agency and partnership digests #9

Compiled Partnership Digests #4

AJ | Amin | Cha | Janz | Krizel | Paco | Vien | Yen

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In re Sycip

92 SCRA 1

Facts: Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue using, in the names of their firms, the names of partners who had passed away. Jurisprudence: the Deen case: the matter was resolved with this Court

advising the firm to desist from including in their firm designation the name of C. D. Johnston, who has long been dead.

Register of Deeds of Manila vs. China Banking Corporation: in view of the personal and confidential nature of the relations between attorney and client, and the high standards demanded in the canons of professional ethics, no practice should be allowed which even in a remote degree could give rise to the possibility of deception. Said attorneys are accordingly advised to drop the name "PERKINS" from their firm name.

Issue: Petitioners seek a re-examination of the policy thus far enunciated by the Court.

Held: The Court finds no sufficient reason to depart from the rulings thus laid down. The petitions filed herein are denied and petitioners advised to drop the names "SYCIP" and "OZAETA" from their respective firm names. Those names may, however, be included in the listing of individuals who have been partners in their firms indicating the years during which they served as such. Ratio: Arguments of Petitioners Court Petitioner’s arguments: 1. Under the law, a

partnership is not prohibited from continuing its business under a firm name which includes the name of a deceased partner; in fact, Article 1840 of the Civil Code explicitly sanctions the practice

the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code1

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.

Accordingly, 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 ran be no

1 Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of 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.

corresponding liability. The public relations value of

the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession. An able lawyer 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.

In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners:

1) The Article primarily

deals with the exemption 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.

2) Article 1840 treats more of a commercial partnership with a good will to protect rather than of a professional partnership, with no saleable good will but whose reputation depends on the personal qualifications of its individual members. Thus, it has been held that a saleable goodwill can exist only in a commercial partnership and cannot arise in a professional partnership consisting of lawyers

2. the legislative authorization given to those engaged in the practice of accountancy — a profession

A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for



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requiring the same degree of trust and confidence in respect of clients as that implicit in the relationship of attorney and client — to acquire and use a trade name, strongly indicates that there is no fundamental policy that is offended by the continued use by a firm of professionals of a firm name which includes the name of a deceased partner, at least where such firm name has acquired the characteristics of a "trade name."

business. For one thing, the law on accountancy specifically allows the use of a trade name in connection with the practice of accountancy.

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner in the firm name of a law partnership

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

It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or former partner in the firm name of a law partnership 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 through this use.

The continued use of a firm name after the death of one or more of the partners designated by it is proper only where sustained by local custom and not where by custom this purports to Identify the active members. ...

5. There is no possibility of imposition or deception because the deaths of their respective deceased partners were well-publicized in all newspapers of general circulation for several days;

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 legal counsel might be guided by the familiar ring of a distinguished name appearing in a firm title

2. The continued use of a deceased partner's name in the firm name of law partnerships has been consistently allowed by U.S. Courts and is an accepted practice in the legal profession of most countries in the world.

We find such proof of the existence of a local custom, and of the elements requisite to constitute the same, wanting herein. 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. Juridical custom 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.

Litton v. Hill

67 Phil 509

FACTS

On February 14, 1934, the plaintiff sold and delivered to Carlos

Ceron, who is one of the managing partners of Hill & Ceron, a

certain number of mining claims. Ceron paid to the plaintiff the

sum or P1,150 leaving an unpaid balance of P720, and unable to

collect this sum either from Hill & Ceron or from its surety

Visayan Surety & Insurance Corporation, Litton filed a complaint

in the Court of First Instance of Manila against the said

defendants for the recovery of the said balance. The court, after

trial, ordered Carlos Ceron personally to pay the amount claimed

and absolved the partnership Hill & Ceron, Robert Hill and the

Visayan Surety & Insurance Corporation. The CA affirmed the

decision of the court on May 29, 1937, having reached the

conclusion that Ceron did not intend to represent and did not act

for the firm Hill & Ceron in the transaction involved in this

litigation.

Issue: Did the transaction bind the partnership or Ceron only?

Held: While the transaction was entered into by Ceron, it bound

the partnership. Robert Hill had the same power to buy and sell;

that in said partnership Hill as well as Ceron made the

transaction as partners in equal parts; that on the date of the

transaction, February 14, 1934, the partnership between Hill and

Ceron was in existence. After this date, or on February 19th, Hill

& Ceron sold shares of the BigWedge; and when the transaction

was entered into with Litton, it was neither published in the

newspapers nor stated in the commercial registry that the

partnership Hill & Ceron had been dissolved.

The SC dissented from the view of the CA that for one of the

partners to bind the partnership the consent of the other is

necessary.Third persons, like the plaintiff, are not bound in

entering into a contract with any of the two partners, to ascertain

whether or not this partner with whom the transaction is made

has the consent of the other partner.The public need not make

inquires as to the agreements had between the partners. Its

knowledge, is enough that it is contracting with the partnership

which is represented by one of the managing partners.

The second paragraph of the articles of partnership of Hill &

Ceron reads in part:



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Second:That the purpose or object for which this

copartnership is organized is toengage in the business

of brokerage in general, such as stock and bond brokers,

realbrokers, investment security brokers, shipping

brokers, and other activities pertainingto the business

of brokers in general.

The kind of business in which the partnership Hill & Ceron is to

engage being thus determined, none of the two partners, under

article 130 of the Code of Commerce, may legally engage in the

business of brokerage in general as stock brokers, security

brokers and other activities pertaining to the business of the

partnership. Ceron, therefore, could not have entered into the

contract of sale of shares with Litton as a private individual, but

as a managing partner of Hill & Ceron

The stipulation in the articles of partnership that any of the two

managing partners may contract and sign in the name of the

partnership with the consent of the other, undoubtedly creates

an obligation between the two partners, which consists in asking

the other's consent before contracting for the partnership.This

obligation of course is not imposed upon a third person who

contracts with the partnership. Neither is it necessary for the

third person to ascertain if the managing partner with whom he

contracts has previously obtained the consent of the other. A

third person may and has a right to presume that the partner

with whom he contracts has, in the ordinary and natural course

of business, the consent of his copartner; for otherwise he would

not enter into the contract.The third person would naturally not

presume that the partner with whom he enters into the

transaction is violating the articles of partnership but, on the

contrary, is acting in accordance therewith. And this finds

support in the legal presumption that the ordinary course of

business has been followed.

If we are to interpret the articles of partnership in question by

holding that it is the obligation of the third person to inquire

whether the managing copartner of the one with whom he

contracts has given his consent to said contract, which is

practically casting upon him the obligation to get such consent,

this interpretation would, in similar cases, operate to hinder

effectively the transactions, a thing not desirable and contrary to

the nature of business which requires promptness and dispatch

one the basis of good faith and honesty which are always

presumed.

Resolution:

Hill asked for a reconsideration, using the same arguments,

saying that he did not consent to the deal of Ceron. The SC

reiterated what they said, and mentioned that had Ceron in any

way stated to the appellant at the time of the execution of the

contract, or if it could be inferred by his conduct, that he had the

consent of Hill, and should it turn out later that he did not have

such consent, this alone would not annul the contract judging

from the provisions of article 130 of the Code of Commerce

reading as follows:

No new obligation shall be contracted against the will of

one of the managing partners, should he have expressly

stated it; but if, however, it should be contracted it shall

not be annulled for this reason, and shall have its effects

without prejudice to the liability of the partner or

partners who contracted it to reimburse the firm for any

loss occasioned by reason thereof.

Goquiolay v. Sycip

9 SCRA 663

The matter now pending is the appellant's motion for

reconsideration of an earler decision, wherein the SC upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An (Executed in her dual capacity as Administratrix of the husband's estate and as partner in lieu of the husband), in favor of the buyers Washington Sycip and Betty Lee for the following consideration:

GOQUILAY: insist that, contrary to the holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law to manage the affairs of partnership; that the testimony of her witness Young and Lim belies that she took over the administration of the partnership property; and that, in any event, the sale should be set aside because it was executed with the intent to defraud appellant of his share in the properties sold.

SC: Facts basic and beyond controversy: o That we are dealing here with the transfer of partnership

property by one partner, acting in behalf of the firm, to a stranger. There is no question between partners inter se, and this aspect to the case was expressly reserved in the main decision of 26 July 1960;

o That partnership was expressly organized: "to engage in real estate business, either by buying and selling real estate". The Articles of co-partnership, in fact, expressly provided that:

o IV. The object and purpose of the copartnership are as follows: To engage in real estate business, either by buying and selling real estates; to subdivide real estates into lots for the purpose of leasing and selling them.;

o That the properties sold were not part of the contributed capital (which was in cash) but land precisely acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the partnership had acquired them.

WON Kong Chai Pin managed and retained possession of the partnership properties- YES

Goquiolay himself admitted that —... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as) she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural lands. I allowed her to take care of the properties in order to help her and because I believe in God and — wanted to help her.



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The appellant subsequently ratified this testimony in his deposition, wherein he stated: “that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are receiving quiet a lot benefit from the plantation.”

Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater weight than those of Hernando Young and Rufino Lim, having been made against the party's own interest.

Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the properties). Witnesses Lim and Young referred to the period of Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in 1945, after the occupation.

Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of management during the Japanese occupation (1942-1944) does not mean that she did not do so from 1945 to 1949.

Goquiolay did not merely rely on reports from Lim and Young; he actually manifested his willingness that the widow should manage the partnership properties. Whether or not she complied with this authority is a question between her and the appellant, and is not here involved. But the authority was given, and she did have it when she made the questioned sale, because it was never revoked.

WON the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property, and that it did not include the power to alienate- NO The widow was not a mere agent, because she had become a

partner upon her husband's death, as expressly provided by the articles of copartnership.

Even more, granting that by succession to her husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization to manage the partnership property was proof that he considered and recognized her as general partner, at least since 1945.

The reason is plain: Under the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a limited partner, to administer the properties of the firm, even as a mere agent:

“Limited partners may not perform any act of administration with respect to the interests of the copartnership, not even in the capacity of agents of the managing partners.”

By seeking authority to manage partnership property, Tan Sin An's 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), Goquiolay 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.

It must be remember that the articles of co-partnership here involved expressly stipulated that:

“In the event of the death of any of the partners at any time before the expiration of said term, the co-partnership shall not be dissolved but will have to be continued and the deceased partner shall be represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership)”.

The Articles did not provide that the heirs of the deceased would 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 assigns

It is immaterial that the heir's name was not included in the firm name, since no conversion of status is involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs into the partnership.

It must never be overlooked that this case involved the rights acquired by strangers, and does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter se were expressly reserved in our main decision.

Knowing that by law a limited partner is barred from managing the partnership business or property, third parties (like the purchasers) who found the widow possessing and managing the firm property with the acquiescence (or at least without apparent opposition) of the surviving partners were perfectly justified in assuming that she had become a general partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in behalf of the firm.

For seven years Goquiolay could have asserted his alleged rights, and by suitable notice in the commercial registry could have warned strangers that they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was not interested, and he did not even take steps to pay, or settle the firm debts that were overdue since before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the management of the partnership.

This laches certainly contributed to confirm the view that the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties apart from the presumption that a general partner dealing with partnership property has to requisite authority from his co-partners (Litton vs. Hill and Ceron, et al).

The stipulation in the articles of partnership that any of the two managing partners may contract and sign in the name of the partnership with the consent of the other, undoubtedly creates on obligation between the two partners, which consists in asking the other's consent before contracting for the partnership.

This obligation of course is not imposed upon a third person who contracts with the partnership. Neither it is necessary for the third person to ascertain if the managing partner with whom he contracts has previously obtained the consent of the other. A third person may and has a right to presume that the partner with whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for otherwise he would not enter into the contract.

The third person would naturally not presume that the partner with whom he enters into the transaction is violating the articles of partnership, but on the contrary is acting in accordance therewith. And this finds support in the legal presumption that the ordinary course of business has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334).

WON the widow, even as a partner, had no authority to sell the

real estate of the firm. Where the partnership business is to deal in merchandise and

goods, i.e., movable property, the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not in line with the normal business of the firm.



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But where the express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm from part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the ordinary powers of the partner. Since the sale by the widow was in conformity with the express objective of the partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it can not be maintained that the sale was made in excess of her power as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the sale included even the fixtures used in the business; in our case, the lands sold were those acquired to be sold. In the McGrath case, none of the creditors were pressing for payment; in our case, the creditors had been unpaid for more than seven years, and their claims had been approved by the probate court for payment. In the McGrath case, the partnership received nothing beyond the discharge of its debts; in the present case, not only were its debts assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath ruling is not applicable.

WON there was fraud - NO

No direct evidence of it exists To show that the price was inadquate, appellant relies on the

testimony of the realtor Mata, who is 1955, six years after the sale in question, asserted that the land was worth P312,000.00.

Taking into account the continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy" as to justify recission of the sale.

With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking)

. There is no evidence that the original buyers, Washington Sycip and Betty Lee, were without independent means to purchase the property. That the Yutivos should be willing to extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these buyers did not have a record of inveterate defaults like the partnership "Tan Sin An & Goquiolay". A final and conclusive consideration: The fraud charged not being one used to obtain a party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud of creditors that gives rise to a rescission of the offending contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for rescission is subsidiary; it can not be instituted except when the party suffering damage has no other legal means to obtain reparation for the same". Separate Opinions BAUTISTA ANGELO, J., dissenting: Labrador, Paredes, and Makalintal, JJ., concur.

It is unquestionable that Goquiolay was merely repeating an information given to him by a third person, Hernando Young — he stressed this point twice.

A careful analysis of the substance of Goquiolay's testimony will show that he merely had no objection to allowing Kong Chai Pin to continue attending to the properties in order to give her some

means of livelihood, because, according to the information given him by Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of livelihood. But certainly he made it very clear that he did not allow her to manage the partnership when he explained his reason for refusing to sign a general power of attorney for Kong Chai Pin which her counsel, Atty. Zuño, brought with him to his house in 1948. He said: “... Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and he asked me if I could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño what is the use of executing a general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that plantation for agricultural purposes, I said for agricultural purposes she can use that plantation ... (T.S.N. p. 9, Hearing on May 5, 1955)”

It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of management of the partnership properties is highly controverted. T

he most that we can say is that the alleged acts are doubtful more so when they are disputed by the defendants themselves who later became the purchasers of the properties, and yet these alleged acts, if at all, only refer to management of the properties and not to management of the partnership, which are two different things.

In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly proven; second, because the record clearly shows that the defendants, or the buyers, were not misled nor did they rely on the acts of management, but instead they acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as managing partner by operation of law; and third, because the defendants are themselves estopped to invoke a defense which they tried to dispute and repudiate.

Garrigues, a well-known commentator, is clearly of the opinion that mere acceptance of the inheritance does not maked the heir of a general partner a general partner himself.

He emphasized that heir must declare that he is entering the partnership as a general partner unless the deceased partner has made it an express condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of inheritance, in which case acceptance of the inheritance is enough.1 But here Tan Sin An died intestate.

In consonance with our ruling that as a general rule the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious that the heirs, upon entering the partnership, must make a declaration of his characters, 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 authorized her to bind the partnership.

The act of one partner, to bind the firm, must be necessary for the carrying one of its business. If all that can be said of it was that it



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was convenient, or that it facilitated the transaction of the business of the firm, that is not sufficient, in the absence of evidence of sanction by other partners. Nor, it, seems, will necessity itself be sufficient if it be an extraordinary necessity. What is necessary for carrying on the business of the firm under ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126. While, within this rule, one member of a partnership may, in the usual and ordinary course of its business, make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its effects intended for sale, to a bona fide purchaser of mortgagee, without the consent of the other members of the firm, it is not within the scope of his implied authority to make a final disposition of al of its effects, including those employed as the means of carrying on its business, the object and effect of which is to immediately terminate the partnership, and place its property beyond its control. Such a disposition, instead of being within the scope of the partnership business, or in the usual and ordinary way of carrying it on, is necessarily subversive of the object of the partnership, and contrary to the presumed intention of the partnership in its formation. (McGrath, et al. vs. Cowen). Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but to pay its obligation without first obtaining the consent of the other partners the sale is invalid in excess of her authority.

Goquiolay v. Sycip

108 Phil 947

Facts:

1940: Goquiolay and Tan Sin An were partners who owned 3 parcels of land. On the same date that the partnership acquired these, Tan Sin An purchased 46 parcels of land. Both the partnership and Tan Sin An alone executed mortgages in favor of the same company, “La Urbanidad Sociedad Mutua de Construccion”. For the partnership, it was P25,000 while for Tan Sin An, it was P35,000. A few months later, the two mortgage obligations were consolidated and transferred to the Banco Hipotecario de Filipinas and as a result, Tan Sin An, in his individual capacity, and the partnership bound themselves to pay jointly and severally the total amount of P52,282.20, with 8% annual interest thereon within a period of eight years mortgaging in favor of said entity the 3 parcels of land belonging to the partnership and the 46 parcels of land belonging individually to Tan Sin An.

1942: Tan Sin An died, his widow, Kong Chai Pin was made Administratrix of his estates in 1944. In 1949, she executed a sale of these lands. This was executed in her dual capacity as Administratrix of her husband’s estates and as partner in lieu of her husband. She sold these to respondents Washington Sycip and Betty Lee.

We note the following in this situation: o We are dealing with the transfer of partnership property by

one partner, acting in behalf of the firm, to a stranger. There is no question between the partners inter se.

o The partnership was expressly organized to engage in real estate business, either by buying and selling real estate. These are expressly provided for in the Articles of co-partnership.

o The properties sold were not part of the contributed capital but land precisely acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the partnership had acquired them.

Regardless of the previous ruling by the Supreme Court for the respondents, the petitioners still filed this motion for reconsideration.

Issue: W/N Tan Sin An’s widow, Kong Chai Pin, became partner when her husband died, allowing her to validly sell the property that belongs to the partnership. YES.

Goquiolay insists that Kong Chai Pin never became more than a limited partner, incapacitated by law to manage the affairs of partnership; that the testimony of Kong’s witnesses belie that she took over the administration of the partnership property; and that, in any event, the sale should be set aside because it was executed with the intent to defraud Goquiolay of his share in the properties sold.

Based on the sequence of events (as taken from the testimonies of Goquiolay and Kong Chai Pin’s witnesses, Young and Lim), Young and Lim observed that most of the properties were undeveloped and some were occupied by the Japanese Army during the Japanese Occupation from 1942-1944. Goquiolay then admitted that in 1945, after the Japanese Occupation, he allowed the widow to continue managing the properties. The sale made by Kong Chai Pin was in 1949. Clearly, the testimonies of the widow’s witnesses do not contradict Goquiolay’s admission. He had given her authority after the occupation while witnesses were referring to the time of the Japanese period. And this authority was never revoked until now.

Goquiolay tried to argue that Kong Chai Pin only had the authority to manage the property and did not include the power to alienate, citing Art. 1713 of the Civil Code of 1889. What this argument overlooks is that the widow was not a mere agent because she had become partner upon her husband’s death, which was expressly stipulated in the articles of co-partnership. The stipulation in the articles of co-partnership imply that there is a general partnership, and not merely a limited one, because since “the co-partnership…will have to be continued” with the heirs and assigns, it cannot continue if the partnership would be converted to a limited one upon death of one of the partners.

And even though she only became a limited partner at her husband’s death as Goquiolay claims, Goquilay’s authorization to manage the property was proof that he considered her and recognized her as a general partner, at least since 1945. Take note that if she were only a limited partner, under the Code of Commerce, Art. 148, last paragraph: o Limited partners may not perform any act of administration

with respect to the interest of the copartnership, not even in the capacity of agents of the managing partners.

Goquiolay is estopped from saying that Kong Chai Pin is not a general partner because he granted her the authority to manage the partnership properties. Also, the heir ordinarily becomes a limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value of the estate inherited so as not to jeopardize his personal assets, however, he may also elect to become general partner instead. This is a choice exclusively to be made by the heir, because as general partner, he may have all the rights and privileges of one, and answering got the debts of the firm not only with the inheritance but also with the heir’s personal fortune. In addition to this authority, the Court had yet again stressed the fact that he had 7 years between the death of his partner and the sale made by his partner’s widow to take up



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the management of the properties himself, which he clearly failed to do.

General Rule: Stipulations made between partners in the articles of co-partnership which require that any of the two managing partners may contract in the name of the partnership with the consent of the other, creates an obligation between the two partners BUT shall not impose the same obligation to a third person who contracts with the partnership. This means that a third person has the right to presume that the partner he contracts with already has the consent of his partner when they both enter into a contract.

In a partnership that deals with real estate, it is presumed that every partner already has ample power, as a general agent of the firm, to enter into an executory contract for the sale of real estate. (American cases: Rosen v. Rose, Chester v. Dickerson, Revelsky v. Brown) In this case, since the articles of co-partnership expressly stipulate that the business of the partnership is in the buying and selling of real estate, it cannot be maintained that the sale Kong Chai Pin made was in excess of her power as a general partner.

Obiter (very quick summary only, read the case for a lengthier explanation ):

There is no fraud: first of all, the price was already approved by the Court in the previous case, even if the petitioners claim it to be much too low. The relationship between the buyers of the lands and Kong Chai Pin alone cannot be a badge of fraud. There is no proof that the buyers were without independent means to purchase the property. Goquiolay has no proof that he was a victim of a conspiracy because he has no proof.

Dispositive: Premises considered, the motion for reconsideration is denied.

DISSENT (Bautista Angelo, J.):

The facts of the case were told a bit differently in the dissent.

1946: Two companies (Yutivo Sons Hardware co. and Sing, Yee and Cuan Co. filed claims in the intestate proceeding in Tan Sin An because Tan Sin An himself and the partnership with Goquiolay had obligations to him. And when Goquiolay refused to sell his interest to the companies, these went after the deceased partner’s estate.

1948: It appears that Goquiolay actually refused to grant Kong Chai Pin a power of attorney when she requested for one .

1949: Kong Chai Pin filed a petition in the probabte court to sell the properties of the partnership and some conjugal properties for the purpose of paying these claims. This was approved by the court and then she then begun to presume the role of managing partner.

The dissenting opinion stresses on the following points:

(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;

o “…we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly proven; second, because the record clearly shows that the defendants, or the buyers, were not misled nor did they rely on the acts of management, but instead they acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as managing partner by operation of law; and third, because the defendants are themselves estopped to invoke a defense which they tried to dispute and repudiate.”

(2) the alleged acts of management, even if proven, could not give Kong Chai Pin the character of general manager for the same contrary to law and well-known authorities;

o “Garrigues, a well-known commentator, is clearly of the opinion that mere acceptance of the inheritance does not make the heir of a general partner a general partner himself. He emphasized that heir must declare that he is entering the partnership as a general partner unless the deceased partner has made it an express condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of inheritance, in which case acceptance of the inheritance is enough. But here Tan Sin An died intestate.”

(3) even if Kong Chai Pin acted as general manager she had no authority to sell the partnership properties as to make it legal and valid; and

o Article 129 of the Code of Commerce says: —

If the management of the general partnership has not been limited by special agreement to any of the members, all shall have the power to take part in the direction and management of the common business, and the members present shall come to an agreement for all contracts or obligations which may concern the association.

o the pertinent portions of the articles of partnership provides:

“VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his authorized agent, and it is expressly stipulated that the managing partner may delegate the entire management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or corporation he may select, upon such terms as regards compensation as he may deem proper, and vest in such person, firm or corporation full power and authority, as the agent of the co-partnership and in his name, place and stead to do anything for it or on his behalf which he as such managing partner might do or cause to be done.”



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o “the law says that an agency created in general terms includes only acts of administrations, 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 sold the properties of the partnership.”

(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.

MacDonald v. National City Bank

99 Phil 156

STASIKINOCEY is a formed by Alan W. Gorcey, Louis F. da Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was denied registration in the Securities and Exchange Commission. Stasikinocey uses the business name Cardinal Rattan. It does business at No. 58, Aurora Boulevard, San Juan, Rizal

Stasikinocey had an overdraft account with The National City Bank of New York.

On June 3, 1949, the overdraft showed a balance of P6,134.92 against the Defendant Stasikinocey or the Cardinal Rattan.

The partnership failed to pay as required; so, the account was converted into an ordinary loan for which the corresponding promissory ‘joint note non-negotiable’ was executed by da Costa for and in the name of the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D).

This promissory note was secured on June 7, 1949, by a chattel mortgages on certain motor vehicles executed by da Costa, Jr., General Partner for and in the name of Stasikinocey, alleged to be a duly registered Philippine partnership, doing business under the name and style of Cardinal Rattan, with principal office at 69 Riverside, San Juan, Rizal:

The mortgage deed was fully registered by the mortgagee on June 11, 1949, in the Office of the Register of Deeds for the province of Rizal, at Pasig. The mortgage contract contained the following provisions:

“‘(a) That the mortgagor shall not sell or otherwise dispose of the said chattels without the mortgagee’s written consent; and

“‘(b) That the mortgagee may foreclose the mortgage at any time, after breach of any condition thereof, the mortgagor waiving the 30- day notice of foreclosure.’

On the same day that the chattel mortgages were executed, 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 owed by them and Stasikinocey to

the Shaeffer, which transaction is said to be in violation of the Bulk Sales Law.

While the said loan was still unpaid and the chattel mortgage subsisting, Stasikinocey, through Gorcey and Da Costa transferred to McDonald the mortgaged Fargo truck and Plymouth sedan. The Fargo pickup was also sold by Shaeffer to McDonald. The vehicles were subsequently transferred by McDonald to Gonzales.

The National City Bank of New York filed an action against Stasikinocey and its alleged partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its credit and to foreclose the corresponding chattel mortgage.

QUESTION 1: Since an unregistered commercial partnership unquestionably has no juridical personality, can it have a domicile so that the registration of a chattel mortgage therein is notice to the world?

Held: 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 Respondent they represented themselves as such. Petitioner 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 in question being void as to Petitioner McDonald, the transfer from the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot have a better right than the seller.

It results that if the law recognizes a defectively organized partnership as de facto as far as third persons are concerned, for purposes of its de facto existence it should have such attribute of a partnership as domicile. The registration of the chattel mortgage in question with the Office of the Register of Deeds of Rizal, the residence or place of business of the partnership Stasikinocey being San Juan, Rizal, was therefore in accordance with section 4 of the Chattel Mortgage Law.

QUESTION2: Is a chattel mortgage executed by only one of the ‘partners’ of an unregistered commercial partnership valid as to third persons when that ‘partner’ executed the affidavit of good faith in Quezon City before a notary public whose appointment is only for the City of Manila?

HELD: Yes. It is noteworthy that the chattel mortgage in question is in the form required by law, and there is therefore the



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presumption of its due execution which cannot be easily destroyed by the biased testimony of the one who executed it. Cumbersome legal formalities are imposed to prevent fraud.

QUESTION3: Does only one of several ‘partners’ of an unregistered commercial partnership have authority, by himself alone, to execute a valid chattel mortgage over property owned by the unregistered commercial partnership in order to guarantee a pre-existing overdraft previously granted, without guaranty, by the bank?

In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa appears as a co-manager in the letter of Gorcey to the Respondent and in the promissory note executed by Da Costa, and that even the partners considered him as such, as stated in the affidavit of April 21, 1948, to the effect that “That we as the majority partners hereby agree to appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly approved managing partner of the said firm,” 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.

There is no merit in Petitioners’ pretense that the motor vehicles in question are the common property of Da Costa and Gorcey. Petitioners invoke article 24 of the Code of Commerce in arguing that an unregistered commercial partnership has no juridical personality and cannot execute any act that would adversely affect innocent third persons. Petitioners forget that the Respondent is a third person with respect to the partnership, and the chattel mortgage executed by Da Costa cannot therefore be impugned by Gorcey on the ground that there is no partnership between them and that the vehicles in question belonged to them in common. As a matter of fact, the Respondent and the Petitioners are all third persons as regards the partnership Stasikinocey; and even assuming that the Petitioners are purchasers in good faith and for value, the Respondent having transacted with Stasikinocey earlier than the Petitioners, it should enjoy and be given priority.

Compania Maritima v. Munoz

9 Phil 326

FRANCISCO Muñoz, EMILIO Muñoz, and Rafael NAVAL formed a partnership under the name of “Francisco Muñoz & Sons” for the purpose of carrying on the mercantile business in the Province of Albay. FRANCISCO was the capitalist partner while EMILIO and RAFAEL were industrial partners

In the articles of partnership, “Francisco Muñoz & Sons” was called an ordinary, general mercantile partnership. This is what the partners expressly stated and that they have agreed to form, and do form, an ordinary, general mercantile partnership. The object of the partnership is a purely mercantile one and all the requirements of the Code of Commerce in reference to such

partnership were complied with. Also, the articles of partnership were recorded in the mercantile registry in the Province of Albay

La Compañia MARITIMA brought this action in the CFI Manila against the partnership “Franciso Muñoz & Sons,” and the partners (FRANCISCO, EMILIO and NAVAL) to recover the sum of P26,828.30. The CFI acquitted EMILIO and NAVAL but sentenced the partnership and FRANCISCO to pay MARITIMA’s claims. From this judgment, MARITIMA filed the instant appeal ISSUE: WON the other partners (EMILIO and NAVAL) should be held liable. Otherwise stated, are industrial partners in a general partnership liable to third persons for the debts and obligations contracted by the partnership? HELD: YES, they are liable. The CFI judgment is REVERSED in acquitting EMILIO and NAVAL RATIO: Sub-issue -- WON EMILIO is really an industrial partner in “Francisco Muñoz & Sons” - YES

By the articles of partnership, there is no question that FRANCISCO and NAVAL are partners, the former being the capitalist partner and NAVAL as one of the industrial partners. There is, however, a question as to EMILIO’s involvement in the partnership

The claim of that EMILIO contributed nothing to the partnership, either in property, money, or industry, cannot be sustained. He contributed as much as did the other industrial partner, NAVAL, the only difference being that NAVAL was entitled to a fixed salary of P2,500 for being in charge of the branch office at Ligao

Now, it cannot be said that just because no yearly or monthly salary was assigned to EMILIO, he contributed nothing to the partnership or that received nothing from it. As can be gleaned from the articles of partnership, he was to receive at the end of 5 years 1/8 of the profits; thus, he will actually receive something. The fact that the receipt of this money was postponed for five years is not important

That EMILIO was excluded from the management of the business is also of no moment. By signing the articles of partnership, EMILIO actually excluded himself from such management, for he signed the articles of partnership by the terms of which the management was expressly conferred to other persons therein named. Partners can do this pursuant to the Code of Commerce which requires them to state the partners to whom the management is entrusted Main Issue: WON industrial partners under a general partnership are liable to 3rd parties for obligations contracted by the partnership – YES

In a limited partnership, the Code of Commerce recognizes a difference between general and special partners, but in a general partnership there is no such distinction – all the members are general partners

WON some of them may be industrial and some capitalist partners is not relevant. They are all general partners! There is nothing in the Code of Commerce 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

Art 127 of the Code of Commerce is however explicit in saying that “all the members of the general co-partnership” 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



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partnership, under the signature of the latter, and by a person authorized to make use thereof

Do the words "all the partners" found in Art 127 include industrial partners? – YES! The Court cited many other provisions of the Code which used the phrase “all the partners” and concluded that in all of them, the industrial partners must be included

It can not have been intended that, in a general partnership like in the case at bar where there were two industrial and only one capitalist partner, the industrial partners should have no voice in business at all. Going one by one with the cited provisions of the Code using the phrase “all the partners,” it could not have been the intention that industrial partners are to have no power in determining who the managing partner shall be; or that when the manager appointed mismanages the business the industrial partners should have no right to appoint a co-manager; 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, etc

To give a capitalist partner who contributed no more than, say, P500, many rights and to take them away from a person who contributed his services worth infinitely more than P500, would be discriminate unfairly against industrial partners.

If the phrase "all the partners" as found in the other provisions other than Art 127 includes industrial partners, then Art 127 must include them and they are liable by the terms thereof for the debts of the firm

There is no injustice in imposing liability in favor of 3rd parties upon the industrial partners. This is because industrial partners, as held above, have a voice in the management of the business; they share in the profits and as to third persons it is no more than right that they should share in the obligations

BUT it is contended that Art 140 and 141 expressly declare the contrary. This contention is misplaced. It is to be noticed in the first place that this article does not say that they shall not be liable for losses. Article 140-41 merely declares how the profits and losses shall be divided among the partners. It says nothing about third persons and nothing about the obligations of the partnership

The use of the word "losses" alone in Art 141 is not intended to impose the liability to third persons. Instead, it is the word “losses” coupled with the word "obligations" which speaks of liabilities to 3rd persons

Our construction of Art 141 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. Thus, when the affairs of the partnership are liquidated and it turns out that there had been “losses” instead of profits, then, the capitalist partner 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

With reference to the Civil Code, our construction of the Code of Commerce provisions herein is clarified. Under the Civil Code, Arts 1689 and 1691 contain in substance the provisions of Arts 140 and 141 of the Code of Commerce. It is to be noticed that Arts 1689-91 is a section that treats of the obligations of the partners between themselves. The liability of the partners as to third persons is treated in a distinct section, comprising Arts 1697-99. Art 127 of the Code of Commerce relates then to the liabilities of partnerships to 3rd parties while Arts 140-41 relate to liabilities of partners to each other

Art 237 of the Code of Commerce however provides that the private property of the partners shall not be taken until the partnership property has been exhausted. Thus, execution of

such judgment shall not issue against the private property of the defendants FRANCISCO, EMILIO and NAVAL until the property of the partnership is exhausted *Weird yung last part ng discussion ni J. Willard sa case na ito. Hindi ko na isasama dahil hindi naman si Sir Calica si Mam Dionne. Hindi niya ito itatanong. Yung last part ay parang RRL. The Court was principally seeking to controvert academic works of some Spanish commentators (specifically a certain Dr. Benito) on partnerships. It appears that the Spanish commentators favor the view that Industrial Partners are NOT liable to 3rd parties, contrary to the ruling in this case. Sabi lang ni J. Willard, whatever legal basis such commentators had in saying that industrial partners are not liable to 3rd persons is already obsolete.

Co-Pitco v. Yulo

8 Phil 544

FACTS: Before Feb. 1903, FLORENCIO Yulo and Jaime PALACIOS

were partners in the operation of a sugar estate in Victorias, Island of Negros, and had commercial dealings with a Chinaman named Dy-Sianco, who furnished them with money and goods, and used to buy their crop of sugar. Pedro YULO, father of the said Florencio, took charge of the latter's interest in the above-mentioned partnership, and he became a general partner with 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.

CO-PITCO then finds that the balance due from the firm was 1,638.40 pesos and orders judgment against YULO for the entire amount, with interest.

ISSUE/HELD: WON YULO is liable for the entire amount. NO RATIO: The partnership of YULO and PALACIOS was engaged in the

operation of a sugar estate in Negros. It was, therefore a civil partnership, as distinguished from a mercantile partnership. Being a civil partnership, by the express provisions of articles 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 YULO is responsible to CO-PITCO for only one-half of the debt. The fact that the other partner, PALACIOS, had left the country can not increase the liability of YULO.

The judgment of the court below is reversed and judgment is ordered in favor of CO-PITCO and against YULO for the sum of P819.20 pesos 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.

Pacific Commercial v. Aboitiz

48 Phil 841

(actually the full text, bullet-styled. Haha. It’s this short lang talaga.)



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April, 1919: Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez formed a "regular, collective, merchantile partnership" with a capital of P40,000 of which each of the partners o Aboitiz and De Silva furnished one-third. o The partner Jose Martinez was an industrial partner

and furnished no capital. It was provided in the partnership article that he was to receive 30 per cent of the profits and that his responsibility for losses should not exceed the amount of the profits received by him.

April 27, 1922: the partnership, through its duly authorized representative, Guillermo Aboitiz, executed a promissory note in favor of the plaintiff the Pacific Commercial Company for the sum of P23,168.71, with interest at 12 per cent per annum until fully paid as additional sum of 10 per cent as attorney's fees and costs of collection in the event it became necessary to resort to judicial proceedings. o As security for the payment of the note, the partnership

executed a chattel mortgage in favor of the plaintiff on certain personal property therein described.

For failure of the partnership to pay the debt the chattel mortgage was foreclosed the mortgages property sold and the proceeds of the sale, P2,000 was paid over to the plaintiff on December 28, 1923. No further payment on the note appears to have been made and January 4, 1924, the present action was brought for the recovery of the unpaid balance with interest.

Upon trial the court below rendered judgment in favor of the plaintiff and against the partnership for the sum of P27,951.68 and for the payment of interest on the capital of P21,168.71 at the rate of 10 per cent per annum from the 31st October, 1924, until paid, together with 10 per cent on the amount due for fees for collection in accordance with the terms of the aforesaid note. The judgment further provided that execution should first issue against the property of the partnership should first issue against the insolvency of the partnership, it might issue against the property of the partners De Silva and Aboitiz and in the event of their insolvency, then against the property of the industrial partner Jose Martinez. From this judgment Martinez appealed to this court and here maintains that under article 141 of the Code of Commerce he, as a mere industrial partner, cannot be held responsible for the partnership's debt.

The case is practically identical with that of the Compania Maritima vs. Munoz (9 Phil., 326), in which this court held the industrial partners secondarily liable for the debts of the partnership but on the strength of the vigorous dissenting opinion of Chief Justice Arellano in that case, that appellant argues that the decision therein was erroneous and should now be overruled. With all due respect for the legal acumen of the first Chief Justice of this Court, we are still of the opinion that the case was correctly decided. Article 127 of the Code of Commerce reads as follows: o 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 transaction made in the name and for the account of the partnership, under the signature of the later, and by a person authorized to make use thereof.

The language of this article is clear and specific that all the members of a general copartnership are liable with all their property for the results of the duly authorized

transactions made in the name and for the account of the partnership. o On the other hand, article 141, upon which the appellants

relies and which provides that "losses shall be computed in the same proportion among the capitalist partners without including the industrial partners, unless by special agreement the latter have been constituted as participants therein," is susceptible of two different interpretations of which that given it in the Compania Maritima case, supra, i. e., that it relates merely to the distribution of losses among the partners themselves in the settlement of the partnership affairs and has no reference to partnership obligations to third parties, appears to us to be the more logical.

There is a marked distinction between a liability and a loss and the inability of a partnership to pay a debt to a third party at a particular time does not necessarily mean that the partnership business as a whole, has been operated at a loss. The partnership may have outstanding credits which for the moment may have be unavailable for the payment of debts, but which eventually may be realized upon and yield profits more than sufficient to cover all losses. Bearing this in mind it will be found that there in reality is no conflict between the two articles quoted; one speaks of liabilities, the other of losses.

The judgment appealed from is affirmed with the costs against the appellant. So ordered.

Magdusa v. Albaran

5 SCRA 511

Facts:

appellant and appellees, together with various other persons, had verbally formed a partnership de facto, for the sale of general merchandise in Surigao, Surigao, to which appellant contributed P2,000 as capital, and the others contributed their labor, under the condition that out of the net profits of the business 25% would be added to the original capital, and the remaining 75% would be divided among the members in proportion to the length of service of each.

the appellees expressed their desire to withdraw from the partnership, and appellant thereupon made a computation to determine the value of the partners' shares to that date.

Appellees thereafter made demands upon appellant for payment, but appellant having refused, they filed the initial complaint in the court below.

Appellant defended by denying any partnership with appellees, whom he claimed to be mere employees of his.

Argument of appellant: the appellees' action can not be entertained, because in the distribution of all or part of a partnership's assets, all the partners have no interest and are indispensable parties without whose intervention no decree of distribution can be validly entered.

Court of Appeals:



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a judgment ordering the defendant to pay might affect the rights of other partners who were not made parties in this case

Plaintiffs' action was based on the allegation, substantiated in evidence, that Gregorio Magdusa, having taken delivery of their shares, failed and refused and still fails and refuses to pay them their claims. The liability, therefore, is personal to Gregorio Magdusa, and the judgment should be against his sole interest, not against the partnership's although the judgment creditors may satisfy the judgment against the interest of Gregorio Magdusa in the partnership subject to the condition imposed by Article 1814 of the Civil Code.

Held: Argument of the CA untenable.

A partner's share can not be returned without first dissolving and liquidating the partnership, for the return is dependent on the discharge of the creditors, whose claims enjoy preference over those of the partners; and it is self-evident that all members of the partnership are interested in his assets and business, and are entitled to be heard in the matter of the firm's liquidation and the distribution of its property. The liquidation Exhibit "C" is not signed by the other members of the partnership besides appellees and appellant; it does not appear that they have approved, authorized, or ratified the same, and, therefore, it is not binding upon them. At the very least, they are entitled to be heard upon its correctness.

Unless a proper accounting and liquidation of the partnership affairs is first had, the capital shares of the appellees, as retiring partners, can not be repaid, for the firm's outside creditors have preference over the assets of the enterprise (Civ. Code, Art. 1839), and the firm's property can not be diminished to their prejudice.

the appellant can not be held liable in his personal capacity for the payment of partners' shares for he does not hold them except as manager of, or trustee for, the partnership. It is the latter that must refund their shares to the retiring partners. Since not all the members of the partnership have been impleaded, no judgment for refund can be rendered, and the action should have been dismissed.

Island Sales v. United

65 SCRA 554

DOCTRINE: Condonation by creditor of share in partnership debt

of one partner does not increase pro rata liability of other

partners.

FACTS:

The defendant company ( UNITED PIONEERS GENERAL

CONSTRUCTION COMPANY ET .AL ), a general partnership duly

registered under the laws of the Philippines, purchased from

theplaintiff ( ISLAND SALES, INC) a motor vehicle on installment

basis and for this purpose executed apromissory 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 asthey 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 unpaid balance

amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona,

Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were

included as co-defendants in their capacity as general partners of

the defendant company.

Daniel A. Guizona failed to file an answer and was consequently

declared in default.

Subsequently, on motion of the plaintiff, the complaint was

dismissed insofar as the defendant Romulo

B. Lumauig is concerned.

When the case was called for hearing, the defendants and their

counsels failed to appear notwithstanding the notices sent to

them. Consequently, the trial court authorized the plaintiff to

present its evidence ex-parte , after which the trial court

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 notexceed one-fifth (1/5) of the obligations of the

defendant company. But the trial court denied the said motion

notwithstanding the conformity of the plaintiff to limit the

liability of the defendants Daco and Sim to only one-fifth (1/5 ) of

the obligations of the defendant company.Hence, this appeal.

issue: Whether the condonation of a partner’s share in the debts

of the company increases the remaining partners’ liability?

Ruling:

No. 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 defendant Romulo B. Lumauig

was dismissed, upon motion of the plaintiff, does not unmake the

said Lumauig as a general partner in the defendant company. In

so moving to dismiss the complaint, the plaintiff merely

condoned Lumauig's individual liability to the plaintiff.

RATIO: Article 1816 of the Civil Code provides:

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

pro rata with all their property and after all the partnership



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assets have been exhausted, for the contracts which may be

entered into in the name and for the account of thepartnership,

under its signature and by a person authorized to act for

thepartnership. However, any partner may enter into a separate

obligation to perform

Munasque v. CA

139 SCRA 533

<from Scribd>

Doctrine: Article 1816 must be construed together with Article 1824. While

the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 and 1823. Facts:

Munasque entered in behalf of the partnership with Galan under the duly registered name “Galan and Associates” as Contractor entered into a written contract with respondent Tropical for remodeling the respondent’s Cebu branch building. Under the contract, the project was for the total of P25,000 to be paid in installments- 7, 000 upon signing and 6, 000 every 15 working days.

Tropical made the first payment in the form of a check in the name of Munasque. Munasque indorsed the check in favor of Galan to enable Galan to deposit it in the bank and pay for the materials and labor used in the project. However, Galan allegedly spent P6, 183.37 for his personal use. When the second check came, refused to indorse it again to Galan.

Galan informed Tropical of the misunderstanding between him and Munasque. Tropical changed the name of the payee in the second check from Munasque to “Galan and Associates” which enabled Galan to encash the second check.

Meanwhile, the construction was continued through Munasque’s sole efforts. The construction work was finished ahead of schedule with the total expenditure reaching P 34, 000.

Munasque filed a complaint for payment of sum of money and damages against Galan, Tropical, and Tropical’s Cebu branch manager Pons. Cebu Southern Hardware Company and Blue Diamond Glass Palace intervened in the case for the credit which they extended to the partnership of Munasque and Galan for the construction project.

Both trial court and Court of Appeals absolved respondents Tropical and its Cebu

manager, Pons, from any liability but they also held that Munasque and Galan liable

to the intervenors. Issue: Whether the obligation of Munasque and Galan is joint or solidary? Held: Solidary.

While it is true that under Article 1816 of CC, “All partners, including industrial ones, shall be liable pro rate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and for account of the partnership, under its signature and by a person authorized to act for the partnership. xxx”, this provision

should be construed together with Article 1824 which provides that: “All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823.” While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 and 1823.

The obligation is solidary because the law protects him, who in good faith relied

upon the authority of a partner, whether such authority is real or apparent.

Tropical had every reason to believe that a partnership existed between Munasque and Galan and no fault or error can be imputed against it for making payments to “Galan and Associates” because as far as it was concerned, Galan was a true partner with real authority to transact in behalf of the partnership it was dealing with. This is even more true in the cases of the intervenors who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole. However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.

Lim tong Lim v. Phil. Fishing Gear, Inc

317 SCRA 728

Facts:

o On behalf of “Ocean Quest Fishing Corporation” (OQFC), Antonio Chua and Peter Yao entered into a contract for purchase of fishing nets from Respondent PFGI.

o They claimed they were engaged in the business venture with Petitioner Lim Tong Lim, who however, was not a signatory to the contract.

o The buyers failed to pay for the nets hence PFGI filed a collection suit against Chua, Yao, and Lim with a prayer for preliminary attachment. o The suit was brought against the 3 in their capacities as

general partners. PFGI alleged that OQFC was a nonexistent corporation as per the certification from the SEC. LC issues the write for PA

o Chua admits his liability and requests time to pay. Yao filed his answer but later failed to appear in hearings.

o But Lim filed an Answer w/ Counterclaim and Crossclaim and moved for the lifting of the writ.

o Lower court maintains the writ and orders the sale of the nets at a fishing auction.

o The trial court ruled that a partnership existed based on: o Testimonies o Compromise Agreement executed by the 3 in which Chua

and Yao brought against Lim for (a) declaration of nullity of commercial documents (b )reformation of contracts (c) declaration of ownership of fishing boats (d) injunction and damages. o The compromise agreement provided that 4 vessels would

be sold for 5.75M, the proceeds of which shall be paid to JL Holdings Corp and/or Lim, any excess or loss will be



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divided equally 1/3 each for the three. o Trial court noted that the compromise agreement shows

joint liability due to the equal distribution of profit and loss

o CA affirms, saying that the evidence establishes that the 3 undertook a partnership for a specific undertaking: commercial fishing. The ultimate undertaking was to divide profits – which is what a partnership essentially is.

Issue/Held: W/n Lim, Chua, and Yap entered into a partnership? YES.

Ratio:

Lim faults the CA in basing its decision on the compromise agreement alone

Furthermore, Lim disclaims any direct participation in the purchase of the nets alleging that the negotiations were all done by Chua and Yao only.

Lastly, Lim claims that he was a lessor, not a partner. There’s a contract of leasethat shows he merely leased out to the 2 the main assets of the purported partnership – the fishing boat F/B Lourdes.

SC is not persuaded. Art 1767 provides: partnership – 2 or more persons bind themselves to contribute money, property, or industry, to a common fund, w/ th intention of dividing profits among themselves.

Both lower courts ruled that a partnership existed due to the ff factual findings:

Lim requested Yao (who was in commercial fishing to join him), Chua was already

Yao’s partner The 3 verbally agreed to acquire two fishing boats for 3.3M They borrowed 3.25M from Jesus Lim, Lim’s brother They bought the boats from CMF Corp, the deed of sale was

executed in favor of Lim only to serve as security for the loan extended by Jesus

Lim The 3 agreed that the refurbishing, maintenance and other

expenses would be shouldered by Chua and Yao Due to unavailability of funds, Jesus Lim extended a loan to the

partnership for 1M, hence Yao and Chua entrusted ownership of their own respective boats to Lim

In pursuance of their business, Yao and Chua bought nets in behalf of OQFC – the purported business name

Subsequently, a civil case was filed by Chua and Yao vs Lim for declaration of nullity of commercial documents, reformation, injunction, damages – and this was amicably settled through a compromise agreeqment.

It’s clear that the 3 decided to engage in a fishing business, in the compromise agreement – it was revealed that their intention was to pay the loan to Jesus through the proceeds and dividing the profit or loss if any.

These boats, the purchase, and the repair – financed by the borrowed money fell under the term – common fund. Under Art 1767, the contribution need not be cash or fixed assets, it could be intangible like credit or industry.

The partnership extends as well to the purchase of the fishing nets – inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, w/o w/c the business would not have proceeded.

On the compromise agreement as the sole basis: NO. The

agreement was but an embodiment of the relationship extant prior to its execution. The lower courts delved into the history of the document and looked into possible combinations.

There are numerous factual findings leading to the conclusion. On Lim being a lessor: NO. It would be absurd for Lim to sell

his property to pay a debt he did not incur if the relationship was indeed only a lessor/ee one. His consent to the sale proved that there existed a partnership.

On Corporation by estoppel: sec 21 of the corp code mentions that all persons who assume to act as a corporation knowing it to be w/o authority to do so shall be liable as general partners for all debts and liabilities arising as a result thereof. o A 3rd party, knowing an association to be unincorporated,

but still treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation.

o Lim here contest his liability insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never transacted.

o BUT Lim benefited from the use of the nets on F/B Lourdes. While he did not directly act on behalf of the corporation, he reaped the benefits of the contract entered into by persons with whom he had an existing relationship with, he is deemed to be part of said association and is covered by the doctrine of corporation by estoppels.

VITUG, Concurring:

When a person by his act represents himself as a partner in an existing partnership or w/ one or more persons not actual partners, he is deemed an agent of such persons consenting to such representation, and a partner with persons relying on such representation

The association formed here is a de facto partnership, w/ all the consequent obligations for the purpose of enforcing rights of 3rd persons.

The liability of general partners is in Art 1816 – w/c mentions that all partners shall be liable pro rata beyond the partnership assets for all contracts enter into in its own name.

This rule is to be construed along w/ other provisions of the civil code w/c postulate that partners can be held solidarily liable in the following instances: o Where by wrongful act of any partner acting in the ordinary

course of business, loss is caused to another person o Where one partner acting w/in the scope of his apparent

authority receives property of a 3rd person and misapplies it o Where the partnership in the course of its business receives

property of a 3rd person and the property is misapplied by any partner while it is in the partnership’s custody.

Bachrach v. La Protectora

37 Phil 441

The defendants Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon June 12, 1913, executed in due form a document in which they declared that they were members of the firm "La Protectora" and that they had granted to its president full authority "in the name and representation of said partnership to contract for the purchase of two automobiles".



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Marcelo Barba, acting as manager, came to Manila and upon June 23, 1913, negotiated the purchase of two automobile trucks from the plaintiff, E. M. Bachrach, for the agreed price of P16,500. He paid the sum of 3,000 in cash, and for the balance executed promissory notes representing the deferred payments.

Three of these notes have been made the subject of the present action. One was signed by Marcelo Barba in the following manner:

P. P. La Protectora By Marcelo Barba Marcelo Barba.

The other two notes are signed in the same way with the word "By" omitted before the name of Marcelo Barba in the second line of the signature. It is obvious that in thus signing the notes Marcelo Barba intended to bind both the partnership and himself. In the body of the note the word "I" (yo) instead of "we" (nosotros) is used before the words "promise to pay" (prometemos) used in the printed form. It is plain that the singular pronoun here has all the force of the plural.

The present action was instituted against "La Protectora" and the five individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano to recover the balance. No question has been made as to the propriety of impleading "La Protectora" as if it were a legal entity. At the hearing, judgment was rendered against all of the defendants. The four individuals who signed the document authorizing Barba to purchase the two trucks have appealed.

ISSUE: Whether or not these individuals are liable for the firm debts.

HELD: No. (Basically, the court says that Barba, by virtue of his position in the company and of the document signed by his partners, had the authority to bind the partnership but not the partners as individuals, and that the partners are not liable in solidum for the entire debt of the partnership, but each of them is liable for his aliquot part of the debt.)

Copy-paste ratio (almost the whole thing cos I dont know which I can omit. Sorry):

The business conducted under the name of "La Protectora" was evidently that of a civil partnership; and the liability of the partners to this association must be determined under the provisions of the Civil Code.

The authority of Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully established by the document executed by the four appellants. The transaction by which Barba secured these trucks was in conformity with the tenor of this document.

The promissory notes constitute the obligation exclusively of "La Protectora" and of Marcelo Barba; and they do not in any sense constitute an obligation directly binding on the four appellants. Their liability is based on the fact that they are members of the civil partnership and as such are liable for its debts.

It is true that article 1698 of the Civil Code declares that a member of a civil partnership is not liable in solidum (solidariamente) with his fellows for its entire indebtedness; but it results from this article, in connection with article 1137 of the Civil Code, that each is liable with the others (mancomunadamente) for his aliquot part of such indebtedness.

The Court of First Instance seems to have founded its judgment against the appellants in part upon the idea that the document executed by them constituted an authority for Marcelo Barba to bind them personally, as contemplated in the second clause of article 1698 of the Civil Code. That cause says that no member of the partnership can bind the others by a personal act if they have not given him authority to do so. We think that the document referred to was intended merely as an authority to enable Barba to bind the partnership and that the parties to that instrument did not intend thereby to confer upon Barba an authority to bind them personally. It is obvious that the contract which Barba in fact executed in pursuance of that authority did not by its terms profess to bind the appellants personally at all, but only the partnership and himself. It follows that the four appellants cannot be held to have been personally obligated by that instrument; but, as we have already seen, their liability rests upon the general principles underlying partnership liability.

There is no proof in the record showing what the agreement, if any, was made with regard to the form of management. Under these circumstances it is declared in article 1695 of the Civil Code that all the partners are considered agents of the partnership. Barba therefore must be held to have had authority to incur these expenses. But in addition to this he is shown to have been in fact the president or manager, and there can be no doubt that he had actual authority to incur this obligation.

agency and partnership digests #9

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