ATAP - Agency, Trust, and Partnership: Atty. Ranada Syllabus notes - WEEK 1 & 2

I.                     PARTNERSHIP

Week No. 1

A. General Provisions (Article 1767 – 1783)

1. What is a contract of partnership? (Art. 1767)

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. (1665a)

SANTOS VS. SPS. REYES, 368 SCRA 261

https://juristprudent.blogspot.com/2018/10/santos-vs-sps-reyes-368-scra-261.html

2. Determining factors in the existence of partnership (Art. 1769)

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n)

HEIRS OF TAN ENG KEE VS. CA, 341 SCRA 740

                (citing Evangelista vs Collector of Internal Revenuw, 54 O.G. 996

https://juristprudent.blogspot.com/2018/10/heirs-of-tan-eng-kee-vs-ca-341-scra-740.html

NEGADO VS. MAKABENTA, 54 O.G. 4082

Castro, J.

https://juristprudent.blogspot.com/2018/10/negado-vs-makabenta-54-og-4082.html

YULO VS. YANG CHIACO SENG, L-12541, AUG. 28, 1959

LABRADOR, J.:

3. Distinction between partnership and private corporation

FLETCHER, Cyc. Corp., Sec. 20

4. Formalities required by law for the organization/constitution of partnership (Art. 1771, 1772, 1773, 1843)

Art. 1771. 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. (1667a)

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)

Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.

SEC Memorandum Circular 14, Series of 2017

Consolidated Guidelines and Procedures on the Use of Corporate and Partnership Names

SEC Memorandum Circular No. 9, Series of 2018

Amendment of the Guidelines and Procedures on the Use if Corporate and Partnership Names

    SEC Memorandum Circular No. 6, Series of 2016

    Omnibus Guidelines on Principal Office Addressm Address of each Incorporator, Director, Trustee or Partner

    http://www.sec.gov.ph/sec-memorandum-circular-no-06-9/

    Executive Order No. 184

    Tenth Foreign Investment Negative List

Week No. 2

5. Different kinds of partnership

Art. 1776. As to its object, a partnership is either universal or particular.

As regards the liability of the partners, a partnership may be general or limited. (1671a)

                   a.)     As to object (Art, 1777, 1778, 1780, 1783)

i.                     Universal Partnership

Art. 1777. A universal partnership may refer to all the present property or to all the profits. (1672)

Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership.

Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675)

2 kinds of universal partnership:

1.       Universal partnership or one which refers to ALL THE PRESENT PROPERTY OR TO ALL PROFITS (1777)

2.       Universal partnership of profits defined in ART. 1780.

Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. (1673)

ii.                   Particular Partnership

Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. (1678)

           
                     b.)     As to liability of the partners

i.                     General Partnership

General Partnership or one consisting of general partners who are liable pro rata and subsidiarily (Art. 1816) and sometimes SOLIDARILY (Arts. 1822 – 1824) with their separate property for partnership debts; or

ii.                   Limited Partnership

Limited Partnership or one formed by two or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership. (Art. 1843)

6. Different kinds of partners

a.)     Industrial Partner – or one who contributes only his industry or personal service (Arts. 1789, 1767)

Art. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. (n)

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. (1665a)

b.)     Capitalist Partners – or one who contributes money or property to the common fund (see Art. 1767)

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. (1665a)

c.)      General Partner – or one whose liability to third persons extends to his separate property; he may be either a capitalist or industrial partner. (see Art. 1843, 1816). He is also known as a REAL PARTNER

Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.

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

d.)     Limited Partner – or one whose liability to third persons is limited to his capital contribution. (see Art. 1843) He is also known as “SPECIAL PARTNER”. The term “general partner” and “limited partner” have relevance only in LIMITED PARTNERSHIP.

Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.

e.)     Managing Partner – or one who manages the affairs or business of the partnership; he may be appointed either in the articles of partnership or after the constitution of the partnership (See Art. 1800) He is also known as GENERAL or REAL partner;

Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.

f.)      Silent Partner – or one who does NOT take any active part in the business although he may be known to be a partner. (Ibid.) Thus, he need not be a secret partner. If he withdraws from the partnership, he must give notice to those persons, who do business with the firm to escape liability in the future;

g.)     Ostensible Partner – or one who takes ACTIVE PART and known to the public as a partner in the business (See Art. 1834, par. 2), whether or not he has an actual interest in the firm. Thus, he may be an actual partner or a nominal partner. If he is not actually a partner, he is subject to liability by the doctrine estoppel. (Art. 1825)

Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:

(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;

(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n)

h.)     Secret Partner – or one who takes active part in the business but is not known to be a partner by outside parties nor held out as a partner by the other partners (Ibid.), although he participates in the profits and losses of the partnership. He is an ACTUAL partner. He is also an ACTIVE partner in the sense that he participates in the management of the partnership affairs.

i.)       Partner by Estoppel – or one who is not really a partner, not being a party to a partnership agreement, but is liable as a partner for the protection of innocent third persons. (See Art 1825) He is one who represented as being in fact a partner, but who is not so as between the partners themselves. He is also known as PARTNER BY IMPLICATION OR NOMINAL PARTNER.

The term QUASI-PARTNER is sometimes used. (68 C.J.S. 405)

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Reviewer Made by: Liz Lorenzo

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.