Aldecoa & Co. vs Warner, Barnes, & Co.., 16 Phil. 423

Aldecoa & Co. vs Warner, Barnes, & Co.., 16 Phil. 423

Nature: Appeal form a judgment of the CFI of Manila

Facts: From the fourth to the twelfth paragraph of the complaint, the plaintiff set forth that, prior to December 1, 1898, Warner, Barnes and Co. were conducting a business in Albay. The principal object of the business was the purchase of hemp in the pueblos of Legaspi and Tobacco for the purpose of bringing it to Manila to sell if for exportation. On the same date, the plaintiff company became interested in the business of Warner, Barnes and Co. in Albay and formed therewith a joint-account partnership in which Aldecoa and Co. were to share equally in the gains and losses of the business.

 The defendant is the successor to all the rights and obligations of Warner, Barnes and Co., among which is that of being manager of the joint-account partnership with Aldecoa and Co., It is a recognized fact, and one admitted by both parties that the partnership herein concerned concluded its transactions on December 31, 1903. Wherefore the firm of Warner, Barnes & Co. Ltd., the manager of the partnership, in declaring the latter's transactions concluded and in rendering duly verified accounts of its results, owes the duty to include therein the property and effects belonging to the partnership in common.

Issue: WON this litigation concerns the rendering of accounts pertaining to the management of the business of a joint-account partnership formed between the two litigants companies.

Held: It is a rule of law generally observed that he who takes charge of the management of another's property is bound immediately thereafter to render accounts covering his transactions; and that it is always to be understood that all accounts rendered must be duly substantiated by vouchers. It is one of the duties of the manager of a joint-account partnership, to liquidate the assets that form the common property, and to state the result obtained therefrom in the final rendering of the accounts which he is to present at the conclusion of the partnership.

SAME SAME

1.PARTNERSHIP; ACCOUNTING; DUTY OF BUSINESS MANAGER.—It is a general rule of law that he who takes charge of the management of another's property is bound immediately thereafter to render accounts of his transactions; and that it is always to be understood that all accounts must be duly supported by proofs.

2.ID. ; ID, ; ID.—The acceptance and approval of any account rendered from a certain date does not excuse nor relieve the manager of a joint-account partnership from complying with the unquestionable duty of rendering accounts covering a period of time prior to the said date. They must be rendered from the time the partnership was actually formed and its business actually commenced.

3.ID.; ID.; ID.; REVISION OF ACCOUNTS.—Once certain accounts have been approved, which were duly rendered by the manager of a joint-account partnership, the member of the entity not vested with the character of manager is not entitled afterwards to claim the revision of the accounts already approved, unless it shall be proved satisfactorily, by the production of evidence, that there was fraud, deceit, error, or mistake in the approval of the said accounts. (Arts. 1265, 1266, Civil Code, and law 30, title 11, 5th Partida.)

4.ID.; ID.; ID.—One of the duties of the manager of a joint-account partnership is that of liquidating the assets of the common ownership and to state the result obtained therefrom in the final rendering of accounts which he is to present at the conclusion of the partnership, as no person should enrich himself unjustly at the expense of another. (Art. 243, Code of Commerce, and decision in cassation given on July 1, 1870, by the supreme court of Spain.)

Rojas vs Maglana, G.R. No. 30616, December 10, 1990

Rojas vs Maglana, G.R. No. 30616, December 10, 1990

NATURE: Direct appeal from the decision of the CFI of Davao

Summary: In  Jan 1955, Maglana & Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE which was registered with SEC had an indefinite term of existence.  One of the purposes of the partnership was to apply/secure timber/minor forest products licenses and concession over public or private forest lands and to operate, develop, and promote such forests rights and concessions. A duly registered article of co-partnership was filed together with an application for timber concession covering certain areas in Davao with the Bureau of Forestry. It was then approved and a timber license was issued. Under their article of co-partnership, appellee Maglana  was tasked to manage, market, handle cash, and be the authorized signatory for the partnership. Appellant Rojas, on the other hand, is the logging superintended tasked to manage logging operations of the partnership. It also stated in the articles that all profits & losses shall be divided share and share alike between partners. During Jan 14 1955 – Apr 30 1956, there was no operation of the said partnership. Due to difficulties, Rojas and Maglana decided to avail the services of Pahamatong as industrial partner. On March 1956, the 3 executed their articles of co-partnership under the firm name EDE. Everything was the same except for the purpose which was to hold and secure renewal of timber license and the term was fixed for 30 years.

The new partnership was able to ship logs and acquire profits and was able to get a proceed of 643,633.07. On Oct 23, 1956, The 3 executed a document, “Conditional Sale of interest in the partnership EDE” agreeing among themselves that Maglana and Rojas shall purchase the interest, share, participation in the partnership of pahamoting in the assessed value of 31,501.12. It was also agreed that after payment of the sum to Pahamotang including the loan secured by the latter in favor of the partnership, the two original partners shall become owners of all equipment contributed by Pahamatong and that the name of the second partnership be dissolved upon fulfillment of the condition. After the withdrawal of Pahamotang, the partnership was continued by the original partners without any written agreement or reconstitution of their written articles of partnership.

Problem arose when Rojas abandoned the partnership due to joining with another logging enterprise, and withdrew his equipment from the partnership. Maglana reminded Rojas of his obligation in their partnership but Rojas said he wouldn’t comply. He then took funds from the partnership more than his contribution. Thus, Maglana notified Rojas that he dissolved the partnership. Rojas then filed for recovery of properties, accounting, receivership, and damages against Maglana.

Issue:

1.       WON the nature of partnership of Maglana and Rojas after dissolution of the second partnership is de facto and at will.

2.       WON the sharing of partnership profits should be on the basis of contribution or ratio/proportion of their respective contributions.

Held:

1.       No. Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership At Will, for as stressed, there is an existing partnership, duly registered. The dissolution of the second partnership does not affect the first partnership which continued to exist. The fact that Maglana wrote Rojas for the fulfillment of his obligation in the partnership and Rojas subsequent reply further stressed that both considered themselves governed by the articles of the duly registered partnership. Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners.

2.       YES. On the basis of the Commissioners' Report, the corresponding contribution of the partners from 19561961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).

Sy vs. Court of Appeals, GR. No. 94285, August 31, 1999

Parties:

Petitioners - Jesus Sy, Jaime Sy, Estate Of Jose Sy, Estate Of Vicente Sy, Heir Of Marciano Sy Represented By Justina Vda. De Sy And Willie Sy

Respondents - The Court Of Appeals, Intestate Estate Of Sy Yong Hu, Sec. Hearing Officer Felipe Tongco, Securities And Exchange Commission

Nature: PETITIONS for review on certiorari of a decision of the Court of Appeals.

Summary:  Sy Yong Hu & Sons is a partnership between Sy Yong Hu and his sons. Their shares as reflected in the Amended articles of partnership are as follows:  Sy Yong Hu (31k), Jose Sy (205k), Jayme Sy (112k), Marciano Sy (143k), Willie Sy (85k), Vicente Sy (85k), and Jesus Sy (88k), with Jose Sy as managing partner. The partnership was registered with SEC on March 29, 1962. In 1978, 1979, & 1987, Partners Sy Yong Hu and Jose Sy, Vicent Sy, &Marciano Sy died respectively. At present, the partnership has valuable assets in the business district of Bacolod.

In Sept 1977, during the lifetime of all the partners, Keng Sian brought an action against the partnership claiming she is entitled of ½ of the properties and the fruits bec she was the common law wife of Sy Yong Hu which the latter denied.

During the pendency of the case, Marciano Sy filed a petition for declaratory relief against Vicente, Jesus, and Jayme, praying he be appointed partner to replace the deceased Jose. In an answer, Vicente, Jesus, Jayme, who claimed to represent the majority interest sought the dissolution of partnership and appointed Vicente as managing partner.

The Hearing Officer, in a decision (Sison Decision) dismissed the petition, and dissolved the partnership. The Sison Decision was affirmed by the SEC En Banc. In the meantime the Regional Trial Court appointed one Alex Ferrer as Special Administrator. Thereafter, Alex Ferrer moved to intervene in the proceedings in for the partition and distribution of the of the partnership assets on behalf of the respondent intestate estate but was denied. The Intestate Estate appealed to the SEC en banc. In its decision, the SEC en banc reiterated that the Abello decision, which upheld the order of dissolution of the partnership, had long become final and executory. No further appeal was taken from said decision. During the continuation of SEC Case, the parties brought to the attention of the Hearing Officer the fact of existence of a Civil Case pending before the RTC. They also agreed that during the pendency of said case, there would be no disposition of partnership assets. Hearing Officer Tongco in an order placed the partnership under a receivership committee. Petitioners appealed to the SEC en banc. In an order (Lopez Order), the SEC en banc affirmed the Tongco order. Then they filed a special civil action for certiorari with the Court of Appeals. The appellate court granted the petition and remanded the case for further execution of the Decisions, ordering partition and distribution of partnership properties. On motion for reconsideration by private respondents, the Court of Appeals reversed its earlier decision and remanded the case to the SEC for the formation of a receivership committee as envisioned in the Tongco Order. Hence the present petition.

 ISSUE: What is there is a difference between winding up and dissolution

HELD: Petitioners fail to recognize the basic distinctions underlying the principles of dissolution, winding up and partition or distribution. The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up, of its business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination. The dissolution of the partnership did not mean that the juridical entity was immediately terminated and that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution simply effected a change in the relationship among the partners. The partnership, although dissolved, continues to exist until its termination, at which time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners. It ruled that although the Abello Decision was, indeed, final and executory, it did not pose any obstacle to the hearing officer to issue orders not inconsistent therewith because from the time a dissolution is ordered until the actual termination of the partnership.

SAME SAME

Partnerships; Dissolutions; Words and Phrases; Dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up, of its business.—The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying the principles of dissolution, winding up and partition or distribution. The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up, of its business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.

Same; Same; The partnership, although dissolved, continues to exist until its termination, at which time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners.—The dissolution of the partnership did not mean that the juridical entity was immediately

terminated and that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution simply effected a change in the relationship among the partners. The partnership, although dissolved, continues to exist until its termination, at which time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners.

Same; Same; Securities and Exchange Commission; Jurisdiction; From the time a dissolution is ordered until the actual termination of the partnership, the Securities and Exchange Commission retains jurisdiction to adjudicate all incidents relative thereto; Like the appointment of a manager in charge of the winding up of the affairs of the partnership, the appointment of a receiver during the pendency of the dissolution is interlocutory in nature, well within the jurisdiction of the Securities and Exchange Commission.—The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The Abello Decision though, indeed, final and executory, did not pose any obstacle to the Hearing Officer to issue orders not inconsistent therewith. From the time a dissolution is ordered until the actual termination of the partnership, the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership under a receivership committee cannot be said to have varied the final order of dissolution. Neither did it suspend the dissolution of the partnership. If at all, it only suspended the partition and distribution of the partnership assets pending disposition of Civil Case No. 903 on the basis of the agreement by the parties and under the circumstances of the case. It bears stressing that, like the appointment of a manager in charge of the winding up of the affairs of the partnership, said appointment of a receiver during the pendency of the dissolution is interlocutory in nature, well within the jurisdiction of the SEC.

Liwanag vs. Workmen’s Compensation Commission, 105 Phil. 741

Liwanag vs. Workmen’s Compensation Commission, 105 Phil. 741

Parties:

Petitioners & Appellant: Benito Liwanag and Maria Liwanag Reyes

Respondents & Appellees: Workmen’s Compensation Commission, et. Al.

Nature: Petition for review on certiorari of a decision of the Workmen’s compensation commission

Summary: Appellants Liwanag and Reyes are co-owners of Liwanag Auto supply. They employed Balderama as a a security guard who, while in the line of duty, was killed by criminal hands. His widow, Ciriaca Balderama & his children filed claim for compensation with the Workmen’s Compensation Commission, which granted the award of 3,494.40 to be paid by the appellants jointly and severally. Appellants appealed the case and claimed that under the Workmen’s Compensation Act, the compensation should be divisible & not paid jointly and severally.

Doctrine: WORKMEN'S COMPENSATION; SOLIDARY LIABILITY OF BUSINESS PARTNERS.—Although the Workmen's Compensation Act does not contain any provision expressly declaring that the obligation of business partners arising from compensable injury or death of an employee should be solidary, however, there are other provisions of law from which it could be gathered that their liability must be solidary. Arts. 1711 and 1712 of the New Civil Code and Section 2 of the Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of business partners should be solidary. If the responsibility of the partners were to be merely joint and not solidary, and one of them happens to be insolvent, the amount awarded to the dependents of the deceased employee would only be partially satisfied, which is evidently contrary to the intent and purpose of the law to give full protection to the employee.

 Facts: Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply, a commercial establishment located at 349 Dimasalang, Sampaloc, Manila. They employed Roque Balderama as security guard who, while in line of duty, was killed by criminal hands. His widow Ciriaca vda. de Balderama and minor children Genara, Carlos and Leogardo, all surnamed Balderama, in due time filed a claim for compensation with the Workmen's Compensation Commission, which was granted in an award worded as follows:

WHEREFORE, the order of the referee under consideration should be, as it is hereby, affirmed and respondents Benito Liwanag and Maria Liwanag Reyes, ordered:

"1. To pay jointly and severally the amount of Three Thousand Four Hundred Ninety-four and 40/100 (P3,494.40) Pesos to the claimants in lump sum; and

"To pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00 for this review) as fees, pursuant to Section 55 of the Act."

In appealing the case to this Tribunal, appellants do not question the right of appellees to compensation nor the amount awarded. They only claim that, under the Workmen's Compensation Act, the compensation is divisible, hence the Commission erred in ordering appellants to pay jointly and severally the amount awarded. They argue that there is nothing in the compensation Act which provides that the obligation of an employer arising from compensable injury or death of an employee should be solidary; that if the legislative intent in enacting the law is to impose solidary obligation, the same should have been specifically provided, and that, in the absence of such clear provision, the responsibility of appellants should not be solidary but merely joint.

Issue: WON the liability of the partners are jointly and severally despite the absence of a clear provision stating such liability in the Compensation Act.

Held: YES. Although the Workmen's Compensation Act does not contain any provision expressly declaring that the obligation of business partners arising from compensable injury or death of an employee should be solidary, however, there are other provisions of law from which it could be gathered that their liability must be solidary. Arts. 1711 and 1712 of the New Civil Code and Section 2 of the Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of business partners should be solidary. If the responsibility of the partners were to be merely joint and not solidary, and one of them happens to be insolvent, the amount awarded to the dependents of the deceased employee would only be partially satisfied, which is evidently contrary to the intent and purpose of the law to give full protection to the employee.

Munasque vs. Court of Appeals, GR No. L-39780, November 11, 1985

Munasque vs. Court of Appeals, GR No. L-39780, November 11, 985

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

ELMO MUÑASQUE, petitioner,

vs.

COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL

COMPANY and RAMON PONS, respondents.

GUTTIERREZ, JR., J.:

Facts:

Munasque (petitioner) entered into a partnership with Galan under the registered name\“Galan and Associates” as Contractor. They entered into a written contract with respondent Tropical for remodeling the latter’s Cebu branch building. Under the contract, the project totaled 25,000 to be paid in installments; 7, 000 upon signing and 6, 000 every 15 working days.

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

Galan.

Galan informed Tropical of the misunderstanding between him and Munasque as partners. Hence upon second payment, Tropical changed the name of the payee on the second check from Munasque to “Galan and Associates” which enabled Galan to encash the second check.

Meanwhile, the construction was continued through Munasque’s sole efforts by incurring debts from various suppliers. The construction work was finished ahead of schedule with the total expenditure reaching P 34, 000 (note yung contract nila 25k lang).

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

Both trial court and Court of Appeals absolved respondents Tropical and its Cebu manager, Pons, from any liability. TC held Galvan and Munasque “jointly and severally” liable to its creditors which decision was modified by CA and held them “jointly” liable.

Issues:

Whether the obligation of Munasque and Galan is joint or solidary?

Held:

Solidary. While it is true that under Article 1816 of CC, “All partners, including industrial ones, shall be liable pro rate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and for account of the partnership, under its signature and by a person authorized to act for the partnership. xxx”, this provision should be construed together with Article 1824 which provides that:

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

The obligation is solidary because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent.

Tropical had every reason to believe that a partnership existed between Munasque and Galan and no fault or error can be imputed against it for making payments to “Galan and Associates” because as far as it was concerned, Galan was a true partner with real authority to transact in behalf of the partnership it was dealing with (because in the first place they entered into a duly registered partnership name and secondly, Munasque endorsed the first check payment to Galan). This is even more true in the cases of the intervenors who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole.

However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.

Island Sales vs. United Pioneers GR No. L-22493, July 31, 1975

Island Sales vs. United Pioneers GR No. L-22493, July 31, 1975

DOCTRINE: Condonation by creditor of share in partnership debt of one partner does not increase pro rata liability of other partners.

FACTS:

The defendant company ( UNITED PIONEERS GENERAL CONSTRUCTION COMPANY ET .AL ), a general partnership duly registered under the laws of the Philippines, purchased from theplaintiff ( ISLAND SALES, INC) a motor vehicle on installment basis and for this purpose executed apromissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments asthey fall due would render the whole unpaid balance immediately due and demandable.

 Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default. Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is concerned.

When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-parte , after which the trial court rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability of each partner should notexceed one-fifth (1/5) of the obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth (1/5 ) of the obligations of the defendant company.Hence, this appeal.

ISSUE:  Whether the condonation of a partner’s share in the debts of the company increases the remaining partners’ liability?

RULING:

No. In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

RATIO: Article 1816 of the Civil Code provides:

“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”

Pacific Commercial vs Aboitiz GR No. 25007, March 2, 1925

Pacific Commercial vs Aboitiz GR No. 25007, March 2, 1925

ACIFIC COMMERCIAL COMPANY vs. ABOITIZ & MARTINEZ, ET AL., 48 Phil. 841. G.R. No. L-25007, March 2, 1926

 FACTS:

 Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez formed a regular, collective, mercantile partnership with a capital of P40,000 as contributed equally by de Silva and the two Aboitiz while Jose Martinez was an industrial partner with no capital contribution. As provided in the article of partnership, Martinez was to receive 30% of the profits and shall also be responsible for losses which should not exceed 30%.

The partnership, through Guillermo Aboitiz, executed a promissory note in favor of Pacific Commercial Company in the sum of P23,168.71 with interest at 12% per annum. They executed a chattel mortgage to secure the note. Due to their failure to pay their obligation, the chattel mortgage was foreclosed and sold at P2,000 which was paid over to plaintiff Pacific Co. Due to non payment of the remaining balance, plaintiff brought a suit for recovery of unpaid balance with interest against the partnership.

A judgment was rendered in favor of plaintiff and the partnership was ordered to pay the sum of P27,951.68 and the interest amounting to P21,168.71 at 10% per annum until fully paid plus fees. The judgment further provided that the execution should first issue against the property of the partnership Aboitiz & Martinez and in the event of the insolvency of the partnership, it might issue against the property of de Silva and Aboitiz and in the event of insolvency, then against the property of Jose Martinez. Defendant Martinez appealed to the decision and invoked that under Art.141 of the Code of Commerce, he is merely an industrial partner, thus, he cannot be held liable for the partnership's debt.

ISSUE:

 Is an industrial partner liable for partnership's debt?

RULING

 Yes. The language of Art. 127 of the Code of Commerce is clear and specific and must be taken to mean exactly what it says, namely, that all the members of a general co partnership are liable with all their property for the results of the duly authorized transactions made in the name and for the account of the partnership. Defendant's reliance to Art. 141 is misplaced. This article of the Code of Commerce relates merely to the distribution of losses among partners themselves in the settlement of the partnership affairs and has no obligations to third parties.

JG Summit Holdings v. CA, Sept. 24, 2003, G.R. No. 124293

JG Summit Holdings INC. vs. Court of Appeals | G.R. No. 124293 January 31, 2005

Facts:  The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard Inc., (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO).

Under the JVA, the NDC and KAWASAKI will contribute P330M for the capitalization of PHILSECO in the proportion of 60%-40% respectively.  One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture.

NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to an Administrative Order.

When the former President Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and dispose of non-performing assets of the National Government, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government’s share in PHILSECO.

In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government’s share in PHILSECO to private entities.  After a series of negotiations between the APT and KAWASAKI , they agreed that the latter’s right of first refusal under the JVA be “exchanged” for the right to top by 5%, the highest bid for the said shares.  They further agreed that KAWASAKI woul.d be entitled to name a company in which it was a stockholder, which could exercise the right to top.  KAWASAKI then informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top.

At the public bidding, petitioner J.G. Summit Holdings Inc. submitted a bid of Two Billion and Thirty Million Pesos (Php2,030,000,000.00) with an acknowledgement of KAWASAKI/PHILYARDS right to top.

As petitioner was declared the highest bidder, the COP approved the sale “subject to the right of Kawasaki Heavy Industries, Inc. / PHILYARDS Holdings Inc. to top JG’s bid by 5% as specified in the bidding rules.”

On the other hand, the respondent by virtue of right to top by 5%, the highest bid for the said shares timely exercised the same.

Petitioners, in their motion for reconsideration, raised, inter alia, the issue on the maintenance of the 60%-40% relationship between the NIDC and KAWASAKI arising from the Constitution because PHILSECO is a landholding corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.

ISSUE: Whether under the 1977 Joint Venture Agreement, KAWASAKI can purchase only a maximum of 40% of PHILSECO’s total capitalization.

The right of first refusal is meant to protect the original or remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture between the Philippine Government and KAWASAKI is in the nature of a partnership³⁶ which, unlike an ordinary corporation, is based on delectus personae.³⁷ No one can become a member of the partnership association without the consent of all the other associates. The right of first refusal thus ensures that the parties are given control over who may become a new partner in substitution of or in addition to the original partners. Should the selling partner decide to dispose all its shares, the non-selling partner may acquire all these shares and terminate the partnership. No person or corporation can be compelled to remain or to continue the partnership. Of course, this presupposes that there are no other restrictions in the maximum allowable share that the non-selling partner may acquire such as the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECO’s shares is correct only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of the total capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a public utility and no other restriction is present that would limit the right of KAWASAKI to purchase the Government’s share to 40% of Philseco’s total capitalization.

Furthermore, the phrase “under the same terms” in section 1.4 cannot be given an interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to the extent of its original proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the whole of section 1.4, the phrase “under the same terms” means that a partner to the joint venture that decides to sell its shares to a third party shall make a similar offer to the non-selling partner. The selling partner cannot make a different or a more onerous offer to the non-selling partner.

The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the conditions attendant to the sale for it to have a guided choice. While the right of first refusal protects the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right to sell its shares to third persons if, under the same offer, it does not buy the shares.

Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not contemplate transfer of a partner’s shares to third parties but the issuance of new Philseco shares. The grant of preemptive rights preserves the proportionate shares of the original partners so as not to dilute their respective interests with the issuance of the new shares. Unlike the right of first refusal, a preemptive right gives a partner a preferential right over the newly issued shares only to the extent that it retains its original proportionate share in the joint venture.

The case at bar does not concern the issuance of new shares but the transfer of a partner’s share in the joint venture. Verily, the operative protective mechanism is the right of first refusal which does not impose any limitation in the maximum shares that the non-selling partner may acquire.

RULING: The court upheld the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC.

The right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA.  This right allows them to purchase the shares of their co-shareholder before they are offered to a third party.  The agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations.  As PHILYARDS correctly puts it, if PHILSECO still owns the land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ration.  This transfer by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent.  The transfer could be made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably do business with.

Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECO’s equity.  In fact, in can even be said that if the foreign shareholdings of a landholding corporation exeeds 40%, it is not the foreign stockholders’ ownership of the shares which is adversely affected but the capacity of the corporation to won land—that is, the corporation becomes disqualified to own land.

This finds support under the basic corporate law principle that the corporation and its stockholders are separate judicial entities.  In this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land.

Tacao et al. v. CA, 342 SCRA 20

Tacao et al. v. CA, 342 SCRA 20

Facts: Petitioner William T. Bello introduced private respondent Nenita Anay to petitioner Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo acted the capitalist,Tocao as president and general manager, and Anay as head ofthe marketing department (considering her experience and established relationship with West Bend Company,c a manufacturer of kitchen wares in Wisconsin, U.S.A) and later,vice-president for sales. The parties agreed further that Anay would be entitled to:

(1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent (6%) of theoverall weekly production; (3) thirty percent (30%) of thesales she would make; and (4) two percent (2%) for herdemonstration services.

The same was not reduced to writing on the strength of Belo’sassurances.

Later, Anay was able to secure the distributorship of cookware products from the West Bend Company. They operated underthe name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s name. Anay attended distributor/dealer meetings with West Bend Company with theconsent of Tocao.

Due to Anay’s excellent job performance she was given a plaque of appreciation. Also, in a memo signed by Belo, Anaywas given 37% commission for her personal sales "up Dec31/87,” apart from the 10% share in profits

On October 9, 1987, Anay learned that Marjorie Tocao terminated her as vice-president of Geminesse Enterprise. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. Belo did not answer.

Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross sales of P13,300,360.00.

 On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages against Tocao and Belo before the RTC of Makati. She prayed that she be paid (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was “illegally dismissed” to determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) “overriding commission“ on the remaining 150 West Bend cookware sets before her “dismissal.”

However, Tocao and Belo asserted that the alleged agreement was not reduced to writing nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied the existence of a  partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Belo also contended that he merely acted as a guarantor of Tocao and denied contributing capital. Tocao, on the other hand, denied that they agreed on a ten percent (10%) commission on the net profits.

Both trial court and court of appeals ruled that a business  partnership existed and ordered the defendants to pay.

Issue:

Whether or not a partnership existed – YES

Ratio:

 To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one.

Private respondent Anay contributed her expertise in the  business of distributorship of cookware to the partnership and hence, under the law, she was the industrial or managing  partner.

Petitioner Belo had an proprietary interest. He presided over meetings regarding matters affecting the operation of the  business. Moreover, his having authorized in writing giving Anay 37% of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. This is inconsistent with his claim that he merely acted as a guarantor. If indeed he was, he should have  presented documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a capitalist in the partnership. She claimed that she herself financed the business.

The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between  petitioners and private respondent. First, Anay had a voice in the management of the affairs of the cookware distributorship and second, Tocao admitted that Anay, like her, received only commissions and transportation and representation allowances and not a fixed salary. If Anay was an employee, it is difficult to believe that they recieve the same income. Also, the fact that they operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. Said  business name was used only for practical reasons - it was utilized as the common name for petitioner Tocao’s various  business activities, which included the distributorship of cookware.

The partnership exists until dissolved under the law. Since the  partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner.

Petitioners Tocao’s unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the  partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.

The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the  pertinent provisions of the Civil Code. Petitioners are ordered to pay Anay’s 10% share in the profits, after accounting, 5% overriding commission for the 150 cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioner, overriding commission on the total production, as well as moral and exemplary damages, and attorney’s fees

Ortega, et al. vs. CA, et al., 245 SCRA 529

Ortega, et al. vs. CA, et al., 245 SCRA 529

VITUG, J.: G.R. No. 109248. July 3, 1995.

Parties:

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners

HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

Nature: PETITION for review on certiorari of a decision of the Court of Appeals.

Keyword: law firm, partner, partnership at will, 

Facts: The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the articles of partnership:

-       18 September 1958 - ROSS, SELPH and CARRASCOSO

-       6 July 1965 - ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA

-       18 April 1972 - SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA

-       4 December 1972 - SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA

-       11 March 1977 - DEL ROSARIO, BITO, MISA & LOZADA

-       7 June 1977 - BITO, MISA & LOZADA

-       19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote a letter to the respondents-appellees stating that he was withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of the month. He also trust the accountants to do a proper liquidation based on his participation in the firm. On the same day, petitioner-appellant brought up that he wanted to have a meeting regarding the mechanics of liquidation, more particularly, the two floors of the firm’s building because he had plans for it.

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating that the partnership ceased to be mutually satisfactory despite his effort to ameliorate the level of pay scale of their employees due to disagreements with the other partners.

On 30 June 1988, petitioner filed with this Commission’s Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership.

SEC: held that Petitioner’s withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest.

SEC En Banc (On Appeal): Reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of “Bito, Misa & Lozada.” The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. Issue:

The parties filed with the appellate court separate appeals.

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA-G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer.

CA: Affirmed the decision of SEC.

Issue:

1.Whether or not the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2.Whether or not the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith;

Held:

1. Yes. The partnership agreement of the firm provides that ”[t]he partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners.”

2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of thepartnership at will (e.g. by way of withdrawal of a partner). He must, however, act in goodfaith, not that the attendance of bad faith can prevent the dissolution of the partnership butthat it can result in a liability for damages

Ratio:

A partnership that does not fix its term is a partnership at will. That the law firm “Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

“The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The ‘DURATION’ clause simply states:

“ ‘5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners.’

“The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

“‘2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so.’

“The ‘purpose’ of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or ‘project’ which has a definite or definable period of completion.”³

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership⁴ but that it can result in a liability for damages.⁵

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.⁶ Among partners,⁷ mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business.⁸ Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.⁹

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code;¹⁰

Ruling: WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Same Same:

Same; Same; The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.—The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages.

Same; Same; Neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.—In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. Among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

Same; Same; Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.—The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.

Same; Same; The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code.—The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code’s general provisions.

Same; Same; It would not be right to let any of the partners remain in the partnership under such an atmosphere of animosity.—On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by “interpersonal conflict” among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.