolay for the purpose

of dealing in real estate.

The agreement lodged upon Tan Sin An the sole

management of the partnership affairs.

The lifetime of the partnership was fixed at ten years

and the Articles of Co-partnership stipulated that in

the event of death of any of the partners before the

expiration of the term, the partnership will not be

dissolved but will be continued by the heirs or

assigns of the deceased partner. But the partnership

could be dissolved upon mutual agreement in writing

of the partners.

Goquiolay executed a GPA in favor of Tan Sin An.

The plaintiff partnership purchased 3 parcels of land

which was mortgaged to La Urbana as payment of

P25,000. Another 46 parcels of land were purchased

by Tan Sin An in his individual capacity which he

assumed payment of a mortgage debt for P35K. A

downpayment and the amortization were advanced

by Yutivo and Co.

The two obligations were consolidated in an

instrument executed by the partnership and Tan Sin

An, whereby the entire 49 lots were mortgaged in

favor of Banco Hipotecario

Tan Sin An died

leaving his widow, Kong Chai Pin and four minor

children. The widow subsequently became the

administratrix of the estate.

Repeated demands were made by Banco Hipotecario

on the partnership and on Tan Sin An. Defendant

Sing Yee, upon request of defendant Yutivo Sons ,

paid the remaining balance of the mortgage debt, the

mortgage was cancelled

Yutivo Sons and Sing Yee filed their claim in the

intestate proceedings of Tan Sin An for advances,

interest and taxes paid in amortizing and discharging

their obligations to La Urbana and Banco

Hipotecario

Kong Chai Pin filed a petition with the probate court

for authority to sell all the 49 parcels of land. She

then sold it to Sycip and Lee in consideration of

P37K and of the vendees assuming payment of the

claims filed by Yutivo Sons and Sing Yee.

Later, Sycip and Lee executed in favor of Insular

Development a deed of transfer covering the 49

parcels of land.When Goquiolay learned about the

sale to Sycip and Lee, he filed a petition in the

intestate proceedings to set aside the order of the

probate court approving the sale in so far as his

interest over the parcels of land sold was concerned.

Probate court annulled the sale executed by the

administratrix w/ respect to the 60% interest of

Goquiolay over the properties Administratrix

appealed.

The decision of probate court was set aside

for failure to include the indispensable parties. New

pleadings were filed

The second amended complaint prays for the

annulment of the sale in favor of Sycip and Lee and

their subsequent conveyance to Insular Development.

The complaint was dismissed by the lower court

hence this appeal.

PLAINTIFFS ARGUMENTS: The plaintiffs in their

complaint challenged the authority of Kong Chai Pin to sel

the partnership properties on the ground that she had no

authority to sell because even granting that she became a

partner upon the death of Tan Sin An the power of attorney

granted in favor of the latter expired after his death.

DEFENDANTS ARGUMENTS: The defendants defended

the validity of the sale on the theory that she succeeded to al

the rights and prerogatives of Tan Sin An as managing partner

DECISIONS OF -- LOWER COURT: The trial court sustained the

validity of the sale on the ground that under the

provisions of the articles of partnership allowing the

heirs of the deceased partner to represent him in the

partnership after his death Kong Chai Pin became a

managing partner, this being the capacity held by Tan

Sin An when he died.

CA:

ISSUE/S:

Whether or not a widow or substitute become also a genera

partner or only a limited partner.

Whether or not the lower court err in holding that the widow

succeeded her husband Tan Sin An in the sole management of

the partnership upon Tans death

Whether or not the consent of the other partners was necessary

to perfect the sale of the partnership properties to Sycip and

Lee?

HELD:

Kong Chai Pin became a mere general partner. By seeking

authority to manage partnership property, Tan Sin Ans widow

showed that she desired to be considered a general partner. By

authorizing the widow to manage partnership property (which

a limited partner could not be authorized to do), Goqulay

recognized her as such partner, and is now in estoppel to deny

her position as a general partner, with authority to administer

and alienate partnership property.

The articles did not provide that the heirs of the deceasedwould be merely limited partners; on the contrary, they

expressly stipulated that in case of death of either partner, the

co partnership will have to be continued with the heirs or

assignees. It certainly could not be continued if it were to be

converted from a general partnership into a limited partnership

since the difference between the two kinds of associations is

fundamental, and specially because the conversion into a

limited association would leave the heirs of the deceased

partner without a share in the management. Hence, the

contractual stipulation actually contemplated that the heirs

would become general partners rather than limited ones.


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Separate Opinion: Justice Angelo Bautista

The court affirmed the decision but on different grounds,

among which are: (1) there is no sufficient factual basis to

conclude that Kong Chai Pin executed acts of management to

give her the character of general manager of the partnership,

or to serve as basis for estoppel that may benefit the

purchasers of the partnership properties; (2) the alleged acts of

management, even if proven, could not give Kong Chai Pinthe character of general manager for the same is contrary to

law and well- known authorities; (3) even if Kong Chai Pin

acted as general manager she has no authority to sell the

partnership properties as to make it legal and valid; and (4)

Kong Chai Pin had no necessity to sell the properties to pay

the obligation of the partnership and if she did so it was

merely to favor the purchasers who were close relatives to the

prejudice of Goquiolay.

The sale of the partnership properties by Kong Chai Pin

cannot be upheld on the ground of estoppel, first, because the

alleged acts of management have not been clearly proven.

Moreover, mere acceptance of the inheritance does not make

the heir of a general partner a general partner himself. He

emphasized that heir must declarethat he is entering the

partnership as a general partner unless the deceased partner

has made it an express condition in his will that the heir

accepts the condition of entering the partnership as a

prerequisite of inheritance, in which case acceptance of the

inheritance is enough. But here Tan Sin An died intestate.

Kong Chai Pin cannot be deemed to have declared her

intention to become a general partner by exercising acts of

management because as a general rule the heirs of a deceased

partner succeed as limited partners only by operation of law, it

is obvious that the heir, upon entering the partnership, must

make a declaration of his character, otherwise he should be

deemed as having succeeded as limited partner by the mere

acceptance of the inheritance. And here Kong Chai Pin did not

make such declaration. Being then a limited partner upon the

death of Tan Sin An by operation of law, the peremptory

prohibition contained in Article 148 of the Code of Commerce

became binding upon her and as a result she could not change

her status by violating its provisions not only under the

general principle that prohibited acts cannot produce any legal

effect, but also because under the provisions of Article 147 of

the same Code she was precluded from acquiring more rights

than those pertaining to her as a limited partner. The alleged

acts of management, therefore, did not give Kong Chai Pin the

character of general manager to authorize her to bind thepartnership.

Kong Chain Pin could not sell the partnership properties

without authority from the other partners. the relationship

between a managing partner and the partnership is

substantially the same as that of the agent and his principal,

the extent of the power of Kong Chai Pin must, therefore, be

determined under the general principles governing agency.

And, on this point, the law says that an agency created in

general terms includes only acts of administration, but with

regard to the power to compromise, sell mortgage, and other

acts of strict ownership, an express power of attorney is

required. Here Kong Chai Pin did not have such power when

she told the prope

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