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Article 1785

G.R. No. 109248 July 3, 1995


GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN
T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto
that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August 1948. The SEC records show that
there were several subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO;
on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA;
on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4
December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11
March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO,
MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito
and Mariano M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter
stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at
the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a meeting with all of you with
regard to the mechanics of liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved soon because it has to do
with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter
stating:
"The partnership has ceased to be mutually satisfactory because of the working
conditions of our employees including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of our employees have been
thwarted by the other partners. Not only have they refused to give meaningful
increases to the employees, even attorneys, are dressed down publicly in a loud voice

in a manner that deprived them of their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership,
docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership
assets plus the profits, rent or interest attributable to the use of his right in the assets
of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of
their correspondence, checks and pleadings and to pay petitioners damages for the
use thereof despite the dissolution of the partnership in the amount of at least
P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and
expense of litigation in such amounts as maybe proven during the trial and which the
Commission may deem just and equitable under the premises but in no case less than
ten (10%) per cent of the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission
may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the
said law partnership. Accordingly, the petitioner and respondents are hereby enjoined
to abide by the provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in the partnership
interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990, the
SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has
not been dissolved. The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as rejecting

the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was not
in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest
or participation in the partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should be remanded to the
SEC Hearing Officer for the corresponding determination of the value of Attorney
Misa's share in the partnership assets; and (e) that the appointment of a receiver was
unnecessary as no sufficient proof had been shown to indicate that the partnership
assets were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of
Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's
demand for the dissolution of the partnership so that he can get a physical partition of
partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such
a partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide
for a specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity of one of the partners, shall be continued by the
surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the Amended
Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal
adviser and representative of any individual, firm and corporation engaged in

commercial, industrial or other lawful businesses and occupations; to counsel and


advise such persons and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally
authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. There would therefore be no
need to provide for articles on partnership at will as none would so exist. Apparently
what the law contemplates, is a specific undertaking or "project" which has a definite
or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its continued existence
is, in turn, dependent on the constancy of that mutual resolve, along with each
partner's capability to give it, and the absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership 4 but that it can
result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises
and the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished
from the winding up of, the business. 8 Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its
business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed
by various provisions of the Civil Code; 10 however, an agreement of the partners,
like any other contract, is binding among them and normally takes precedence to the
extent applicable over the Code's general provisions. We here take note of paragraph
8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing agreements
and his partnership participation shall revert to the Senior Partners for allocation as
the Senior Partners may determine; provided, however, that with respect to the two
(2) floors of office condominium which the partnership is now acquiring, consisting
of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo
Village, Makati, Metro Manila, their true value at the time of such death or retirement
shall be determined by two (2) independent appraisers, one to be appointed (by the
partnership and the other by the) retiring partner or the heirs of a deceased partner, as
the case may be. In the event of any disagreement between the said appraisers a third

appraiser will be appointed by them whose decision shall be final. The share of the
retiring or deceased partner in the aforementioned two (2) floor office condominium
shall be determined upon the basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every month in installments of not less
than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing
Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal,
from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did
not act in bad faith. Public respondents viewed his withdrawal to have been spurred
by "interpersonal conflict" among the partners. It would not be right, we agree, to let
any of the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12Indeed, for as long as the reason for withdrawal of
a partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no different from its
normal concept of a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on
costs.
SO ORDERED.
No special pronouncement will be made as to costs of either. So ordered.
Article 1786
G.R. No. L-59956 October 31, 1984ISABELO MORAN, JR.,
petitioner, .
THE HON. COURT OFAPPEALS and MARIANO E. PECSON,
respondents.
GUTIERREZ, JR.,
J.:
Facts :
On February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of P1,000 a month
starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and printing of the95,000 posters would
be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that
only a few posters were printed; that on or about May 28, 1971, Moran executed in
favor of Pecson a promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or
before June 30, 1971), the whole sum becoming due upon default in the payment of
the first installment on the date due, complete with the costs of collection. Pecson

filed an action for the recovery of a sum of money (1) on the alleged partnership
agreement, the return of his contribution of P10,000.00, payment of his share in
the profits that the partnership would have earned, and, payment of unpaid
commission; (2) on the alleged promissory note, payment of the sum of P20,000.00;
and, (3) moral and exemplary damages and attorney's fees. After the trial, the CFI
held that Moran return to plaintiff Pecson the sum of P17,000.00, with interest at the
legal rate. From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the petitioner ordering him
to pay Pecson:(a) Forty-seven thousand five hundred (P47,500) (the amount that
could have accrued to Pecson under their agreement);(b) Eight thousand (P8,000),
(the commission for eight months);(c) Seven thousand (P7,000) (as a return
of Pecson's investment for the Veteran's Project);(d) Legal interest
Issue:
W/N Pecson is entitled to the amounts stated above.
Held:
Ratio:
The first question raised in this petition refers to the award of P47,500.00 as the
private respondent's share in the unrealized profits of the partnership. The petitioner
contends that the award is highly speculative. The petitioner maintains that the
respondent court did not take into account the great risks involved in the business
undertaking. We agree with the petitioner that the award of speculative damages has
no basis in fact and law. There is no dispute over the nature of the agreement between
the petitioner and the private respondent. It is a contract of partnership. The latter in
his complaint alleged that he was induced by the petitioner to enter into a partnership
with him. The petitioner on the other hand admitted in his answer the existence of the
partnership. The rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever he may
have promised to contribute (Art. 1786, Civil Code) and for interests and damages
from the time he should have complied with his obligation (Art. 1788, Civil Code).
Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code
of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor
of the appellee because the appellant therein was remiss in his obligations as a
partner and as prime contractor of the construction projects in question. We awarded
compensatory damages in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP construction company
derived some profits from its contractors. In the instant case, there is no evidence
whatsoever that the partnership between the petitioner and the private respondent
would have been a profitable venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of speculative damages in favor of the
private respondent. Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was expected of him. In this
case, however, there was mutual breach. Private respondent failed to give his entire
contribution in the amount of P15,000.00. He contributed only P10,000.00.
The petitioner likewise failed to give any of the amount expected of him. He further

failed to comply with the agreement to print 95,000 copies of the posters. Instead, he
printed only 2,000 copies. Article 1797 of the Civil Code provides:

The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion. Being a contract of partnership, each partner must
share in the profits and losses of the venture. That is the essence of a partnership. And
even with an assurance made by one of the partners that they would earn a huge
amount of profits, in the absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business venture guaranteed to give
100% profits. In this case, on an investment of P15,000.00, the respondent was
supposed to earn a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at
P5.00 each.It does not follow however that the private respondent is not entitled to
recover any amount from the petitioner. The records show that the private respondent
gave P10,000.00 to the petitioner. The latter used this amount for the printing of
2,000 posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The
records further show that the2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross
income of P10,000.00 and with no evidence on the cost of distribution, the net profits
amount to only P6,000.00. This net profit of P6,000.00 should be divided between the
petitioner and the private respondent. And since only P4,000.00 was undesirable by
the petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore
be returned to the private respondent. Relative to the second alleged error, the
petitioner submits that the award of P8,000.00 as Pecson's supposed commission has
no justifiable basis in law. Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15,
1971 for a total of eight (8) monthly commissions. The agreement does not state the
basis of the commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not have intended
the giving of a commission in spite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of
Appeals erred in holding him liable to the private respondent in the sum of P7,000.00
as a supposed return of investment in a magazine venture. In awarding P7,000.00 to
the private respondent as his supposed return of investment in the "Voice of the
Veterans magazine venture, the respondent court ruled that:... Moran admittedly
signed the promissory note of P20,000 in favor of Pecson. Moran does not question
the due execution of said note. Must Moran therefore pay the amount of P20,000?
The evidence indicates that the P20,000 was assigned by Moran to cover the
following:(a) P 7,000

the amount of the PNB check given by Pecson to Moran representing Pecson's
investment in Moran's other project (thepublication and printing of the 'Voice of the
Veterans');(b) P10,000

to cover the return of Pecson's contribution in the project of the Posters;(c) P3,000

representing Pecson's commission for three months (April, May, June, 1971).Of said
P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for
the Veterans' project, for this project never left the ground) ...In this case, there is
misapprehension of facts. The evidence of the private respondent himself shows that
his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to
receive. The records show the following exhibitsXerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of
defendant. Defendant admitted the authenticity of this check and of his receipt of the
proceeds thereof. This exhibits being offered for the purpose of showing plaintiff's
capital investment in the printing of the "Voice of the Veterans" for which he
was promised a fixed profit of P8,000. This investment of P6,000.00 and the
promised profit of P8,000 are covered by defendant's promissory note for P14,000
dated March 31,1971 marked by defendant as Exhibit 2 and by plaintiff as Exhibit P.
Later, defendant returned P3,000.00of the P6,000.00 investment thereby
proportionately reducing the promised profit to P4,000. With the balance of P3,000
(capital) and P4,000 (promised profit), defendant signed and executed the promissory
note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for plaintiff. Of
this P7,000, defendant paid P4,000 representing full return of the capital investment
and P1,000 partial payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000promissory note. It is,
therefore, being presented to show the consideration for the P20,000 promissory
note.
Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof
were admitted by the defendant. This P7,000 is part consideration, and in cash, of the
P20,000 promissory note and it is being presented to show the consideration for the
P20,000 note and the existence and validity of the obligation.
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which plaintiff
invested the P6,000 which, together with the promised profit of P8,000 made up for
the consideration of the P14,000 promissory note. As explained in connection with
Exhibit E. the P3,000 balance of the promised profit was later made part
consideration of the P20,000 promissory note. M-Promissory note for P7,000 dated
March 30, 1971. This is also defendant's Exhibit E. This document is being offered
for the purpose of further showing the transaction as explained in connection with
Exhibits E and L.N-Receipt of plaintiff dated March 30, 1971 for the return of his
P3,000 out of his capital investment of P6,000 in the P14,000 promissory note. This

is also defendant's Exhibit E. This document is being offered for the purpose of
further showing the transaction as explained in connection with Exhibits E and L.NReceipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 in the P14,000 promissory note. This is also defendant's
Exhibit 4. This document is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the transaction mentioned thereinPromissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered
for the purpose of showing the transaction as explained in connection with Exhibits
E, L, M, and N above. The respondent court erred when it concluded that the project
never left the ground because the project did take place. Only it failed. It was the
private respondent himself who presented a copy of the book entitled "Voice of the
Veterans in the lower court. Therefore, it would be error to state that the project
never took place and on this basis decree the return of the private respondent's
investment. As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing partner alone,
especially if the latter exercised his best business judgment, which seems to be true in
this case. In view of the foregoing, there is no reason to pass upon the fourth and fifth
assignments of errors raised by the petitioner. We likewise find no valid basis for the
grant of the counterclaim. WHEREFORE, the petition is GRANTED. The decision of
the respondent Court of Appeals (now Intermediate Appellate Court) is hereby SET
ASIDE and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay
private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondents contribution to the partnership
but which remained unused; and THREE THOUSAND (P3,000.00) PESOS
representing one-half (1/2) of the net profits gained by the partnership in the sale of
the two thousand (2,000) copies of the posters, with interests at the legal rate on both
amounts from the date the complaint was filed until full payment is made.
Lozana v Depakakibo 107 Phil 728
Lozana entered into a partnership with Depakakibo wherein they established a capital
of P30,000, Lozana furnishing 60%and Depakakibo, 40%, for the purpose of
maintaining, operating and distributing electric light and power in the Municipality of
Dumangas, under a franchise issued to Mrs. Piadosa Buenaflor. However, the
franchise or certificate of public necessity and convenience in favor of Buenaflor was
cancelled and revoked by the Public Service Commission on May 15, 1955. But the
decision of the Public Service Commission was appealed to SC and a temporary
certificate of public convenience was issued in the name of Olimpia D. Decolongon.
Evidently because of the cancellation of the franchise in the name of Buenaflor,
Lozana sold a generator to Decolongon in 1955. Depakakibo, on the other hand, sold
one Crossly Diesel Engine, to the spouses Felix Jimenea and Felina Harder in
1956.Lozana brought an action against Serafin, alleging that he is the owner of the
Generator Buda (Diesel), valued at P8,000and 70 wooden posts with the wires
connecting the generator to the different houses supplied by electric current in the
municipality, and that he is entitled to the possession thereof, but that Serafin has
wrongfully detained them as a consequence of which Lozana suffered damages. He

prayed that said properties be delivered back to him. Judge Pelayo issued an order in
said case authorizing the sheriff to take possession of the generator and 70 wooden
posts, upon plaintiffs filing of a bond in favor of the defendant (for subsequent
delivery to the plaintiff).Serafin denied that the generator and the equipment
mentioned in the complaint belong to the plaintiff and alleging that the same had
been contributed by the plaintiff to the partnership entered into between them in the
same manner that defendant had contributed equipments also, and therefore that he is
not unlawfully detaining them. Defendant alleged that under the partnership
agreement the parties were to contribute equipments, plaintiff contributing the
generator and the defendant, the wires for the purpose of installing the main and
delivery lines; that the plaintiff sold his contribution to the partnership, in violation of
the terms of their agreement. The judge entered a decision declaring plaintiff owner
of the equipment and entitled to the possession thereof, with costs against defendant.
It is against this judgment that the defendant has appealed.
Issue:
W/N Lozana violated the partnership agreement.
Held:
Yes.
Ratio:
As it appears that the plaintiff and the defendant entered into the contract
of partnership, plaintiff contributing the amount of P18,000, and as it is not stated
therein that there has been a liquidation of the partnership assets at the time plaintiff
sold the Buda Diesel Engine on October 15, 1955, and since the court below had
found that the plaintiff had actually contributed one engine and 70 posts to the
partnership, it necessarily follows that the Buda diesel engine contributed by the
plaintiff had become the property of the partnership. As properties of the partnership,
the same could not be disposed of by the party contributing the same without the
consent or approval of the partnership or of the other partner. The lower court
declared that the contract of partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the owner of the franchise.
The Anti-Dummy law has not been violated as parties plaintiff and defendant are not
aliens but Filipinos. Upon examining the contract of partnership, especially the
provision thereon wherein the parties agreed to maintain, operate and distribute
electric light and power under the franchise belonging to Mrs. Buenaflor, we do not
find the agreement to be illegal, or contrary to law and public policy such as to
make the contract of partnership, null and void ab initio The agreement could have
been submitted to the Public Service Commission if the rules of the latter require
them to be so presented. But the fact of furnishing the current to the holder of
the franchise alone, without the previous approval of the Public Service Commission,
does not per se make the contract of partnership null and void from the beginning and
render the partnership entered into by the parties for the purpose also void and nonexistent. Under the circumstances, therefore, the court erred in declaring that the
contract was illegal from the beginning and that parties to the partnership are
not bound therefore, such that the contribution of the plaintiff to the partnership did

not pass to it as its property. It also follows that the claim of the defendant in
his counterclaim that the partnership be dissolved and its assets liquidated is the
proper remedy, not for each contributing partner to claim back what he had
contributed
Sancho vs Lizarraga 55 Phil 601
he plaintiff brought an action for the rescission of a partnership contract between
himself and the defendant, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum from October 15, 1920.The
defendant denies generally and specifically all the allegations of the complaint and
asks for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution,
with interest, one-half of said amount to be charged to the plaintiff. The CFI of
Manila held that the defendant had not contributed all the capital he had bound
himself to invest, and that the plaintiff had demanded that the defendant liquidate the
partnership, declared it dissolved on account of the expiration of the period for which
it was constituted, and ordered the defendant, as managing partner, to proceed
without delay to liquidate it, submitting to the court the result of the liquidation.
Issue:
W/N Sancho entitled to rescission of the partnership contract and to the return of his
investment.
Held:
No
Ratio:
Counsel for the appellee, says that the appeal is premature. The point is based on the
contention that inasmuch as the liquidation ordered by the trial court, and
the consequent accounts, have not been made and submitted, the case cannot be
deemed terminated in said court and its ruling is not yet appealable. This contention
is well founded. Until the accounts have been rendered as ordered by the trial court,
and until they have been either approved or disapproved, the litigation involved in
this action cannot be considered as completely decided. But even going into the
merits of the case, the affirmation of the judgment appealed from is inevitable.
Articles 1681and 1682 have been properly applied. Owing to the defendant's failure
to pay to the partnership the whole amount which he bound himself to pay, he
became indebted to it for the remainder, with interest and any damages occasioned
thereby, but the plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to Article 1124 of the Code. This article cannot be
applied to the case in question, because it refers to the resolution of obligations in
general, whereas article 1681 and 1682 specifically refer to the contract of
partnership in particular. And its a well-known principle that special provisions
prevail over general provisions.

Article 1788
Uy vs Puzon 79 scra 598
BartolomePuzon had a contract with the government for the construction of the
GanyanganBato Section of the PagadianZamboanga City Road, and of five (5)
bridges in the Malangas-Ganyangan Road. Finding difficulty in accomplishing both
projects,Puzon sought the financial assistance of William Uy. As an inducement,
Puzon proposed the creation of a partnership between them which would be the subcontractor of the projects and the profits to be divided equally between them. William
Uy inspected the projects in question and, expecting to derive considerable profits
therefrom, agreed to the proposition, thus resulting in the formation of the "U.P.
Construction Company".
The partners agreed that the capital of the partnership would be P100,000.00 of
which each partner shall contribute the amount of P50,000.00 in cash. But Puzon was
short of cash and he promised to contribute his share in the partnership capital as
soon as his application for a loan with the PNB in the amount of P150,000.00 shall
have been approved. However, before his loan application could be acted upon, he
had to clear his collaterals of its encumbrances first. For this purpose, Uy gavePuzon
the amount of P10,000 as advance contribution of his share in the partnership to be
organized which amount will be used by Puzon to pay his obligations with the PNB.
Uy again gave Puzon the amount of P30,000 as his partial contribution to the
proposed partnership and which Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. Puzon promised Uy that the amount of P150,000
would be given to the partnership to be applied thusly: P40,000.00, as reimbursement
of the capital contribution of Uy which Uy had advanced to clear the title of Puzon's
property; P50,000.00, as Puzon's contribution to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the partnership.
Although the partnership agreement was signed by the parties in 1957,work on the
projects was started by the partnership in 1956 in view of the insistence of the Bureau
of Public Highways to complete the project right away. Since Puzon was busy with
his other projects, Uy was entrusted with the management of the projects and
whatever expense the latter might incur, would be considered as part of his
contribution. At the end of December 1957, Uy had contributed to the partnership the
amount of P115,453.39, including his capital.
The loan of Puzon was approved and he gave to Uy the amount of P60,000.00. Of
this amount, P40,000.00 was for the reimbursement of Uy's contribution, and the
P20,000.00 as Puzon's contribution to the partnership capital.
To guarantee the repayment of the loan,Puzon, without the knowledge and consent of
Uy, assigned to PNB all the payments to be received on account of the contracts with

the Bureau of Public Highways. By virtue of said assignment, the Bureau of Public
Highways paid the money due on the partial accomplishments on the government
projects to PNB which, in turn, applied portions of it in payment of Puzon's loan. Of
the amount of P1,047,181.07, released by the Bureau of Public Highways in payment
of the partial work completed by the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds, which, for all practical purposes,
was also under Puzon's account since Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects increased, Uy, who
supervised the said projects, found difficulty in obtaining the necessary funds with
which to pursue the construction projects. Uycalled on Puzon to comply with his
obligations under the terms of their partnership and to place, at least, his capital
contribution at the disposal of the partnership. Despite several promises, Puzon,
however, failed to do so.
Failing to reach an agreement with Uy, Puzon, as prime contractor of the construction
projects, wrote the subcontractor, U.P. Construction Company, advising the
partnership, of which he is also a partner, that unless they presented an immediate
solution and capacity to prosecute the work effectively, he would be constrained to
consider the sub-contract terminated and, thereafter, to assume all responsibilities in
the construction of the projects in accordance with his original contract with the
Bureau of Public Highways. On November 27, 1957, BartolomePuzon again wrote
the U.P.Construction Company finally terminating their subcontract agreement as of
December 1, 1957.
Thereafter, Uy was not allowed to hold office in the U.P. Construction Company and
his authority to deal with the Bureau of Public Highways in behalf of the partnership
was revoked by Puzon who continued with the construction projects alone.
On May 20, 1958, Uy, claiming that BartolomePuzon had violated the terms of their
partnership agreement, instituted an action in court, seekingthe dissolution of the
partnership and payment of damages.
After appropriate proceedings, the trial court found that the defendant, contrary to the
terms of their partnership agreement, failed to contribute his share in the capital of
the partnership applied partnership funds to his personal use; ousted the plaintiff from
the management of the firm, and caused the failure of the partnership to realize the
expected profits of at least P400,000.00. As a consequence, the trial court dismissed
the defendant's counterclaim and ordered the dissolution of the partnership. The trial
court further ordered the defendant to pay the plaintiff the sum of P320,103.13.
Issue: W/N Puzon is guilty of breach of contract.

Held:Yes
Ratio:
After giving the amount of 60,00 he obtained from the loan, the appellant failed to
make any further contributions to the partnership funds as shown in his letters to the
appellee wherein he confessed his inability to put in additional capital to continue
with the projects.
Parenthetically, the claim of the appellant that the appellee is equally guilty of not
contributing his share in the partnership capital inasmuch as the amount of P40,000is
merely a personal loan of Puzon which he had paid to Uy, is plainly untenable. The
terms of the receipts signed by Puzon are clear and unequivocal that the sums of
money given by the Uy are Uy's partial contributions to the partnership capital.
The findings of the trial court that Puzon misapplied partnership funds is, likewise,
sustained by competent evidence. It is of record that he assigned to PNB all the
payments to be received on account of the contracts to guarantee the repayment of
the bank. By virtue of his personal loan with the said bank assignment, the Bureau of
Public Highways paid the money due on the partial accomplishments on the
construction projects in question to PNB who, in turn, applied portions of it in
payment of the appellant's loan.
Uy categorically stated that the assignment was made without his prior knowledge
and consent and that when he learned of said assignment, he called the attention of
Puzon who assured him that the assignment was only temporary as he would transfer
the loan to the Rehabilitation Finance Corporation within three (3) months time.
That the assignment to PNB was prejudicial to the partnership cannot be denied. The
record shows that Puzon received from the Bureau of Public highways, in payment of
the work accomplished on the construction projects, the amount of P1,047,181.01,
which amount rightfully and legally belongs to the partnership by virtue of the
subcontract agreements between the appellant and the U.P. Construction Company. In
view of the assignment made by Puzon to PNB, the latter withheld and applied the
amount of P332,539,60 in payment of the appellant's personal loan with the said
bank. The balance was deposited in Puzon's current account and only the amount of
P27,820.80 was deposited in the current account of the partnership. If Puzongave to
the partnership all that were earned and due it under the subcontract agreements, the
money would have been used as a safe reserve for the discharge of all obligations of
the firm and the partnership would have been able to successfully and profitably
prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed by him?

For the same period, the appellant actually disbursed for the partnership, in
connection with the construction projects, the amount of P952,839.77. Since the
appellant received from the Bureau of Public Highways the sum of P1,047,181.01,
the appellant has a deficit balance of P94,342.24. The appellant, therefore, did not
make complete restitution.

is the more plausible because if they were employed in the prosecution of the
partners projects, the corresponding disbursements would have certainly been
recorded in its books, which is not the case. Taking into account defendant is the
custodian of the books of account, his failure to so enter therein the alleged
disbursements, accentuates the falsity of his claim on this point.

Since the defendant appellant was at fault, the trial court properly ordered him to
reimburse the plaintiff-appellee whatever amount latter had invested in or spent for
the partnership on account of construction projects.

As for the sum of P26,027.04, the same represents the expenses which the appellee
paid in connection with the projects and not entered in the books of the partnership
since all vouchers and receipts were sent to the Manila office which were under the
control of the appellant.

How much did the appellee spend in the construction projects question?
In resume', the appellee's credit balance would be as follows:
The commissioners are agreed that at the end of December, 1957, the appellee had a
balance of P8,242.39.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with the
sum of P24,239.48, representing the checks isssued by the appellant, and encashed by
the appellee or his brother, Uy Han so that the appellee would owe the partnership the
amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee
the following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized and
charged to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less
payroll remittances from the appellant in amount of P63,000.00; and

Undisputed balance as of Dec. 1957

Add: Items omitted from the books but

P 8,242.

recognized and charged to Miscellaneous

Expenses by Mr. Ablaza

7,497.80

Add: Payrolls paid by the appellee

P128,103.77

Less: Payroll remittances received

63,000.00

65,103.77

(3) P26,027.04 other expenses incurred by the appellee at construction site.


With respect to the amount of P24,239.48, claimed by appellant, we are hereunder
adopting the findings of the trial which we find to be in accord with the evidence:

Add: Other expenses incurred at the

To enhance defendant's theory that he should be credited P24,239.48, he presented


checks allegedly given to plaintiff and the latter's brother, Uy Han. However,
defendant admitted that said checks were not entered nor record their books of
account, as expenses for and in behalf of partnership or its affairs. On the other hand,
Uy Han testified that of the checks he received were exchanged for cash, while other
used in the purchase of spare parts requisitioned by defendant. This testimony was
not refuted to the satisfaction of the Court, considering that Han's explanation thereof

site

26,027.04

TOTAL

P106,871.00

At the trial, the appellee presented a claim for the amounts of P3,917.39 and
P4,665.00 which he also advanced for the construction projects but which were not
included in the Commissioner's Report.
Appellee's total investments in the partnership would, therefore, be:
Appellee's total credits

Add: unrecorded balances for the month of Dec. 1957

P145,358.00.Surely, these retained amounts also form part of the profits of the
partnership.
Had the appellant not been remiss in his obligations as partner and as prime
contractor of the construction projects in question as he was bound to perform
pursuant to the partnership and subcontract agreements, and considering the fact that
the total contract amount of these two projects is P2,327,335.76, it is reasonable to
expect that the partnership would have earned much more than the P334,255.61 We
have hereinabove indicated. The award, therefore, made by the trial court of the
amount of P200,000.00, as compensatory damages, is not speculative, but based on
reasonable estimate.
Article 1789

Add: Payments to Munoz, as subcontractor of five Bridges

Total Investments
Has the appellee failed to make profits because of appellant's breach of contract?
There is no doubt that the contracting business is a profitable one.
Contrary to the appellant's claim, the partnership showed some profits during the
period from July 2, 1956 to December 31, 1957. It showed a net loss of P134,019.43
due to the confusing accounting method employed by the auditor. Corrected, the
Profit and Loss Statement would indicate a net profit of P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the partnership
admittedly made a net profit of P52,943.89.
Besides, as We have heretofore pointed out, the appellant received from the Bureau
of Public Highways, in payment of the construction projects in question, the amount
of P1,047,181.01and disbursed the amount of P952,839.77,leaving an unaccounted
balance of P94,342.24. Obviously, this amount is also part of the profits of the
partnership.
During the trial of this case, it was
credits receivable from the projects
Public Highways, in the amount of
After the trial of this case, it was

discovered that the appellant had money and


in question, in the custody of the Bureau of
P128,669.75, representing the 10% retention.
shown that the total retentions amounted to

Evangelista vs Abad Santos 51 SCRA 416


FACTS: On October 9, 1954 a co-partnership was formed under the name of
"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was amended as
to include herein respondent, Estrella Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita
P. Navarro, the original capitalist partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her industry being an industrial
partner", and that the profits and losses "shall be divided and distributed among the
partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be
divided among them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in
the Court of First Instance of Manila, alleging that the partnership, which was also
made a party-defendant, had been paying dividends to the partners except to her; and
that notwithstanding her demands the defendants had refused and continued to refuse
and let her examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the partnership.
She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits
after such accounting, plus attorney's fees and costs.
ISSUE: Whether or not Abad Santos is an industrial partner and is entitled to the
shares of the partnership?
HELD: Yes. It is not disputed that the provision against the industrial partner
engaging in business for himself seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure faithful compliance by said
partner with this prestation. That appellee has faithfully complied with her prestation
with respect to appellants is clearly shown by the fact that it was only after filing of
the complaint in this case and the answer thereto appellants exercised their right of
exclusion under the codal art just mentioned by alleging in their Supplemental

Answer, subsequent to the filing of defendants' answer to the complaint, defendants


reached an agreement whereby the herein plaintiff been excluded from, and deprived
of, her alleged share, interests or participation, as an alleged industrial partner, in the
defendant partnership and/or in its net profits or income, on the ground plaintiff has
never contributed her industry to the partnership, instead she has been and still is a
judge of the City Court (formerly Municipal Court) of the City of Manila, devoting
her time to performance of her duties as such judge and enjoying the privilege and
emoluments appertaining to the said office, aside from teaching in law school in
Manila, without the express consent of the herein defendants'. Having always knows
as a appellee as a City judge even before she joined appellant company as an
industrial partner, why did it take appellants many yearn before excluding her from
said company as aforequoted allegations? And how can they reconcile such exclusive
with their main theory that appellee has never been such a partner because "The real
agreement was to grant the appellee a share of 30% of the net profits which the
appellant partnership may realize from June 7, 1955, until the mortgage of
P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully
paid.
Article 1794
Son Cuya vs De Luna 67 Phil 646
Josue SONCUYA, Carmen DE LUNA and Librado Avelino were partners in the
business called "Centro Escolar de Seoritas." DELUNA was its managing partner
Claiming fraudulent administration of the partnership, SONCUYA filed with the CFI
Manila an amended complaint against DE LUNA in her own name and as
administratrix of the estate of the deceased partner Avelino, in which he prayed that
DE LUNA be sentenced to pay him the sum of P700,432 as damages and costs
DE LUNA interposed a demurrer based on the following grounds:(1) no cause of
action; and (2) that the complaint is ambiguous, unintelligible and vague
CFI sustained DE LUNAs demurrer and ordered SONCUYA
to amend his amended complaint. SONCUYA refused, thus, DE LUNA filed a
motion to dismiss which the CFI granted. From this order of dismissal, SONCUYA
filed this appeal.
ISSUE:
WON SONCUYAs amended complaint states a
cause of action
HELD:
NO, it does not state a cause of action. The order of dismissal is AFFIRMED.
RATIO:
For the purpose of adjudicating SONCUYAs claim to damages

which he alleges to have suffered as a partner by reason of the supposed fraudulent


management of the partnership by DELUNA, it is first necessary that a liquidation of
the business thereof be made so that the profits and losses may be known and the
liabilities of DE LUNA as well as the damages which each partner may have
suffered, may be determined
It is not alleged in the complaint that such a liquidation has been effected nor is it
prayed that it be made. Consequently, there is no reason or cause for SONCUYA to
institute the action for damages which he claims from the managing partner DE
LUNA.
Thus, for a partner to be able to claim from another partner who manages the general
co-partnership, allegedly suffered by him by reason of the fraudulent administration
of the latter, a previous liquidation of said partnership is necessary.
Po Yeng Cheo vs Lim Ka Yam 44 PHIL 172
By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged
sole owner of a business formerly conducted in the City of Manila under the style of
Kwong Cheong, as managing partner in said business and to recover from him its
properties and assets. The defendant having died during the pendency of the cause in
the court below and the death suggested of record, his administrator, one Lim Yock
Tock, was required to appear and make defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court
below, found that the plaintiff was entitled to an accounting from Lim Ka Yam, the
original defendant, as manager of the business already reffered to, and he accordingly
required Lim Yock Tock, as administrator, to present a liquidation of said business
within a stated time. This order bore no substantial fruit, for the reason that Lim Yock
Tock personally knew nothing about the aforesaid business (which had ceased
operation more than ten years previously) and was apparently unable to find any
books or documents that could shed any real light on its transaction. However, he did
submit to the court a paper written by Lim Ka Yam in life purporting to give, with
vague and uncertain details, a history of the formation of the Kwong Cheong Tay and
some account of its disruption and cessation from business in 1910. To this narrative
was appended a statement of assets and liabilities, purporting to show that after the
business was liquidate, it was actually debtor to Lim Ka Yam to the extent of several
thousand pesos. Appreciating the worthlessness of this so-called statement, and all
parties apparently realizing that nothing more was likely to be discovered by further
insisting on an accounting, the court proceeded, on December 27, 1921, to render
final judgment in favor of the plaintiff.
The decision made on this occasion takes as its basis the fact stated by the court in its
earlier decision of July 1, 1921, which may be briefly set fourth as
follows:lawphil.net

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such
Po Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in
Manila under the style of Kwong Cheong Tay. This business had been in existence in
Manila for many years prior to 1903, as a mercantile partnership, with a
capitalization of P160,000, engaged in the import and export trade; and after the
death of Po Gui Yao the following seven persons were interested therein as partners
in the amounts set opposite their respective names, to wit: Po Yeng Cheo, P60,000;
Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing
Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager
of Kwong Cheong Tay, for many years prior of its complete cessation from business
in 1910, was Lim Ka Yam, the original defendant herein.
Among the properties pertaining to Kwong Cheong Tay and consisting part of its
assets were ten shares of a total par value of P10,000 in an enterprise conducted
under the name of Yut Siong Chyip Konski and certain shares to the among of P1,000
in the Manila Electric Railroad and Light Company, of Manila.
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business,
owing principally to the fact that the plaintiff ceased at that time to transmit
merchandise from Hongkong, where he then resided. Lim Ka Yam appears at no time
to have submitted to the partners any formal liquidation of the business, though
repeated demands to that effect have been made upon him by the plaintiff.
In view of the facts above stated, the trial judge rendered judgment in favor of the
plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator
of Lim Ka Yam, the sum of sixty thousand pesos (P60,000), constituting the interest
of the plaintiff in the capital of Kwong Cheong Tay, plus the plaintiff's proportional
interest in shares of the Yut Siong Chyip Konski and Manila Electric Railroad and
Light Company, estimated at P11,000, together with the costs. From this judgment
the defendant appealed.
In beginning our comment on the case, it is to be observed that this court finds itself
strictly circumscribed so far as our power of review is concerned, to the facts found
by the trial judge, for the plaintiff did not appeal from the decision of the court below
in so far as it was unfavorable to him, and the defendant, as appellant, has not caused
a great part of the oral testimony to be brought up. It results, as stated, that we must
accept the facts as found by the trial judge; and our review must be limited to the
error, or errors, if any, which may be apparent upon the face of the appealed decision,
in relation with the pleadings of record.
Proceeding then to consider the appealed decision in relation with the facts therein
stated and other facts appearing in the orders and proceedings in the cause, it is quite
apparent that the judgment cannot be sustained. In the first place, it was erroneous in
any event to give judgment in favor of the plaintiff to the extent of his share of the
capital of Kwong Cheong Tay. The managing partner of a mercantile enterprise is not

a debtor to the shareholders for the capital embarked by them in the business; and he
can only be made liable for the capital when, upon liquidation of the business, there
are found to be assets in his hands applicable to capital account. That the sum of one
hundred and sixty thousand pesos (P160,000) was embarked in this business many
years ago reveals nothing as to the condition of the capital account at the time the
concern ceased to do business; and even supposing--as the court possibly did--that
the capital was intact in 1908, this would not prove it was intact in 1910 when the
business ceased to be a going concern; for in that precise interval of time the capital
may have been diminished or dissipated from causes in no wise chargeable to the
negligence or misfeasance of the manager.
Again, so far as appears from the appealed decision, the only property pertaining to
Kwong Cheong Tay at the time this action was brought consisted of shares in the two
concerns already mentioned of the total par value of P11,000. Of course, if these
shares had been sold and converted into money, the proceeds, if not needed to pay
debts, would have been distributable among the various persons in interest, that is,
among the various shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give judgment in favor of the
plaintiff for his aliquot part of the par value of said shares. It is elementary that one
partner, suing alone, cannot recover of the managing partner the value of such
partner's individual interest; and a liquidation of the business is an essential
prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court
permitted one partner to recover of the manager the plaintiff's aliquot part of the
proceeds of the business, then long since closed; but in that case the affairs of the
defunct concern had been actually liquidate by the manager to the extent that he had
apparently converted all its properties into money and had pocketed the same--which
was admitted;--and nothing remained to be done except to compel him to pay over
the money to the persons in interest. In the present case, the shares referred to-constituting the only assets of Kwong Cheong Tay--have not been converted into
ready money and doubtless still remain in the name of Kwong Cheong Tay as owner.
Under these circumstances it is impossible to sustain a judgment in favor of the
plaintiff for his aliquot part of the par value of said shares, which would be equivalent
to allowing one of several coowners to recover from another, without process of
division, a part of an undivided property.
Another condition will be noted as present in this case which in our opinion is fatal to
the maintenance of the appealed judgment. This is that, after the death of the original
defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim
Yock Tock, as his administrator, and entered judgment for a sum of money against
said administrator as the accounting party,--notwithstanding the insistence of the
attorneys for the latter that the action should be discontinued in the form in which it
was then being prosecuted. The error of the trial court in so doing can be readily
demonstrated from more than one point of view.
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affair devolves upon the surviving member, or

members, of the firm, not upon the legal representative of the deceased partner. (Wahl
vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And
the same rule must be equally applicable to a civil partnership clothed with the form
of a commercial association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil.,
350) Upon the death of Lim Ka Yam it therefore became the duty of his surviving
associates to take the proper steps to settle the affairs of the firm, and any claim
against him, or his estate, for a sum of money due to the partnership by reason of any
misappropriation of its funds by him, or for damages resulting from his wrongful acts
as manager, should be prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
Moreover, when it appears, as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad
and Light Company, are in the possession of the deceased partner, the proper step for
the surviving associates to take would be to make application to the court having
charge to the administration to require the administrator to surrender such property.
But, in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and the court,
abandoning entirely the effort to obtain an accounting, gave judgment against the
administrator upon the supposed liability of his intestate to respond for the plaintiff's
proportionate share of the capital and assets. But of course the action was not
maintainable in this aspect after the death of the defendant; and the motion to
discontinue the action as against the administrator should have been granted.
The judgment must be reversed, and the defendant will be absolved from the
complaint; but it will be understood that this order is without prejudice to any
proceeding which may be undertaken by the proper person or persons in interest to
settle the affairs of Kwong Cheong Tay and in connection therewith to recover from
the administrator of Lim Ka Yam the shares in the two concerns mentioned above.
No special pronouncement will be made as to costs of either. So ordered.
Article 1800
Matela vs Chua-Sintex

Article 1800
Council of Red men vs Veterans Army 7 phil 685
Hartigan, Rohde, & Gutierrez, for Appellant.
W. A. Kincaid, for Appellee.
SYLLABUS
1.VETERAN ARMY OF THE PHILIPPINES. The constitution of the Veteran
Army of the Philippines makes provision for the management of its affairs, so that
article 1695 of the Civil Code, making each member an agent of the partnership in
the absence of such provision, is not applicable to that organization.
2.ID.; FRATERNAL SOCIETIES; PARTNERSHIP. Whether a fraternal society,
such as the Veteran Army of the Philippines, is a civil partnership is not decided.
DECISION
WILLARD, J. :
Article 3 of the Constitution of the Veteran Army of the Philippines provides as
"The object of this association shall be to perpetuate the spirit of patriotism and
fraternity those men who upheld the Stars and Stripes in the Philippine Islands during
the Spanish war and the Philippine insurrection, and to promote the welfare of its
members in every just and honorable way; to assist the sick and aficted and to bury
the dead, to maintain among its members in time of peace the same union and
harmony with which they served their country in times of war and insurrection."
Article 5 provides that:jgc:chanrobles.com.ph
"This association shall be composed of
"(a) A department.
"(b) Two or more posts."cralaw virtua1aw library

It is provided in article 6 that the department shall be composed of a department


commander, fourteen ofcers, and the commander of each post, or some member of
the post appointed by him. Six members of the department constitute a quorum for
the transaction of business.
The Constitution also provides for the organization of posts. Among the posts thus
organized is the General Henry W. Lawton Post, No. 1. On the 1st day of March,
1903, a contract of lease of parts of a certain buildings in the city of Manila was
signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache
Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe, citing
for and on behalf of Lawton Post, Veteran
Army of the Philippines as lessee. The lease was for the term of two years
commencing February 1, 903, and ending February 28, 1905. The Lawton Post
occupied the premises in controversy for thirteen months, and paid the rent for that
time. It them abandoned them and this action was commenced to recover the rent for
the unexpired term. Judgment was rendered in the court below on favor of the
defendant McCabe, acquitting him of the complaint. Judgment was rendered also
against the Veteran Army of the Philippines for P1,738.50, and the costs. From this
judgment, the last named defendant has appealed. The plaintiff did not appeal from
the judgment acquitting defendant McCabe of the complaint.
It is claimed by the appellant that the action can not be maintained by the plaintiff,
The Great Council of the United States of the Improved Order of Red Men, as this
organization did not make the contract of lease.
It is also claimed that the action can not be maintained against the Veteran Army of
the Philippines because it never contradicted, either with the plaintiff or with Apach
Tribe, No. 1, and never authorized anyone to so contract in its name.
We do not nd it necessary to consider the rst point because we think the contention
of the appellant on the second point must be sustained.
It is difcult to determine the exact nature of the defendant organization. It is of
course not a mercantile partnership. There is some doubt as to whether it is a civil
partnership, in view of the denition of the term in article
1665 of the Civil Code. That article is as follows:jgc:chanrobles.com.ph

"Partnership is a contract by which two or more persons bind themselves to


contribute money, property, or industry to a common fund, with the intention of
dividing the prots among themselves."cralaw virtua1aw library
It seems to be the opinion of the commentators that where the society is not
constituted for the purpose of gain. it does not fall within this article of the Civil
Code. Such an organization is fully covered by the Law of Associations of 1887, but
that law was never extended to the Philippine Islands. According to some
commentators it would be governed by the provisions relating to the community of
property. However, the questions thus presented we do not nd necessary to , and to
not resolve. The view most favorable to the appellee is the one that makes the
appellant a civil partnership. Assuming that is such, and is covered by the provisions
of title 8, book 4 of the Civil Code, it is necessary for the appellee to prove that the
contract in question was executed by some authorized to so by the Veteran Army of
the Philippines.

Article 1695 of the Civil Code provides as follows:


"Should no agreement have been made with regard to the form of management, the
following rules shall be observed
"1 All the partners shall be considered as agents, and whatever any one of them may
do by himself shall bind the partnership; but each one may oppose the act of the
others before they may have produced any legal effect."cralaw virtua1aw library
One partner, therefore, is empowered to contract in the name of the partnership only
when the articles of partnership make no provision for the management of the
partnership business. In the case at bar we think that the articles of the Veteran Army
of the Philippines do so provide. It is true that an express disposition to that effect is
not found therein, but we think one may be fairly deduced from the contents of those
articles. They declare what the duties of the several ofcers are. In these various
provisions there is nothing said about the power of making contracts, and that faculty
is not expressly given to any ofcer. We think that it was, therefore, reserved to the
department as a whole; that is, that in any case not covered expressly by the rules
prescribing the duties of the ofcers, the department were present. It is hardly
conceivable that the members who formed this organization should have had the
intention of giving to any one of the sixteen or more persons who composed the
department the power to make any contract relating to the society which that
particular ofcer saw t to make, or that a contract when so made without
consultation with, or knowledge of the other members of the department should bind
it. We therefore, hold, that no contract, such as the one in question, is binding on the

Veteran Army of the Philippines unless it was authorized at a meeting of the


department. No evidence was offered to show that the department had never taken
any such action. In fact, the
proof shows that the transaction in question was entirely between Apache Tribe, No.
1, and the Lawton Post, and there is nothing to show that any member of the
department ever knew anything about it, or had anything to do with it. The liability of
the Lawton Post is not presented in this appeal.
Judgment against the appellant is reversed, and the Veteran Army of the Philippines is
acquitted of the complaint. No costs will be allowed to either party in this court. After
the expiration of twenty days let judgment be rendered in accordance to the lower
court for proper action. So ordered.
Sy-Boco vs Yap Teng 7 Phil 12
SYLLABUS
SALE; ACTION FOR DEBT. Held, That under the facts stated in the opinion the
defendant was liable to the plaintiff in the sum of P1,442.95.
DECISION
MAPA, J. :

This is an action by the plaintiff to recover from the defendant the sum of P1,442.95,
alleged to be due him from the latter. The court below rendered judgment in favor of
the plaintiff for the aforesaid sum and legal interest thereon at the rate of 6 per cent
per annum from the 25th of March, 1905, with costs against the defendant, who
excepted to the said judgment, made a motion for a new trial on the ground that the
ndings of fact contained in the said judgment were plainly and manifestly against
the weight of the evidence, and has brought the case to this court by a bill of
exceptions.
The evidence shows that for a period of three years, more or less, the plaintiff had
been furnishing to the defendant native cloth for the latters store in the city of
Manila. The goods were at rst furnished on credit, but the business relations of the
parties caused entirely in 1904. The defendant had a partner by the name of Yapsuan,
who was the manager of the business. The defendant introduced him to the plaintiff
as such manager, and told him that Yapsuan had authority from him to receive the
cloth, and that the value thereof should be charged to his, the defendants account,

and in fact the cloth was, as a rule, received by Yapsuan from the plaintiff. It became
necessary for Yapsuan to return to China in 1902 on account of ill health and a
liquidation of the accounts between the plaintiff and the defendant was made in
December of the said year, showing a balance of P1,444.95 in favor of the plaintiff,
which the defendant
expressly undertook to pay. This was proved not only by the testimony of the plaintiff
himself, but by that of two witnesses who were present. After the liquidation was
made the defendant continued to buy the goods from the plaintiff for cash until the
year 1904, when, as already stated, the business relations between the parties ceased.
The defendant has failed to show that he had paid the aforesaid balance of P1,444.95
or an part thereof. Consequently the judgment of the court below is just and legal and
should be afrmed. There is a difference of P2 between the said balance and the
amount of the judgment but, as the court properly said, the plaintiff is not entitled to
receive more than he prays for in his complaint, and the amount stated in the
judgment is all that is sought to be recovered.
It is contented by the appellant that the court below erred in not nding that, the only
indebtedness of the defendant being P1,442.95 according to the liquidation made in
December, 1902, he having thereafter paid the sum of P1,810.87 as alleged in the
complaint, and in default of proof as to the value of the goods furnished to the
defendant, after that date, the plaintiff could not maintain an action to recover the said
sum. There is, in fact, no evidence in the record upon this last point. It was not
necessary, however, to offer such evidence. The action was not for the recovery of the
value of the goods furnished to the defendant after the liquidation of 1902. The
plaintiff himself testied that the defendant had paid cash for such goods, but alleged
that the latter had paid nothing on account of the balance due after the said
liquidation. His testimony upon this point has not been contradicted in any way and it
is apparent from such testimony that the P1,810.87 represented the value of the goods
for which the defendant paid cash. If this amount was mentioned at all in the
complaint, it was for the purpose of comparing the same with the total value of the
goods furnished the defendant up to the year 1904, which, according to the
complaint, amounted to P3,235.75. It should be borne in mind that the plaintiff
continued to furnish goods to the defendant after the liquidation until the year 1904.
There is no evidence that the aforesaid amount was paid on account of the balance
due because of the liquidation and not on account of the value of the said goods. The
plaintiff testied without contradiction, that absolutely nothing had been paid on the
balance due from the said liquidation.

It is further alleged by the appellant that there is nothing to show that after the year
1902 he continued to purchase goods from the plaintiff, paying cash therefor, as was
erroneously found by the court below. The positive and uncontradicted statement of
the plaintiff to the contrary is sufcient, however, to justify the ndings of the court
below upon that point. That court, therefore, committed no error in this respect.

DECISION

The appellant nally contends that the goods having been furnished to and received
by the partnership between himself and Yapsuan, and the accounts of the same not
having been liquidated, this action should have been brought against the partnership
itself, or against the partners jointly, and not against the defendant only. However that
may be, the fact remains that the defendant
in this case was the only one who contradicted with the plaintiff in his own name, as
appears from the latters testimony. When the defendant told the plaintiff that he had
authorized Yapsuan to receive the goods, he instructed the plaintiff to charge them to
him (the defendant) personally. The defendant, moreover, undertook personally to
pay the balance due the plaintiff, after the liquidation made in December, 1902, such
as being the sum sought to be recovered in this case, as appears from the testimony of
the plaintiff and that of the two witnesses who took part in the said liquidation.
Consequently the court below properly allowed the plaintiff to maintain this action
against the defendant. The judgment appealed from is accordingly afrmed with the
costs of this instance against the Appellant. After expiration of twenty days let
judgment be entered in accordance herewith and in due time let the record be
remanded to the court below for execution. So ordered.

The petitioner, Antonio Pardo ,a stockholder in the Hercules Lumber Company, Inc.,
one of the respondents herein, seeks by this original proceeding in the Supreme Court
to obtain a writ of mandamus to compel the respondents to permit the plaintiff and
his duly authorized agent and representative to examine the records and business
transactions of said company. To this petition the respondents interposed an answer,
in which, after admitting certain allegations of the petition, the respondents set forth
the facts upon which they mainly rely as a defense to the petition. To this answer the
petitioner in turn interposed a demurrer, and the cause is now before us for
determination of the issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact a stockholder in
the Hercules Lumber Company, Inc., and that the respondent, Ignacio Ferrer, as
acting secretary of the said company, has refused to permit the petitioner or his agent
to inspect the records and business transactions of the said Hercules Lumber
Company, Inc., at times desired by the petitioner. No serious question is of course
made as to the right of the petitioner, by himself or proper representative, to exercise
the right of inspection conferred by section 51 of Act No. 1459. Said provision was
under the consideration of this court in the case of Philpotts v. Philippine
Manufacturing Co. and Berry (40 Phil., 471), where we held that the right of
examination there conceded to the stockholder may be exercised either by a
stockholder in person or by any duly authorized agent or representative.

Article 1805- Partnership Books

STREET, J. :

Pardo vs Hercules Lumberand Ferrer 47 Phil 964

Sumulong & Lavides and Ross, Lawrence & Selph for Respondents.
SYLLABUS
1. CORPORATIONS; STOCKHOLDERS RIGHT TO INSPECT RECORDS;
UNREASONABLE RESTRICTION BY DIRECTORS ON RIGHT OF
INSPECTION. A resolution of the board of directors of a corporation limiting the
right of stockholders to inspect its records to a period of ten days shortly prior to the
annual stockholders meeting is an unreasonable restriction on the right of inspection
may be exercised at reasonable hours on business days throughout the year, and not
merely during an arbitrary period of a few days chosen by the directors.

The main ground upon which the defense appears to be rested has reference to the
time, or times, within which the right of inspection may be exercised. In this
connection the answer asserts that in article 10 of the By- laws of the respondent
corporation its is declared that "Every shareholder may examine the books of the
company and other documents pertaining to the same upon the days which the board
of directors shall annually x." It is further averred that at the directors meeting of
the respondent corporation held on February 16, 1924, the board passed a resolution
to the following effect:jgc:chanrobles.com.ph

"The board also resolved to call the usual general (meeting of shareholders) for
March 30 of the present

year, with notice to the shareholders that the books of the company are at their
disposition from the 15th to 25th of the same month for examination, in appropriate
hours."cralaw virtua1aw library
The contention for the respondent is that this resolution of the board constitutes a
lawful restriction on the right conferred by statute; and it is insisted that as the
petitioner has not availed himself of the permission to inspect the books and
transactions of the company within the ten days thus dened, his right to inspection
and examination is lost, at least for this year.
We are entirely unable to concur in this contention. The general right given by the
statute may not be lawfully abridged to the extent attempted in this resolution. It may
be admitted that the ofcials in charge of a corporation may deny inspection when
sought at unusual hours or under other improper conditions; but neither the executive
ofcers nor the board of directors have the power to deprive a stockholder of the right
altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid.
Authorities to this effect are too numerous and direct to require extended comment.
(14 C.J., 859; 7 R.C.L., 325; 4 Thompson on Corporations, 2d ed., sec. 4517;
Harkness v. Guthrie, 27 Utah, 248; 107 Am. St., Rep., 664, 681.) Under a statute
similar to our own it has been held that the statutory right of inspection is not affected
by the adoption by the board of directors of a resolution providing for the closing of
transfer books thirty days before an election. (State v. St. Louis Railroad Co., 29 Mo.
Ap., 301.)
It will be noted that our statute declares that the right of inspection can be exercised
"at reasonable hours." This means at reasonable hours on business days throughout
the year, and not merely during some arbitrary period of a few days chosen by the
directors.
In addition to relying upon the by-law, to which reference is above made, the answer
of the respondents calls in question the motive which is supposed to prompt the
petitioner to make inspection; and in this connection it is alleged that the information
which the petitioner seeks is desired for ulterior purposes in connection with a
competitive rm with which the petitioner is alleged to be connected. It is also
insisted that one of the purposes of the petitioner is to obtain evidence preparatory to
the institution of an action which he means to bring against the corporation by reason
of a contract of employment which once existed between the corporation and himself.
These suggestions are entirely apart from the issue, as, generally speaking, the motive
of the shareholder exercising the right is immaterial (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the petition and the admissions of
the answer, the petitioner is entitled to relief. The demurrer is, therefore, sustained;

and the writ of mandamus will issue as prayed, with costs against the respondents. So
ordered.

Garrido vs Asencio 10 Phil 691

1.BOOKS OF ACCOUNT; ADMISSIBILITY. Books of account, although not


kept in accordance with the provisions of the Code of Commerce, if not objected to,
are admissible in evidence, and, in any event, they may be admitted under section
338 of the Code of Civil Procedure, as a memorandum to refresh the memory of the
witness. (Tan Machan v. Gan Aya, 3 Phil. Rep., 684.)
2.ID.; ID.; ADMISSION. Behn Meyer & Co. v. Rosatzin (5 Phil. Rep., 660)
followed to the point that books of account kept by a person (or by him jointly with
another) constitute an admission of the facts stated therein and are admissible to show
such admission.D E C I S I O NCARSON, J. :
Plaintiff and defendant were members of a partnership doing business under the rm
name of Asencio y Cia. The business of the partnership did not prosper and it was
dissolved by mutual agreement of the members. The plaintiff brings this action to
recover from the defendant, who appears to have been left in charge of the books and
the funds of the rm, the amount of the capital which he had invested in the business.
The defendant, alleging that there had been considerable losses in the conduct of the
business of the partnership, denied that there was anything due the plaintiff as
claimed, and led a cross complaint wherein he prayed for a judgment against the
plaintiff for a certain amount which he alleged to be due by the plaintiff under the
articles of partnership on account of plaintiffs share of these losses.
The trial court found that the evidence substantially sustains the claim of the
defendant as to the alleged losses in the business of the partnership and gave
judgment in his favor.
The only question submitted on appeal is the competency and sufciently of the
evidence on which the trial court based its ndings as to the status of the accounts of
the company.
Plaintiff and appellant makes the following assignment of errors:chanrob1es virtual
1aw library

First. The trial court erred in holding the estado de cuentas (statement of account) of
the partnership of Asencio y Cia. submitted by the defendant as competent and
sufcient evidence in this case.

taken to be admitted by him, except so far as it is made to appear that they are
erroneous as a result of fraud or mistake.

Second. The trial court erred in holding that evidence of record proved the existence

It appears from the record that the statement of account, the vouchers, and the books
of the company were placed at the disposition of the plaintiff for more than six weeks
prior to the trial, and that during the trial he was given every opportunity to indicate
any erroneous or fraudulent items appearing in the account, yet he was unable, or in
any event he declined to specify such items, contenting himself with a general
statement to the effect that there

of losses in the business of the said partnership.


Third. The trial court erred in refusing to give judgment in favor of the plaintiff.
It appears from the record that by mutual agreement the defendant had general charge
and supervision of the books and funds of the rm, but it appears that these books
were at all times open to the inspection of the plaintiff, and there is evidence which
tends to show that the plaintiff himself made entries in these books touching
particular transactions in which he happened to be interested; so that while it is clear
that the defendant was more especially burdened with the care of the books and
accounts of the partnership, it would appear that the plaintiff had equal rights with the
defendant in this regard, and that during the existence of the partnership they were
equally responsible for the mode in which the books were kept and that the entries
made by one had the same effect as if they had been made by the other.
At the trial the principal question at issue was the amount of the prots or losses of
the business of the partnership during the period of its operation. The plaintiff made
no allegation as to prots, but denied defendants allegation as to the losses. The
defendant in support of his allegations offered in evidence the estado de cuentas
(general statement of accounts) of the partnership, supported by a number of
vouchers, and by his own testimony under oath as to the accuracy and correctness
of the items set out therein. The plaintiff assigns as error the admission of this
account on the ground that the books of the partnership were not kept in accordance
with the provisions of Title III, Book I, of the Code of Commerce.
It is not necessary for us to consider this assignment of error as to the inadmissibility
of this account on the ground that the books were not kept in accordance with the
provisions of the Commercial Code, because no objection was made to its admission
in the court below; and further, because in any event it was admissible under the
provisions of section 338 of the Code of Civil Procedure as memorandum used to
refresh the memory of the witness. (Tan Machan v. Gan Aya, 3 Phil. Rep., 684.) We
think further that in view of the testimony of record that the plaintiff jointly with the
defendant kept these books, made entries therein, and was responsible with him
therefor, the doctrine laid down in Behn, Meyer & Co., v. Rosatzin (5 Phil. Rep., 660)
is applicable in this case, and the correctness of the entries in these books must be

must be some mistake, as he did not and could not believe that the business had been
conducted at a loss.
The court below seems to have scrutinized the account with painstaking care, and to
have been satised as to its accuracy, except as to some unimportant items, which he
corrected, but counsel for the appellant reiterates in this court his general allegations
as to the inaccuracy of the account, and points out some instances wherein he alleges
that items of expenditure appear to have been charged against the partnership more
than once.
Upon the whole record as brought here by the appellant we are not able to say that
the weight of the evidence does not sustain the ndings of the trial court, and the
judgment entered in that court should be, and is hereby, afrmed with the costs of this
instance against the Appellant. So ordered.
Article 1807- Duty to account
Buenaventura vs David 34 Phil 435
Street, J.:
By an agreement effective from April 20, 1906, a partnership was formed by Antonio
David y Abelido and Adriano Buenaventura y Dezollier for the conduct of the
business of real estate brokers in the city of Manila, under the firm name "Abelido
and Co." The first named party was the capitalist member of the firm and its
manager., while the last named was the industrial member and bookkeeper. The firm
maintained a feeble external existence for a few months, during which period the
capitalist associate placed P209.86 in the enterprise. This was consumed in office rent
and other incidental expenses. Only two profitable transactions were ever
accomplished by the firm of Abelido and Co. during its existence. These produced a
total income of P42, which sum was noted on the credit side of the company's ledger.

It was agreed in the articles that the partnership should be liquidated upon April 20,
1907, in the absence of any agreement for the extension of its life; but upon February
1, 1908, it was agreed in writing that the partnership should not be liquidated until the
sale of a piece of real estate in which the firm had become interested should be
effected with profit. The property to which reference was thus made consisted of a
farm in the municipality of Murcia, in the Province of Tarlac, known as the
"Hacienda de Guitan."
This farm had been formerly owned by the spouses Loni Diangco and Epifania
Torres; and long before the firm of Abelido and Co. had come into existence Antonio
David y Abelido had been their creditor by reason of certain sums of money from
time to time loaned them. After the death of Lino Diangco in 1890 still other sums of
money were advanced by David to the widow, Epifania Torres, in behalf of herself
and her minor son Pablo Diangco. Upon July 10, 1906, Epifania agreed to convey the
Hacienda de Guitan to Abelido and Buenaventura for a consideration stated at P2,050
(Exhibit C). The purpose of the transaction was to settle the debt of several thousand
pesos owing by her and her son to Antonio David y Abelido. The conveyance by
which this contract was finally carried into effect was executed upon January 30,
1908. The grantee named in the deed was Antonio David y Abelido; and no reference
was made in this instrument to the firm of Abelido and Co., or to Buenaventura as a
partner therein. Buenaventura was present at the time of the execution of this deed
and signed as a subscribing witness. The total consideration for the conveyance was
P7,170, of which the sum of P5,870 was consumed in satisfying the old indebtedness
due to David. The balance (according to the recitals of the deed) was paid by him to
Epifania Torres. It further appears that Antonio David y Abelido proceeded to procure
the registration of the hacienda in his own name and a Torrens title was in due course
issued to him.
Upon the same day that the above-mentioned deed was executed by Epifania Torres
to Antonio David, a declaration was drawn up and ratified by Antonio David and
Adiano Buenaventura in which it was stated that Epifania Torres had sold the estate
above mentioned to Antonio David for the sum of P7,170 and that of this amount the
sum of P3,370 had been advanced by Abelido & Co., while P3,800 had been paid by
David individually. It was then said that the firm thereby became the owner of the
property in the proportion of the value satisfied by it; and this was followed by an
obscure clause meaning, probably, that the right of the firm to acquire this
participation was dependent on the reimbursement of David for the outlay made by
him with respect to such share. A further statement was added to the effect that
Buenaventura should have the option to advance half of the sum paid out by Antonio
David y Abelido, to wit, the sum of P1,900, in the event Buenaventura should desire
to have a half interest in the property in his own name.
From the date of the conveyance above mentioned David exercised all the rights of
an owner over the property. Upon one occasion he mortgaged it for the sum of
P5,000 and Buenaventura was paid P300 for assisting in the securing of this loan. At

another time David mortgaged the property for the sum of P15,000 and applied the
money thus secured to his own use.
Upon February 18, 1915, or more than seven years after the day upon which the deed
to the property had been executed to David, Buenaventura filed the complaint in this
action. In this proceeding he seeks relief embracing the following features: (1) a
dissolution of the partnership of Abelido and Co.; (2) judgment for a balance of some
P2,344.85. alleged to be due as arrears upon salary account; (3) a transfer of the title
of the Hacienda de Guitan to Abelido and Co.; (4) and accounting for, and division of
all money, property and other effects of the firm; and especially an accounting for
profits alleged to have been made by the defendant David from investments of money
derived from the hacienda, which profits were alleged to amount to the sum of
P5,190; (5) a judgment for damages in the sum of P10,000; (6) such and further relief
as might seem to the court just and equitable.
At the hearing the court entered a judgment declaring that the partnership of Abelido
and Co. was dissolved and denying all other relief sought in the complaint. From this
judgment the plaintiff Buenaventura has appealed.
As regards the Hacienda de Guitan, it is in our opinion clear upon the oral testimony
and other proof adduced in the cause that every cent of the consideration for the
purchase of this property was supplied by David; and it consisted, as we have seen,
mostly of money previously loaned. Buenaventura had no resources, and it was
evidently quite beyond his power to raise the funds necessary to participate in a
business transaction of the size of that in question. His pretension that he supplied
P1,025 or half of the consideration named in the original contract (Exhibit C) was
rightly rejected by the court. Furthermore it appears that the firm of Abelido and Co.,
as distinguished from the individual David Abelido, never in fact advanced a single
peso in the transaction, although the "declaration" of January 30, 1908, states that the
firm advanced P3,370. That declaration constitutes an admission which entitles it to
weight but its recital as to the money paid or received may be explained and even
contradicted, as in case of a simple receipt. David's explanation is that the plaintiff, as
bookkeeper, had made it appear in the firm books that the firm was debtor to David in
the amount of P3,370 in respect to this transaction and that the plaintiff had requested
David to sign the declaration showing the firm to be a participant. Throughout this
affair David exhibited considerable complaisance in signing papers at Buenaventura's
request. He apparently considered Buenaventura an amiable old friend and was
willing to indulge the latter's fancy with the idea that he was party to an important
transaction, well knowing that he could never put up the necessary money to enable
him to share in the deal. Whatever may be the explanation of David's imprudence in
allowing himself to be thus drawn into an admission showing that the firm
participated in the deal, it is quite clear that he supplied all the money for the
purchase in question.
The situation then, as regards the title to the hacienda is this: David, who supplied all
the funds, has obtained the legal title in his own individual name. This was

accomplished with knowledge on the part of Buenaventura. Furthermore he has


registered his title by means of legal proceedings which were probably known to
Buenaventura. Still later, the latter is seen acting as broker for David in securing a
loan on the hacienda and receives a fee for his services. Meanwhile the original
partnership enterprise is abandoned. Finally more than seven years after the day when
Buenaventura stood by and signed as a witness the deed conveying the property to
David, he comes into court and seeks to reach this property through the ghost of the
firm of Abelido and Co. and bring the defendant to account for the profits which he
has obtained from the investments of its proceeds in various enterprises.
The purpose of the action is to impress a trust on the property in favor of Abelido and
Co., to divest the title out of the present owner, and to have it, or its proceeds,
liquidated and administered as firm assets. We are of the opinion that there is no
merit in the plaintiff's contention. It is true that a court will not hesitate, under certain
circumstances, to divest a title out of the holder and impress a trust upon it in favor of
another, or to require the holder of the title to administer the property for the true
owner (Uy Aloc vs. Cho Jan Ling, 19 Phil. Rep., 202); yet this will not be done in the
absence of a sufficient contract, an express trust, or other strong equitable
circumstances requiring the intervention of equity. No such relief can be granted,
upon purely equitable grounds, against a party who has himself paid the entire
purchase price in favor of one who advanced nothing. But the declaration of January
30, 1908, is relied upon as evidence of a contract establishing the right of Abelido
and Co. The reply is that by the terms of that instrument Buenaventura's personal
right was dependent upon the advancement of money by him which was in fact never
supplied, and as to the statement contained in that declaration that Abelido and Co.
had advanced a certain sum, it clearly appears that this is not true; and we hold that
the defendant is not precluded, or estopped, by that admission from showing the
actual facts.
Furthermore, it is evident that the plaintiff's case is adversely affected by his long
delay in bringing this action. Undue delay in the enforcement of a right is strongly
persuasive of a lack of merit in the claim, since it is human nature for a person to
assert his rights most strongly when they are threatened or invaded. It is hard to
believe that, if the plaintiff had been convinced of the justice of his contention, he
would have failed to assert his right to a division at the time when the defendant was
pocketing the proceeds of the loans obtained upon the security of the Hacienda de
Guitan. The probabilities are that Buenaventura realized at the time that his hopes of
sharing in this investment were doomed to disappointment and that with full
knowledge of all the facts he decided to abandon the claim, or not assert it. However,
the documents which appear on their face to establish his right to a participation in
this property remained in existence; and in course of time said claim was made the
basis of this action. The assertion of doubtful claims, after long delay, can not be
favored by the courts. Time inevitably tends to obliterate occurrences from the
memory of witnesses, and even where the recollection appears to be entirely clear,
the true clue to the solution of a case may be hopelessly lost. These consideration
constitute one of the pillars of the doctrine long familiar in equity jurisprudence to

the effect that laches or unreasonable delay on the part of a plaintiff in seeking to
enforce a right is not only persuasive of a want of merit but may, according to the
circumstances, be destructive of the right itself. Vigilantibus non dormientibus
equitas subvenit.
The decision of the main issue relative to the hacienda renders unnecessary any
discussion of other features of the case presented in the appellant's brief. Upon the
whole it is our opinion that there was no error prejudicial to the plaintiff in the action
of the court below and the judgment is therefore affirmed, with costs against the
appellant.
Pang Lim and Galvez vs Lo seng 42 Phil 282
Facts:
Lo Seng and Pang Lim were partners in the business
of running a distillery, known as "El ProgresoThe land on which said distillery is
located was to the firm of Lo Seng and Co. for the term of three years. Upon the
expiration of this lease a new written contract, in the making of which Lo Yao was
represented by one Lo Shui as attorney in fact, became effective whereby the lease
was extended for fifteen years.
Pang Lim sold all his interest in the distillery to hispartner Lo Seng, thus placing the
latter in the position of sole owner
Lo Shui, again acting as attorney in fact of Lo Yao ,executed and acknowledged
before a notary public a deed purporting to convey to Pang Lim and another
Chinaman named Benito Galvez, the entire distillery plant. But this document was
never recorded in the registry of property.
Thereafter, Pang Lim and Benito Galvez demanded possession from Lo Seng, but the
latter refused toyield; and the present action of unlawful detainer was thereupon
initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of
Paombong to recover possession of the premises.
Plaintiff Pang Lim has occupied a double role in the transactions which gave rise to
this litigation, namely, first, as one of the lessees; and secondly, as one of the
purchasers now seeking to terminate the lease. These two positions are essentially
antagonistic and incompatible. Every competent person is by law bond to maintain in
all good faith the integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regards any
contract previously entered into by himself.
Issue: WON
Pang Lim, having been a participant in the contract of lease now in question, is in a
position to terminate it: and this is a fatal obstacle to the maintenance of the action
of unlawful detainer by him.
Held: NO.

subscriptions for the companys stocks, P25,000.00 would come from Haussermann and Beam.
While yet a partner in the firm of Lo Seng and Co.,Pang Lim participated in the
creation of this lease, and when he sold out his interest in that firm to Lo Seng this
operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including
the lease; and Pang Lim cannot now be permitted, in the guise of a purchaser of the
estate, to destroy an interest derived from himself, and for which he has received full
value.
Ratio:
The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is
strikingly revealed in the circumstance that prior to the acquisition of this property
Pang Lim had been partner with Lo Sengand Benito Galvez an employee. Both
therefore had been in relations of confidence with Lo Seng and in that position had
acquired knowledge of the possibilities of the property and possibly an experience
which would have enabled them, in case they had acquired possession, to exploit the
distillery with profit. it would be shocking to the moral sense if the condition of the
law were found to be such that PangLim, after profiting by the sale of his interest in
business, worthless without the lease, could intervene as purchaser of the property
and confiscate for his own benefit the property which he had sold for a valuable
consideration to Lo Seng.

They were to receive compensation in the form of shares of stock for the services rendered in the
flotation of this proposition. The funds were needed on a certain date. It was also stated in the contract
that Haussermann and Beam would be discharged if Sellner could not provide the amount due from him
within the time frame stipulated .Hanlon was unable to raise the P75,000.00, so that Haussermann and
Beam made arrangements to finance the rehabilitation of the mine. Because of this new arrangement,
the company became profitable that it was able to pay dividends. Because of this, the value of the
companys stocks appreciated.
Held:
Hanlon is not entitled to an accounting for his share in the profits of the company; Haussermann and
Beam are absolved. Under the equitable doctrine, if the contracting parties have treated time as of the
essence of the contract, the delinquency will not be excused and specific performance will not be
granted; but on the other hand, if it appears that time has not been made of the essence of the contract,
equity will relieve from the delinquency and specific performance may be granted, due compensation
being made for the damage caused by the delay. Time is of the essence of the contract for the sale of an
option on mining property, or a contract for the sale thereof, even though there is no express stipulation to
that effect. The same idea is clearly applicable to a contract like that now under consideration which
provides for the rehabilitation of a mining plant with funds to be supplied by the contractor within a
limited period.

Above all other persons in business relations, partners are required to exhibit towards
each other the highest degree of good faith. In fact the relation between partners is
essentially fiduciary, each being considered in law, as he is in fact, the confidential
agent of the other.

Lim Tanhu v. Ramolete


(August 29, 1975)

If one partner obtains in his own name and for his own benefit the renewal of a lease
on property used by the firm, to commence at a date subsequent to the expiration of
the firm's lease, the partner obtaining the renewal is held to be a constructive trustee
of thefirm as to such lease.

DOCTRINE: Since Po Chuan was in control of the affairs of the partnership, the
more logical inference is that if defendants had obtained any portion of the funds of
the partnership for themselves, it must have been with the knowledge and consent of
Po Chuan, for which reason no accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to what is taken by a
partner without the consent of the other partner or partners.

As Lo Seng is vested with the possessory right as against Pang Lim, he cannot be
ousted either by PangLim or Benito Galvez. Having lawful possession as against one
cotenant, he is entitled to retain it against both
Hanlon vs Hausserman and beam 40 phil 796
Facts:
This action was originally instituted by R. Y. Hanlon to compel the defendants, John W.Haussermann
and A. W. Beam, to account for a share of the profits gained by them in rehabilitating the plant of the
Benguet Consolidated Mining Company and in particular to compel them to surrender to the plaintiff
50,000 shares of the stock of said company, with dividends paid thereon. It was initially agreed by
Hanlon, Haussermann, Beam and Sellner that P75,000.00 was needed to rehabilitate the mine;
P50,000.00 would come from Hanlon by securing and obtaining

Even assuming there has not yet been any liquidation of the partnership, contrary to
the allegation of the defendants, then Glory Commercial Co. would have the status of
a partnership in liquidation and the only right plaintiff could have would be to what
might result after such liquidation to belong to the deceased partner, and before this is
finished, it is impossible to determine, what rights or interests, if any, the deceased
had. In other words, no specific amounts or properties may be adjudicated to the heir
or legal representative of the deceased partner without the liquidation being first
terminated.

NATURE: Petition for certiorari and prohibition


PONENTE: Barredo

FACTS:
Private respondent Tan Put alleged that she is the widow of Tee Hoon Lim Po Chuan,
who was a partner and practically the owner who has controlling interest of Glory
Commercial Company and a Chinese Citizen until his death. Defendant Antonio Lim
Tanhu and Alfonso Leonardo Ng Sua were partners of Po Chuan. Tan Put filed
complaint against spouses-petitoner Lim Tanhu and Dy Ochay including their son
Tech Chuan and the other spouses-petitoner Ng Sua and Co Oyo including also their
son Eng Chong Leonardo, that through fraud and machination took actual and active
management of the partnership and that she alleged entitlement to share not only in
the capital and profits of the partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of the latter during its lifetime."
( Basically, her allegations were that she actually gave some of her money to Po
Chuan to help launch the partnership business; that the assets of the business were
never liquidated after her common-law-husbands death; that the partners used the
partnership funds to acquire several properties and to also launch the new business of
Glory Commercial Company, Inc. [as opposed to the older one which was Glory
Commercial Company Partnership]; that she was entitled to accounting and share in
profits of the partnership as wife of Po Chuan; that she was fraudulently made to sign
a quitclaim for 25,000 pesos which she said she did not actually receive)
According to the petitioners, Ang Siok Tin is the legitimate wife, still living, and with
whom Tee Hoon had four legitimate children, a twin born in 1942, and two others
born in 1949 and 1965, all presently residing in Hong Kong. Tee Hoon died in 1966
and as a result of which the partnership was dissolved and what corresponded to him
were all given to his legitimate wife and children.
Tan Put prior of her alleged marriage with Tee Hoon on 1949, was engaged in the
drugstore business; that not long after her marriage, upon the suggestion of the latter
sold her drugstore for P125,000.00 which amount she gave to her husband as
investment in Glory Commercial Co. sometime in 1950; that after the investment of
the above-stated amount in the partnership its business flourished and it embarked in
the import business and also engaged in the wholesale and retail trade of cement and
GI sheets and under huge profits.
Defendants interpose that Tan Put knew and was are that she was merely the
common-law wife of Tee Hoon. Tan Put and Tee Hoon were childless but the former
had a foster child, Antonio Nunez. Defendants also said that the defendant knew she
was not entitled to the profits of the partnership but out of the goodness of their
hearts, they gave her 25,000 as evidenced by the quitclaim she signed.
ISSUES: Whether Tan Put, as she alleged being married with Tee Hoon, can claim
from the company of the latters share.
HELD: No
RATIO/RULING: Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and wife "shall be set forth in
an instrument" signed by the parties as well as by their witnesses and the person

solemnizing the marriage. Accordingly, the primary evidence of a marriage must be


an authentic copy of the marriage contract. While a marriage may also be proved by
other competent evidence, the absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who allegedly solemnized a
marriage is not admissible evidence of such marriage unless proof of loss of the
contract or of any other satisfactory reason for its non-production is first presented to
the court. In the case at bar, the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore,
competent evidence, there being absolutely no showing as to unavailability of the
marriage contract and, indeed, as to the authenticity of the signature of said certifier,
the jurat allegedly signed by a second assistant provincial fiscal not being authorized
by law, since it is not part of the functions of his office. Besides, inasmuch as the
bishop did not testify, the same is hearsay.
An agreement with Tee Hoon was shown and signed by Tan Put that she received
P40,000 for her subsistence when they terminated their relationship of common-law
marriage and promised not to interfere with each others affairs since they are
incompatible and not in the position to keep living together permanently. Hence, this
document not only proves that her relation was that of a common-law wife but had
also settled property interests in the payment of P40,000.
We find no alternative but to hold that plaintiff Tan Put's allegation that she is the
widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that, on
the contrary, the evidence on record convincingly shows that her relation with said
deceased was that of a common-law wife and furthermore, that all her claims against
the company and its surviving partners as well as those against the estate of the
deceased have already been settled and paid.
If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po
Chuan is not only unconvincing but has been actually overcome by the more
competent and weighty evidence in favor of the defendants, her attempt to
substantiate her main cause of action that defendants Lim Tanhu and Ng Sua have
defrauded the partnership Glory Commercial Co. and converted its properties to
themselves is even more dismal. From the very evidence summarized by His Honor
in the decision in question, it is clear that not an iota of reliable proof exists of such
alleged misdeeds.
If Po Chuan was in control of the affairs and the running of the partnership, how
could the defendants have defrauded him of such huge amounts as plaintiff had made
his Honor believe? Upon the other hand, since Po Chuan was in control of the affairs
of the partnership, the more logical inference is that if defendants had obtained any
portion of the funds of the partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no accounting could be
demanded from them therefor, considering that Article 1807 of the Civil Code refers
only to what is taken by a partner without the consent of the other partner or partners.
Incidentally again, this theory about Po Chuan having been actively managing the
partnership up to his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and

machination, took actual and active management of the partnership and although Tee
Hoon Lim Po Chuan was the manager of Glory Commercial Co., defendants
managed to use the funds of the partnership to purchase lands and buildings etc. (Par.
4, p. 2 of amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land
titles listed in the decision, most if not all of the properties supposed to have been
acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership
appear to have been transferred to their names only in 1969 or later, that is, long after
the partnership had been automatically dissolved as a result of the death of Po Chuan.
Accordingly, defendants have no obligation to account to anyone for such
acquisitions in the absence of clear proof that they had violated the trust of Po Chuan
during the existence of the partnership.
Besides, assuming there has not yet been any liquidation of the partnership, contrary
to the allegation of the defendants, then Glory Commercial Co. would have the status
of a partnership in liquidation and the only right plaintiff could have would be to
what might result after such liquidation to belong to the deceased partner, and before
this is finished, it is impossible to determine, what rights or interests, if any, the
deceased had. In other words, no specific amounts or properties may be adjudicated
to the heir or legal representative of the deceased partner without the liquidation
being first terminated.
DISPOSITION: IN VIEW OF ALL THE FOREGOING, the petition is granted. All
proceedings held in respondent court in its Civil Case No. 12328 subsequent to the
order of dismissal of October 21, 1974 are hereby annulled and set aside, particularly
the ex-parteproceedings against petitioners and the decision on December 20, 1974.
Respondent court is hereby ordered to enter an order extending the effects of its order
of dismissal of the action dated October 21, 1974 to herein petitioners Antonio Lim
Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is
hereby permanently enjoined from taking any further action in said civil case gave
and except as herein indicated. Costs against private respondent.
Article 1808-1809
Leung vs IAC 370 Scra 431
FACTS:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate
Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of
First Instance of Manila, Branch II in Civil Case No. 116725 declaring private
respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun

Wah Panciteria and ordering the petitioner to pay to the private respondent his share
in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then
Court of First Instance of Manila, Branch II to recover the sum equivalent to twentytwo percent (22%) of the annual profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence
during the trial of the case to show that Sun Wah Panciteria was actually a partnership
and that he was one of the partners having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced
by a receipt wherein the petitioner acknowledged his acceptance of the P4,000.00 by
affixing his signature thereto. Furthermore, the private respondent received from the
petitioner the amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check from the profits of the operation of the restaurant for the year
1974
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt. His evidence
is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg
in Clark Field and later as waiter at the Toho Restaurant amounting to a little more
than P2,000.00 as capital in establishing Sun Wah Panciteria. Petitioner presented
various government licenses and permits showing the Sun Wah Panciteria was and
still is a single proprietorship solely owned and operated by himself alone. Fue Leung
also flatly denied having issued to the private respondent the receipt (Exhibit G) and
the Equitable Banking Corporation's Check No. 13389470 B in the amount of
P12,000.00 (Exhibit B).
ISSUE: WON Private respondent is a partner of the petitioner in Sun Wah
Panciteria?
HELD:
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are 1) two or more persons bind themselves to
contribute money, property, or industry to a common fund; and 2) intention on the

part of the partners to divide the profits among themselves (Article 1767, Civil Code;
Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by the
respondent, a partner shares not only in profits but also in the losses of the firm. If
excellent relations exist among the partners at the start of business and all the partners
are more interested in seeing the firm grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly plausible. It would be incorrect to state
that if a partner does not assert his rights anytime within ten years from the start of
operations, such rights are irretrievably lost. The private respondent's cause of action
is premised upon the failure of the petitioner to give him the agreed profits in the
operation of Sun Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which
is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement
to the contrary.
Regarding the prescriptive period within which the private respondent may demand
an accounting, Articles 1806, 1807, and 1809 show that the right to demand an
accounting exists as long as the partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the final accounting is done.
Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part, provides:

(6) Other circumstances render a dissolution equitable.


There shall be a liquidation and winding up of partnership affairs, return of capital,
and other incidents of dissolution because the continuation of the partnership has
become inequitable.
Emnace vs CA 370 Scra 431

Emilio Emnace, Jacinto Divinagracia and Vicente Tabanao formed a partnership


engaged in the fishing industry. In 1986, Jacinto decided to leave the partnership
hence they agreed to dissolve the partnership. At that time, the partnership has an
estimated asset amounting to P30,000,000.00.
HOWEVER, until the death of Vicente Tabanao in 1994, Emnace never rendered an
accounting either to Vicente or his heirs. Emnace reneged on his promise to turn over
Tabanaos share which is 1/3 of the P30M. The heirs of Tabanao then sued Emnace.
Emnace argued, among others, that the heirs are barred by prescription hence they
can no longer demand an accounting. He contends that the partnership was dissolved
in 1986 and that was the time when Tabanaos (and his heirs) right to inquire into the
business affairs accrued; that said right has expired in 1990 or 4 years after. So
beyond 1990, they can no longer inquire.

ISSUE: Whether or not Emnace is correct.

Art. 1831. On application by or for a partner the court shall decree


a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him;
xxx xxx xxx

HELD: No. Prescription has not run in this case, it has never begun. The three final
stages of partnership are: a) dissolution, b) winding up, and c) termination. In this
case, Emnace and his partners dissolved their partnership but such did not perfect the
dissolution because no accounting took place. The partnership, although dissolved,
continues to exist and its legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and distribution of the net
partnership assets to the partners. For as long as the partnership exists, any of the
partners (or legal representative in this case the heirs of Tabanao) may demand an
accounting of the partnerships business. Prescription of the said right starts to run
only upon the dissolution of the partnership when the final accounting is done.

When a final accounting is made, it is only then that prescription begins to run. In
the case at bar, no final accounting has been made, and that is precisely what the heirs
are seeking in their action before the trial court, since Emnace has failed or refused to
render an accounting of the partnerships business and assets. Hence, the said action
is not barred by prescription.

NOTE: Under Article 1809 of the Civil Code, right to demand an accounting may
also be invoked under certain agreements these are just one of the exceptions.
General Rule: Accounting only when there is dissolution. Exception: Article 1807
and 1809.

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