(8) G.R. No.

12688 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY, respondents.
DE LEON, JR., J.
Case Digested by: Allison C. Umandap

DOCTRINE: A joint venture presupposes generally a parity of standing between the joint co-
ventures or partners, in which each party has an equal proprietary interest in the capital or
property contributed, and where each party exercises equal rights in the conduct of the business.

FACTS:

After the second World War, Tan EngKee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they jointly
managed until Tan EngKee's death. Petitioners herein averred that the business prospered due to
the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng
Lay and his children caused the conversion of the partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to
deprive Tan EngKee and his heirs of their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets of Benguet Lumber. The RTC ruled in
favor of petitioners, declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership. The Court of Appeals rendered the assailed decision reversing the judgment of the
trial court.

ISSUE:

Whether the deceased Tan EngKee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share
in the profits and/or losses of the business venture or particular partnership

RULING:

There was no partnership whatsoever. Except for a firm name, there was no firm account, no
firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits
and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's death in 1984. It had
no business book, no written account nor any memorandum for that matter and no license
mentioning the existence of a partnership. Also, the trial court determined that Tan EngKee and
Tan Eng Lay had entered into a joint venture, which it said is akin to a particular partnership. A
particular partnership is distinguished from a joint adventure, to wit:(a) A joint adventure (an
American concept similar to our joint accounts) is a sort of informal partnership, with no firm
name and no legal personality. In a joint account, the participating merchants can transact
business under their own name, and can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of
pursuing to a successful termination maycontinue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind. A joint venture
"presupposes generally a parity of standing between the joint co-ventures or partners, in which
each party has an equal proprietary interest in the capital or property contributed, and where each
party exercises equal rights in the conduct of the business. The evidence presented by petitioners
falls short of the quantum of proof required to establish a partnership. In the absence of evidence,
we cannot accept as an established fact that Tan EngKee allegedly contributed his resources to a
common fund for the purpose of establishing a partnership. Besides, it is indeed odd, if not
unnatural, that despite the forty years the partnership was allegedly in existence, Tan EngKee
never asked for an accounting. The essence of a partnership is that the partners share in the
profits and losses. Each has the right to demand an accounting as long as the partnership exists.
A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan EngKee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.
We conclude that Tan EngKee was only an employee, not a partner since they did not present
and offer evidence that would show that Tan EngKee received amounts of money allegedly
representing his share in the profits of the enterprise. There being no partnership, it follows that
there is no dissolution, winding up or liquidation to speak of.
 (16) G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
Panganiban, J.
Case Digested by: Allison C. Umandap

DOCTRINE: 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.

FACTS:

Petitioners Torres and Baring entered into a “joint venture agreement” with Respondent Torres
for the development of a parcel of land into a subdivision. They executed a Deed of Sale
covering the said parcel of land in favor of respondent Manual Torres, who then had it registered
in his name. By mortgaging the property, respondent Manuel Torres obtained from Equitable
Bank a loan of P40,000, which was supposed to be used for the development of subdivision as
per the JVA. However, the project did not push through and the land was subsequently
foreclosed by the bank.

Petitioners Antonia Torres alleged that it was due to respondent’s lack of funds/skills that caused
the project to fail and that respondent use the loan in the furtherance of his own company. On the
other hand, respondent Manuel Torres alleged that he used the loan to implement the JVA –
surveying and subdivision of lots, approval of the project, advertisement, and construction of
roads and the likes, and that he did all of these for a total of P85,000.

Petitioners filed a case for Estafa against respondent but failed. They then instituted a civil case.
CA held that the two parties formed a partnership for the development of subdivision and as
such, they must bear the loss suffered by the partnership in the same proportion as their share in
profits. Hence, this petition.

ISSUES:

1. Whether or not the transaction between petitioner and respondent was that of joint
venture/partnership.
2. Whether or not the deed of sale between the two was valid.
RULING:

1. Yes. There formed a partnership between the two on the basis of joint-venture agreement
and deed of sale. A reading of the terms of agreement shows the existence of partnership
pursuant to Art 1767 of Civil Code, which states “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.” In the agreement,
petitioners would contribute property to the partnership in the form of land which was to
be developed into a subdivision; while respondent would give, in addition to his industry,
the amount needed for general expenses and other costs. Furthermore, the income from
the said project would be divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a partnership.

2. No. Petitioners were wrong in contending that the JVA is void under Article 1422[14] of
the Civil Code, because it is the direct result of an earlier illegal contract, which was for
the sale of the land without valid consideration.

The Joint Venture Agreement clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another.

In this case, the cause of the contract of sale consisted not in the stated peso value of the
land, but in the expectation of profits from the subdivision project, for which the land was
intended to be used. As explained by the trial court, the land was in effect given to the
partnership as petitioners participation therein. There was therefore a consideration for
the sale, the petitioners acting in the expectation that, should the venture come into
fruition, they would get sixty percent of the net profits.
 (17) 5 Phil. 78, September 30 1905
E.J. SMITH AND RAFAEL REYES, proprietors of the Philippine Gas Light
Company, petitioners,
vs.
JACINTA LOPEZ AND IGNACIA LOPEZ DE PINEDA, respondents
Case Digested by: Allison C. Umandap

DOCTRINE: The plaintiffs were not seeking to enforce a right pertaining to a legal entity.
They were not obliged to register in the Mercantile Registry. They were merely merchants
having a common interest in the business. They were under no obligation to register.
FACTS:
Nicasio Lopez, as administrator of the house owned by his two daughters, contracted the
services of Philippine Gas Light Company for the installation of a water system, urinals,
closets, shower baths, and drain pipes in the house at 142 Calle Dulumbayan, Santa Cruz
Manila. This was done pursuant to the order of the Board of Health.
The Company, with Smith and Reyes as proprietors, incurred a total of P4020 Mexican
currency; P750 of which was already paid, leaving a balance of P3270.Failing to pay, Smith
and Reyes instituted an action to recover the P3270 plus interest, from the sisters, Jacinta and
Ignacia Lopez de Pineda.
As a defense, the sisters claimed, among others, that they are not liable for the sum
demanded since the works done by Smith were done without the authority or consent of the
sisters. The CFI ruled in favor of Smith and ordered the Lopez sisters to pay P2717.40 local
currency.
ISSUE:
Whether or not Smith and Reyes have legal capacity to sue as a partnership. (YES)

RULING:
YES. Messrs. Smith and Reyes executed the contract in their own individual capacity
 and not in the name of any partnership. They acted as coowners of the Philippine Gas Light
Company. In their complaint they sought to enforce a legitime right which they had as such
coowners.
The plaintiffs were not seeking to enforce a right pertaining to a legal entity. They were
not obliged to register in the Mercantile Registry. They were merely merchants having a
common interest in the business. They were under no obligation to register.

(56) G.R. No. L-39780 November 11, 1985

ELMO MUÑASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY
and RAMON PONS, respondents.

Case Digested by: Allison C. Umandap

DOCTRINE: Every partner is an agent of the partnership for the purpose of its business, and
the act of every partner, including the execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the partnership of which he is a member
binds the partnership, unless the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he is dealing has knowledge of
the fact that he has no such authority.

FACTS:

The present controversy began when petitioner Muñasque, in behalf of the partnership of
"Galan and Muñasque", 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 of P6,000.00 for every 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.

Since Galan informed Tropical that there was a"misunderstanding" between him and
petitioner, respondent Tropical changed the name of the payee in the second check from
Muñasque 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 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.

The petitioner filed a complaint for payment of sum of money and damages against the
respondents, seeking to recover 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.

RTC and CA Rullings: The trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the petitioner and 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

ISSUES:

(1) Whether or not the appellate court erred in holding that a partnership existed between
petitioner and respondent Galan.

(2) 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"

Ruling:

1.) No. The appellate court did not err in holding that a partnership existed between
petitioner and respondent Galan
The records will show that the petitioner entered into a contract with Tropical for the renovation
of the latter's building on behalf of the partnership of "Galan and Muñasque." There is nothing in
the records to indicate that the partnership 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 Muñasque 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.

2.) 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.

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.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.

“Art. 1818. Every partner is an agent of the partnership for the purpose of its business,
and the act of every partner, including the execution in the partnership name of any instrument,
for apparently carrying on in the usual way the business of the partnership of which he is a
member binds the partnership, unless the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he is dealing has knowledge of
the fact that he has no such authority.”

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 Muñasque and Galan, justice also dictates that Muñasque 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 Muñasque as a partner.

(72) No. L-21906 August 29, 1969

INOCENCIA DELUAO and FELIPE DELUAO, plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, respondents
Castro, J.
Case Digested by: Allison C. Umandap

DOCTRINE: It is an elementary rule in law that a partnership cannot be formed for an illegal
purpose or one contrary to public policy and that where the object of a partnership is the
prosecution of an illegal business or one which is contrary to public policy, the partnership is
void.

FACTS:

Nicanor Casteel filed a fishpond application for a tract of land located in Davao City. However,
his applications were denied. Casteel filed an MR and while the motion was pending resolution,
he was advised by the District Forester of Davao that no further action would be taken unless he
files a new application. Meanwhile several applications were submitted by some other persons
for an area covered by Casteel's application.
He wanted to preclude subsequent applicants from entering and spreading themselves within the
area by expanding his occupation thereof by the construction of dikes and the cultivation of
marketable fishes. However, because of insufficiency of fund to continue the construction, he
borrowed P27, 000 from the Deluaos to finance needed improvements for the fishpond, and was
compelled by force of this circumstance to enter into the contract of partnership, with an
agreement to divide the fishpond after the award. Eventually, Casteel administered the said
property and singlehandedly opposed rival applicants who occupied portions of the fishpond
area. He relentlessly pursued his claim to the said area up to the Office of the DANR Secretary,
until it was finally awarded to him.

ISSUES:

1. Whether or not a Partnership is formed between the parties

2. Whether or not Casteel may be obliged to divide the fish pond after the award

RULING:

1. No. While it is true that the contract between the parties is one of partnership, The evidence
preponderates in favor of the view that the initial intention of the parties was not to form a co-
ownership but to establish a partnership - Inocencia Deluao as capitalist partner and Casteel as
industrial partner - the ultimate undertaking of which was to divide into two equal parts such
portion of the fishpond as might have been developed by the amount extended by the
plaintiffsappellees, with the further provision that Casteel should reimburse the expenses
incurred by the appellees over one-half of the fishpond that would pertain to him. However, it is
an elementary rule in law that a partnership cannot be formed for an illegal purpose or one
contrary to public policy and that where the object of a partnership is the prosecution of an
illegal business or one which is contrary to public policy, the partnership is void.

A contract of partnership, to exploit the fishpond pending its award is valid, while, a contract of
partnership to divide the fishpond between them after such award is illegal.

In this case, a partnership was formed to divide a fishpond into equal parts is null and void as
being against public policy. A partnership cannot be formed for an illegal purpose because it is
against several prohibitory laws. And since the contract is null and void, the party cannot be
made to execute a formal transfer of one-half of the fishpond and to secure official approval of
the same as agreed upon.

2. No. The contract is null and void, the party cannot be made to execute a formal transfer of
one-half of the fishpond and to secure official approval of the same as agreed upon. Hence, there
is no obligation on the part of Casteel to divide the fishpond
 (64) G.R. No. 29182, October 24, 1928
Leoncia Viuda De Chan Diaco, petitioners,
vs.
Jose S. Y. Peng, respondents.
Ostrand, J.
Case Digested by: Allison C. Umandap
DOCTRINE: Both the partnership and the separate partners thereof may be joined in the same
action, though the private property of the latter cannot be taken in payment of the partnership
debts until the common property of the concern is exhausted.

FACTS:

The San Miguel Brewery, Porta Pueo & Co., and Ruiz & Rementeria S. en C. instituted
insolvency proceedings against Leoncia Vda. de Chan Diaco, alleged to be the owner of a
grocery store on Calle Nueva, Binondo, known as the store of "La Viuda de G. G. Chan Diaco."
The above-mentioned firms alleged, among other things, that Leoncia was indebted to them. The
petition for the declaration of insolvency was set down for hearing. Leoncia did not appear at the
hearing and the court declared her insolvent and ordered the sheriff to take possession of her
property.

Attorney for the insolvent filed a motion asking the court to dismiss the proceedings against her
on the ground that they should have been brought against the partnership "Lao Liong Naw &
Co.," of which she was only a member. The alleged partnership was evidenced by an agreement
and from which it appeared that Lao Liong Naw (Leoncia), Chan Chiaco Wa, Cua Yuk, Chan
Bun Suy, Chan Bun Le, and Juan Maquitan Chan had formed a partnership.

In view of the aforesaid motion Judge Del Rosario suspended for the time being the effects of the
decision. After several hearings in which various witnesses were examined and documents
presented on behalf of both sides, the referee rendered a second report, in which he found as
facts that the alleged partnership between the insolvent and some of her relatives and employees
was only a fictitious organization created for the purpose of deceiving the Bureau of Customs
and enable some of the aforesaid relatives, who were mere coolies, to come to the Philippines
under the status of merchants.

The court, therefore, affirmed the suspension of the decision, dismissed the insolvency
proceedings, and ordered the assignee to return to the sheriff all the property of the insolvent
which he, the sheriff, might have in his possession.

ISSUES:
Whether or not Leoncia Vda. de Chan Diaco is liable
RULING:

Yes. All of the assignments of error are well taken. The evidence appearing in the record fully
supports the findings of the referee and his report should have been approved by the court below.
It clearly appears from the record that said partnership, as such, has no visible assets and that,
therefore, the partners individually must, jointly and severally, respond for its debts (Code of
Commerce, art. 127). As the appellee is one of the partners and admits that she is insolvent, we
can see no reason for the dismissal of the proceedings against her.

It is further to be noted that both the partnership and the separate partners thereof may be joined
in the same action, though the private property of the latter cannot be taken in payment of the
partnership debts until the common property of the concern is exhausted. The decision appealed
from is hereby reversed, the reports and recommendations of the referee are approved, and the
order for the dismissal of the case is set aside.
 (73) GR No. 28920, Oct 24, 1928
MAXIMO GUIDOTE, petitioner,
v.
ROMANA BORJA, respondent.
Case Digested by: Allison C. Umandap

DOCTRINE: The death of one of the partners dissolves the partnership, but that the liquidation
of its affairs is by law intrusted, not to the executors of the deceased partner, but to the surviving
partners or to liquidators appointed by them.

FACTS:

On March 4, 1921, the plaintiff brought an action against the administratrix of the estate
of Narciso Santos, deceased, to recover the sum of P9,534.14, a part of which was alleged to be
the net profits due the plaintiff in a partnership business conducted under the name of "Taller
Sinukuan," in which the deceased was the capitalist partner and the plaintiff the industrial
partner, the rest of the sum consisting of advances alleged to have been made to said partnership
by the plaintiff. The defendant in her answer admitted the existence of the partnership and in a
cross-complaint and counter-claim prayed that the plaintiff be ordered to render an accounting of
the partnership business and to pay to the estate of the deceased the sum of P25,000 as net
profits, credits, and property pertaining to said deceased.

In the first trial of the case the plaintiff called several witnesses and introduced a so-
called accounting and a mass of documentary evidence consisting of books, bills, and alleged
vouchers, which documentary evidence. It was, however, found as facts that the aforesaid
partnership had been formed, on or about June 15, 1918; that Narciso Santos died on April 6,
1920, leaving the plaintiff as the surviving partner; and that plaintiff failed to liquidate the affairs
of the partnership and to render an account thereof to the administratrix of Santos' estate. The
court, therefore, dismissed the plaintiff's complaint and absolved the defendant therefrom, and
ordered the plaintiff to render a full and complete accounting, verified by vouchers, of the
partnership business
The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public
accountant. Numerous objections to said account were presented by the defendant, and the court,
upon hearing, disapproved the account and ordered that the defendant submit to the court an
accounting of the partnership business from the date of the commencement of the partnership.
Narciso Santos is a creditor of the Taller Sinukuan in the sum of P26,020.89.
In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff
presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses in his favor. In regard
to the character of the testimony of these witnesses, His Honor, the trial judge, says:

Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct
liquidation for the same partnership business, all of which were rejected by the court in its
decisions, of September 1, 1922, and the court finds that the testimony given by him at the last
hearing is confusing, contradictory and unreliable."

ISSUE:

Whether or not the legal representatives of a deceased partner were under the obligation to
render accounts of the operations of the partnership, notwithstanding the fact that the plaintiff, as
surviving partner was in charge of the business subsequent to his death

RULING:
No.
In the case of Wahl vs Donaldson Sim & Co. (5 Phil., 11,14), it was held that the death of
one of the partners dissolves the partnership, but that the liquidation of its affairs is by law
intrusted, not to the executors of the deceased partner, but to the surviving partners or to
liquidators appointed by them (citing article 229 of the Code of Commerce and sees. 664 and
665 of the Code of Civil Procedure). The same rule is laid down by the Supreme Court of Spain
in sentence of October 12, 1870.
 The rule for the conduct of a surviving partner is thus stated in 20 R. C. L., 1008:
"In equity surviving partners are treated as trustees of the representatives of the deceased
partner, in regard to the interest of the deceased partner in the firm. As a consequence of this
trusteeship, surviving partners are held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing and that strictness of accountability
required of and incident to the position of one occupying a confidential relation. It is the duty of
surviving partners to render an account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over to them the share of such deceased
member in the surplus of firm property, whether it consists of real or personal assets."

The appellant has completely failed to observe the rule quoted, and he is not in position
to complain if his testimony and that of his witnesses is discredited.

(24) G.R. No. L-45464 April 28, 1939

JOSUE SONCUYA, petitioner,
vs.
CARMEN DE LUNA, respondent.
Case Digested by: Mark Angeles
DOCTRINE: For a partner to be able to claim from another partner who manages the general
copartnership, damages allegedly suffered by him by reason of the fraudulent administration of
the latter, a previous liquidation of said partnership is necessary.

FACTS:

In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result of the administration, said to be fraudulent,
of the partnership, "Centro Escolar de Señoritas", of which plaintiff, defendant and the deceased
Librada Avelino were members. For the purpose of adjudicating to plaintiff damages which he
alleges to have suffered as a partner by reason of the supposed fraudulent management of the
partnership referred to, it is first necessary that a liquidation of the business thereof be made to
the end that the profits and losses may be known and the causes of the latter and the
responsibility of the defendant as well as the damages which each partner may have suffered,
may be determined. It is not alleged in the complaint that such liquidation has been effected nor
is it prayed that it be made. Consequently, there is no reason or cause for plaintiff to institute the
action for damages which he claims from the managing partner Carmen de Luna.

ISSUE:

Whether the plaintiff may collect damages from the defendant as managing partner

RULING:

Having reached the conclusion that the facts alleged in the complaint are not sufficient to
constitute a cause of action on the part of plaintiff as member of the partnership "Centro Escolar
de Señoritas", to collect damages from defendant as managing partner thereof, without a
previous liquidation, we do not deem it necessary to discuss the remaining question of whether
or not the complaint is ambiguous, unintelligible and vague.

In view of the foregoing considerations, we are of the opinion and so hold that for a partner to be
able to claim from another partner who manages the general copartnership, damages allegedly
suffered by him by reason of the fraudulent administration of the latter, a previous liquidation of
said partnership is necessary.

Wherefore, finding no error in the order appealed from the same is affirmed in all its parts, with
costs against the appellant.

(32) G.R. No. 3186, March 7, 1907

 Great Council of the United States of Improved Order of Red Men, petitioners
vs.
Veteran Army of Philippines, respondents
Willar, J.
Case Digested by: Mark Angeles

DOCTRINE: One partner is empowered to contract in the name of the partnership only when
the articles of partnership make no provision for the management of the partnership business.

FACTS:

A contract of lease of parts of a certain building in the city of Manila was signed by W. W.
Lewis, E. C. Stovall, and V. O. Hayes, as trustees of the Apache Tribe, No. 1, Improved Order of
Red Men, as lessors, and Albert E. McCabe, acting for and on behalf of Lawton Post, Veteran
Army of the Philippines, as lessee. The lease was for the term of two years. The Lawton Post
occupied the premises in controversy for thirteen months, and paid the rent for that time. It then
abandoned them and this action was commenced to recover the rent for the unexpired term.

Judgment was rendered in favor of the defendant McCabe, acquitting him of the complaint.
Judgment was rendered also against the Veteran Army of the Philippines. From this judgment,
the last-named defendant has appealed. The plaintiff did not appeal from the judgment acquitting
defendant McCabe of the complaint. It is claimed by the appellant that the action cannot be
maintained by the plaintiff, The Great Council of the United States of the Improved Order of Red
Men, as this organization did not make the contract of lease. It is also claimed that the action
cannot be maintained against the Veteran Army of the Philippines because it never contracted,
either with the plaintiff or with Apache Tribe, No. 1, and never authorized anyone to do contract
in its name.

ISSUE:

Whether or not the trial court erred in its decision

RULINGS:

It is difficult to determine the exact nature of the defendant organization. There is some doubt as
to whether it is a civil partnership, in view of the definition of the term in article 1665 of the
Civil Code. That article is as follows:

"Partnership is a contract by which two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves."

It seems to be the opinion of the commentators that where the society is not constituted for the
purpose of gain, it does not fall within this article of the Civil Code. Article 1695 of the Civil
Code provides that one partner is empowered to contract in the name of the partnership only
when the articles of partnership make no provision for the management of the partnership
business. In the case at bar we think that the articles of the Veteran Army of the Philippines do so
provide.

It is true that an express disposition to that effect is not found therein, but we think one may be
fairly deduced from the contents of those articles. They declare what the duties of the several
officers are. In these various provisions there is nothing said about the power of making
contracts, and that faculty is not expressly given to any officer. It is hardly conceivable that the
members who formed this organization should have had the intention of giving to any one of the
sixteen or more persons who composed the department the power to make any contract relating
to the society which that particular officer saw fit to make, or that a contract when so made
without consultation with, or knowledge of the other members of the department should bind it.
We therefore hold that no contract, such as the one in question, is binding on the Veteran Army
of the Philippines unless it was authorized at a meeting of the department. Judgment against the
appellant is reversed, and the Veteran Army of the Philippines is acquitted of the complaint.
 (40) 1 Phil. 685, February 2, 1903
JOSE FERNANDEZ, petitioner,
vs.
FRANCISCO DELA ROSA, respondent.
Ladd, J
Case Digested by: Allison C. Umandap
DOCTRINE: One partner is empowered to contract in the name of the partnership only when
the articles of partnership make no provision for the management of the partnership business.

FACTS:

Jose Fernandez alleges that in January 1900, he entered into a verbal agreement with the
defendant, Francisco De La Rosa, to form a partnership for the purchase of cascoes and the
carrying on of the business of letting the same for hire in Manila, for defendant to buy the
cascoes, each partner to furnish for that purpose such amount of money as he could and the
profits to be divided proportionately. Fernandez furnished De La Rosa 300 pesos to purchase a
casco, furnished further sums aggregating about 300 pesos for repairs on this casco and another
825 pesos to purchase another casco. In April, the parties undertook to draw up articles of
partnership or the purpose of embodying the same in an authentic document, but the defendant
proposed a draft of such articles which differed materially from the terms of the earlier verbal
agreement. As a result, they were unable to come to any understanding and no written agreement
was executed. In the meantime, Fernandez made a demand for an accounting from the defendant,
having the control and management of the two cascoes, but De La Rosa refused to render and
denied the existence of the partnership altogether.

De La Rosa admits that the project of forming a partnership in the casco business in which he
was already engaged to some extent individually was discussed between himself and the plaintiff
but he denied that any agreement was ever consummated. He also denied that the plaintiff
furnished any money in January, 1900, for the purchase of casco No. 1515, or for repairs on the
same, but claims that he borrowed 300 pesos on his individual account in January from the
bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. He also claimed to
have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second
one.

ISSUES:

1. Whether or not a partnership exists between the parties

2. Whether or not the partnership, if such partnership existed, is terminated as a result of the act
of the defendant in receiving back the P1,125

RULING:
1. Yes. "Partnership is a contract by which two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves." (Civil Code, Art. 1665.) We have found as a fact that money was furnished by the
plaintiff and received by the defendant with the understanding that it was to be used for the
purchase of the cascoes in question. This establishes the first element of the contract, namely,
mutual contribution to a common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the purchase of the cascoes in
common, in the absence of any other explanation of the object of the parties in making the
purchase in that form, and, it may be added, in view of the admitted fact that prior to the
purchase of the first casco the formation of a partnership had been a subject of negotiation
between them.

Under other circumstances the relation of joint ownership, a relation distinct though perhaps not
essentially different in its practical consequence from that of partnership, might have been the
result of the joint purchase. If, for instance, it were shown that the object of the parties in
purchasing in company had been to make a more favorable bargain for the two cascoes that they
could have done by purchasing them separately, and that they had no ulterior object except to
effect a division of the common property when once they had acquired it, the would be lacking
and the parties would have become joint tenants only; but, as nothing of this sort appears in the
case, we must assume that the object of the purchase was active use and profit and not mere
passive ownership in common. It is thus apparent that a complete and perfect contract of
partnership was entered into by the parties. This contract, it is true, might have been subject to a
suspensive condition, postponing its operation until an agreement was reached as to the
respective participation of the partners in the profits, the character of the partnership as collective
or , and other details, but although it is asserted by counsel for the defendant that such was the
case, there is little or nothing in the record to support this claim, and that fact that the defendant
did actually go on and purchase the boat, as it would seem, before any attempt had been made to
formulate partnership articles, strongly discountenances the theory. The execution of a written
agreement was not necessary in order to give efficacy to the verbal contract of partnership as a
civil contract, the contributions of the partners not having been in the form of immovables or
rights in immovables. (Civil Code, art. 1667.) The special provision cited, requiring the
execution of a public writing in the single case mentioned and dispensing with all formal
requirements in other cases, renders inapplicable to this species of contract the general provisions
of article 1280 of the Civil Code.

2. No. There was no intention on the part of the plaintiff in accepting the money to relinquish his
rights as a partner, nor is there any evidence that by anything that he said or by anything that he
omitted to say he gave the defendant any ground whatever to believe that he intended to
relinquish them. On the contrary he notified the defendant that he waived none of his rights in
the partnership. Nor was the acceptance of the money an act which was in itself inconsistent with
the continuance of the partnership relation, as would have been the case had the plaintiff
withdrawn his entire interest in the partnership. There is, therefore, nothing upon which a waiver,
either express or implied, can be predicated. The defendant might have himself terminated the
partnership relation at any time, if he had chosen to do so, by recognizing the plaintiff's right in
the partnership property and in the profits. Having failed to do this he cannot be permitted to
force dissolution upon his co-partner upon terms which the latter is unwilling to accept. We see
nothing in the case which can give the transaction in question any other aspect than that of the
withdrawal by one partner with the consent of the other of a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in
January, 1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515
and 2089 constitute partnership property, and that the plaintiff is entitled to an accounting of the
defendant's administration of such property, and of the profits derived therefrom. This
declaration does not involve adjudication as to any disputed items of the partnership account.
 (80) 44 Phil 72 Dec 09, 1922
PO YENG CHEO, petitioner,
v.
LIM KA YAM, respondent.
Street J.
Case Digested by: Allison C. Umandap
DOCTRINE: The managing partner of a mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the business; and he can only be made liable
for the capital when, upon liquidation of the business, there are found to be assets in his hands
applicable to capital account.

FACTS:

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po
Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in Manila under the
style of Kwong Cheong Tay. This business had been in existence in Manila for many years prior
to 1903, as a mercantile partnership, with a capitalization of P160,000, engaged in the import and
export trade; and after the death of Po Gui Yao the following seven persons were interested
therein as partners in the amounts set opposite their respective names, to wit: Po Yeng Cheo,
P60,000; Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing
Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager of Kwong
Cheong Tay, for many years prior to its complete cessation from business in 1910, was Lim Ka
Yam, the original defendant herein.

Among the properties pertaining to Kwong Cheong Tay and constituting part of its assets
were ten shares of a total par value of Pl0,000 in an enterprise conducted under the name of Yut
Siong Chyip Konski and certain shares to the amount of P1,000 in the Manila Electric Railroad
and Light Company, of Manila.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing
principally to the fact that the plaintiff ceased at that time to transmit merchandise from
Hongkong, where he then resided. Lim Ka Yam appears at no time to have submitted to the
partners' any formal liquidation of the business, though repeated demands to that effect have
been made upon him by the plaintiff.

The trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to recover of
the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty thousand pesos
(P60,000), constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, plus the
plaintiff's proportional interest in shares of the Yut Siong Chyip Konski and Manila Electric
Railroad and Light Company, estimated at P11,000, together with the costs. From this judgment
the defendant appealed.
ISSUE:

Whether or not the award given to Po Yeng Cheo constituting his interest to the extent of his
share of the capital of Kwong Cheong Tay was proper

RULING:

No.
It was erroneous in any event to give judgment in favor of the plaintiff to the extent of his
share of the capital of Kwong Cheong Tay. The managing partner of a mercantile enterprise is
not a debtor to the shareholders for the capital embarked by them in the business; and he can
only be made liable for the capital when, upon liquidation of the business, there are found to be
assets in his hands applicable to capital account.

The only property pertaining to Kwong Cheong Tay at the time this action was brought
consisted of shares in the two concerns already mentioned of the total par value of P11,000. Of
course, if these shares had been sold and converted into money, the proceeds, if not needed to
pay debts, would have been distributable among the various persons in interest, that is, among
the various shareholders, in their respective proportions, But under the circumstances revealed in
this case, it was erroneous to give judgment in favor of the plaintiff for his aliquot part of the par
value of said shares. It is elementary that one partner, suing alone, cannot recover of the
managing partner the value of such partner's individual interest; and a liquidation of the business
is an essential prerequisite.

After the death of the original defendant, Lim Ka Yam, the trial court allowed the action
to proceed against Lim Yock Tock, as his administrator, and entered judgment for a sum of
money against said administrator as the accounting party. It is well settled that when a member
of a mercantile partnership dies, the duty of liquidating its affairs devolves upon the surviving
member, or members, of the firm, not "upon the legal representative of the deceased partner.
(Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744.)

The judgment must be reversed and the defendant will be absolved from the complaint.
 (88) 363 SCRA 251 June 25, 2008
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
v.
THE HONORABLE COURT OF APPEALS; THE HONORABLE PRESIDING JUDGE,
Regional Trial Court, Branch 11, Sindangan, Zamboanga Del Norte; THE REGIONAL
TRIAL COURT SHERIFF, Branch 11, Sindangan, Zamboanga Del Norte; THE CLERK
OF COURT OF MANILA, as Ex-Officio Sheriff; and LAMBERTO T. CHUA, respondents.
Velasco, Jr. J.
Case Digested by: Allison C. Umandap

DOCTRINE: The failure to register the contract of partnership does not invalidate the same as
among the partners, so long as the contract has the essential requisites, because the main
purpose of registration is to give notice to third parties, and it can be assumed that the members
themselves knew of the contents of their contract.

FACTS:

On June 22, 1992, respondent Lamberto T. Chua filed a complaint against petitioners,
Lilibeth Sunga Sunga Chan and Cecilia Sunga, daughter and wife, respectively of the deceased
Jacinto L. Sunga, for winding up of Partnership Affairs, accounting, appraisal and recovery of
Shares and Damages with Writ of Preliminary Attachment with the Regional Trial Court, Branch
11, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the
distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila with initial capital
contribution of Php100, 000.00 each, with the intention that the profits would be equally divided
between them. For business convenience, respondent and Jacinto agreed to register the business
name of their partnership SHELLITE GAS APPLIANCE CENTER under the name of Jacinto as
sole proprietorship.

Petitioners question the correctness of the finding of the Trial Court and the Court of
Appeals that a partnership existed in the absence of any written document to show partnership
between respondent and Jacinto from 1977 until Jacinto’s death.

ISSUE:

Whether or not respondent Lamberto Chua and Jacinto L. Sunga has entered into a partnership

RULING:

Yes. The court ruled that a partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a public instrument shall
be necessary. Also, Article 1772 of the Civil Code requires that partnership with a capital of
Php3,000.00 or more must register with the Securities and Exchange Commission, however this
registration requirement is not mandatory. Article 1768 of the Civil Code explicitly provides that
the partnership retains its juridical personality even if it fails register. The failure to register the
contract of partnership does not invalidate the same as among the partners, so long as the
contract has the essential requisites, because the main purpose of registration is to give notice to
third parties, and it can be assumed that the members themselves knew of the contents of their
contract.
 (48) 64 Phil 258 March 30, 1937
Sharruf & Co., Known Also As Sharruf & Eskenazi, Salomon Sharruf And Elias Eskenazi,
v.
Baloise Fire Insurance Co., Sun Insurance Office, Ltd., And Springfield Insurance Co.
Villa-Real, J.Case Digested by: Allison C. Umandap

DOCTRINE: "Fraudulent claim" which, by express agreement between the insurers and the
insured, is a ground for exemption of the insurers from civil liability.

FACTS:

The plaintiffs Salomon Sharruf and Elias Eskenazi were doing business under the firm name of
Sharruf & Co. As they had applied to the defendant companies for insurance of the merchandise
they had in stock. The defendant insurance companies issued insurance policies in favor of said
firm Sharruf & Co., raising the total amount of the insurance on said merchandise to P40,000.
On August 26, 1933, the plaintiffs executed a contract of partnership between themselves
(Exhibit A) wherein they substituted the name of Sharruf & Co. with the Sharruf & Eskenazi,
The total value of the merchandise contributed by both partners amounted to P50,505.04.

September 22, 1933, a fire ensued at their building at Muelle de la Industria.

ISSUE:

1.) Whether or not Salomon Sharruf and Elias Eskenazi had juridical personality to bring this
action, either individually or collectively.
2.) Whether or not they had insurable interest.

RULING:

As already seen, Salomon Sharruf and Elias Eskenazi were doing business under the firm name
of Sharruf & Co. in whose name the insurance policies were issued, Elias Eskenazi having paid
the corresponding premiums.

In the present case, while it is true that at the beginning the plaintiffs had been doing business in
said name of "Sharruf & Co.", insuring their business in said name, and upon executing the
contract of partnership (exhibit A) on August 26, 1933, they changed the title thereof to "Sharruf
& Eskenazi," the membership of the partnership in question remained unchanged, the same and
only members of the former, Salomon Sharruf and Elias Eskenazi, being the ones composing the
latter, and it does not appear that in changing the title of the partnership they had the intention of
defrauding the herein defendant insurance companies. Therefore, under the above-cited doctrine
the responsibility of said defendants to the plaintiffs by virtue of the respective insurance policies
has not been altered. If this is true, the plaintiffs have juridical personality to bring this action.

With respect to the question whether or not the claim of loss filed by the plaintiffs is fraudulent,
the difference between the amount of articles insured, which the plaintiffs claim to have been in
the building before the fire, and the amount thereof shown by the vestige of the fire to have been
therein, that the most liberal human judgment can not attribute such difference to a mere
innocent error in estimate or counting but to a deliberate intent to demand of the insurance
companies payment of an indemnity for goods not existing at the time of the fire, thereby
constituting the so-called "fraudulent claim" which, by express agreement between the insurers
and the insured, is a ground for exemption of the insurers from civil liability.

Therefore, as the herein plaintiffs-appellees have acted in bad faith in presenting a fraudulent
claim, they are not entitled to the indemnity claimed by them by virtue of the insurance policies
issued by the defendant-appellant companies in their favor.

For the foregoing considerations, this court is of the opinion and so holds: (1) that when the
partners of a general partnership doing business under the firm name of "Sharruf & Co." obtain
insurance policies issued to said firm and the latter is afterwards changed to "Sharruf &
Eskenazi", which are the names of the same and only partners of said firm "Sharruf & Co.",
continuing the same business, the new firm acquires the rights of the former under the same
policies; (2) that when the evidence relative to the cause of a fire and the author thereof is so
vague and doubtful, the insured cannot be attributed incendiary intervention therein for the mere
fact that he had the keys to the unoccupied building in his possession; (3) that a person who
presents a claim for damages caused by fire to articles and goods not existing at the time of the
fire does so fradulently and his claim is fraudulent, and (4) that when immediately after a fire
that broke out inside a completely locked building, lasting scarcely 27 minutes, only about ten or
eleven partly burned and scorched cases, some containing textiles and wrapping paper and
others, statutes of saints, have been found without any trace of the destruction of other cases by
said fire, it can neither logically nor reasonably be inferred that 40 of said cases were inside the
building when the fire broke out.

Wherefore, defendant companies are absolved from the complaint which is dismissed, with costs
to the appellees. So ordered.