Cases on Business Org 1 (Partnership, Agency, and Trust)Atty. Borja

General Provisions (Arts. 1767-1783 NCC)

Lim Tong Lim vs Phil. Fishing Gear Industries, Inc. (317 SCRA 728)

Facts:

Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing Corp. for the purpose of purchasing fish nets of various sizes from the Phil. Fishing Gear Industries, Inc. They claimed that they are engaged in business venture with Lim Tong Lim who is not a signatory of the contract when they signed it. The buyers however failed to pay the fishing nets. PFG sued Chua, Yao and Lim as general partners. Lim contends that there is no partnership to speak of because he has no direct participation in the purchasing of the nets and that he was merely a leasor of the boats and not a partner.

Issue: Whether or not there is a partnership between Chua, Yao and Lim.

Ruling:

Partnership essentially is: By a contract of partnership, two or more person bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves (Art. 1767, NCC).In the case at bar, there existed a partnership among Chua, Yao and Lim when they decided to engage in a fishing business. They purchased boats, who was actually financed from a loan with Lims brother which constituted the main asset of the partnership and agreed that the proceeds of the sales and operations would be divided among them.Lim consented the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among them. His consent to the sale proved that there was a preexisting partnership among them.

Oa vs CIR (45 SCRA 74

Facts:

Julia Baales died leaving her spouse Lorenzo Oa and her five children as heirs. Later, Lorenzo submitted a project partition and was approved by the court. However, Luz, Virginia and Lorenzo Jr where all minors when the partition was approved, so, Lorenzo their father was appointed as their guardian. Although the project partition was approved, the properties were not divided. Lorenzo used the properties in business by leasing or selling them and investing the income in real properties and securities. As a result, the properties and investment gradually increases. The CIR decided that Lorenzo and his three children formed an unregistered partnership and therefore, subject to corporate income tax. Lorenzo protested against the assessments and contends that they did not formed an unregistered partnership.

Issue: Whether or not there was an unregistered partnership between Lorenzo and his children.

Ruling:

From the moment Luz, Virginia and Lorenzo Jr. allowed not only the incomes from their respective shares of inheritance but even the inherited properties to be used by their father as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such incomes to a common fund and in effect they thereby formed an unregistered partnership.

Obillos vs CIR (139 SCRA 436)

Facts:

Jose Obillos, Sr. purchased two lots from Ortigas & Co. Ltd. He transferred his rights to his four children to enable them to build their residences. The two lots were then resold to Walled City Securities Corp. and Olga Cruz Canda. They treated the profit as a capital gain and paid an income tax on one half thereof. After a year, the CIR required the four to pay corporate tax in addition to the individual income tax on their shares. They were held liable for deficiency income taxes and penalties on their profit in addition to the tax on capital gains already paid by them. The CIR acted on the theory that the four had formed an unregistered partnership or joint venture.

Issue: Whether or not there exist an unregistered partnership between the four children of Jose.

Ruling:

Art. 1769 (3) of the NCC provides that the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint venture or common right or interest in any property from which the return are derived. There must be an unmistakable intention to form a partnership or joint venture.In the case at bar, the petitioners did not formed an unregistered partnership under Art 1767 of NCC simply because they allegedly contributed to buy the two lots, resold the same and divided the profit among themselves. As testified by Jose Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between co-ownership and partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If they later on found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of co-ownership which was in the nature of things, a temporary state.

Pastor vs. Gaspar (2 Phil. 592)

Facts:

A partnership composed of Macario Nicasio and Manuel Gaspar under the name "Nicasio and Gaspar" was formed. It owned the steam launch Luisa, and its only business was the relating to this launch.

Desiring to increase this business, a contract was made between the firm of Nicasio and Gaspar on the one side, and on the other side Eguia, Iboleon, and Monserrat, and one Hermoso. The contract recites that Nicasio and Gaspar have enlarged the business of their partnership; have bought six lorchas, which are named, and that, needing money with which to pay for the lorchas and the necessary repairs thereon, the parties of the second part have furnished them 28,000 pesos as loan.

Allegedly the contract was dissolved and terminated, and the lorchas were sold by mutual consent of the parties.

Issue: whether or not the contract on its face creates a partnership

Ruling:

Upon the face of the contract the plaintiff was a creditor and not a partner. The contract is not clearly drawn, but the following seem to indicate that the transaction was rather a loan than a contract of partnership: (1) In the beginning it is twice stated positively that Nicasio and Gaspar are the only partners and the only persons interested in the partnership of Nicasio and Gaspar. These statements the plaintiff assented to when he signed the document. (2) In the second paragraph, and again in the fourth, it is stated, also, distinctly and positively, that the money has been furnished as a loan. (3) In the fifth paragraph, hereinbefore quoted, Nicasio and Gaspar bind themselves to repay the amount, something that they would not be bound to do were the contract one of partnership. (4) In the same paragraph Nicasio and Gaspar create in favor of the plaintiff and his associates a right of pledge over the lorchas, a thing inconsistent with the idea of partnership. this paragraph should not be construed as transferring the ownership of the lorchas themselves to the second parties. Although the words "las cuales" would grammatically refer to the preceding word "embarcaciones," yet such a construction would be inconsistent with what has been before stated in the same paragraph as to the pledge. (5) By the same paragraph Nicasio and Gaspar are to be considered consignees only as long as they do not pay the debt. This indicates that they had a right to pay it. (6) By the last clause of this paragraph they bind themselves not to alienate the lorchas until they had paid the debt, indicating clearly that by paying the debt they could do so, a thing consistent with the idea of a partnership. (7) By the seventh paragraph of this contract it is stated that the launch Luisa is not included in the contract.

Gallemet vs Tabilaran (20 Phil. 241)

Facts:

Issue:

Ruling:

AFISCO Insurance Corp. vs CA (302 SCRA 1)Facts:

Issue:

Ruling:

Deluao vs Casteel (26 SCRA 475)Facts:

Issue:

Ruling:

The declarations of one partner, not made in the presence of his co-partner, are not competent to prove the existence of a partnership between them as against such other partner. The existence of a partnership cannot be established by general reputation, rumor, or hearsay.

CIR vs Suter (27 SCRA 152)Facts:

Issue:

Ruling:

Chapter 2. Obligations of the Partners (Arts. 1784-1827 NCC)Section 1. Obligations of the Partners Among Themselves (Arts. 1784-1809 NCC)

Martinez vs Ong Pong Co. (14 Phil 726)Facts:

Issue:

Ruling:

Where two partners receive from another a sum of money for the establishment of a business, and agree to share with the latter the profits or losses that may result therefrom, the said two persons, as the apparent administrators of the partnership, acted as agents for the capitalist partner, and by virtue thereof are bound to fulfill the contract which implies the management of the business.

Litton vs Hill & Ceron (67 Phil 441)Facts:

Issue:

Ruling:

The stipulation in the articles of partnership that any of the 2 managing partners may contract and sign in the name of the partnership with the consent of the other, undoubtedly creates an obligation between the two partners, which consists in asking the others consent before contracting for the partnership. The obligation of course is not imposed upon a third person who contracts with the partnership. Neither it is necessary for the third person to ascertain if the managing partner with whom he contracts has previously obtained the consent of the other. A third person may and has the right to presume that the partner with whom he contracts has, in the ordinary and regular course of business, the consent of his co-partner; for otherwise, he wouldnt enter into the contract.

Bachrach vs La Protectora

Facts:

Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto Serrano (defendants) formed a civil partnership called La Protectora for the purpose of engaging in the business of transporting passengers and freight. Marcelo Barba, acting as manager, negotiated for the purchase of 2 automobile trucks from E. M. Bachrach for P16,500. Barba paid P3,000 in cash and for the balance executed promissory notes.One of these promissory notes was signed in the following manner:P.P La Protectora, By Marcelo Barba Marcelo BarbaThe other 2 notes were signed in the same way but the word by was omitted. It was obvious that in signing the notes, Barba intended to bind both the partnership and himself.The defendants executed a document in which they declared that they were members of La Protectora and that they had granted to its president full authority to contract for the purchase of the 2 automobiles. The document was delivered by Barba to Bachrach at the time the vehicles were purchased.Barba incurred a debt amounting to P2,617.57 and Bachrach foreclosed a chattel mortgage on the trucks but there was still a balance. To recover the balance, an action was instituted against the defendants.

Issue: Whether or not these individuals are liable for the firm debts and if so to what extent.

Ruling:

While a member of a partnership isnt liable solidarily with his fellows for its entire indebtedness, he is liable with them for his aliquot part thereof. When one of the partners was authorized to buy trucks for the partnership and effected such authority, signed the name of the partnership to the purchase money notes and added his own name as an individual, thereby assuming solidary liability with the firm, the partners who emitted the authority were not liable on the note, as the document in question contained no authority to bind them personally and in fact the notes didnt purport to do so; but they were held liable in their capacity as partners.

Council of Red Men vs Veterans Army (7 Phil 685)

Facts:

The Veteran Army of the Philippines is an association formed in honor of those who fought during the Spanish war and the Philippine insurrection, aimed to promote the welfare of its members, assist the sick and afflicted and to bury the dead. The association is composed of a department and two or more posts. The department is composed of a department commander, fourteen officers, and the commander of each post, or some member of the post appointed by him. Six members of the department constitute a quorum for the transaction of business.Among the posts thus organized is the General Henry W. Lawton Post, No. 1. On the 1st day of March, 1903, a contract of lease of parts of a certain buildings in the city of Manila was signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and on behalf of Lawton Post, Veteran Army of the Philippines as lessee. The lease was for the term of two years commencing February 1, 903, and ending February 28, 1905. The Lawton Post occupied the premises in controversy for thirteen months, and paid the rent for that time. It then abandoned them and an action was commenced to recover the rent for the unexpired term.

Issue: Whether or not that the contract in question was executed by some authorized to so by the Veteran Army of the Philippines.

Ruling:

Article 1695 of the Civil Code provides as follows:

Should no agreement have been made with regard to the form of management, the following rules shall be observed:All the partners shall be considered as agents, and whatever any one of them may do by himself shall bind the partnership; but each one may oppose the act of the others before they may have produced any legal effect.One partner, therefore, is empowered to contract in the name of the partnership only when the articles of partnership make no provision for the management of the partnership business. In the case at bar, the articles of the Veteran Army of the Philippines do so provide. It is true that an express disposition to that effect is not found therein, but one may be fairly deduced from the contents of those articles. They declare what the duties of the several officers are. In these various provisions there is nothing said about the power of making contracts, and that faculty is not expressly given to any officer. It was, therefore, reserved to the department as a whole; that is, that in any case not covered expressly by the rules prescribing the duties of the officers, the department were present.When an organizations constitution has a provision on how management of its affairs would be, the provision on a partner being an agent of a partnership is not applicable to that organization.

Catalan vs Gatchalian (105 Phil 1270)

Facts:Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the improvements thereon to secure a credit from the latter. The partnership failed to pay the obligation. The properties were sold to Dr. Marave at a public auction. Catalan redeemed the property and he contends that title should be cancelled and a new one must be issued in his name.Issue: Whether or not Catalans redemption of the properties make him the absolute owner of the lands?

Ruling:

Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any benefits or profits derived from his act as a partner. Consequently, when Catalan redeemed the properties in question, he became a trustee and held the same in trust for his copartner Gatchalian, subject to his right to demand from the latter his contribution to the amount of redemption.

Hanlon vs Hausserman and Beam (40 Phil 796)

Facts: An action was originally instituted by R. Y. Hanlon to compel the defendants, John W.Haussermann and A. W. Beam, to account for a share of the profits gained by them in rehabilitating the plant of the Benguet Consolidated Mining Company and in particular to compel them to surrender to the plaintiff 50,000 shares of the stock of said company, with dividends paid thereon. It was initially agreed by Hanlon, Haussermann, Beam and Sellner that P75,000.00 was needed to rehabilitate the mine; P50,000.00 would come from Hanlon by securing and obtaining subscriptions for the companys stocks, P25,000.00 would come from Haussermann and Beam. They were to receive compensation in the form of shares of stock for the services rendered in the flotation of this proposition. The funds were needed on a certain date. It was also stated in the contract that Haussermann and Beam would be discharged if Sellner could not provide the amount due from him within the time frame stipulated. Hanlon was unable to raise the P75,000.00, so that Haussermann and Beam made arrangements to finance the rehabilitation of the mine. Because of this new arrangement, the company became profitable that it was able to pay dividends. Because of this, the value of the companys stocks appreciated.

Issue: Whether or not

Ruling:

Lim Tanhu vs Ramolete (66 SCRA 425)

Facts:

Tan Put alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner and practically the owner who has controlling interest of Glory Commercial Company and a Chinese Citizen until his death. Antonio Lim Tanhu and Alfonso Leonardo Ng Sua were partners of Po Chuan. Tan Put filed complaint against spouses-petitoner Lim Tanhu and Dy Ochay including their son Tech Chuan and the other spouses-petitoner Ng Sua and Co Oyo including also their son Eng Chong Leonardo, that through fraud and machination took actual and active management of the partnership and that she alleged entitlement to share not only in the capital and profits of the partnership but also in the other assets, both real and personal, acquired by the partnership with funds of the latter during its lifetime." ( Basically, her allegations were that she actually gave some of her money to Po Chuan to help launch the partnership business; that the assets of the business were never liquidated after her common-law-husbands death; that the partners used the partnership funds to acquire several properties and to also launch the new business of Glory Commercial Company, Inc. [as opposed to the older one which was Glory Commercial Company Partnership]; that she was entitled to accounting and share in profits of the partnership as wife of Po Chuan; that she was fraudulently made to sign a quitclaim for 25,000 pesos which she said she did not actually receive)According to the petitioners, Ang Siok Tin is the legitimate wife, still living, and with whom Tee Hoon had four legitimate children, a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hong Kong. Tee Hoon died in 1966 and as a result of which the partnership was dissolved and what corresponded to him were all given to his legitimate wife and children. Tan Put prior of her alleged marriage with Tee Hoon on 1949, was engaged in the drugstore business; that not long after her marriage, upon the suggestion of the latter sold her drugstore for P125,000.00 which amount she gave to her husband as investment in Glory Commercial Co. sometime in 1950; that after the investment of the above-stated amount in the partnership its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under huge profits.Defendants interpose that Tan Put knew that she was merely the common-law wife of Tee Hoon. Tan Put and Tee Hoon were childless but the former had a foster child, Antonio Nunez. Defendants also said that the defendant knew she was not entitled to the profits of the partnership but out of the goodness of their hearts, they gave her 25,000 as evidenced by the quitclaim she signed.

Issue: Whether or not Tan Put, as she alleged being married with Tee Hoon, can claim from the company of the latters share.

Ruling:

It is very significant that according to the very tax declarations and land titles listed in the decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969 or later, that is, long after the partnership had been automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the absence of clear proof that they had violated the trust of Po Chuan during the existence of the partnership. Besides, assuming there has not yet been any liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the status of a partnership in liquidation and the only right plaintiff could have would be to what might result after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the deceased had. In other words, no specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner without the liquidation being first terminated.

Sison vs H McQuaid (94 Phil 201)

Facts:

Plaintiff brought an action in the CFI against defendant. Defendant borrowed from him money (P 2,210) to enable her to pay her obligations and to add to her capital in her lumber business. She could not pay so she proposed to take plaintiff as a partner in her business, plaintiff to contribute the P 2,210 due him from defendant. Before the last World War, the partnership sold 230,000board ft. of lumber to the US Army for P 13,800.00. Defendant refused to deliver of it (P 6,900.00) to plaintiff despite his repeated demands. Plaintiff filed an action to compel defendant to pay him his half of the profit from the partnership.

Issue: Whether or not plaintiff is entitled to the sum he claims

Ruling:

Plaintiff seeks to recover from defendant one-half of the purchase price of lumber sold by the partnership to the United States Army. But his complaint does not show why he should be entitled to the sum he claims. It does not allege that there has been a liquidation of the partnership business and the said sum has been found to be due him as his share of the profits. The proceeds from the sale of a certain amount of lumber cannot be considered profits until costs and expenses have been deducted. Moreover, the profits of the business cannot be determined by taking into account the result of one particular transaction instead of all the transactions had. Hence, the need for a general liquidation before a member of a partnership may claim a specific sum as his share of the profits.

Fernandez vs De la Rosa (1 Phil 671)

Facts:

Fernandez alleges that in January, 1900, he entered into a verbal agreement with Dela Rosa to form a partnership for the purchase of cascoes and the carrying on of the business of letting the same for hire in Manila, and Dela Rosa is to buy the cascoes and each partner to furnish for that purpose such amount of money as he could, the profits to be divided proportionately; Fernandez furnished Dela Rosa sums to purchase and repair cascoes, the latter taking the titles in his own name; that in April the parties undertook to draw up articles of partnership for the purpose of embodying the same in an authentic document, but that the defendant having proposed a draft of such articles which differed materially from the terms of the earlier verbal agreement, and being unwillingly to include the 2nd casco in the partnership, they were unable to come to any understanding and no written agreement was executed; that the defendant having in the meantime had the control and management of the two cascoes, the plaintiff made a demand for an accounting upon him, which the defendant refused to render, denying the existence of the partnership altogether.Dela Rosa admits that the project of forming a partnership in the casco business in which he was already engaged to some extent individually was discussed between himself and the plaintiff in January, 1900, but he denies that any agreement was ever consummated. He denies that the plaintiff furnished any money in January, 1900, for the purchase of the first casco, or for repairs on the same, but claims that he borrowed 300 pesos on his individual account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he admits he received from the Fernandez March 5, he claims was for the purchase of the first casco, which he alleged was bought March 12, and he alleges that he never received anything from the defendant toward the purchase of the 2nd casco. He claims to have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second one.

Issue: Whether or not the partnership was it terminated as a result of the act of the defendant in receiving back the 1,125 pesos?

Ruling:

The amount returned fell short, of that which the plaintiff had contributed to the capital of the partnership, since it did not include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been realized from the business during the period in which the defendant have been administering it prior to the return of the money, and if so he still retained that sum in his hands. For these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the legal existence of the partnership by converting it into a societas leonina.

The result is that we hold and declare that a partnership was formed between the parties in January, 1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is entitled to an accounting of the defendants administration of such property, and of the profits derived there from. This declaration does not involve adjudication as to any disputed items of the partnership account.

Evangelista & Co. vs Abad Santos (51 SCRA 416)

Facts: Estrella Abad Santos is a judge of the City Court (formerly Municipal Court) of the City of Manila and a law school professor. Estrella Abad Santos, as industrial partner, with Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P.Navarro, the original capitalist partners formed a co-partnership under the name of "Evangelista & Co." The amended Articles of partnership provided that "the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos." Estrella filed suit against the three other partners alleging that the partnership had been paying dividends to the partners except to her; and that notwithstanding her demands her partners refused and continued to refuse and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership.

Issue: WON Estrella, as an industrial partner, has the right to examine the partnership books; to receive her share in the dividends declared by the partnership; and to be informed regarding the affairs of the partnership.

Ruling:Estrella is an industrial partner of appellant company, "Evangelista & Co" with the right to demand for a formal accounting and to receive her share in the net profit that may result from such an accounting.'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:(1)If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;(2)If the right exists under the terms of any agreement;(3)As provided by article 1807;(4)Whenever other circumstance render it just and reasonable.In the case at bar, Estrella, even as she was and still is a Judge of the City Court of Manila, she has rendered services for the partnership without which they would not have had the wherewithal to operate the business for which "Evangelista & Co" was organized. Article 1767 of the New Civil Code which provides that "By 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, 'does not specify the kind of industry that a partner may thus contribute, hence the said services may legitimately be considered as Estrella's contribution to the common fund.

The Leyte-Samar Sales and K Tomassi vs S Cea and O Castrilla

Facts: Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi filed a suit for damages against the Far Eastern Lumber & Commercial Co. (unregistered commercial partnership hereinafter called FELCO). The court ruled against the defendants. The decision having become final, the sheriff sold at auction to Robert Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of the defendants in certain buildings and properties described in the certificate, for a total price of eight thousand and one hundred pesos. Olegario Lastrilla filed a motion, wherein he claimed to be the owner by purchase of all the"shares and interests" of defendant Fred Brown in the FELCO. Over the plaintiffs' objection the judge granted Lastrilla's motion by requiring the sheriff to retain 17% of the money And on motion of Lastrilla, the court modified its order of delivery and merely declared that Lastrilla was entitled to 17% of the properties sold.

Issue: Whether or not Lastrilla is a partner of FELCO, having purchased the share and interest of defendant Fred Brown after CFI rendered an unfavorable judgment, but prior to the auction sale, hence he can claim to the proceeds of the sale.

Ruling: Fred Brown (like Arnold Hall and Jean Roxas) was a partner of the FELCO, and that the properties sold at auction actually belonged to the FELCO partnership and the partners. The sale made to Lastrilla of all the shares of Fred Brown in the FELCO was valid. The result then, is that when the sale was effected of the properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastrilla was already a partner of FELCO. Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a creditor of the FELCO, perhaps or maybe. But he was not. The partner of a partnership is not a creditor of such partnership for the amount of his shares. Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had acquired the shares of Brown before the auction sale and he was not a party to the litigation, such shares could not have been transferred to Dorfe and Austrilla. Granting arguendo that the auction sale and not included the interest or portion of the FELCO properties corresponding to the shares of Lastrilla in the same partnership (17%), the resulting situation would be at most that the purchasers Dorfe and Austrias will have to recognized dominion of Lastrillas over 17 per cent of the properties awarded to them. So Lastrilla acquired no right to demand any part of the money paid by Dorfe and Austrias to the sheriff for the benefit of FELCO and Tomassi, for the reason that, as he says, his shares (acquired from Brown) could not have been and were not auctioned off to Dorfe and Austrias.

In the matter of Petition for Authority to continue use of the firm name Sycip Salazar, etc./Ozaeta Romulo, etc.

Facts: The case involves two petitions. The first was filed by the surviving partners of Atty. Alexander Sycip who died on May 5, 1975 and the other by the surviving partners of Atty. Herminio Ozaeta who died on February 14, 1976 praying that they be allowed to continue using in the name of their firms the names of their deceased partners who had passed away. The petitioner anchored their petitions on the following: 1) that under the law, a partnership is not prohibited from continuing its business under a firm name which includes the name of a deceased partner; 2) that in regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption of firm names without any restriction as to the use, in such firm name, of the name of a deceased partner; 3) that the Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner in the firm name of a law partnership because Canon 33 of the Canons of Professional Ethics adopted by the American Bar Association declares that the continued use of the name of a deceased or former partner when permissible by local custom, is not unethical but care should be taken that no imposition or deception is practiced through this use; 4) that there is no possibility of imposition or deception because the deaths of their respective deceased partners were well-publicized in all newspapers of general circulation for several days; the stationeries now being used by them carry new letterheads indicating the years when their respective deceased partners were connected with the firm and; 5) that no local custom prohibits the continued use of a deceased partner's name in a professional firm's name.

Issue: Whether or not the petitioners should be allowed to use in their firm names the names of their deceased partners

Held: The court ruled in the negative. The court cited the following reasons. First is that Article. 1815 of the Civil Code provides that Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner thus it is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the case of non-partners, should be living persons who can be subjected to liability. Second, the courts said that a partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. For one thing, the law on accountancy specifically allows the use of a trade name in connection with the practice of accountancy. A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a particular purpose. It is not a partnership formed for the purpose of carrying on trade or business or of holding property. Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law practice is improper.

Island Sales vs United Pioneers

Facts: United Pioneer General Construction Company purchased from Island Sales a motor vehicle on the installment basis and executed a promissory note payable in twelve (12) equal monthly installments with the condition that failure to pay any of the installments as they fall due would render the whole unpaid balance immediately due and demandable. Having failed to receive the installment due, Island Sales sued United Pioneer for the unpaid balance. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as general partners of the United Pioneer. Daniel A. Guizona failed to file an answer and was consequently declared in default. The complaint was dismissed insofar as the defendant Romulo B. Lumauig. Benjamin C. Daco and Noel C. Sim claims that since there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant company.

Issue: WON the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership.

Ruling: 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 a partnership contract. 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. Condonation by creditor of share in partnership debt of one partner doesnt increase pro rate liability of other partners.

LMO Munasque V. CA Facts: Elmo Muasque, in behalf of Galan and Muasque partnership as Contractor, entered into a written contract with Tropical Commercial Co., through its branch manager Ramon Pons, for re modeling of Tropicals building in Cebu. The consideration for the entire services is P25,000 to be paid: 30% upon signing of contract, and balance on 3 equal installments of P6,000 every 15 working days. First payment of check worth P7,000 was payable to Muasque, who indorsed it to Galan for purposes of depositing the amount and paying the materials already used. But since Galan allegedly misappropriated P6,183.37 of the check for personal use, Muasque refused to indorse the second check worth P6,000. Galan then informed Tropical of the misunderstanding between him and Muasque and this prompted Tropical to change the payee of the second check from Muasque to Galan and Associates (the duly registered name of Galan and Muasque partnership).Despite the misappropriation, Muasque alone was able to finish the project. The two remaining checks were properly issued to Muasque. Muasque filed a complaint for payment of sum of money plus damages against Galan, Tropical and Pons for the amount covered by the first and second checks. Cebu Southern Hardware Co and Blue Diamond Glass Palace were allowed as intervenors having legal interest claiming against Muasue and Galan for materials used.

Issue: WON the amounts payable to the Cebu Southern Hardware Co and Blue Diamond Glass Palace should be shouldered exclusively by Galan.

Ruling: While it is true that under Article 1816 of the Civil Code, "All partners, including industrial ones, shall be liable prorate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and for the account of the partnership, under its signature and by a person authorized to act for the partner-ship. ...". this provision should be construed together with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:Art. 1822.Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partner-ship or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.

Art. 1823.The partnership is bound to make good:(1)Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and(2)Where the partnership in the course of its business receives money or property of a third person and t he money or property so received is misapplied by any partner while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to transact on behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole

However. as between the partners Muasque and Galan,justice also dictates that Muasque be reimbursed by Galan for the payments made by the former representing the liability of their partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muasque as a partner.

Pioneer Insurance vs CA Facts: Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of two (2)DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. On May 22, 1965, Pioneer Insurance and Surety Corporation(Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature. Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts.

Issue: Whether or not, Maglana et al must share in the loss as general partners.

Ruling: There was no de facto partnership. Ordinarily, when co-investors agreed to do business through a corporation but failed to incorporate, a de facto partnership would have been formed, and as such, all must share in the losses and/or gains of the venture in proportion to their contribution. But in this case, it was shown that Lim did not have the intent to form a corporation with Maglana et al. This can be inferred from acts of unilaterally taking out a surety from Pioneer Insurance and not using the funds he got from Maglana et al. The record shows that Lim was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.