G.R. No.

L-45624

April 25, 1939

GEORGE
LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
George
E.
Reich
Roy
and
De
Guzman
Espeleta, Quijano and Liwag for appellee Hill.

for
for

appellant.
appellees.

CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of Appeals
in a case originating from the Court of First Instance of Manila wherein the
herein petitioner George Litton was the plaintiff and the respondents Hill &
Ceron, Robert Hill, Carlos Ceron and Visayan Surety & Insurance
Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and
delivered to Carlos Ceron, who is one of the managing partners of Hill &
Ceron, a certain number of mining claims, and by virtue of said
transaction, the defendant Carlos Ceron delivered to the plaintiff a
document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429
and 6699 for 5,000, 5,000 and 7,000 shares respectively total
17,000 shares of Big Wedge Mining Company, which we have sold
at P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent
brokerage.
HILL

&

CERON

on May 29, 1937, having reached the conclusion that Ceron did not intend
to represent and did not act for the firm Hill & Ceron in the transaction
involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the Court
of Appeals as to the question of fact just mentioned, namely, that Ceron
individually entered into the transaction with the plaintiff, but in view,
however, of certain undisputed facts and of certain regulations and
provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law
as effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at
the trial that he and Ceron, during the partnership, had the same power to
buy and sell; that in said partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on the date of the transaction,
February 14, 1934, the partnership between Hill and Ceron was in
existence. After this date, or on February 19th, Hill & Ceron sold shares of
the Big Wedge; and when the transaction was entered into with Litton, it
was neither published in the newspapers nor stated in the commercial
registry that the partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a conversation
with the plaintiff in the course of which he advised the latter not to deliver
shares for sale or on commission to Ceron because the partnership was
about to be dissolved; but what importance can be attached to said advice
if the partnership was not in fact dissolved on February 14th, the date
when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties until it
has been recorded in the commercial registry. (See also Cardell vs. Maeru,
14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March
23, 1885.)

By: (Sgd.) CARLOS CERON

Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of
P720, and unable to collect this sum either from Hill & Ceron or from its
surety Visayan Surety & Insurance Corporation, Litton filed a complaint in
the Court of First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered Carlos Ceron
personally to pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On
appeal to the Court of Appeals, the latter affirmed the decision of the court

Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market,

irrespective of whether the purchase or sale is made from or to a

private individual, broker or brokerage firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make
the firm responsible to him. According to the articles of
copartnership of 'Hill & Ceron,' filed in the Bureau of Commerce.
Sixth. That the management of the business affairs of the
copartnership shall be entrusted to both copartners who shall
jointly administer the business affairs, transactions and activities of
the copartnership, shall jointly open a current account or any other
kind of account in any bank or banks, shall jointly sign all checks
for the withdrawal of funds and shall jointly or singly sign, in the
latter case, with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be
signed by one of the partners if the other partner consented.
Without the consent of one partner, the other cannot bind the firm
by a written contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the plaintiff
(the plaintiff conceded that the firm name was not mentioned at
that time), the latter has failed to prove that Hill had consented to
such contract.
It follows from the sixth paragraph of the articles of partnership of Hill &n
Ceron above quoted that the management of the business of the
partnership has been entrusted to both partners thereof, but we dissent
from the view of the Court of Appeals that for one of the partners to bind
the partnership the consent of the other is necessary. Third persons, like
the plaintiff, are not bound in entering into a contract with any of the two
partners, to ascertain whether or not this partner with whom the
transaction is made has the consent of the other partner. The public need
not make inquires as to the agreements had between the partners. Its
knowledge, is enough that it is contracting with the partnership which is
represented by one of the managing partners.
There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions. (Mills vs. Riggle,
112 Pac., 617.)
The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of the

firm acting apparently in its behalf and within the scope of his
authority. (Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads in
part:
Second: That the purpose or object for which this copartnership is
organized is to engage in the business of brokerage in general,
such as stock and bond brokers, real brokers, investment security
brokers, shipping brokers, and other activities pertaining to the
business of brokers in general.
The kind of business in which the partnership Hill & Ceron is to engage
being thus determined, none of the two partners, under article 130 of the
Code of Commerce, may legally engage in the business of brokerage in
general as stock brokers, security brokers and other activities pertaining to
the business of the partnership. Ceron, therefore, could not have entered
into the contract of sale of shares with Litton as a private individual, but as
a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the stock
brokerage business for engaging in other transactions different from those
of the partnership, as it happens in the present case, because the
transaction made by Ceron is a mere personal loan, and this argument, so
it is said, is corroborated by the Court of Appeals. We do not find this
alleged corroboration because the only finding of fact made by the Court of
Appeals is to the effect that the transaction made by Ceron with the
plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay
to the plaintiff, jointly and severally, the sum of P720, with legal interest,
from the date of the filing of the complaint, minus the commission of onehalf per cent (%) from the original price of P1,870, with the costs to the
respondents. So ordered.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
RESOLUTION
July 13, 1939
CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. It is asked that we reconsider our decision, the
said defendant insisting that the appellant had not established that Carlos
Ceron, another of the defendants, had the consent of his copartner, the
movant, to enter with the appellant into the contract whose breach gave
rise to the complaint. It is argued that, it being stipulated in the articles of
partnership that Hill and Ceron, only partners of the firm Hill & Ceron,
would, as managers, have the management of the business of the
partnership, and that either may contract and sign for the partnership with
the consent of the other; the parties of partnership having been, so it is
said, recorded in the commercial registry, the appellant could not ignore
the fact that the consent of the movant was necessary for the validity of
the contract which he had with the other partner and defendant, Ceron,
and there being no evidence that said consent had been obtained, the
complaint to compel compliance with the said contract had to be, as it
must be in fact, a procedural failure.

There is nothing in the case at bar which destroys this presumption; the
only thing appearing in he findings of fact of the Court of Appeals is that
the plaintiff "has failed to prove that Hill had consented to such contract".
According to this, it seems that the Court of Appeals is of the opinion that
the two partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of partnership should not
be thus understood, for it means that one of the two partners should have
the consent of the other to contract for the partnership, which is different;
because it is possible that one of the partners may not see any prospect in
a transaction, but he may nevertheless consent to the realization thereof
by his copartner in reliance upon his skill and ability or otherwise. And here
we have to hold once again that it is not the plaintiff who, under the
articles of partnership, should obtain and prove the consent of Hill, but the
latter's partner, Ceron, should he file a complaint against the partnership
for compliance with the contract; but in the present case, it is a third
person, the plaintiff, who asks for it. While the said presumption stands,
the plaintiff has nothing to prove.

Although this question has already been considered and settled in our
decision, we nevertheless take cognizance of the motion in order to
enlarge upon our views on the matter.

Passing now to another aspect of the case, had Ceron in any way stated to
the appellant at the time of the execution of the contract, or if it could be
inferred by his conduct, that he had the consent of Hill, and should it turn
out later that he did not have such consent, this alone would not annul the
contract judging from the provisions of article 130 of the Code of
Commerce reading as follows:

The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting
for the partnership. This obligation of course is not imposed upon a third
person who contracts with the partnership. Neither is it necessary for the
third person to ascertain if the managing partner with whom he contracts
has previously obtained the consent of the other. A third person may and
has a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the partners
did not consent to his copartner entering into a contract with a third
person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects
should be taken into account.

No new obligation shall be contracted against the will of one of the

managing partners, should he have expressly stated it; but if,
however, it should be contracted it shall not be annulled for this
reason, and shall have its effects without prejudice to the liability
of the partner or partners who contracted it to reimburse the firm
for any loss occasioned by reason thereof. (Emphasis supplied.)
Under the aforequoted provisions, when, not only without the consent but
against the will of any of the managing partners, a contract is entered into
with a third person who acts in good faith, and the transaction is of the
kind of business in which the partnership is engaged, as in the present
case, said contract shall not be annulled, without prejudice to the liability
of the guilty partner.
The reason or purpose behind these legal provisions is no other than to
protect a third person who contracts with one of the managing partners of
the partnership, thus avoiding fraud and deceit to which he may easily fall
a victim without this protection which the Code of Commerce wisely
provides.
If we are to interpret the articles of partnership in question by holding that
it is the obligation of the third person to inquire whether the managing

copartner of the one with whom he contracts has given his consent to said
contract, which is practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, operate to hinder
effectively the transactions, a thing not desirable and contrary to the
nature of business which requires promptness and dispatch one the basis
of good faith and honesty which are always presumed.
In view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. So ordered.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

Direct appeal from the decision of the Court of First Instance of Davao (the
amount involved being more than P200,00) dismissing the plaintiffsappellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it
would appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay",
entered into a general commercial partnership under the partnership name
"Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in real
state. The partnership had a capital of P30,000.00, P18,000.00 of which
was contributed by Goquiolay and P12,000.00 by Tan Sin An. The
agreement lodge upon Tan Sin An the sole management of the partnership
affairs, stipulating that
III. The co-partnership shall be composed of said Tan Sin An as sole
managing and partner (sic), and Antonio C. Goquiolay as copartner.
IV. Vhe affairs of co-partnership shall be managed exclusively by
the managing and partner (sic) or by his authorized agent, and it is
expressly stipulated that the managing and partner (sic) may
delegate the entire management of the affairs of the copartnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards
compensation as he may deem proper, and vest in such persons,
firm or corporation full power and authority, as the agent of the copartnership and in his name, place and stead to do anything for it
or on his behalf which he as such managing and partner (sic) might
do or cause to be done.

G.R. No. L-11840

July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and

ANTONIO
C.
GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.
REYES, J. B. L., J.:

V. The co-partner shall have no voice or participation in the

management of the affairs of the co-partnership; but he may
examine its accounts once every six (6) months at any time during
ordinary business hours, and in accordance with the provisions of
the Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
In the event of the death of any of the partners at any time before
the expiration of said term, the co-partnership shall not be
dissolved but will have to be continued and the deceased partner
shall be represented by his heirs or assigns in said co-partnership
(Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at
any time upon mutual agreement in writing of the partners (Art. XIII,
articles of Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney

to this effect:

Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was appointed
administratrix of the intestate estate of her deceased husband.

That besides the powers and duties granted the said Tan Sin An by
the articles of co-partnership of said co-partnership "Tan Sin An
and Antonio Goquiolay", that said Tan Sin An should act as the
Manager for said co-partnership for the full period of the term for
which said co-partnership was organized or until the whole period
that the said capital of P30,000.00 of the co-partnership should
last, to carry on to the best advantage and interest of the said copartnership, to make and execute, sign, seal and deliver for the copartnership, and in its name, all bills, bonds, notes, specialties, and
trust receipts or other instruments or documents in writing
whatsoever kind or nature which shall be necessary to the proper
conduction of the said businesses, including the power to
mortgage and pledge real and personal properties, to secure the
obligation of the co-partnership, to buy real or personal properties
for cash or upon such terms as he may deem advisable, to sell
personal or real properties, such as lands and buildings of the copartnership in any manner he may deem advisable for the best
interest of said co-partnership, to borrow money on behalf of the
co-partnership and to issue promissory notes for the repayment
thereof, to deposit the funds of the co-partnership in any local bank
or elsewhere and to draw checks against funds so deposited ... .

In the meantime, repeated demands for payment were made by the Banco
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the
defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo
Sans Hardware Co., paid the remaining balance of the mortgage debt, and
the mortgage was cancelled.

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
purchased the three (3) parcels of land, known as Lots Nos. 526, 441 and
521 of the Cadastral Survey of Davao, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation of P25,000.00,
payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a
period of ten (10) years, with 10% interest per annum. Another 46 parcels
were purchased by Tan Sin An in his individual capacity, and he assumed
payment of a mortgage debt thereon for P35,000.00 with interest. The
downpayment and the amortization were advanced by Yutivo and Co., for
the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in
an instrument executed by the partnership and Tan Sin An, whereby the
entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound
themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8%
annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow,
Kong Chai Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua,

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
filed their claims in the intestate proceedings of Tan Sin An for P62,415.91
and P54,310.13, respectively, as alleged obligations of the partnership "Tan
Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest
and taxes paid in amortizing and discharging their obligations to "La
Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said
claims at first, Kong Chai Pin later admitted the claims in her amended
answer and they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty
Y. Lee, for the purpose preliminary of settling the aforesaid debts of Tan Sin
An and the partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale 1 of the 49 parcels
of land to the defendants Washington Sycip and Betty Lee in consideration
of P37,000.00 and of vendees' assuming payments of the claims filed by
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July,
1949, defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49 parcels of
land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio
Goquiolay filed, on or about July 25, 1949, a petition in the intestate
proceedings seeking to set aside the order of the probate court approving
the sale in so far as his interest over the parcels of land sold was
concerned. In its order of December 29, 1949, the probate court annulled
the sale executed by the administratrix with respect to the 60% interest of
Antonio Goquiolay over the properties sold. Kong Chai Pin appealed to the
Court of Appeals, which court later certified the case to us (93 Phil., 413;
49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting
aside the orders of the probate court complained of and remanding the
case for new trial, due to the non-inclusion of indispensable parties.
Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other
things, for the annulment of the sale in favor of Washington Sycip and
Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff

partnership are concerned. The answer averred the validity of the sale by
Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After
hearing, the complaint was dismissed by the lower court in its decision
dated October 30, 1956; hence, this appeal taken directly to us by the
plaintiffs, as the amount involved is more than P200,000.00. Plaintiffsappellants assign as errors that
I The lower court erred in holding that Kong Chai Pin became the
managing partner of the partnership upon the death of her
husband, Tan Sin An, by virtue of the articles of Partnership
executed between Tan Sin An and Antonio Goquiolay, and the
general power of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act
alone as sole managing partner in view of the minority of the other
heirs.
III The lower court erred in holding that Kong Chai Pin was the
only heir qualified to act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had
authority to sell the partnership properties by virtue of the articles
of partnership and the general power of attorney granted to Tan
Sin An in order to pay the partnership indebtedness.
V The lower court erred in finding that the partnership did not
pay its obligation to the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio
Goquiolay was not necessary to consummate the sale of the
partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed
the business of the partnership after the death of her husband, and
that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio
Goquiolay to oppose the management of the partnership by Kong
Chai Pin estops him now from attacking the validity of the sale of
the partnership properties.
IX The lower court erred in holding that the buyers of the
partnership properties acted in good faith.

X The lower court erred in holding that the sale was not
fraudulent against the partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only
necessary but beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in
ordering Antonio Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that
the widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole
management of the partnership, upon the latter's death. While, as we
previously stated in our narration of facts, the Articles of Co-Partnership
and the power of attorney executed by Antonio Goquiolay, conferred upon
Tan Sin An the exclusive management of the business, such power,
premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tan's demise. The provision in the articles stating that "in
the event of death of any one of the partners within the 10-year term of
the partnership, the deceased partner shall be represented by his heirs",
could not have referred to the managerial right given to Tan Sin An; more
appropriately, it related to the succession in the proprietary interest of
each partner. The covenant that Antonio Goquiolay shall have no voice or
participation in the management of the partnership, being a limitation
upon his right as a general partner, must be held coextensive only with
Tan's right to manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership
providing for the continuation of the firm notwithstanding the death of one
of the partners, the heirs of the deceased, by never repudiating or refusing
to be bound under the said provision in the articles, became individual
partners with Antonio Goquiolay upon Tan's demise. The validity of like
clauses in partnership agreements is expressly sanctioned under Article
222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the
articles of co-partnership (2 Vivante, Tratado de Derecho Mercantil, 493;
Planiol, Traite Elementaire de Droit Civil, English translation by the
Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the
partnership was limited merely to the value of the share or estate left by
the deceased Tan Sin An, they became no more than limited partners and,
as such, were disqualified from the management of the business under
Article 148 of the Code of Commerce. Although ordinarily, this effect
follows from the continuance of the heirs in the partnership, 3 it was not so
with respect to the widow Kong Chai Pin, who, by her affirmative actions,

manifested her intent to be bound by the partnership agreement not only

as a limited but as a general partner. Thus, she managed and retained
possession of the partnership properties and was admittedly deriving
income therefrom up to and until the same were sold to Washington Sycip
and Betty Lee. In fact, by executing the deed of sale of the parcels of land
in dispute in the name of the partnership, she was acting no less than as a
managing partner. Having thus preferred to act as such, she could be held
liable for the partnership debts and liabilities as a general partner, beyond
what she might have derived only from the estate of her deceased
husband. By allowing her to retain control of the firm's property from 1942
to 1949, plaintiff estopped himself to deny her legal representation of the
partnership, with the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties to
Washington Sycip and Betty Lee. The answer is, we believe, in the
negative. Strangers dealing with a partnership have the right to assume, in
the absence of restrictive clauses in the co-partnership agreement, that
every general partner has power to bind the partnership, specially those
partners acting with ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a
contract with any of the two partners, to ascertain whether or not
this partner with whom the transaction is made has the consent of
the other partner. The public need not make inquiries as to the
agreements had between the partners. Its knowledge is enough
that it is contracting with the partnership which is represented by
one of the managing partners.
"There is a general presumption that each individual partner is an
agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions." [Mills vs. Riggle, 112
Pac., 617]
"The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of the members of
the firm acting apparently in its behalf and within the scope of his
authority." [Le Royvs. Johnson, 7 U.S. Law, Ed., 391] (George
Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of
Commerce to the effect that
If the management of the general partnership has not been limited
by special agreement to any of the members, all shall have the
power to take part in the direction and management of the

common business, and the members present shall come to an

agreement for all contracts or obligations which may concern the
association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among
themselves, that does not necessarily affect the validity of the acts of a
partner, while acting within the scope of the ordinary course of business of
the partnership, as regards third persons without notice. The latter may
rightfully assume that the contracting partner was duly authorized to
contract for and in behalf of the firm and that, furthermore, he would not
ordinarily act to the prejudice of his co-partners. The regular course of
business procedure does not require that each time a third person
contracts with one of the managing partners, he should inquire as to the
latter's authority to do so, or that he should first ascertain whether or not
the other partners had given their consent thereto. In fact, Article 130 of
the same Code of Commerce provides that even if a new obligation was
contracted against the express will of one of the managing partners, "it
shall not be annulled for such reason, and it shall produce its effects
without prejudice to the responsibility of the member or members who
contracted it, for the damages they may have caused to the common
fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. A falta de pactos especiales, la facultad
de administrar corresponde a cada socio personalmente. No hay
que esperar ciertamente concordia con tantas cabezas, y para
cuando no vayan de acuerdo, la disciplina del Codigo no ofrece un
sistema eficaz que evite los inconvenientes. Pero, ante el silencio
del contrato, debia quiza el legislador privar de la administracion a
uno de los socios en beneficio del otro? Seria una arbitrariedad.
Debera quiza declarar nula la Sociedad que no haya elegido
Administrador? El remedio seria peor que el mal. Debera, tal vez,
pretender que todos los socios concurran en todo acto de la
Sociedad? Pero este concurso de todos habria reducido a la
impotencia la administracion, que es asunto d todos los dias y de
todas horas. Hubieran sido disposiciones menos oportunas que lo
adoptado por el Codigo, el cual se confia al espiritu de reciproca
confianza que deberia animar la colaboracion de los socios, y en la
ley inflexible de responsabilidad que implica comunidad en los
intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los
otros, porque cada uno de ellos ejerce la administracion en la
totalidad de sus relaciones, salvo su responsabilidad en el caso de
una administracion culpable. Si debiera dar noticia, el beneficio de

su simultania actividad, frecuentemente distribuida en lugares y en

tiempos diferentes, se echaria a perder. Se objetara el que de esta
forma, el derecho de oposicion de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de
oposicion concedido por la ley como un remedio excepcional, debe
subordinarse al derecho de ejercer el oficio de Administrador, que
el Codigo concede sin limite: "se presume que los socios se han
concedido reciprocamente la facultad de administrar uno
para otro." Se haria precipitar esta hipotesis en la otra de una
administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con
pedir el consentimiento, a lo menos tacito, de todos los socios lo
que el Codigo excluye ........, si se obligase al socio Administrador a
dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de Comercio,
Tomo II, 147-148) opines:
Para obligar a las Compaias enfrente de terceros (art. 128 del
Codigo), no es bastante que los actos y contratos hayan sido
ejecutados por un socio o varios en nombre colectivo, sino que es
preciso el concurso de estos dos elementos, uno, que el socio o
socios tengan reconocida la facultad de administrar la Compaia, y
otro, que el acto o contrato haya sido ejecutado en nombre de la
Sociedad y usando de su firma social. Asi se que toda obligacion
contraida bajo la razon social, se presume contraida por la
Compaia. Esta presunion es impuesta por motivos de necesidad
practica. El tercero no puede cada vez que trata con la Compaia,
inquirir si realmente el negocio concierne a la Sociedad. La
presuncion es juris tantum y no juris et de jure, de modo que si el
gerente suscribe bajo la razon social una obligacion que no
interesa a la Sociedad, este podra rechazar la accion del tercero
probando que el acreedor conocia que la obligacion no tenia
ninguna relacion con ella. Si tales actos y contratos no
comportasen la concurrencia de ambos elementos, seria nulos y
podria decretarse la responsabilidad civil o penal contra sus
autores.
En el caso que tales actos o contratos hayan sido tacitamente
aprobados por la Compaia, o contabilizados en sus libros, si el
acto o contrato ha sido convalidado sin protesta y se trata de acto
o contrato que ha producido beneficio social, tendria plena validez,
aun cuando le faltase algunos o ambos de aquellos requisitos antes
sealados.
Cuando los Estatutos o la escritura social no contienen ninguna
clausula relativa al nombramiento o designacion de uno o mas de

un socio para administrar la Compaia (art. 129 del Codigo) todos

tienen por un igual el derecho de concurir a la decision y manejo
de los negocios comunes. . . .
Although the partnership under consideration is a commercial partnership
and, therefore, to be governed by the Code of Commerce, the provisions of
the old Civil Code may give us some light on the right of one partner to
bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of
management, the following rules shall be observed:
1. All the partners shall be considered agents, and whatever any
one of the may do individually shall bind the partnership; but each
one may oppose any act of the others before it has become legally
binding.
The records fail to disclose that appellant Goquiolay made any opposition
to the sale of the partnership realty to Washington Z. Sycip and Betty Lee;
on the contrary, it appears that he (Goquiolay) only interposed his
objections after the deed of conveyance was executed and approved by
the probate court, and, consequently, his opposition came too late to be
effective.
Appellants assails the correctness of the amounts paid for the account of
the partnership as found by the trial court. This question, however, need
not be resolved here, as in the deed of conveyance executed by Kong Chai
Pin, the purchasers Washington Sycip and Betty Lee assumed, as part
consideration of the purchase, the full claims of the two creditors, Sing Yee
and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm
realty, on the ground that it, in effect, threw the partnership into
dissolution, which requires consent of all the partners. This view is
untenable. That the partnership was left without the real property it
originally had will not work its dissolution, since the firm was not organized
to exploit these precise lots but to engage in buying and selling real estate,
and "in general real estate agency and brokerage business". Incidentally, it
is to be noted that the payment of the solidary obligation of both the
partnership and the late Tan Sin An, leaves open the question of
accounting and contribution between the co-debtors, that should be
ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was
only a fraudulent device by the appellees, with the connivance of Kong
Chai Pin, to ease out Antonio Goquiolay from the partnership. The "devise",

according to the appellants, started way back sometime in 1945, when one
Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his
share in the partnership; and upon his refusal to sell, was followed by the
filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. in the intestate estate proceedings of Tan Sin An. As creditors of Tan
Sin An and the plaintiff partnership (whose liability was alleged to be joint
and several), Yutivo Sons Hardware Co., and Sing Yee Cuan Co., Inc. had
every right to file their claims in the intestate proceedings. The denial of
the claims at first by Kong Chai Pin ( for lack of sufficient knowledge)
negatives any conspiracy on her part in the alleged fraudulent scheme,
even if she subsequently decided to admit their validity after studying the
claims and finding it best to admit the same. It may not be amiss to remark
that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the
properties were sold was unreasonably low, or in any way unfair, since
appellants presented no evidence of the market value of the lots as of the
time of their sale to appellees Sycip and Lee. The alleged value of
P31,056.58 in May of 1955 is no proof of the market value in 1949,
specially because in the interval, the new owners appear to have
converted the land into a subdivision, which they could not do without
opening roads and otherwise improving the property at their own expense.
Upon the other hand, Kong Chai Pin hardly had any choice but to execute
the questioned sale, as it appears that the partnership had neither cash
nor other properties with which to pay its obligations. Anyway, we cannot
consider seriously the inferences freely indulged in by the appellants as
allegedly indicating fraud in the questioned transactions, leading to the
conveyance of the lots in dispute to the appellee Insular Development Co.,
Inc.

The matter now pending is the appellant's motion for reconsideration of

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

Cash paid

P37,000.0
0

Debts assumed by purchase:

To Yutivo

62,415.91

To Sing Yee Cuan & Co.

54,310.13

TOTAL

P153,726.
04

Wherefore, finding no reversible error in the appealed judgment, we affirm

the same, with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia,
Barrera, and Gutierrez David, JJ., concur.
RESOLUTION

December 10, 1963

REYES, J. B. L., J.:

Appellant Goquiolay, in his motion for reconsideration, insists that,

contrary to our holding, Kong Chai Pin, widow of the deceased partner Tan
Sin An, never became more than a limited partner, incapacitated by law to
manage the affairs of the partnership; that the testimony of her witnesses
Young and Lim belies that she took over administration of the partnership
property; and that, in any event, the sale should be set aside because it
was executed with the intent to defraud appellant of his share in the
properties sold.
Three things must be always held in mind in the discussion of this motion
to reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by
one partner, acting in behalf of the firm, to astranger. There is no question

between partners inter se, and this aspects of the case was expressly
reserved in the main decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in real estate
business, either by buying and sellingreal estate". The Article of copartnership, in fact, expressly provided that:

that plantation was being occupied at that time by the widow, Mrs.
Tan Sin An, and of course they are receiving quite a lot of
benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are
certainly entitled to greater weight than those of Hernando Young and
Rufino Lim, having been made against the party's own interest.

IV. The object and purpose of the co-partnership are as follows:

1. To engage in real estate business, either by buying and selling
real estates; to subdivide real estates into lots for the purpose of
leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which
was in cash) but land precisely acquired to be sold, although subject a
mortgage in favor of the original owners, from whom the partnership had
acquired them.
With these points firmly in mind, let us turn to the points insisted upon by
appellant.
It is first averred that there is "not one iota evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it
to point out that appellant Goquiolay himself admitted that
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai
Pin continue to manage the properties (as) she had no other
means of income. Then I said, because I wanted to help Mrs. Kong
Chai Pin, she could just do itand besides I am not interested
in agricultural lands. I allowed her to take care of the properties in
order to help her and because I believe in God and I wanted to help
her.
Q. So the answer to my question is you did not take any steps?
A. I did not.
Q. And this conversation which you had with Mrs. Yu Eng Lai
was few months after 1945?
A. In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30
June 1956, page 8-9, wherein he sated:

Moreover, the appellant's reference to the testimony of Hernando Young,

that the witness found the properties "abandoned and undeveloped", omits
to mention that said part of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did
you meet Mrs. Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of
the partnership were undeveloped, and the family of the widow (Kong Chai
Pin) did not receive any income from the partnership properties, was given
in answer to the question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin
An and his family lived on the plantation of the partnership and
derived their subsistence from that plantation. What can you say to
that? (Dep. 19 July 1956, p. 8)
And also
What can you say so to the development of these other properties
of the partnership which you saw during the occupation?" (Dep., p.
13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property
which is in Tigatto is about eleven (11) hectares and planted with
abaca seedlings planted by Mr. Sin An. When I went there with
Hernando Youngwe saw all the abaca destroyed. The place was
occupied by the Japanese Army. They planted camotes and
vegetables to feed the Japanese Army. Of course they never paid
any money to Tan Sin An or his family. (Dep., Lim. pp. 13-14.)
(Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could
just do it" (i e., continue to manage the properties. Witnesses Lim and

10

Young referred to the period of Japanese occupation; but Goquiolay's

authority was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation
(1942-1944) does not mean that she did not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should
manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here
involved. But the authority was given, and she did have it when she made
the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai
Pin was only to manage the property, and that it did not include the power
to alienate, citing Article 1713 of the Civil Code of 1889. What this
argument overlooks is that the widow was not a mere agent, because she
had become a partner upon her husband's death, as expressly provided by
the articles of co-partnership. Even more, granting that by succession to
her
husband,
Tan
Sin
An,
the
widow
only
a
became
the limited partner, Goquiolay's authorization to manage the partnership
property was proof that he considered and recognized her has general
partner, at least since 1945. The reason is plain: Under the law (Article
148, last paragraph, Code of Commerce), appellant could not empower the
widow, if she were only a limited partner, to administer the properties of
the firm, even as a mere agent:
Limited partners may not perform any act of administration with
respect to the interests of the co-partnership,not even in the
capacity agents of the managing partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow
showed that she desired to be considered a general partner. By authorizing
the widow to manage partnership property (which a limited partner could
not be authorized to do), Goquiolay recognized her as such partner, and is
now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we
did not say "necessarily") becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability in excess of the
value of the estate inherited so as not to jeopardize his personal assets.
But this statutory limitation of responsibility being designed to protect the
heir, the latter may disregard it and instead elect to become a collective or
general partner, with all the rights and privileges of one, and answering for

the debts of the firm not only with the inheritance bud also with the heir's
personal fortune. This choice pertains exclusively to the heir, and does not
require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved
expressly stipulated that:
In that event of the death of any of the partners at any time before
the expiration of said term, the co-partnership shall not be
dissolved but will have to be continued and the deceased partner
shall be represented by his heirs or assigns in said co-partnership"
(Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partner; on the contrary they expressly stipulated that in
case of death of either partner "the co-partnership ... will have to be
continued" with the heirs or assigns. It certainly could not be continued if it
were to be converted from a general partnership into a limited partnership,
since the difference between the two kinds of associations is fundamental;
and specially because the conversion into a limited association would leave
the heirs of the deceased partner without a share in the management.
Hence, the contractual stipulation does actually contemplate that the heirs
would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner
should they refuse to assume personal and unlimited responsibility for the
obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not voluntarily
choose to become general partners, waiving the protective mantle of the
general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The
heir never was a limited partner, but chose to be, and became, a general
partner right at the start.
It is immaterial that the heirs name was not included in the firm name,
since no conversion of status is involved, and the articles of co-partnership
expressly contemplated the admission of the partner's heirs into the
partnership.
It must never be overlooked that this case involves the rights acquired by
strangers, and does not deal with the rights arising between partners
Goquiolay and the widow of Tan Sin An. The issues between the partners
inter se were expressly reversed in our main decision. Now, in determining
what kind of partner the widow of partner Tan Sin An had elected to
become, strangers had to be guided by her conduct and actuations and

11

those of appellant Goquiolay. Knowing that by law a limited partner is

barred from managing the partnership business or property, third parties
(like the purchasers) who found the widow possessing and managing the
firm property with the acquiescense (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming
that she had become a general partner, and, therefore, in negotiating with
her as such a partner, having authority to act for, and in behalf of, the firm.
This belief, be it noted, was shared even by the probate court that
approved the sale by the widow of the real property standing in the
partnership name. That belief was fostered by the very inaction of
appellant Goquiolay. Note that for seven long years, from partner Tan Sin
An's death in 1942 to the sale in 1949, there was more than ample time for
Goquiolay to take up the management of these properties, or at least
ascertain how its affairs stood. For seven years Goquiolay could have
asserted his alleged rights, and by suitable notice in the commercial
registry could have warned strangers that they must deal with him alone,
as sole general partner. But he did nothing of the sort, because he was not
interested (supra), and he did not even take steps to pay, or settle, the
firm debts that were overdue since before the outbreak of the last war. He
did not even take steps, after Tan Sin An died, to cancel, or modify, the
provisions of the partnership articles that he (Goquiolay) would have no
intervention in the management of the partnership. This laches certainly
contributed to confirm the view that the widow of Tan Sin An had, or was
given, authority to manage and deal with the firm's properties, apart from
the presumption that a general partner dealing with partnership property
has the requisite authority from his co-partners (Litton vs. Hill and Ceron,
et al., 67 Phil., 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in asking the
other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who
contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A third
person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of
business, the consent of his co-partner; for otherwise he would not
enter into the contract. The third person would naturally not
presume that the partner with whom he enters into the transaction
is violating the articles of partnership, but on the contrary, is acting
in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that
the law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which have the force

of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil.,
509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell
the real estate of the firm. This argument is lamentably superficial because
it fails to differentiate between real estate acquired and held as stock-intrade and real state held merely as business site (Vivante's "taller o banco
social") for the partnership. Where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is
not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of partnership
purposes, hence within the ordinary powers of the partner. This distinction
is supported by the opinion of Gay de Montella 1, in the very passage
quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando
es conforme a los fines sociales. Pero esta facultad de enajenar
limitada a las ventas conforme a los fines sociales, viene limitada a
los objetos de comecio o a los productos de la fabrica para
explotacion de los cuales se ha constituido la Sociedad. Ocurrira
una cosa parecida cuando el objeto de la Sociedad fuese la compra
y venta de inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere necesario. (Montella) (Emphasis
supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either
partner has the legal right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate,
one partner has ample power, as a general agent of the firm, to
enter into an executory contract for the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and
selling real estate can not bind the firm by purchases or sales of

12

such property made in the regular course of business, then they

are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership at
all, but a several agency.
Since the sale by the widow was in conformity with the express objective of
the partnership, "to engage * * * in buying and selling real estate" (Art IV,
No. 1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court
of Ohio in McGrath, et al., vs. Cowen, et al., 49 N. E., 338. But the facts of
that case are vastly different from the one before us. In the McGrath case,
the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the
sense that its property was insufficient to pay its debts, though it
still had good credit, and was actively engaged in the prosecution
of its business. On that day, which was Saturday, the plaintiff
caused to be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible property then
belonging to the firm, including the counters, shelving, and other
furnishings and fixtures necessary for, and used in carrying on, its
business, and signed the same in this form: "In witness whereof,
the said Cowen & McGrath, a firm, and Owen McGrath, surviving
partner of said firm, and Owen McGrath, individually, have hereunto set their hands, this 20th day of May, A. D. 1893. Cowen &
McGrath, by Owen McGrath. Owen McGrath, Surviving partner of
Cowen & McGrath. Owen McGrath" At the same time, the plaintif
had prepared, ready for filing, the petition for the dissolution of the
partnership and appointment of a receiver, which he subsequently
filed, as hereinafter stated. On the day the mortgages were signed,
they were placed in the hands of the mortgagees, which was the
first intimation to them that there was any intention to make then.
At that time none of the claims secured by the mortgages were
due, except, it may be, a small part of one of them, and none of
the creditors to whom the mortgages were made had requested
security, or were pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition of
defeasance, and contain a stipulation authorizing the mortgagees
to take immediate possession of the property, which they did as
soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at
once
closed, andpossession
delivered
by
them
to
the
receiver appointed upon the filing of the petition. The avowed
purpose of the plaintif in the course pursued by him, was to
terminate the partnership, place its property beyond the control of

the firm, and insure the preference of the mortgages, all of which
was known to them at the time: ... . (Cas cit., p. 343, Emphasis
supplied)
It is natural that from these facts the Supreme Court of Ohio should draw
the conclusion that conveyances were made with intent to terminate the
partnership, and that they were not within the powers of McGrath as
partner. But there is no similarly between those acts and the sale by the
widow of Tan Sin An. In the McGrath case, the sale included even the
fixtures used in the business, in our case, the lands sold were those
acquired to be sold. In the McGrath case, none of the creditors were
pressing for payment; in our case, the creditors had been unpaid for more
than seven years, and their claims had been approved by the probate
court for payment. In the McGrath case, the partnership received nothing
beyond the discharge of its debts; in the present case, not only were its
debts assumed by the buyers, but the latter paid, in addition, P37,000.00
in cash to the widow, to the profit of the partnership. Clearly, the McGrath
ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of it exists;
but appellant points out, as indicia thereof, the allegedly low price paid for
the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a
total of P153,726.04, of which P37,000.00 was in cash, and the rest in
partnership debts assumed by the purchaser. These debts (P62,415.91 to
Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they
were approved by the Court, and its approval is now final. The claims were,
in fact, for the balance on the original purchase price of the land sold (due
first to La Urbana, later to the Banco Hipotecario) plus accrued interests
and taxes, redeemed by the two creditors-claimants. To show that the price
was inadequate, appellant relies on the testimony of the realtor Mata, who
in 1955, six years after the sale in question, asserted that the land was
worth P312,000.00. Taking into account the continued rise of real estate
values since liberation, and the fact that the sale in question was
practically a forced sale because the partnership had no other means to
pay its legitimate debts, this evidence certainly does not show such "gross
inadequacy" as to justify rescission of the sale. If at the time of the sale
(1949 the price of P153,726.04 was really low, how is it that appellant was
not able to raise the amount, even if the creditor's representative, Yu Khe
Thai, had already warned him four years before (1946) that the creditors
wanted their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged, and
had been mortgaged since 1940, first to La Urbana, and then to the Banco

13

Hipotecario. Was it reasonable to expect that other persons would loan

money to the partnership when it was unable even to pay the taxes on the
property, and the interest on the principal since 1940? If it had been
possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is
clear on the record that since liberation until 1949 Goquiolay never lifted a
finger to discharge the debts of the partnership. Is he entitled now to cry
fraud after the debts were discharged with no help from him?
With regard to the relationship between the parties, suffice it to say that
the Supreme Court has ruled that relationship alone is not a badge of fraud
(Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre
de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the
original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should be
willing to extend credit to them, and not to appellant, is neither illegal nor
immoral; at the very least, these buyers did not have a record of inveterate
defaults like the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members. But no
proof is adduced. If he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the firm's debts between
1945 and 1949; but he did; he did not even care to look for a purchaser of
the partnership assets. Were it true that the conspiracy to defraud him
arose (as he claims) because of his refusal to sell the lands when in 1945
Yu Khe Thai asked him to do so, it is certainly strange that the conspirators
should wait 4 years, until 1949, to have the sale effected by the widow of
Tan Sin An, and that the sale should have been routed through the probate
court taking cognizance of Tan Sin An's estate, all of which increased the
risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing
Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for
the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint
and several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and
Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with
another debtor, the claim shall be filed against the decedent as if
he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor. (Emphasis
supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sin An personally, and a

mortgage in indivisible, in the sense that each and every parcel under
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one used
to obtain a party's consent to a contract (i.e., not being deceit or dolus in
contrahendo), if there is fraud at all, it can only be a fraud of creditors that
gives rise to a rescission of the offending contract. But by express provision
of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the
action for rescission is subsidiary; it can not be instituted except when the
party suffering damage has no other legal means to obtain reparation for
the same". Since there is no allegation, or evidence, that Goquiolay can not
obtain reparation from the widow and heirs of Tan Sin An, the present suit
to rescind the sale in question is not maintenable, even if the fraud
charged actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.

Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao
dismissing the complaint filed by Antonio C. Goquiolay, et al., seeking to
annul the sale made by Kong Chai Pin of three parcels of land to
Washington Z. Sycip and Betty Y. Lee on the ground that it was executed
without proper authority and under fraudulent circumstances. In a decision
rendered on July 26, 1960, we affirmed this decision although on grounds
different from those on which the latter is predicated. The case is once
more before us on a motion for reconsideration filed by appellants raising
both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao
City a commercial partnership for a period of ten years with a capital of
P30,000.00 of which Goquiolay contributed P18,000.00 representing 60%
while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for subdivision,
resale and lease. The partnership was duly registered, and among the
conditions agreed upon in the partnership agreement which are material to

14

this case are: (1) that Tan Sin An would be the exclusive managing partner,
and (2) in the event of the death of any of the partners the partnership
would continue, the deceased to be represented by his heirs. On May 31,
1940, Goquiolay executed a general power of attorney in favor of Tan Sin
An appointing the latter manager of the partnership and conferring upon
him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land known as
Lots Nos. 526, 441 and 521 of the cadastral survey of Davao, the only
assets of the partnership, with the capital originally invested, financing the
balance of the purchase price with a mortgage in favor of "La Urbana
Sociedad Mutua de Construccion Prestamos" in the amount of P25,000.00
payable in ten years. On the same date, Tan Sin An, in his individual
capacity, acquired 46 parcels of land executing a mortgage thereon in
favor of the same company for the sum of P35,000.00. On September 25,
1940, these two mortgage obligations were consolidated and transferred to
the Banco Hipotecario de Filipinas and as a result Tan Sin An, in his
individual capacity, and the partnership bound themselves to pay jointly
and severally the total amount of P52,282.80, with 8% annual interest
thereon within the period of eight years mortgaging in favor of said entity
the 3 parcels of land belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow,
defendant Kong Chai Pin, and four children, all of whom are minors of
tender age. On March 18, 1944, Kong Chai Pin was appointed
administratrix of the intestate estate of Tan Sin An. And on the same date,
Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining
unpaid balance of the mortgage obligation of the partnership amounting to
P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president
and general manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan
Co., Inc., called for Goquiolay and the two had a conference in the office of
the former during which he offered to buy the interest of Goquiolay in the
partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuo, to ask Goquiolay to execute in her favor a power of
attorney. Goquiolay refused both to sell his interest in the partnership as
well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo
Sons Hardware Co., and Sing, Yee and Cuan Co., Inc. filed in November,
1946 a claim each in the intestate proceedings of Tan Sin An for the sum of
P84,705.48 and P66,529.91, respectively, alleging that they represent
obligations of both Tan Sin An and the partnership. After first denying any
knowledge of the claims, Kong Chai Pin, as administratrix, admitted later
without qualification the two claims in an amended answer she filed on
February 28, 1947. The admission was predicated on the ground that she

and the creditors were closely related by blood, affinity and business ties.
On due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims,
Kong Chai Pin filed a petition in the probate court to sell all the properties
of the partnership as well as some of the conjugal properties left by Tan Sin
An for the purpose of paying the claims. Following approval by the court of
the petition for authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing partner of the
partnership, executed on April 4, 1949 a deed of sale of the properties
owned by Tan Sin An and by the partnership in favor of Betty Y. Lee and
Washington Z. Sycip in consideration of the payment to Kong Chai Pin of
the sum of P37,000.00, and the assumption by the buyers of the claims
filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in
whose favor the buyers executed a mortgage on the properties purchased.
Betty Y. Lee and Washington Z. Sycip subsequently executed a deed of sale
of the same properties in favor of their co-defendant Insular Development
Company, Inc. It should be noted that these transactions took place
without the knowledge of Goquiolay and it is admitted that Betty Y. Lee and
Washington Z. Sycip bought the properties on behalf of the ultimate buyer,
the Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on
July 25, 1949 in the intestate proceedings a petition to set aside the order
of the court approving the sale. The court granted the petition. While the
order was pending appeal in the Supreme Court, Goquiolay filed the
present case on January 15, 1953 seeking to nullify the sale as stated in
the early part of this decision. In the meantime, the Supreme Court
remanded the original case to the probate court for rehearing due to lack
of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin
to sell the partnership properties on the ground that she had no authority
to sell because even granting that she became a partner upon the death of
Tan Sin An the power of attorney granted in favor of the latter expired after
his death.
Defendants, on the other hand, defended the validity of the sale on the
theory that she succeeded to all the rights and prerogatives of Tan Sin An
as managing partner.
The trial court sustained the validity of the sale on the ground that under
the provisions of the articles of partnership allowing the heirs of the
deceased partner to represent him in the partnership after hid death Kong
Chai Pin became a managing partner, this being the capacity held by Tan
Sin An when he died.

15

In the decision rendered by this Court on July 26, 1960, we affirmed this
decision but on different grounds, among which the salient points are: (1)
the power of attorney given by Goquiolay to Tan Sin An as manager of the
partnership expired after his death; (2) his widow Kong Chai Pin did not
inherit the management of the partnership, it being a personal right; (3) as
a general rule, the heirs of a deceased general partner come into the
partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain alleged
acts of management; and (5) the sale being necessary to pay the
obligations of the partnership, she was therefore authorized to sell the
partnership properties without the consent of Goquiolay under the principle
of estoppel, the buyers having the right to rely on her acts of management
and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of law
are without legal or factual basis, appellants have in due course filed a
motion for reconsideration which because of the importance of the issues
therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter
the partnership as limited partners only, therefore Kong Chai Pin,
who must necessarily have entered the partnership as a limited
partner originally, could have not chosen to be a general partner
by exercising the alleged acts of management, because under
Article 148 of the Code of Commerce a limited partner cannot
intervene in the management of the partnership even if given a
power of attorney by the general partners. An Act prohibited by law
cannot give rise to any right and is void under the express
provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them
being members of the Yu (Yutivo) family, the rest, members of the
law firm which handles the Yutivo interests and handled the papers
of sale. They did not rely on the alleged acts of management
they believed (this was the opinion of their lawyers) that Kong Chai
Pin succeeded her husband as a managing partner and it was on
this theory alone that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by
the very witnesses presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and
furnish sufficient basis to reconsider our decision if we want to do justice to
Antonio C. Goquiolay. And to justify this conclusion, it is enough that we lay

stress on the following points: (1) there is no sufficient factual basis to

conclude that Kong Chai Pin executed acts of management to give her the
character of general manager of the partnership, or to serve as basis for
estoppel that may benefit the purchasers of the partnership properties; (2)
the alleged acts of management, even if proven, could not give Kong Chai
Pin the character of general manager for the same is contrary to law and
well-known authorities; (3) even if Kong Chai Pin acted as general manager
she had no authority to sell the partnership properties as to make it legal
and valid; and (4) Kong Chai Pin had no necessity to sell the properties to
pay the obligation of the partnership and if she did so it was merely to
favor the purchasers who were close relatives to the prejudice of
Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of
management imputed to her our ruling we apparently gave particular
importance to the fact that it was Goquiolay himself who tried to prove the
acts of management. Appellants, however, have emphasized the fact, and
with reason, that the appellees themselves are the ones who denied and
refuted the so-called acts of management imputed to Kong Chai Pin. To
have a clear view of this factual situation, it becomes necessary that we
analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he
had a conversation with one Hernando Young in Manila in the year 1945
who informed him that Kong Chai Pin "was attending to the properties and
deriving some income therefrom and she had no other means of livelihood
except those properties and some rentals derived from the properties." He
went on to say by way of remark that she could continue doing this
because he wanted to help her. On point that he emphasized was that he
was "not interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same
person referred to by Goquiolay, who was a close friend of the family of
Kong Chai Pin, for the purpose of denying the testimony of Goquiolay.
Young testified that in 1945 he was still in Davao, and insisted no less than
six times during his testimony that he was not in Manila in 1945, the year
when he allegedly gave the information to Goquiolay, stating that he
arrived in Manila for the first time in 1947. He testified further that he had
visited the partnership properties during the period covered by the alleged
information given by him to Goquiolay and that he found them "abandoned
and underdeveloped," and that Kong Chai Pin was not deriving any income
from them.
The other witness for the defendants, Rufino Lim, also testified that he had
seen the partnership properties and corroborated the testimony of
Hernando Young in all respects: "the properties in Mamay were
underdeveloped, the shacks were destroyed in Tigato, and the family of

16

Kong Chai Pin did not receive any income from the partnership properties."
He specifically rebutted the testimony of Goquiolay in his deposition given
on June 30, 1956 that Kong Chai Pin and her family were living in the
partnership properties and stated that the 'family never actually lived in
the properties of the partnership even before the war or after the war."

not misled nor did they rely on the acts of management, but instead they
acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect
that she succeeded her husband in the partnership as managing partner
by operation of law; and third, because the defendants are themselves
estopped to invoke a defense which they tried to dispute and repudiate.

It is unquestionable that Goquiolay was merely repeating an information

given to him by a third person, Hernando Young he stressed this point
twice. A careful analysis of the substance of Goquiolay's testimony will
show that he merely had no objection to allowing Kong Chai Pin to continue
attending to the properties in order to give her some means of livelihood,
because, according to the information given him by Hernando Young, which
he assumed to be true, Kong Chai Pin had no other means of livelihood. But
certainly he made it very clear that he did not allow her tomanage the
partnership when he explained his reason for refusing to sign a general
power of attorney for Kong Chai Pin which her counsel, Atty. Zuo, brought
with him to his house in 1948. He said:

2. Assuming arguendo that the acts of management imputed to Kong Chai

Pin are true, could such acts give her the character of general manager of
the partnership as we have concluded in our decision?

. . . Then Mr. Yu Eng Lai told me that he brought with him Atty.
Zuo and he asked me if I could execute a general power of
attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo what is the
use of executing a general power of attorney for Mrs. Kong Chai Pin
when Mrs. Kong Chai Pin had already got that plantation for
agricultural purposes, I said for agricultural purposes she can use
that plantation ... (T.s.n., p. 9, Hearing on May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically stating
his opposition to the management of the partnership by Kong Chai Pin and
carefully made the distinction that his conformity was for her to attend to
the partnership properties in order to give her merely a means of
livelihood. It should be stated that the period covered by the testimony
refers to the period of occupation when living condition was difficult and
precarious. And Atty. Zuo, it should also be stated, did not deny the
statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin
exercised certain acts of management of the partnership properties is
highly controverted. The most that we can say is that the alleged acts are
doubtful more so when they are disputed by the defendants themselves
who later became the purchasers of the properties, and yet these alleged
acts, if at all, only refer to management of the properties and not to
management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by
Kong Chai Pin cannot be upheld on the ground of estoppel, first, because
the alleged acts of management have not been clearly proven; second,
because the record clearly shows that the defendants, or the buyers, were

Out answer is in the negative because it is contrary to law and precedents.

Garrigues, a well-known commentator, is clearly of the opinion that mere
acceptance of the inheritance does not make the heir of a general partner
a general partner himself. He emphasized that the heir must declare that
he is entering the partnership as a general partner unless the deceased
partner has made it an express condition in his will that the heir accepts
the condition of entering the partnership as a prerequisite of inheritance, in
which case acceptance of the inheritance is enough. 1But here Tan Sin An
died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to
become general partner by exercising acts of management? We believe
not, for, in consonance with out ruling that as a general rule the heirs of a
deceased partner succeed as limited partners only by operation of law, it is
obvious that the heir, upon entering the partnership, must make a
declaration of his character, otherwise he should be deemed as having
succeeded as limited partner by the mere acceptance of inheritance. And
here Kong Chai Pin did not make such declaration. Being then a limited
partner upon the death of Tan Sin An by operation of law, the peremptory
prohibition contained in Article 148 2 of the Code of Commerce became
binding upon her and as a result she could not change her status by
violating its provisions not only under the general principle that prohibited
acts cannot produce any legal effect, but also because under the
provisions of Article 1473 of the same Code she was precluded from
acquiring more rights than those pertaining to her as a limited partner. The
alleged acts of management, therefore, did not give Kong Chai Pin the
character of general manager to authorize her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to
Kong Chai Pin gave her the character of a general partner, could she sell
the partnership properties without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the
articles of partnership and the pertinent provisions of the Code of
Commerce and the Civil Code. Thus, Article 129 of the Code of Commerce
says:

17

If the management of the general partnership has not been limited

by special agreement to any of the members, all shall have the
power to take part in the direction and management of the
common business, and the members present shall come to an
agreement for all contracts or obligations which may concern the
association.
And the pertinent portions of the Articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively
by the managing partner or by his authorized agent, and it is
expressly stipulated that the managing partner may delegate the
entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he
may select, upon such terms as regards compensation as he may
deem proper, and vest in such person, firm or corporation full
power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which
he as such managing partner might do or cause to be done. (Page
23, Record on Appeal)
It would thus be seen that the powers of the managing partner are not
defined either under the provisions of the Code of Commerce or in the
articles of partnership, a situation which, under Article 2 of the same Code,
renders applicable herein the provisions of the Civil Code, And since,
according to well-known authorities, the relationship between a managing
partner and the partnership is substantially the same as that of the agent
and his principal,4the extent of the power of Kong Chai Pin must, therefore,
be determined under the general principles governing agency. And, on this
point, the law says that an agency created in general terms includes only
acts of administration, but with regard to the power to compromise, sell,
mortgage, and other acts of strict ownership, an express power of attorney
is required.5 Here Kong Chai Pin did not have such power when she sold the
properties of the partnership.
Of course, there is authority to the effect that a managing partner, even
without express power of attorney, may perform acts affecting ownership if
the same are necessary to promote or accomplish a declared object of the
partnership, but here the transaction is not for this purpose. It was effected
not to promote any avowed object of the partnership. 6 Rather, the sale was
effected to pay an obligation of the partnership by selling its real
properties which Kong Chai Pin could not do without express authority. The
authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del gerente,
cuando es conforme a los fines sociales. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociales, viene

limitada a los objetos de comercio, o los productos de la fabrica

para explotacion de los cuales se ha constituido la Sociedad.
Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese
la compra y venta de inmuebles, en cuyo caso el gerente estaria
facultado para otorgar las ventas que fuere necesario. Por el
contrario, el gerente no tiene atribuciones para vender las
instalaciones del comercio ni la fabrica, ni las maquinarias,
vehiculos de transporte, etc., que forman parte de la explotacion
social. En todos estas casos, igualmente que si tratase de la venta
de una marca o procedimiento mecanico o quimico, etc., siendo
actos de disposicion seria necesario contar con la conformidad
expresa de todos los socios. (R. Gay de Montella, id., pp. 223-224,
Emphasis supplied)
Los poderes de los Administradores no tienen ante el silencio del
contrato otros limites que los sealados porel objeto de la
Sociedad y, por consiguiente, pueden llevar a cabo todas las
operaciones que sirven para aquel ejercicio, incluso cambiando
repetidas veces los propios acuerdos segun el interes convenido de
la Sociedad. Pueden contratar y despedir a los empleados, tomar
en arriendo almacenas y tiendas, expedir cambiales, girarlas,
avalarlas, dar en prenda o en hipoteca los bienes de la sociedad y
adquirir inmuebles destinados a su explotacion o al empleo estable
de sus capitales. Pero no podran ejecutar los actos que estan en
contradiccion con la explotacion que les fue confiada no podran
cambiar el objeto, el domicilio la razon social; fundir a la Sociedad
en otra; ceder la accion, y por tanto, el uso de la firma social a otro
renunciar definitivamente el ejercicio de uno de otro ramo
comercio que se les haya confiado y enajenar o piqnorar el taller o
el banco social excepto que la venta o piqnoracion tengan por el
objeto procurar los medios necesarios para la continuacion de la
empresa social. (Cesar Vivante, Tratado de Derecho Mercantil, pp.
124-125, Vol II, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be necessary for the
carrying on of its business. If all that can be said of it was that it
was convenient, or that it facilitated the transaction of the business
of the firm, that is not sufficient, in the absence of evidence of
saction by other partners. Nor, it seems, will necessity itself be
sufficient if it be an extraordinary necessity. What is necessary for
carrying on the business of the firm under ordinary circumstances
and in the usual way, is the test. Lindl. Partn. Sec. 126. While,
within this rule, one member of a partnership may, in the usual and
ordinary course of its business, make a valid sale or pledge, by way
of mortgage or otherwise, of all or part of its effects intended for
sale, to a bona fide purchaser or mortgage, without the consent of
the other members of the firm, it is not within the scope of his
implied authority to make a final disposition of all of its efects,

18

including those employed as the means of carrying on its business,

the object and efect of which is to immediately terminate the
partnership, and place its property beyond its control. Such a
disposition, instead of being within the scope of the partnership
business, or in the usual and ordinary way of carrying it on, is
necessarily subversive of the object of the partnership, and
contrary to the presumed intention of the partnership in its
formation. (McGrath, et al. vs. Cowen, et al., 49 N.F. 338, 343;
Emphasis supplied)
Since Kong Chai Pin sold the partnership properties not in line with the
business of the partnership but to pay its obligation without first obtaining
the consent of the other partners, the sale is invalid being in excess of her
authority.
4. Finally, the same under consideration was effected in a suspicious
manner as may be gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels
of land situated in the City of Davao have an area of 200 hectares more or
less, or 2,000,000 square meters. These properties were purchased by the
partnership for purposes of subdivision. According to realtor Mata, who
testified in court, these properties could command at the time he testified
a value of not less than P312,000.00, and according to Dalton Chen,
manager of the firm which took over the administration, since the date of
sale no improvement was ever made thereon precisely because of this
litigation. And yet, for said properties, aside from the sum of P37,000.00
which was paid for the properties of the deceased and the partnership,
only the paltry sum of P66,529.91 was paid as a consideration therefor, of
which the sum of P46,116.75 was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid
reason to sell them if her purpose was only to pay the partnership's
obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at such
low prices because of her close relationship with the purchasers and
creditors who conveniently organized a partnership to exploit them, as
may be seen from the following relationship of their pedigree:

of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a

daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the
ultimate buyer, was organized for the specific purpose of buying
the partnership properties. Its incorporators were: Ana Yu and Betty
V. Lee, Atty. Quisumbing and Salazar the lawyers who studied the
papers of sale and have been counsel for the Yutivo interests;
Dalton Chen a brother-in-law of Yu Khe Thai and an executive of
Sing Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an
executive of Yutivo Sons Hardware, and Simeon Daguiwag, a
trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close
relatives of Kong Chai Pin, have already conceived the idea of possessing
the lands for purposes of subdivision, excluding Goquiolay from their plan,
and this is evident from the following sequence of events:
Tan Sin An died in 1942 and intestate proceedings were opened in
1944. In 1946, the creditors of the partnership filed their claim
against the partnership in the intestate proceedings. The creditors
studied ways and means of liquidating the obligation of the
partnership, leading to the formation of the defendant Insular
Development Co., composed of members of the Yutivo family and
the counsel of record of the defendants, which subsequently
bought the properties of the partnership and assumed the
obligation of the latter in favor of the creditors of the partnership,
Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo
family. The buyers took time to study the commercial potentialities
of the partnership properties and their lawyers carefully studied
the document and other papers involved in the transaction. All
these steps led finally to the sale of the three partnership
properties.
Upon the strength of the foregoing considerations, I vote to grant
motion for reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur.

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P.

Yutivo, founder of the defendant Yutivo Sons Hardware Co. YUTIVO
SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged
creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan
are the three children of Jose). YU KHE THAI is a grandson of the
same Jose P. Yutivo, and president of the two alleged creditors. He
is the acknowledged head of the Yu families. WASHINGTON Z.
SYCIP, one of the original buyers, is married to Ana Yu, a daughter

19

Salvador
Laguda,
Rothrock and Ney, for appellee.

for

appellant.

WILLIARD, J.:
The appellee makes the point in his brief in this court that although
the defendant excepted to the order of the court below denying his
motion for a new trial on the ground of the insufficiency of the
evidence, yet we can not review such evidence because it is not
properly certified. We think that this point is well taken. The
testimony of one witness is certified to by the stenographer, who
says that it is all the evidence which took during the trial. The
testimony of this witness is unimportant. There follow in the record
several pages of what purports to be evidence of different
witnesses taken in narrative form, but neither the judge, nor the
clerk, nor the stenographer certify in any way what these pages are
or that they contain evidence taken during the trial of this case. For
the purpose of this review, therefore, we can only consider the
facts admitted by the pleadings and those stated in the decision of
the court below. In that decision the court makes the following
finding of fact, among others:
Before February, 1903, Florencio Yulo and Jaime Palacios
were partners in the operation of a sugar estate in Victorias,
Island of Negros, and had commercial dealings with a
Chinaman named Dy-Sianco, who furnished them with
money and goods, and used to buy their crop of sugar. In
February, 1903, the defendant, Pedro Yulo, father of the said
Florencio, took charge of the latter's interest in the abovementioned partnership, and he became a general partner
with the said Jaime Palacios in the same business, and he
continued as such partner until about the end of 1904,
dealing with Dy-Sianco in the same manner as the old
partnership had dealt with the latter.
EN BANC
G.R. No. L-3146

September 14, 1907

NICOLAS
CO-PITCO, plaintiff-appellee,
vs.
PEDRO YULO, defendant-appellant.

He then finds that the balance due from the firm Pedro Yulo and
Jaime Palacios was 1,638.40 pesos, Philippine currency, and orders
judgment against the defendant, Pedro Yulo, for the entire amount,
with interest.
The partnership of Yulo and Palacios was engaged in the operation
of a sugar estate in Negros. It was, therefore a civil partnership, as
distinguished from a mercantile partnership. Being a civil

20

partnership, by the express provisions of articles 1698 and 1137 of

the Civil Code, the partners are not liable each for the whole debt
of the partnership. The liability is pro rata and in this case Pedro
Yulo is responsible to plaintiff for only one-half of the debt. The fact
that the other partner, Jaime Palacios, had left the country can not
increase the liability of Pedro Yulo.

Republic
SUPREME
Manila

Arellano, C. J., Torres, Johnson, and Tracey, JJ., concur.

the

Philippines
COURT

EN BANC
G.R. No. L-11624

The judgment of the court below is reversed and judgment is

ordered in favor of the plaintiff and against the defendant, Pedro
Yulo, for the sum of P819.20 pesos, Philippine Currency, with
interest thereon at the rate of 6 per cent per annum from the 12th
day of January, 1905, and the costs of the Court of First Instance.
No costs will be allowed to either party in this court. So ordered.

of

January 21, 1918

E.
M.
BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente
Foz
A. J. Burke for appellee.

for

appellants.

STREET, J.:
In the year 1913, the individuals named as defendants in this action
formed a civil partnership, called "La Protectora," for the purpose of
engaging in the business of transporting passengers and freight at Laoag,
Ilocos Norte. In order to provide the enterprise with means of
transportation, Marcelo Barba, acting as manager, came to Manila and
upon June 23, 1913, negotiated the purchase of two automobile trucks
from the plaintiff, E. M. Bachrach, for the agree price of P16,500. He paid
the sum of 3,000 in cash, and for the balance executed promissory notes
representing the deferred payments. These notes provided for the
payment of interest from June 23, 1913, the date of the notes, at the rate
of 10 per cent per annum. Provision was also made in the notes for the
payment of 25 per cent of the amount due if it should be necessary to
place the notes in the hands of an attorney for collection. Three of these
notes, for the sum of P3,375 each, have been made the subject of the
present action, and there are exhibited with the complaint in the cause.
One was signed by Marcelo Barba in the following manner:
P.
By
Marcelo Barba.

P.

La
Marcelo

Protectora
Barba

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

21

As preliminary to the purchase of these trucks, the defendants Nicolas

Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon June
12, 1913, executed in due form a document in which they declared that
they were members of the firm "La Protectora" and that they had granted
to its president full authority "in the name and representation of said
partnership to contract for the purchase of two automobiles" (en nombre y
representacion de la mencionada sociedad contratante la compra de dos
automoviles). This document was apparently executed in obedience to the
requirements of subsection 2 of article 1697 of the Civil Code, for the
purpose of evidencing the authority of Marcelo Barba to bind the
partnership by the purchase. The document in question was delivered by
him to Bachrach at the time the automobiles were purchased.

appellants upon June 12, 1913. The transaction by which Barba secured
these trucks was in conformity with the tenor of this document. The
promissory notes constitute the obligation exclusively of "La Protectora"
and of Marcelo Barba; and they do not in any sense constitute an
obligation directly binding on the four appellants. Their liability is based on
the fact that they are members of the civil partnership and as such are
liable for its debts. It is true that article 1698 of the Civil Code declares that
a member of a civil partnership is not liable in solidum(solidariamente)
with his fellows for its entire indebtedness; but it results from this article, in
connection with article 1137 of the Civil Code, that each is liable with the
others (mancomunadamente) for his aliquot part of such indebtedness.
And so it has been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)

From time to time after this purchase was made, Marcelo Barba purchased
of the plaintiff various automobile effects and accessories to be used in the
business of "La Protectora." Upon May 21, 1914, the indebtedness resulting
from these additional purchases amounted to the sum of P2,916.57

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

In May, 1914, the plaintiff foreclosed a chattel mortgage which he had

retained on the trucks in order to secure the purchase price. The amount
realized from this sale was P1,000. This was credited unpaid. To recover
this balance, together with the sum due for additional purchases, the
present action was instituted in the Court of First Instance of the city of
Manila, upon May 29, 1914, against "La Protectora" and the five individuals
Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and
Modesto Serrano. No question has been made as to the propriety of
impleading "La Protectora" as if it were a legal entity. At the hearing,
judgment was rendered against all of the defendants. From this judgment
no appeal was taken in behalf either of "La Protectora" or Marcelo Barba;
and their liability is not here under consideration. The four individuals who
signed the document to which reference has been made, authorizing Barba
to purchase the two trucks have, however, appealed and assigned errors.
The question here to be determined is whether or not these individuals are
liable for the firm debts and if so to what extent.
The amount of indebtedness owing to the plaintiff is not in dispute, as the
principal of the debt is agreed to be P7,037. Of this amount it must now be
assumed, in view of the finding of the trial court, from which no appeal has
been taken by the plaintiff, that the unpaid balance of the notes amounts
to P4,121, while the remainder (P2,916) represents the amount due for
automobile supplies and accessories.
The business conducted under the name of "La Protectora" was evidently
that of a civil partnership; and the liability of the partners to this
association must be determined under the provisions of the Civil Code. The
authority of Marcelo Barba to bind the partnership, in the purchase of the
trucks, is fully established by the document executed by the four

As to so much of the indebtedness as is based upon the claim for

automobile supplies and accessories, it is obvious that the document of
June 12, 1913, affords no authority for holding the appellants liable. Their
liability upon this account is, however, no less obvious than upon the debt
incurred by the purchase of the trucks; and such liability is derived from
the fact that the debt was lawfully incurred in the prosecution of the
partnership enterprise.
There is no proof in the record showing what the agreement, if any, was
made with regard to the form of management. Under these circumstances
it is declared in article 1695 of the Civil Code that all the partners are
considered agents of the partnership. Barba therefore must be held to
have had authority to incur these expenses. But in addition to this he is
shown to have been in fact the president or manager, and there can be no
doubt that he had actual authority to incur this obligation.
From what has been said it results that the appellants are severally liable
for their respective shares of the entire indebtedness found to be due; and

22

the Court of First Instance committed no error in giving judgment against

them. The amount for which judgment should be entered is P7,037, to
which shall be added (1) interest at 10 per cent per annum from June 23,
1913, to be calculated upon the sum of P4.121; (2) interest at 6 per cent
per annum from July 21, 1915, to be calculated upon the sum of P2,961;
(3) the further sum of P1,030.25, this being the amount stipulated to be
paid by way of attorney's fees. However, it should be noted that any
property pertaining to "La Protectora" should first be applied to this
indebtedness pursuant to the judgment already entered in this case in the
court below; and each of the four appellants shall be liable only for the
one-fifth part of the remainder unpaid.
Let judgment be entered accordingly, without any express finding of costs
of this instance. So ordered.
Arellano, C.J., Torres, Araullo, Malcolm, and Avancea, JJ., concur.

G.R. No. L-22493 July 31, 1975

ISLAND
SALES,
INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL
defendants. BENJAMIN C. DACO,defendant-appellant.
Grey, Buenaventura and Santiago for plaintif-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the
decision of the Court of First Instance of Manila, Branch XVI, in Civil Case
No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United
Pioneer General Construction Company to pay plaintiff the
sum of P7,119.07 with interest at the rate of 12% per
annum until it is fully paid, plus attorney's fees which the
Court fixes in the sum of Eight Hundred Pesos (P800.00)
and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel
C. Sim and Augusto Palisoc are sentenced to pay the
plaintiff in this case with the understanding that the
judgment against these individual defendants shall be
enforced only if the defendant company has no more

23

leviable properties with which to satisfy the judgment

against it. .

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be
liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account
of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner
may enter into a separate obligation to perform a
partnership contract.

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly
registered under the laws of the Philippines, purchased from the plaintiff a
motor vehicle on the installment basis and for this purpose executed a
promissory note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of every month
thereafter, until fully paid, with the condition that failure to pay any of said
installments as they fall due would render the whole unpaid balance
immediately due and demandable.

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the
operation of a sugar estate in Negros. It was, therefore, a
civil partnership as distinguished from a mercantile
partnership. Being a civil partnership, by the express
provisions of articles l698 and 1137 of the Civil Code, the
partners are not liable each for the whole debt of the
partnership. The liability is pro rata and in this case Pedro
Yulo is responsible to plaintiff for only one-half of the debt.
The fact that the other partner, Jaime Palacios, had left the
country cannot increase the liability of Pedro Yulo.

Having failed to receive the installment due on July 22, 1961, the plaintiff
sued the defendant company for the unpaid balance amounting to
P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc were included as co-defendants in their
capacity as general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in
default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels
failed to appear notwithstanding the notices sent to them. Consequently,
the trial court authorized the plaintiff to present its evidence ex-parte 3 ,
after which the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the
decision claiming that since there are five (5) general partners, the joint
and subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of
the obligations of the defendant company. But the trial court denied the
said motion notwithstanding the conformity of the plaintiff to limit the
liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. 4Hence, this appeal.

In the instant case, there were five (5) general partners when the
promissory note in question was executed for and in behalf of the
partnership. Since the liability of the partners is pro rata, the liability of the
appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. The fact that the complaint against
the defendant Romulo B. Lumauig was dismissed, upon motion of the
plaintiff, does not unmake the said Lumauig as a general partner in the
defendant company. In so moving to dismiss the complaint, the plaintiff
merely condoned Lumauig's individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED,
without pronouncement as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

The only issue for resolution is whether or not the dismissal of the
complaint to favor one of the general partners of a partnership increases
the joint and subsidiary liability of each of the remaining partners for the
obligations of the partnership.

24

G.R. No. 136448 November 3, 1999

LIM
TONG
LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may
arise therefrom, even if it is shown that they have not contributed any
capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being
partner, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person

25

who may not have directly transacted on its behalf, but reaped benefits
from that contract.

iii. Accrued interest of

P12,920.00 on Invoice No.
14426
for
P68,000.00
dated February 19, 1990;

The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:

c. P50,000.00 as and for attorney's fees,

plus P8,500.00 representing P500.00 per
appearance in court;

WHEREFORE, [there being] no reversible error in the

appealed decision, the same is hereby affirmed.2

d. P65,000.00 representing P5,000.00

monthly rental for storage charges on the
nets counted from September 20, 1990
(date of attachment) to September 12,
1991 (date of auction sale);

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling,
which was affirmed by the CA, reads as follows:

e. Cost of suit.

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary
attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the
following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired
during the trial of this case;
a. P532,045.00 representing [the] unpaid
purchase price of the fishing nets covered
by the Agreement plus P68,000.00
representing the unpaid price of the floats
not covered by said Agreement;
b. 12% interest per annum counted from
date of plaintiff's invoices and computed on
their respective amounts as follows:
i.
Accrued
interest
of
P73,221.00 on Invoice No.
14407
for
P385,377.80
dated February 9, 1990;
ii. Accrued interest for
P27,904.02 on Invoice No.
14413
for
P146,868.00
dated February 13, 1990;

With respect to the joint liability of defendants for

the principal obligation or for the unpaid price of
nets and floats in the amount of P532,045.00 and
P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items
were attached to guarantee any judgment that
may be rendered in favor of the plaintiff but, upon
agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of
this case, it was ordered sold at public auction for
not less than P900,000.00 for which the plaintiff
was the sole and winning bidder. The proceeds of
the sale paid for by plaintiff was deposited in court.
In effect, the amount of P900,000.00 replaced the
attached property as a guaranty for any judgment
that plaintiff may be able to secure in this case
with the ownership and possession of the nets and
floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction
sale. It has also been noted that ownership of the
nets [was] retained by the plaintiff until full
payment [was] made as stipulated in the invoices;
hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this
Court earlier ordered the attachment bond filed by
plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and
paid for by plaintiff to serve as its bond in favor of
defendants.

26

From the foregoing, it would appear therefore that

whatever judgment the plaintiff may be entitled to
in this case will have to be satisfied from the
amount of P900,000.00 as this amount replaced
the attached nets and floats. Considering,
however, that the total judgment obligation as
computed
above
would
amount
to
only
P840,216.92, it would be inequitable, unfair and
unjust to award the excess to the defendants who
are not entitled to damages and who did not put up
a single centavo to raise the amount of
P900,000.00 aside from the fact that they are not
the owners of the nets and floats. For this reason,
the defendants are hereby relieved from any and
all liabilities arising from the monetary judgment
obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and
floats and for the reimbursement of the
P900,000.00 deposited by it with the Clerk of
Court.
SO ORDERED.

The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter
Yao entered into a Contract dated February 7, 1990, for the purchase of
fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to
the agreement. The total price of the nets amounted to P532,045. Four
hundred pieces of floats worth P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment.
The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a Certification from the Securities and
Exchange Commission. 5 On September 20, 1990, the lower court issued a
Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at the Fisheries
Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting
his liability and requesting a reasonable time within which to pay. He also
turned over to respondent some of the nets which were in his possession.

Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on
the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. 6 The trial court maintained
the Writ, and upon motion of private respondent, ordered the sale of the
fishing nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment
and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN
which Chua and Yao had brought against Lim in the RTC of Malabon, Branch
72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d)
an injunction and (e) damages.10 The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim
agree to have the four (4) vessels sold in
the amount of P5,750,000.00 including the
fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00
in favor of JL Holdings Corporation and/or
Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing
net will be sold at a higher price than
P5,750,000.00 whatever will be the excess
will be divided into 3: 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels
will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong
Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed from
the equal distribution of the profit and loss. 21

27

Lim appealed to the Court of Appeals (CA) which, as already stated,

affirmed the RTC.
Ruling of the Court of Appeals

This Court's Ruling

In affirming the trial court, the CA held that petitioner was a partner of
Chua and Yao in a fishing business and may thus be held liable as a such
for the fishing nets and floats purchased by and for the use of the
partnership. The appellate court ruled:
The evidence establishes that all the defendants including
herein appellant Lim Tong Lim undertook a partnership for
a specific undertaking, that is for commercial fishing . . . .
Oviously, the ultimate undertaking of the defendants was
to divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership,
two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court.

by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.

14

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT
A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE
WAS ACTING FOR OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING,
THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE
AND ATTACHMENT OF PETITIONER LIM'S GOODS.

The Petition is devoid of merit.

First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased
from respondent, petitioner controverts the CA finding that a partnership
existed between him, Peter Yao and Antonio Chua. He asserts that the CA
based its finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets, alleging that
the negotiations were conducted by Chua and Yao only, and that he has
not even met the representatives of the respondent company. Petitioner
further argues that he was a lessor, not a partner, of Chua and Yao, for the
"Contract of Lease " dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership the
fishing boat F/B Lourdes. The lease was for six months, with a monthly
rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found
by the two lower courts clearly showed that there existed a partnership
among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:
Art. 1767 By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three
existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while
Antonio Chua was already Yao's partner;

In determining whether petitioner may be held liable for the fishing nets
and floats from respondent, the Court must resolve this key issue: whether

28

(2) That after convening for a few times, Lim, Chua, and
Yao verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over these two
(2) boats in favor of Petitioner Lim Tong Lim only to serve
as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing,
re-equipping, repairing, dry docking and other expenses for
the boats would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim
again extended a loan to the partnership in the amount of
P1 million secured by a check, because of which, Yao and
Chua entrusted the ownership papers of two other boats,
Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong
Lim.
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in
the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction;
and (e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the partieslitigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and
Lim had decided to engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan secured from Jesus
Lim who was petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of
the sale of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed with

borrowed money, fell under the term "common fund" under Article 1767.
The contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase
of the boat, but also to that of the nets and the floats. The fishing nets and
the floats, both essential to fishing, were obviously acquired in furtherance
of their business. It would have been inconceivable for Lim to involve
himself so much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the partnership,
and they agreed that the proceeds from the sales and operations thereof
would be divided among them.
We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual findings of
the RTC and the CA are binding on this Court, absent any cogent proof that
the present action is embraced by one of the exceptions to the rule. 16 In
assailing the factual findings of the two lower courts, petitioner effectively
goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also claims
that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His
arguments are baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.
A proper adjudication of claimants' rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts have
done so and have found, correctly, a preexisting partnership among the
parties. In implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the CA and the
RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily,
the two lower courts' factual findings mentioned above nullified petitioner's

29

argument that the existence of a partnership was based only on the

Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the
lessor of the boats to Chua and Yao, not a partner in the fishing venture.
His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that
he consented to the sale of his own boats to pay a debt of Chua and Yao,
with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved
that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order to
finance the acquisition and the upgrading of the vessels which would be
used in their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered in his name, was
not his own property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person the
lender trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to
sell his property to pay a debt he did not incur, if the relationship among
the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him. Again, we
disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who
assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all

debts, liabilities and damages incurred or arising as a

result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered
by it as a corporation or on any tort committed by it as
such, it shall not be allowed to use as a defense its lack of
corporate personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof on
the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious an unincorporated
association has no personality and would be incompetent to act and
appropriate for itself the power and attributes of a corporation as provided
by law; it cannot create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal,
possessed of all the right and subject to all the liabilities of a principal, a
person acting or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts performed as
such agent. 17
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by a third person
who relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they
impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries,
is entitled to be paid for the nets it sold. The only question here is whether
petitioner should be held jointly 18 liable with Chua and Yao. Petitioner
contests such liability, insisting that only those who dealt in the name of

30

the ostensible corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly transacted with
the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. He in fact questions the attachment of the nets,
because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by
it, knowing it to be without valid existence, are held liable as general
partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered
into by persons with whom he previously had an existing relationship, he is
deemed to be part of said association and is covered by the scope of the
doctrine of corporation by estoppel. We reiterate the ruling of the Court
in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one,
more deeply schooled and skilled in the subtle art of
movement and position, entraps and destroys the other. It
is, rather, a contest in which each contending party fully
and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks
that justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested
rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now
moot and academic. As previously discussed, F/B Lourdes was an asset of
the partnership and that it was placed in the name of petitioner, only to

assure payment of the debt he and his partners owed. The nets and the
floats were specifically manufactured and tailor-made according to their
own design, and were bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment of the price
stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear,
until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr.
Justice Artemio V. Panganiban, particularly the finding that Antonio Chua,
Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of
general partners. I merely would wish to elucidate a bit, albeit briefly, the
liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an
existing partnership or with one or more persons not actual partners, he is
deemed an agent of such persons consenting to such representation and in
the same manner, if he were a partner, with respect to persons who rely
upon the representation. 1 The association formed by Chua, Yao and Lim,
should be, as it has been deemed, a de facto partnership with all the
consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so
opposed to a limited partnership) is laid down in Article 1816 2 which posits
that all partners shall be liable pro rata beyond the partnership assets for
all the contracts which may have been entered into in its name, under its
signature, and by a person authorized to act for the partnership. This rule
is to be construed along with other provisions of the Civil Code which
postulate that the partners can be held solidarily liable with the
partnership specifically in these instances (1) where, by any wrongful
act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the partnership, or any
penalty is incurred, the partnership is liable therefor to the same extent as

31

the partner so acting or omitting to act; (2) where one partner acting
within the scope of his apparent authority receives money or property of a
third person and misapplies it; and (3) where the partnership in the course
of its business receives money or property of a third person and the money
or property so received is misapplied by any partner while it is in the
custody of the partnership 3 consistently with the rules on the nature of
civil liability in delicts and quasi-delicts.

Paul Gornes for respondent R. Pons.

Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added
the decision of the Court of Appeals affirming the existence of a
partnership between petitioner and one of the respondents, Celestino
Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be excluded
from the liabilities of the partnership.

G.R. No. L-39780 November 11, 1985

ELMO
MUASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS,respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.

Petitioner Elmo Muasque filed a complaint for payment of sum of money

and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered
into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without exchanging or
expecting any consideration from Galan although the latter was casually
named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical). Galan would receive
some kind of compensation in the form of some percentages or
commission; that Tropical, under the terms of the contract, agreed to give
petitioner the amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days during the
construction to make a total sum of P25,000.00; that on January 9, 1967,
Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but
to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be
deposited in a joint account; that on January 26, 1967 when the second
check for P6,000.00 was due, petitioner refused to indorse said cheek
presented to him by Galan but through later manipulations, respondent
Pons succeeded in changing the payee's name from Elmo Muasque to
Galan and Associates, thus enabling Galan to cash the same at the Cebu
Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction materials,
the payment of which should have been made from the P13,000.00
received by Galan; that petitioner undertook the construction at his own
expense completing it prior to the March 16, 1967 deadline;that because of
the unauthorized disbursement by respondents Tropical and Pons of the
sum of P13,000.00 to Galan petitioner demanded that said amount be paid

32

to him by respondents under the terms of the written contract between the
petitioner and respondent company.
The respondents answered the complaint by denying some and admitting
some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed
that the issues to be resolved are:
(1) Whether or not there existed a partners between
Celestino Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the
part of respondent Tropical to disburse money to
respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which
states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay
jointly and severally the intervenors Cebu and Southern
Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque and defendant Galan to pay

jointly and severally the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor
Cebu Southern Hardware Company and Tan Siu jointly and
severally interest at 12% per annum of the sum of
P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to
Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court
with the sole modification that the liability imposed in the dispositive part
of the decision on the credit of Cebu Southern Hardware and Blue Diamond
Glass Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the
partnership of "Galan and Muasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the
contract for the entire services of the Contractor. The terms of payment
were as follows: thirty percent (30%) of the whole amount upon the signing
of the contract and the balance thereof divided into three equal
installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen
(15) working days.
The first payment made by respondent Tropical was in the form of a check
for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed
the check in favor of respondent Galan to enable the latter to deposit it in
the bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00
came and Galan asked the petitioner to indorse it again, the petitioner
refused.

33

The check was withheld from the petitioner. Since Galan informed the Cebu
branch of Tropical that there was a"misunderstanding" between him and
petitioner, respondent Tropical changed the name of the payee in the
second check from Muasque to "Galan and Associates" which was the
duly registered name of the partnership between Galan and petitioner and
under which name a permit to do construction business was issued by the
mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00 from
his friend, Mr. Espina and although the expenses had reached the amount
of P29,000.00 because of the failure of Galan to pay what was partly due
the laborers and partly due for the materials, the construction work was
finished ahead of schedule with the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were
subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell
into the hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary damages, and
attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the
petitioner together with respondent Galan, hable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the credit
which the intervenors extended to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows:
(1) Whether or not the appellate court erred in holding that a partnership
existed between petitioner and respondent Galan. (2) Assuming that there
was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks
and therefore, accountable to the petitioner for the said amount; and (3)
Whether or not the court committed grave abuse of discretion in holding
that the payment made by Tropical through its manager Pons to Galan was
"good payment, "
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of P13,000.00
due to the petitioner.Petitioner also contends that the appellate court

committed grave abuse of discretion in holding that the payment made by

Tropical to Galan was "good" payment when the same gave occasion for
the latter to misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in the
year 1966 by Galan and Muasque hereinafter called the
Contractor, and Tropical Commercial Co., Inc., hereinafter
called the owner do hereby for and in consideration agree
on the following: ... .
There is nothing in the records to indicate that the partner-ship organized
by the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other
creditors as well. The payments made to the partnership were, therefore,
valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno
had acted in good faith, the appellees also acted in good
faith in extending credit to the partnership. Where one of
two innocent persons must suffer, that person who gave
occasion for the damages to be caused must bear the
consequences.
No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan
and the petitioner. Since the two were partners when the debts were
incurred, they, are also both liable to third persons who extended credit to
their partnership. In the case of George Litton v. Hill and Ceron, et al, (67
Phil. 513, 514), we ruled:

34

There is a general presumption that each individual partner

is an authorized agent for the firm and that he has
authority to bind the firm in carrying on the partnership
transactions. (Mills vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third persons to
hold the firm liable on transactions entered into by one of
members of the firm acting apparently in its behalf and
within the scope of his authority. (Le Roy vs. Johnson, 7 U.S.
(Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse
of discretion in not holding Galan liable for the amounts which he
"malversed" to the prejudice of the petitioner. He adds that although this
was not one of the issues agreed upon by the parties during the pretrial,
he, nevertheless, alleged the same in his amended complaint which was,
duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
made allegations as to the alleged malversations of Galan, these were the
same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latter's personal
purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues
contained in the trial court's order issued on the very day
the pre-trial conference was held. Such an order controls
the subsequent course of the action, unless modified
before trial to prevent manifest injustice.In the case at bar,
modification of the pre-trial order was never sought at the
instance of any party.
Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan's personal liability to
their partnership but he chose not to do so, as he vehemently denied the
existence of the partnership. At any rate, the issue raised in this petition is
the contention of Muasque that the amounts payable to the intervenors
should be shouldered exclusively by Galan. We note that the petitioner is

not solely burdened by the obligations of their illstarred partnership. The

records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor of Eden
Hardware which extended credit to the partnership aside from the P2, 000.
00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the
trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware"jointly and severally" is plain error
since the liability of partners under the law to third persons for contracts
executed inconnection with partnership business is only pro rata under Art.
1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners,
including industrial ones, shall be liable prorate with all their property and
after all the partnership assets have been exhausted, for the contracts
which may be entered into the name and fm the account cd the
partnership, under its signature and by a person authorized to act for the
partner-ship. ...". this provision should be construed together with Article
1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles
1822 and 1823." In short, while the liability of the partners are merely joint
in transactions entered into by the partnership, a third person who
transacted with said partnership can hold the partners solidarily liable for
the whole obligation if the case of the third person falls under Articles 1822
or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partner-ship or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting
or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and t he

35

money or property so received is misapplied by any

partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that
a partnership existed between the petitioner and Galan and no fault or
error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more true
in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace
who supplied materials on credit to the partnership. Thus, it is but fair that
the consequences of any wrongful act committed by any of the partners
therein should be answered solidarily by all the partners and the
partnership as a whole
However. as between the partners Muasque and Galan,justice also
dictates that Muasque be reimbursed by Galan for the payments made by
the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad
faith in his dealings with Muasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above
intervenors,

EN BANC

SO ORDERED.

DECISION

[G.R. No. L-7991. May 21, 1956.]

PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY
BANK OF NEW YORK,Respondent.

PARAS, J.:
Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ.,
concur.

This is an appeal by certiorari from the decision of the Court of Appeals

from which we are reproducing the following basic findings of fact:

Plana, J., took no part.

STASIKINOCEY is a partnership doing business at No. 58, Aurora

Boulevard, San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da
Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was
denied registration in the Securities and Exchange Commission, and while
it is confusing to see in this case that the CARDINAL RATTAN, sometimes
called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of
which Defendants Gorcey and da Costa are considered general partners,

Relova, J., is on leave.

36

we are satisfied that, as alleged in various instruments appearing of

record, said Cardinal Rattan is merely the business name or style used by
the partnership Stasikinocey.
Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account
with The National City Bank of New York, a foreign banking association duly
licensed to do business in the Philippines. On June 3, 1949, the overdraft
showed a balance of P6,134.92 against the Defendant Stasikinocey or the
Cardinal Rattan (Exhibit D), which account, due to the failure of the
partnership to make the required payment, was converted into an ordinary
loan for which the corresponding promissory joint note non-negotiable
was executed on June 3, 1949, by Louis F. da Costa for and in the name of
the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
promissory note was secured on June 7, 1949, by a chattel mortgage
executed by Louis F. da Costa, Jr., General Partner for and in the name of
Stasikinocey, alleged to be a duly registered Philippine partnership, doing
business under the name and style of Cardinal Rattan, with principal office
at 69 Riverside, San Juan, Rizal (Exhibit A). The chattels mortgaged were
the following motor vehicles:
(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and
with plate No. T-7333 (1949);
(b) Plymouth Sedan automobile motor
11872718 and with plate No. 10372; and

No.

T-5638876,

Serial

No.

(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,

Serial No. 8869225 and with plate No. T-7222 (1949).
The mortgage deed was fully registered by the mortgagee on June 11,
1949, in the Office of the Register of Deeds for the province of Rizal, at
Pasig, (Exhibit A), and among other provisions it contained the following:
(a) That the mortgagor shall not sell or otherwise dispose of the said
chattels without the mortgagees written consent; and
(b) That the mortgagee may foreclose the mortgage at any time, after
breach of any condition thereof, the mortgagor waiving the 30- day notice
of foreclosure.
On June 7, 1949, the same day of the execution of the chattel mortgage
aforementioned, Gorcey and Da Costa executed an agreement purporting
to convey and transfer all their rights, title and participation
in Defendant partnership to Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed by them
and Defendant partnership to the latter (Exhibit J), which transaction is
said to be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine
Legislature).
While the said loan was still unpaid and the chattel mortgage
subsisting, Defendant partnership, through Defendants Gorcey and Da
Costa transferred to Defendant McDonald the Fargo truck and Plymouth

sedan on June 24, 1949 (Exhibit L). The Fargo pickup was also sold on June
28, 1949, by William Shaeffer to Paul McDonald.
On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintifs
existing mortgage lien, in turn transferred the Fargo truck and the
Plymouth sedan to Benjamin Gonzales.
The National City Bank of New York, Respondent herein, upon learning of
the transfers made by the partnership Stasikinocey to William Shaeffer,
from the latter to Paul McDonald, and from Paul McDonald to Benjamin
Gonzales, of the vehicles previously pledged by Stasikinocey to
theRespondent, filed an action against Stasikinocey and its alleged
partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin
Gonzales, to recover its credit and to foreclose the corresponding chattel
mortgage. McDonald and Gonzales were made Defendants because they
claimed to have a better right over the pledged vehicle.
After trial the Court of First Instance of Manila rendered judgment in favor
of the Respondent, annulling the sale of the vehicles in question to
Benjamin Gonzales; sentencing Da Costa and Gorcey to pay to
the Respondent jointly and severally the sum of P6,134.92, with legal
interest from the debt of the promissory note involved; sentencing
the Petitioner Gonzales to deliver the vehicles in question to
the Respondent for sale at public auction if Da Costa and Gorcey should fail
to pay the money judgment; and sentencing Da Costa, Gorcey and
Shaeffers to pay to theRespondent jointly and severally any deficiency that
may remain unpaid should the proceeds of the sale not be sufficient; and
sentencing Gorcey, Da Costa, McDonald and Shaeffer to pay the costs.
Only Paul McDonald and Benjamin Gonzales appealed to the Court of
Appeals which rendered a decision the dispositive part of which reads as
follows:
WHEREFORE, the decision appealed from is hereby modified,
relieving Appellant William Shaeffer of the obligation of paying, jointly and
severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any
deficiency that may remain unpaid after applying the proceeds of the sale
of the said motor vehicles which shall be undertaken upon the lapse of 90
days from the date this decision becomes final, if by then Defendants Louis
F. da Costa, Jr., and Alan W. Gorcey had not paid the amount of the
judgment debt. With this modification the decision appealed from is in all
other respects affirmed, with costs against Appellants. This decision is
without prejudice to whatever action Louis F. da Costa, Jr., and Alan W.
Gorcey may take against their co-partners in the Stasikinocey unregistered
partnership.
This appeal by certiorari was taken by Paul McDonald and Benjamin
Gonzales, Petitioners herein, who have assigned the following errors:
I

37

IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP

WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A
DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT
DOMICILE WOULD BIND THIRD PERSONS WHO ARE INNOCENT
PURCHASERS FOR VALUE.
II
IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF
THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP
WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, IT
NEED NOT BE REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS
WHO EXECUTED SAME; AND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID
CHATTEL MORTGAGOR, DESPITEAPPELLANTS RAISING THAT QUESTION
PROPERLY BEFORE IT AND REQUESTING A RULING THEREON.
III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN
AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE
TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND
THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE
INNOCENT PURCHASERS FOR VALUE; AND, AS A CONSEQUENCE THEREOF,
IN NOT MAKING ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN
FACT EXECUTED, DESPITE APPELLANTS RAISING THAT QUESTION
PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A RULING THEREON.
IV
IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN
UNREGISTERED COMMERCIAL CO-PARTNERSHIP TO MAKE ALL OFFICIAL
AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL CITY BANK OF NEW
YORK IN ORDER TO SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE
TRANSFERS, DRAFTS, OR OTHER BANKING MEDIUMS, WAS SUFFICIENT
AUTHORITY FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN
ORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING OVERDRAFT,
GRANTED WITHOUT SECURITY. WHICH THE BANK HAD CONVERTED INTO A
DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL
MORTGAGE WAS EXECUTED.
This is the first question propounded by the Petitioners:
Since an
unregistered commercial partnership unquestionably has no juridical
personality, can it have a domicile so that the registration of a chattel
mortgage therein is notice to the world?.
While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more persons attempt to create a partnership
failing to comply with all the legal formalities, the law considers them as
partners and the association is a partnership in so far as it is a favorable to
third persons, by reason of the equitable principle of estoppel. In Jo Chung
Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held that although

the partnership with the firm name of Teck Seing and Co. Ltd., could not
be regarded as a partnership de jure, yet with respect to third persons it
will be considered a partnership with all the consequent obligations for the
purpose of enforcing the rights of such third persons. Da Costa and
Gorcey cannot deny that they are partners of the partnership Stasikinocey,
because in all their transactions with the Respondentthey represented
themselves as such. Petitioner McDonald cannot disclaim knowledge of the
partnership Stasikinocey because he dealt with said entity in purchasing
two of the vehicles in question through Gorcey and Da Costa. As was held
in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly
organized has been recognized as such in its dealings with certain persons,
it shall be considered as partnership by estoppel and the persons dealing
with it are estopped from denying its partnership existence. The sale of the
vehicles in question being void as to Petitioner McDonald, the transfer from
the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot
have a better right than the seller.
It results that if the law recognizes a defectively organized partnership as
de facto as far as third persons are concerned, for purposes of its de facto
existence it should have such attribute of a partnership as domicile. In
Hung-Man Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was held that
although it has no legal standing, it is a partnership de facto and the
general provisions of the Code applicable to all partnerships apply to it.
The registration of the chattel mortgage in question with the Office of the
Register of Deeds of Rizal, the residence or place of business of the
partnership Stasikinocey being San Juan, Rizal, was therefore in
accordance with section 4 of the Chattel Mortgage Law.
The second question propounded by the Petitioners is: If not, is a chattel
mortgage executed by only one of the partners of an unregistered
commercial partnership validly registered so as to constitute notice to the
world if it is not registered at the place where the aforesaid partner
actually resides but only in the place where the deed states that he
resides, which is not his real residence? And the third question is as
follows: If the actual residence of the chattel mortgagor not the
residence stated in the deed of chattel mortgage is controlling, may the
Court of Appeals refuse to make a finding of fact as to where the
mortgagor resided despite yourPetitioners having properly raised that
question before it and expressly requested a ruling thereon?
These two questions have become academic by reason of the answer to
the first question, namely, that as a de facto partnership, Stasikinocey had
its domicile in San Juan, Rizal.
The fourth question asked by the Petitioners is as follows: Is a chattel
mortgage executed by only one of the partners of an unregistered
commercial partnership valid as to third persons when that partner
executed the affidavit of good faith in Quezon City before a notary public
whose appointment is only for the City of Manila? If not, may the Court of
Appeals refuse to make a finding of fact as to where the deed was

38

executed, despite your Petitioners having properly raised that issue before
it and expressly requested a ruling thereon?
It is noteworthy that the chattel mortgage in question is in the form
required by law, and there is therefore the presumption of its due
execution which cannot be easily destroyed by the biased testimony of the
one who executed it. The interested version of Da Costa that the affidavit
of good faith appearing in the chattel mortgage was executed in Quezon
City before a notary public for and in the City of Manila was correctly
rejected by the trial court and the Court of Appeals. Indeed, cumbersome
legal formalities are imposed to prevent fraud. As aptly pointed out in El
Hogar Filipino vs. Olviga, 60 Phil., 17, If the biased and interested
testimony of a grantor and the vague and uncertain testimony of his son
are deemed sufficient to overcome a public instrument drawn up with all
the formalities prescribed by the law then there will have been established
a very dangerous doctrine which would throw wide open the doors to
fraud.

Stasikinocey; and even assuming that the Petitioners are purchasers in

good faith and for value, theRespondent having transacted with
Stasikinocey earlier than the Petitioners, it should enjoy and be given
priority.
Wherefore, the appealed decision of the Court of Appeals is affirmed with
costs against thePetitioners.
Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador,
Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.

The last question raised by the Petitioners is as follows: Does only one of
several partners of an unregistered commercial partnership have
authority, by himself alone, to execute a valid chattel mortgage over
property owned by the unregistered commercial partnership in order to
guarantee a pre-existing overdraft previously granted, without guaranty,
by the bank?
In view of the conclusion that Stasikinocey is a de facto partnership, and
Da Costa appears as a co-manager in the letter of Gorcey to
the Respondent and in the promissory note executed by Da Costa, and that
even the partners considered him as such, as stated in the affidavit of April
21, 1948, to the effect that That we as the majority partners hereby agree
to appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly
approved managing partner of the said firm, the partner who executed
the chattel mortgage in question must be deemed to be so fully
authorized. Section 6 of the Chattel Mortgage Law provides that when a
partnership is a party to the mortgage, the affidavit may be made and
subscribed by one member thereof. In this case the affidavit was executed
and subscribed by Da Costa, not only as a partner but as a managing
partner.
There is no merit in Petitioners pretense that the motor vehicles in
question
are
the
common
property
of
Da
Costa
and
Gorcey. Petitioners invoke article 24 of the Code of Commerce in arguing
that an unregistered commercial partnership has no juridical personality
and cannot execute any act that would adversely affect innocent third
persons. Petitioners forget that the Respondent is a third person with
respect to the partnership, and the chattel mortgage executed by Da Costa
cannot therefore be impugned by Gorcey on the ground that there is no
partnership between them and that the vehicles in question belonged to
them in common. As a matter of fact, theRespondent and
the Petitioners are all third persons as regards the partnership

39

The Court of First Instance of Bohol refused to give credence to Exhibit "C",
and dismissed the complaint on the ground that the other were
indispensable parties but hid not been impleaded. Upon appeal, the Court
of Appeals reversed, with the result noted at the start of this opinion.
Gregorio Magdusa then petitioned for a review of the decision, and we
gave it due course.1wph1.t

G.R. No. L-17526

June 30, 1962

GREGORIO
MAGDUSA,
ET
vs.
GERUNDIO ALBARAN, ET AL., respondents.

AL., petitioners,

Montenegro, Madayag, Viola and Hernandez, Olimpio R. Epis, David C.

Ocangas
and
Bonifacio
M.
Belderol
for
petitioners.
Lozano, Soria, Muana, Ruiz and Morales for respondents.
REYES, J.B.L., J.:
Appeal from a decision of the Court of Appeals (G.R. No. 24248-R)
reversing a judgment of the Court of First Instance of Bohol and ordering
appellant Gregorio Magdusa to pay to appellees, by way of refund of their
shares as partners, the following amounts: Gerundio Albaran, P8,979.10;
Pascual Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and Telesforo
Bebero, P3,020.27; plus legal interests from the filing of the complaint, and
costs.
The Court of Appeals found that appellant and appellees, together with
various other persons, had verbally formed a partnership de facto, for the
sale of general merchandise in Surigao, Surigao, to which appellant
contributed P2,000 as capital, and the others contributed their labor, under
the condition that out of the net profits of the business 25% would be
added to the original capital, and the remaining 75% would be divided
among the members in proportion to the length of service of each.
Sometime in 1953 and 1954, the appellees expressed their desire to
withdraw from the partnership, and appellant thereupon made a
computation to determine the value of the partners' shares to that date.
The results of the computation were embodied in the document Exhibit
"C", drawn in the handwriting of appellant. Appellees thereafter made
demands upon appellant for payment, but appellant having refused, they
filed the initial complaint in the court below. Appellant defended by
denying any partnership with appellees, whom he claimed to be mere
employees of his.

The main argument of appellant is that the appellees' action can not be
entertained, because in the distribution of all or part of a partnership's
assets, all the partners have no interest and are indispensable parties
without whose intervention no decree of distribution can be validly
entered. This argument was considered and answered by the Court of
Appeals in the following words:
We now come to the last issue involved. While finding that some
amounts are due the plaintiffs, the lower court withheld an award
in their favor, reasoning that a judgment ordering the defendant to
pay might affect the rights of other partners who were not made
parties in this case. The reason cited by the lower court does not
constitute a legal impediment to a judgment for the plaintiffs in
this case. This is not an action for a dissolution of a partnership and
winding up of its affairs or liquidation of its assets in which the
interest of other partners who are not brought into the case may
be affected. The action of the plaintiffs is one for the recovery of a
sum of money with Gregorio Magdusa as the principal defendant.
The partnership, with Gregorio Magdusa as managing partner, was
brought into the case as an alternative defendant only. Plaintiffs'
action was based on the allegation, substantiated in evidence, that
Gregorio Magdusa, having taken delivery of their shares, failed and
refused and still fails and refuses to pay them their claims. The
liability, therefore, is personal to Gregorio Magdusa, and the
judgment should be against his sole interest, not against the
partnership's although the judgment creditors may satisfy the
judgment against the interest of Gregorio Magdusa in the
partnership subject to the condition imposed by Article 1814 of the
Civil Code.
We do not find the preceding reasoning tenable. A partner's share can not
be returned without first dissolving and liquidating the partnership (Po Yeng
Cheo vs. Lim Ka Yam, 44 Phil. 177), for the return is dependent on the
discharge of the creditors, whose claims enjoy preference over those of the
partners; and it is self-evident that all members of the partnership are
interested in his assets and business, and are entitled to be heard in the
matter of the firm's liquidation and the distribution of its property. The
liquidation Exhibit "C" is not signed by the other members of the
partnership besides appellees and appellant; it does not appear that they

40

have approved, authorized, or ratified the same, and, therefore, it is not

binding upon them. At the very least, they are entitled to be heard upon its
correctness.

is the latter that must refund their shares to the retiring partners. Since not
all the members of the partnership have been impleaded, no judgment for
refund can be rendered, and the action should have been dismissed.

In addition, unless a proper accounting and liquidation of the partnership

affairs is first had, the capital shares of the appellees, as retiring partners,
can not be repaid, for the firm's outside creditors have preference over the
assets of the enterprise (Civ. Code, Art. 1839), and the firm's property can
not be diminished to their prejudice. Finally, the appellant can not be held
liable in his personal capacity for the payment of partners' shares for he
does not hold them except as manager of, or trustee for, the partnership. It

IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is

reversed and the action ordered dismissed, without prejudice to a proper
proceeding for the dissolution and liquidation of the common enterprise.
Costs against appellees.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera,
Paredes, Dizon, Regala and Makalintal, JJ., concur.

41