Business Organization – Partnership, Agency, Trust – Dissolution and Winding Up – Need for

Accounting Proceedings to Determine Partner’s Share

In 1984, Villareal, Carmelito Jose and Jesus Jose, formed a partnership for the purpose of operating
a restaurant. Each contributed P250,000.00. In 1984, Ramirez was added as a partner after he
contributed P250,000.00. In 1987, Jesus withdrew from the partnership and his capital share of
P250k was returned to him as agreed upon by the other partners.
Thereafter, the restaurant suffered losses. Without informing Ramirez, Villareal and Carmelito
shut down the restaurant. They then turned over the restaurant equipments to Ramirez.
Later, Ramirez sent a letter to Villareal and Carmelito telling them he’s no longer interested in
being a partner and that he’s demanding his shares in the partnership. Villareal and Carmelito
ignored the request of Ramirez hence the latter sued them.
In their defense, Villareal and Carmelito said that the restaurant equipments served as payment to
Ramirez when they were delivered to them; that Ramirez cannot ask for share in equity because
the restaurant incurred debts (P240,658.00) and irreversible business losses. Ramirez argued by
saying that the equipments were merely placed in their house for storage as the two partners
allegedly searched for a better restaurant location; that he was not aware of any losses or any
indebtedness because he never took part in the management of the restaurant.
The trial court ruled in favor of Ramirez. The Court of Appeals affirmed the trial court and it
further ordered Villareal and Carmelito to pay Ramirez P253,114.00. The computation was done
as follows: (Original Partnership Capital – Partnership Debt = Partnership Asset) ÷ Number of
partners; hence: (P1,000,000.00 – P240,658.00 = P759,342.00) ÷ 3 = P253,114.00.
Issues

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for
the latter’s share in the partnership; (2) whether the CA’s computation of P253,114 as respondents’
share is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Court’s Ruling

The Petition has merit.

Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents
informed petitioners of the intention to discontinue it because of the former’s dissatisfaction with,
and loss of trust in, the latter’s management of the partnership affairs. These findings were amply
supported by the evidence on record. Respondents consequently demanded from petitioners the
return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. “The
partnership has a juridical personality separate and distinct from that of each of the partners.”[23]
Since the capital was contributed to the partnership, not to petitioners, it is the partnership that
must refund the equity of the retiring partners.[24]