dissolution and winding- up to limited partnership

8/13/2019 Dissolution and Winding- Up to Limited Partnership

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-16318 October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,vs.LO SENG, defendant-appellant.

Cohn, Fisher and DeWitt for appellant.No appearance for appellees.

STREET, J.:

For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese residents ofthe City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of running a distillery, known as "El Progreso,"in the Municipality of Paombong, in the Province of Bulacan. The land on which said distillery is located as well as the buildings andimprovements originally used in the business were, at the time to which reference is now made, the property of another Chinaman, whoresides in Hongkong, named Lo Yao, who, in September, 1911, leased the same to the firm of Lo Seng and Co. for the term of threeyears.

Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented by one Lo Shui asattorney in fact, became effective whereby the lease was extended for fifteen years. The reason why the contract was made for so long aperiod of time appears to have been that the Bureau of Internal Revenue had required sundry expensive improvements to be made in the



distillery, and it was agreed that these improvements should be effected at the expense of the lessees. In conformity with thisunderstanding many thousands of pesos were expended by Lo Seng and Co., and later by Lo Seng alone, in enlarging and improving theplant.

Among the provisions contained in said lease we note the following:

Know all men by these presents:

x x x x x x x x x

1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede by way of lease forfifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing business under the firm name ofLo Seng and Co.), after the termination of the previous contract, because of the fact that they are required, by the Bureauof Internal Revenue, to rearrange, alter and clean up the distillery.

2. That all the improvements and betterments which they may introduce, such as machinery, apparatus, tanks, pumps,boilers and buildings which the business may require, shall be, after the termination of the fifteen years of lease, for thebenefit of Mr. Lo Yao, my principal, the buildings being considered as improvements.

3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of September 11, 1911,acknowledged before the notary public D. Vicente Santos; and all modifications and repairs which may be needed shall bepaid for by Messrs. Pang Lim and Lo Seng.

We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present conducting, hereby acceptthis contract in each and all its parts, said contract to be effective upon the termination of the contract of September 11, 1911.

Neither the original contract of lease nor the agreement extending the same was inscribed in the property registry, for the reasonthat the estate which is the subject of the lease has never at any time been so inscribed.



On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position of soleowner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary public adeed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant including the land used inconnection therewith. As in case of the lease this document also was never recorded in the registry of property. Thereafter Pang Lim and

Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the present action of unlawful detainer wasthereupon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to recover possession of thepremises. From the decision of the justice of the peace the case was appealed to the Court of First Instance, where judgment wasrendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court.

The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which reads in part as follows:

ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time of making the sale,unless the contrary is stipulated, and subject to the provisions of the Mortgage Law.

In considering this provision it may be premised that a contract of lease is personally binding on all who participate in it regardlessof whether it is recorded or not, though of course the unrecorded lease creates no real charge upon the land to which it relates. TheMortgage Law was devised for the protection of third parties, or those who have not participated in the contracts which are by that lawrequired to be registered; and none of its provisions with reference to leases interpose any obstacle whatever to the giving of full effect tothe personal obligations incident to such contracts, so far as concerns the immediate parties thereto. This is rudimentary, and the lawappears to be so understood by all commentators, there being, so far as we are aware, no authority suggesting the contrary. Thus, in thecommentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent observation: "The MortgageLaw is enacted in aid of and in respect to third persons only; it does not affect the relations between the contracting parties, nor theircapacity to contract. Any question affecting the former will be determined by the dispositions of the special law [i.e., the Mortgage Law],

while any question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a la LegislacionHipotecaria, vol. I, p. 461.)

Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed therein, the lease inquestion was from the beginning, and has remained, binding upon all the parties thereto — among whom is to be numbered Pang Lim,



then a member of the firm of Lo Seng and Co. — this does not really solve the problem now before us, which is, whether the plaintiffsherein, as purchasers of the estate, are at liberty to terminate the lease, assuming that it was originally binding upon all partiesparticipating in it.

Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the Civil Code; and the positionof the defendant derives no assistance from the mere circumstance that the lease was admittedly binding as between the partiesthereto. 1awph!l.net

The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a qualification which evidently hasreference to the familiar proposition that recorded instruments are effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be respected by any purchaser of the estatewhomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from exercising theprecise power conferred in article 1571 of the Civil Code, namely, of terminating any lease which is unrecorded; nothing in that law thatcan be considered as arresting the force of article 1571 as applied to the lease now before us.

Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority for the proposition thatthe lease in question cannot be terminated by one who, like Pang Lim, has taken part in the contract. That provision is practically identicalin terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall be of no effect asagainst third persons; and the same observation will suffice to dispose of it that was made by us above in discussing the Mortgage Law,namely, that while it recognizes the fact that an unrecorded lease is binding on all persons who participate therein, this does notdetermine the question whether, admitting the lease to be so binding, it can be terminated by the plaintiffs under article 1571.

Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as article 1549 of the Civil Coded

— all of which, as we have seen, are undecisive — we are brought to consider the aspect of the case which seems to us conclusive. Thisis found in the circumstance that the plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation,namely, first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease. These two positions areessentially antagonistic and incompatible. Every competent person is by law bond to maintain in all good faith the integrity of his own



obligations; and no less certainly is he bound to respect the rights of any person whom he has placed in his own shoes as regards anycontract previously entered into by himself.

While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his

interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; andPang Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which hehas received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the circumstance that prior tothe acquisition of this property Pang Lim had been partner with Lo Seng and Benito Galvez an employee. Both therefore had been inrelations of confidence with Lo Seng and in that position had acquired knowledge of the possibilities of the property and possibly anexperience which would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On account of hisstatus as partner in the firm of Lo Seng and Co., Pang Lim knew that the original lease had been extended for fifteen years; and he knewthe extent of valuable improvements that had been made thereon. Certainly, as observed in the appellant's brief, it would be shocking to

the moral sense if the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in a business,worthless without the lease, could intervene as purchaser of the property and confiscate for his own benefit the property which he hadsold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere possibility of such eventuality.

Above all other persons in business relations, partners are required to exhibit towards each other the highest degree of good faith.In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in fact, the confidential agent of theother. It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of another, applyexclusively to his own benefit the results of the knowledge and information gained in the character of partner. Thus, it has been held thatif one partner obtains in his own name and for his own benefit the renewal of a lease on property used by the firm, to commence at a date

subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as tosuch lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name of one partner after thedissolution of the firm and pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869;Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.)



An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable is deducible from articles1461 and 1474 of the Civil Code, which declare that every person who sells anything is bound to deliver and warrant the subject-matter ofthe sale and is responsible to the vendee for the legal and lawful possession of the thing sold. The pertinence of these provisions to thecase now under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred to Lo Seng, upon

selling out his interest in the firm to the latter, was this very lease; and while it cannot be supposed that the obligation to warrantrecognized in the articles cited would nullify article 1571, if the latter article had actually conferred on the plaintiffs the right to terminatethis lease, nevertheless said articles (1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in ouropinion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo Seng.

It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in courts of common law underthe head of estoppel by deed, in accordance with which it is held that if a person, having no title to land, conveys the same to another bysome one or another of the recognized modes of conveyance at common law, any title afterwards acquired by the vendor will pass to thepurchaser; and the vendor is estopped as against such purchaser from asserting such after-acquired title. The indenture of lease, it maybe further noted, was recognized as one of the modes of conveyance at common law which created this estoppel. (8 R. C. L., 1058,1059.)

From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now in question, is not in aposition to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful detainer by him. Moreover, it is fatal to themaintenance of the action brought jointly by Pang Lim and Benito Galvez. The reason is that in the action of unlawful detainer, undersection 80 of the Code of Civil Procedure, the only question that can be adjudicated is the right to possession; and in order to maintainthe action, in the form in which it is here presented, the proof must show that occupant's possession is unlawful, i. e., that he is unlawfullywithholding possession after the determination of the right to hold possession. In the case before us quite the contrary appears; for, evenadmitting that Pang Lim and Benito Galvez have purchased the estate from Lo Yao, the original landlord, they are, as between

themselves, in the position of tenants in common or owners pro indiviso, according to the proportion of their respective contribution to thepurchase price. But it is well recognized that one tenant in common cannot maintain a possessory action against his cotenant, since oneis as much entitled to have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.)It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted either by Pang Lim or BenitoGalvez. Having lawful possession as against one cotenant, he is entitled to retain it against both. Furthermore, it is obvious that partition



proceedings could not be maintained at the instance of Benito Galvez as against Lo Seng, since partition can only be effected where thepartitioners are cotenants, that is, have an interest of an identical character as among themselves. (30 Cyc., 178-180.) The practicalresult is that both Pang Lim and Benito Galvez are bound to respect Lo Seng's lease, at least in so far as the present action isconcerned.

We have assumed in the course of the preceding discussion that the deed of sale under which the plaintiffs acquired the right of LoYao, the owner of the fee, is competent proof in behalf of the plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng thatthis document, having never been recorded in the property registry, cannot under article 389 of the Mortgage Law, be used in courtagainst him because as to said instrument he is a third party. The important question thus raised is not absolutely necessary to thedecision of this case, and we are inclined to pass it without decision, not only because the question does not seem to have beenventilated in the Court of First Instance but for the further reason that we have not had the benefit of any written brief in this case in behalfof the appellees.

The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It is so ordered, without

express adjudication as to costs.

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Petition for Authority to Continue Use of the Firm Name “Sycip, Salazar, etc.” and In the Matter of the Petition for Authority to Continue Use of the Firm Name“Ozaeta, Romulo, etc.”, petitioners [1979]

Petitioners pray that they may be allowed to continue including the names of theirdeceased partners in their firm names. In the case of Sycip, Salazar, they wish to

continue using the name of deceased partner Atty. Alexander Sycip while on the partof Ozaeta, they wish to continue using the name of Atty. Herminio Ozaeta.Bases of petitions:

1. CC Art. 1840: Using a deceased partner’s name as part of the partnership/business name shall not itself make the individual property of the



deceased partner liable for any debts contracted by such person or partnership.2. Other professions allow such (accountancy & engineering). No fundamentalpolicy that’s offended by doing so at least where firm name has acquired the characteristics of a “trade name.”

3. Canons of Professional Ethics (adopted by the American Bar Association) are nottransgressed, Canon 33 of w/c provides that such be allowed “when permissible by local custom, is not unethical, but care should be taken that noimposition/deception is practiced through this use.” 4. No possibility of imposition/deception since the deaths of their deceasedpartners were well-publicized in all newspapers of general circulation for severaldays. Their stationeries use new letterheads indicating the years when thedeceased partners were connected w/the firm. Petitioners will notify leadingnational & international law directories re: deaths of the deceased partners.5. Such is not prohibited by local customs. No custom/usage recognizes that thename of a law firm identifies the individual members of the firm.6. Such is allowed by US courts & accepted in most countries of the world.

Issue: WON petitioners should be allowed to continue using the names of theirdeceased partners in their firm names. – NO.

Ratio:1. Deen Case: Cebu-based law firm was advised to desist from including in their firmdesignation the name of a partner who has long been dead.2. Register of Deeds of Manila vs. China Banking Corp.: involved the law f irm of Perkins& Ponce Enrile w/c continued using the name of Atty. Perkins who was alreadydeceased. Law firm raised arguments similar to those raised by petitioners in thiscase. Court upheld ruling in Deen case explaining that in view of the personal &confidential nature of the relations between atty & client & high standards demanded



in the canons of professional ethics, practice of using deceased partner’s name in the firm name cannot be allowed since even in a remote degree it could give rise to thepossibility of deception.3. Allowing such would go against CC Art. 1815 w/c provides that “Those who, not

being members of the partnership, include their names in the firm name, shall besubject to the liability of a partner.” Provision simply means that names in a f irm name of a partnership must either be those of living partners or in the case of nonpartners,should be living persons who can be subjected to liability.4. Canon 34, Canons of Professional Ethics prohibits an agreement wherein the widow &heirs of a deceased lawyer will receive a percentage, gross/net, of fees received fromfuture business of deceased lawyer’s former clients there being no lawyer & service involved. In the same manner, the widow/heirs of a deceased lawyer can’t be held liable for the transactions entered into by deceased lawyer’s former partners. 5. It can create undue advantages & disadvantages. Unfair to new lawyers who arestarting from scratch while advantageous for a lawyer who joins an old firm & rideson firm’s reputation established by deceased partners. 6. CC Art. 1840 involves exemption from liability contemplating a hold-over situation incases of dissolved partnerships or when one partner dies and the other partnerscontinue the business. It deals more w/commercial partnerships rather than aprofessional one. Commercial partnerships allow succeeding partners to cont inueusing the name of the deceased partner in the firm name since such name is apartnership asset inseparable from the good will of the firm. Whereas in aprofessional partnership, the reputation of w/c depends on the individual skill of the

members & it has no good will to be distributed as a firm asset on its dissolution.7. Partnership for the practice of law can’t be likened to partnerships formed by other professionals or for business. Law on accountancy specifically allows use of a tradename in connection w/the practice of accountancy. Note that a partnership for lawpractice is not a legal entity nor a partnership formed to carry on trade/business/hold



have been partners in their firms indicating the years during w/c they served as such.Fernando, Certification: Didn’t participate because he’s related by affinity to one of the senior partners of Sycip, Salzar. He wishes to invite attention to last part of the dispositiveportion. He believes it’s a happy compromise.

Aquino, dissenting: He believes that petitions should be granted on the condition thatthey indicate in their letterheads that the deceased partners are dead or the period whenthey served as partners. It’s obvious that they want to do this to retain the clients whohad customarily sought the legal services of deceased partners & to benefit from thegoodwill attached to these names. He believes that these are legitimate motivations.

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In the matter of the Petition forAuthority To Continue use of the firm

name “Ozaeta, Romulo, etc. F: 2 separate petitions were filed by thesurviving partners of Atty. Alexander Sycipand the surviving partners of HerminianoOzaeta, praying that they be allowed tocontinue using, in the name of their firms,the names of partners who passed away. Arguments:1. Under the law, a partnership is not

prohibited from continuing its businessunder a firm name which includes thename of the deceased partner.( Art.1840 of the Civil Code )2. In regulating other professions, such



as accountancy and engineering, thelegislature has authorized theadoption of firm names without anyrestriction as to the use, in such firm

name, of the deceased partner.3. The Canons of Professional Ethics arenot transgressed because as adoptedby American Bar Association: “the continued use of the name of adeceased or former partner whenpermissible by local custom is notunethical, but care should be takenthat no imposition or deception ispracticed through this use.” 4. The deaths of the partners were wellpublicized.5. No local custom prohibits thecontinued use of the partner’s name in a professional firm’s name. 6. The continued use of the deceasedpartner’s name in the firm name of law partnerships has been consistentlyallowed by US Courts.I: W/N the names of the deceased

partners should be allowed to continue inuse in the firm name.H:· “Art. 1815. Every partnership shall operate under a firm name, which



may or may not include the nameof one or more of the partners.” “Those who, not being members of the partnership, include their

names in the firm name, shall besubject to the liability of a partner.” (partners should be living personswho can be subjected to liability)· Art. 1840 treats more of acommercial partnership with agood will to protect rather than aprofessional partnership, with nosealable good will but whosereputation depends on the personalqualifications of its individualmembers.· The partnership for the practice oflaw cannot be likened topartnerships formed by otherprofessionals or for business. Thepractice of law is also a specialprivilege, highly personal andpartaking of the nature of a public

trust.· Firm names, under local customs,identify the more active and moresenior members or partners of thelaw firm.



of non-partners, should be living persons who can be subjected toliability. In fact, Article 1825 of the Civil Code prohibits a thirdperson from including his name in the firm name under pain ofassuming the liability of a partner. The heirs of a deceased partner in

a law firm cannot be held liable as the old members to the creditorsof a firm particularly where they are non-lawyers. Thus, Canon 34of the Canons of Professional Ethics "prohibits an agreement for thepayment to the widow and heirs of a deceased lawyer of apercentage, either gross or net, of the fees received from the futurebusiness of the deceased lawyer's clients, both because the recipientsof such division are not lawyers and because such payments will notrepresent service or responsibility on the part of the recipient. " Accordingly, neither the widow nor the heirs can be held liable fortransactions entered into after the death of their lawyer-predecessor.There being no benefits accruing, there ran be no correspondingliability.Prescinding the law, there could be practical objections to allowingthe use by law firms of the names of deceased partners. The publicrelations value of the use of an old firm name can tend to createundue advantages and disadvantages in the practice of theprofession. An able lawyer without connections will have to make aname for himself starting from scratch. Another able lawyer, whocan join an old firm, can initially ride on that old firm's reputation

established by deceased partners.

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G.R. No. L-11840 December 10, 1963ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,vs.WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

Facts: Tan Sin An and Goquiolay entered into a generalcommercial partnership under the partnership name “Tan Sin An and Antonio Goquiolay” for the purpose of dealing in real estate. The agreement lodged upon Tan Sin An the solemanagement of the partnership affairs. The lifetime of thepartnership was fixed at ten years and the Articles of Copartnershipstipulated that in the event of death of any of thepartners before the expiration of the term, the partnership willnot be dissolved but will be continued by the heirs or assigns ofthe deceased partner.The plaintiff partnership purchased 3 parcels of land which wasmortgaged to “La Urbana”. Another 46 parcels of land were purchased by Tan Sin An in his individual capacity which heassumed payment of a mortgage debt for P35K. Thedownpayment and the amortization were advanced by Yutivoand Co.Tan Sin An died leaving his widow, Kong Chai Pin. The widowsubsequently became the administratrix of the estate.Yutivo Sons and Sing Yee filed their claim in the intestate

proceedings of Tan Sin An for advances, interest and taxespaid in amortizing and discharging their obligations to “La Urbana”. Kong Chai Pin filed a petition with the probate court forauthority to sell all the 49 parcels of land. She then sold it to



Sycip and Lee in consideration of P37K and of the vendeesassuming payment of the claims filed by Yutivo Sons and SingYee.When Goquiolay learned about the sale to Sycip and Lee, he

filed apetition in the intestate proceedings to set aside the orderof the probate court approving the sale in so far as his interestover the parcels of land sold was concerned.Probate court annulled the sale executed by theadministratrix w/respect to the 60% interest of Goquiolayover the properties. Administratrix appealed. Decision wasset aside, hence this petition.Issues: 1)Did the lower court err in holding that the widowsucceeded her husband Tan Sin An in the solemanagement of the partnership upon Tan’s death? Yes 2)WON the consent of the other partners was necessaryto perfectthe sale of the partnership properties to Sycipand Lee? No.Held: 1) Yes. While in the Articles of Co-Partnership andthe power of attorney executed by Goquiolay conferredupon Tan the exclusive management of the business, suchpower premised as it is upon trust and confidence, was amere personal right that terminated upon Tan’s demise. The provision in the articles stating that “in the

event of death of any one of the partners within the 10year term of the partnership, the deceased partner shallbe represented by his heirs” could not have referred tothe managerial right given to Tan. The heirs of thedeceased, by never repudiating or refusing to be bound



under the said provision in the articles became individualpartners with Goquiolay upon Tan’s demise. This is sanctioned under Article 222 under the Code ofCommerce.

2)No. Strangers dealing with a partnership have the rightto assume,in the absence of restrictive clauses in the copartnershipagreement that every general partner haspower to bind the partnership specially those acting withostensible authority. Also, inspite of the provision of Art129 of the Code of Commerce to the effect that “if the management of the general partnership has not beenlimited by special agreement to any of the members, allshall have the power to take part in the direction andmanagement of the common business, and the memberspresent shall come to an agreement for all contracts orobligations which may concern the association,” such obligation is one imposed by law on the partners amongthemselves, that does not necessarily affect the validity ofthe acts of a partner while acting within the scope of theordinary course of business of the partnership as regardsthird persons without notice. The latter may rightfullyassume that th econtracting partner was duly authorized tocontract for and in behalf of the firm and that he would not

ordinarily act to the prejudice of his co-partners.Also, therecords fail to disclose that Goquiolay made anyopposition to the sale of the partnership realty to Sycipand Lee. On the contrary, it appears that he onlyinterposed his objections after the deed of conveyance was executed and approved by the probate court, and



consequently, his opposition came too late to be effetive.

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Benjamin Yu v. National Labor Relations Commission & Jade Mountain ProductsCo. Ltd., Willy Co, Rhodora Bendal, LeaBendal, Chiu Shian Jeng and Chen Ho-Fu G.R. No. 97212 June 30, 1993Feliciano, J. Facts:

Yu – ex-Assistant General Manager of the marble quarrying and export business operatedby a registered partnership called JadeMountain Products Co. Ltd.

partnership was originally organized with Bendals as general partners and Chin Shian Jeng,Chen Ho-Fu and Yu Chang as limitedpartners; partnership business consisted of exploitinga marble deposit in Bulacan

Yu, as Assistant General Manager, had a monthly salary of 4000. Yu, however, actually re ce iv ed on ly ha l f of hi ss t i p u la ted sa l a r y , s i nc e he had acc ept ed the p rom ise o f the par tners that the balance wou ld be pa id whenthe firm shall have secured additionaloperating funds from abroad. Yu a ctually managed the operations and

fi nanc es of th ebusiness; he had overall supervision of the workers at the marble quarry in Bulacan andtook charge of the preparationof papers relating to the exportation of the firm’s products.

general partners Bendals sold and transferred their interests in the partnership to Co andEmmanuel Zapanta



partn ership was co nstitu ted s olely by Co a nd Za panta; it con tinued to us e the old fi rm name of Jade Mountain

Yu – dismissed by the new partnersIssues:

1 . WON th e pa r tn ers hi p wh ich ha d h i r ed Yu as Ass t . Gen . Ma na ge r h ad be enextinguished and replaced by anew partnership composed of Co and Zapanta; 2. if indeed anew partnership had come into existence, WON Yu could nonethelessassert his rights underhis employment contract with the old partnership as against the new partnershipHeld: 1. Yes. Changes in the membership of the partnership resulted in the dissolution of the old partnership which had hired Yu and theemergence of a new partnership composedof Co and Zapanta.

Legal bases:

A r t . 1 8 2 8 . T h e d i s s o l u t i o n o f a p a r t n e r s h i p i s t h e c h a n g e i n t h e r e l a t i o n o f t h ep a r t n e r s c a u s e d b y a n y p a r t n e r c e a s i n g t o b e a s s o c i a t e d i n t h e c a r r y i n g o n a s d i s t i n g u i s h e dfrom the winding up of the business.

Art. 1830. Dissolution is caused:(1) without violation of the agreement between the partners;(b) by the express will of any partner, whomust act in good faith, when no definite termor particular undertaking is specified;(2) in contravention of the agreement betweenthe partners, where the circumstances donot permit a dissolution under any other provision of this article, by the express will ofanypartner at any time;

No w ind i ng u p o f a f fa i r s i n t h i s cas e as con tem pla t ed i n Ar t . 1 829: on d i sso lu t i on t hepartnership is not

terminated, but continues until the winding up of partnership affairs iscompleted

t h e n e w p a r t n e r s h i p s i m p l y t o o k o v e r t h e b u s i n e s s e n t e r p r i s e o w n e d b y t h e o l d p a rt ne rs hi p, a nd co nt in ue d us in g th e ol d na me of Ja de Mo un ta in Pr od uc ts Co mp an yLimited, without winding up the business



affairs of the old partnership, paying off its debts,liquidating and distributing its net assets, and then re-assembling the said assets ormostof them and opening a new business enterprise

2. Yes. the new partnership is liable for the debts of the old partnership

Legal basis: Art. 1840 (see codal)

Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to hisemployment with the previous partnership,against the new partnership

But Yu is not entitled to reinstatement. Reason: new partnership was entitled to appointand hir e a new gen. or asst. gen. managerto run the af fa ir s of the busin es s en te rpris e take over. An asst. gen. manager belongs to the most senior ranks of management

and anew partnership is entitled to appoint a top manager of its own choice and confidence. Thenon-retention of Yu did not constituteunlawful termination.

The new partnership had itsown new General Manager, Co, the principal new owner himself. Yu’s old positionth us became superfluous or redundant.

Yu is entitled to separation pay at the rate of one month’s pay for each year of service thathe had rendered to the old partnership, afraction of at least 6 months being considered asa whole year

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Dissolution of Partnership; ReceivershipSY vs. COURT OF APPEALSG.R. No. 94285, August 31, 1999Facts: Sy Yong Hu & Sons is a partnership. In September, 1977, Keng Sian, Sy Yong



Hu’s common-law wife sued the partnership for the reconveyance of ½ of its properties andthe fruits thereof.During the pendency of the suit, one of the partners. Marciano Sy, filed a petitionagainst his partners with the SEC asking that he be appointed managing partner to replace

Jose Sy who earlier died. SC hearing officer Sison dismissed the petition and declared thepartnership dissolved and named one of the remaining partners as the managing partner.The SEC en banc affirmed Sison’s decision, ordering the distribution and partition of partnership assets.However, before the same can be implemented, Keng Sian’s children with Sy Yong Hu were allowed by the SEC to intervene. The intervenors contend that their civil suitagainst the partnership is still pending and that no petition for distribution should becommenced.SEC Hearing Officer Tongco who replaced Sison placed the partnership underreceivership thereby preventing the partition and distribution of partnership assets. This wasaffirmed by the SEC en banc.The remaining partners of the firm appealed.The CA ultimately affirmed the Tongco ruling. Issue: Is the preservation of the partnership assets through receivership inconsistent withthe earlier decision declaring the partnership’s dissolution? Held: The Sison decision declaring the partnership’s dissolution did not pose any obstacle to the hearing officer to issue orders not inconsistent therewith. From the time thedissolution is ordered until the actual termination of the partnership the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the Tongco order cannot besaid to have varied the final order of dissolution. Neither did it suspend the dissolution of the

partnership. It only suspended the partition and distribution of the partnership assets.Further, the dissolution of a partnership is the change in relation of the parties caused byany partner ceasing to be associated in the carrying on, as might be distinguished from thewinding up, of its business. Upon its dissolution, the partnership continues and its legalpersonality 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 wasimmediately terminated and that the distribution of the assets to its partners shouldperfunctorily follow. On the contrary, the dissolution simply effected a change in the

relationship among the partners. The partnership, although dissolved, continues to existuntil its termination, at which time the winding up of its affairs should have been completedand the net partnership assets are partitioned and distributed to the partners.

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G.R. No. L-10040 January 31, 1916EUGENIA LICHAUCO, ET AL., plaintiffs-appellants,vs.FAUSTINO LICHAUCO, defendant-appellant.Facts: This action was brought by two of the partners of anenterprise of which the defendant was manager (gestor),to secure an accounting of its affairs, and the payment tothe plaintiffs of their respective shares of capital andprofits. A notarial instrument was executed in Manila, by the termsof which a partnership was duly organized for the purposeof carrying on a rice-cleaning business at Dagupan, andfor the purchase and sale of “palay” and rice. The articles of association, which were not recorded in the mercantile

registry, contain, among others, the following provisions:2. The association will be named F. Lichauco Hermanosand will be domiciled in the center of its operations, that is,in the pueblo of Dagupan, Province of Pangasinan.3. The association cannot be dissolved except by the



consent and agreement of two-thirds of its partners and inthe event of the death of any of the latter, the heirs of thedeceased, if they be minors or otherwise incapacitated,shall be represented in the association by their legal

representatives or if two-thirds of the surviving partnersagree thereto, the participation of the deceased partnermay be liquidated.The business thus organized was carried on until when itwas found to be unprofitable and discontinued by thedefendant manager (gestor); and thereafter, the machineryof the rice mil was dismantled by his orders, and offeredfor sale. No accounting ever was made to his associatesby the defendant until this action was instituted , althoughit appears that, Mariano Limjap, one of the participants inthe venture, demanded a rendition of accounts; and thatEugenia Lichauco, one of the plaintiffs in this action, maderepeated unsuccessful demands for the return of her Whether or not the change of partners in a partnership shallaffect its obligations over the third person. Or, simply stated,whether or not the new partners shall be liable to the obligationincurred by the old partners with regard to third persons.Held: NO.The applicable law in this connection — of which the NLRCseemed quite unaware — is found in the Civil Code provisions

relating to partnerships. Article 1828 of the Civil Code providesas follows: Art. 1828. The dissolution of a partnership is the change in therelation of the partners caused by any partner ceasing to beassociated in the carrying on as distinguished from the winding



up of the business.In the case at bar, just about all of the partners had sold theirpartnership interests (amounting to 82% of the total partnershipinterest) to Mr. Willy Co and Emmanuel Zapanta. The recorddoes not show what happened to the remaining 18% of theoriginal partnership interest. The acquisition of 82% of thepartnership interest by new partners, coupled with theretirement or withdrawal of the partners who had originallyowned such 82% interest, was enough to constitute a newpartnership.The occurrence of events which precipitate the legalconsequence of dissolution of a partnership do not, however,automatically result in the termination of the legal personality ofthe old partnership. Article 1829 of the Civil Code states that:[o]n dissolution the partnership is not terminated, but continuesuntil the winding up of partnership affairs is completed.In the ordinary course of events, the legal personality of theexpiring partnership persists for the limited purpose of windingup and closing of the affairs of the partnership. In the case atbar, it is important to underscore the fact that the business ofthe old partnership was simply continued by the new partners,without the old partnership undergoing the procedures relatingto dissolution and winding up of its business affairs. In other

words, the new partnership simply took over the businessenterprise owned by the preceeding partnership, and continuedusing the old name of Jade Mountain Products CompanyLimited, without winding up the business affairs of the oldpartnership, paying off its debts, liquidating and distributing its



net assets, and then re-assembling the said assets or most ofthem and opening a new business enterprise. There were, nodoubt, powerful tax considerations which underlay such aninformal approach to business on the part of the retiring and theincoming partners. It is not, however, necessary to inquire intosuch matters.What is important for present purposes is that, under the abovedescribed situation, not only the retiring partners (RhodoraBendal, et al.) but also the new partnership itself whichcontinued the business of the old, dissolved, one, are liable forthe debts of the preceding partnership. In Singson, et al. v.Isabela Saw Mill, et al, 8 the Court held that under factsvery similar to those in the case at bar, a withdrawingpartner remains liable to a third party creditor of the old

partnership. 9 The liability of the new partnership, uponthe other hand, in the set of circumstances obtaining in thecase at bar, is established in Article 1840 of the Civil Code.HENCEFORTH: [the] petitioner Benjamin Yu is entitled tointerest at the legal rate of six percent (6%) per annum onthe amount of unpaid wages, and of his separation pay,computed from the date of promulgation of the award ofthe Labor Arbiter.

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Singson vs. Isabela Sawmill

GRN L- 27343 February 28, 1979



Not an action for dissolution of a partnership and winding up its affairs but an actionfor the recovery of a sum of money with GregorioMagdusa (managing partner) asthe principal defendant. That the liability is personal to Gregorio Magdusa thus thejudgment thereforeshould be against his sole interest, not against the partnership.Issue: WON appellees, as retiring partners, are entitled to the return oftheir capital share?Held: No. CA decision is reversed and the action ordered dismissed, without prejudice to a properproceeding for thedissolution and liquidation of the common enterprise.Ratio:•

CA decision cannot be sustained because a partner’s share cannot be returned without first dissolving and liquidating the partnership.o

For the return is dependent on the discharge of the creditors, whose claims enjoypreference over those of the partnership.

Meaning: satisfy first the obligation with (outside) creditors beforemembers of the partnership. •

Unless a proper accounting and liquidation of the partnership affairs is first had, the capitalshares of the appellees, as retiring partnerscannot be repaid.o

For the firm’s outside creditors have preference over the assets of theenterprise. •

Appellant (petitioner) cannot be held liable in his personal capacity for the payment of thepartners’ shares for he does not hold themexcept as manager of, or trustee for, thepartnership.o



The partnership must refund their shares to the retiring partners.------------------------------

Bonnevie vs. HernandezFacts:

Plaintiffs with other associates formed a syndicate or secret partnership for the purpose of acquiringthe plants, franchises and otherproperties of the Manila Electric Co.— hereinafter called theMeralco.

No formal articles were drawn for it was the purpose of the members to incorporate once the dealhad been consummated.

Negotiation for the purchase was commenced, but as it made no headway, defendant was taken inas a member of the partnership so that he could push the dealthrough, and to that end he wasgiven the necessary power of attorney.

Using partnership funds, defendant was able to buy the Meralco properties.



Defendant's answer denies that he has made any profit out of the assignment in question andalleges that in any event plaintiffs, aftertheir withdrawal from the partnership, ceased to have anyfurther interest in the subsequent transactions of the remaining members.Issues:1.

WON the partnership had realized profit out of the Meralco properties made by the defendant tothe corporation. – No.2.

If there was indeed a profit, WON the plaintiffs are entitled for their share out of such profit. – No.Held:

1.

No. the profit alleged to have been realized from the assignment of the Meralco properties to thenew corporation, the Bicol Electric Company, is more apparent than real. It istrue that the value setfor those properties in the deed of assignment was P365,000 when the acquisition price was onlyP122,000. But one should not jump to theconclusion that a profit, consisting of the differencebetween the two sums was really made out of the transaction, for the assignment was not madeforcash but in payment for subscriptions to shares of stock in the assignee, and while those shares hada total face value of P225,000,this is not necessarily their real worth.

2.

No. Assuming that the assignment actually brought profit to the partnership, it is hard to see howdefendant could be made to answer for plaintiffs' alleged sharethereof.In the case at bar, the defendant did not receive the consideration for the assignment for, as alreadystated, the assignment was made in payment for



affirmed by the Court of Appeals. Primelink is now assailing the order; that turning over improvements to the Lazatins without

reimbursement is unjust; that the Lazatins did not ask the properties to be placed under their possession but they merely asked for

rescission.

ISSUE: Whether or not the improvements made by Primelink should also be turned over under the possession of the Lazatins.

HELD: Yes. In the first place, even though the Lazatins did specifically pray for possession the same (placing of improvements under

their possession) is incidental in the relief they prayed for. They are therefore entitled possession over the parcel of land plus the

improvements made thereon made by Primelink.

In this jurisdiction, joint ventures are governed by the laws of partnership. Under the laws of partnership, when a partnership is dissolved,

as in this case when the trial court rescinded the joint venture agreement, the innocent party has the right to wind up the partnership

affairs.

With the rescission of the JVA on account of petitioners’ fraudulent acts, all authority of any partner to act for the partnership is terminated

except so far as may be necessary to wind up the partnership affairs or to complete transactions begun but not yet finished. Ondissolution, the partnership is not terminated but continues until the winding up of partnership affairs iscompleted. Winding up means

the administration of the assets of the partnership for the purpose of terminating the business and discharging the obligations of the

partnership.

It must be stressed, too, that although the Lazatins acquired possession of the lands and the improvements thereon, the said lands and

improvements remained partnership property, subject to the rights and obligations of the parties, inter se, of the creditors and of third

parties and subject to the outcome of the settlement of the accounts between the parties, absent any agreement of the parties in their

JVA to the contrary (here no agreement in the JVA as to winding up). Until the partnership accounts are determined, it cannot be

ascertained how much any of the parties is entitled to, if at all.

----------------------------------------Primelink v Lopez (G.R. No. 167379 June 27, 2006)



FACTS: Primelink Properties and Development Corporation (Primelink for brevity) isa domestic corporation engaged in real estate development.Rafaelito W. Lopez isits President and Chief Executive Officer.3Ma. Clara T. Lazatin-Magat and her brothers, are co-ownersof tw o (2 ) ad jo in ingparcels of landlocated in Tagaytay City and covered by Transfer Certificate of Title(TCT) No. T-108484 of theRegister of Deeds of Tagaytay City.On Ma rc h 10 , 19 94 , th e La za ti ns an dP r i m e l i n k , r e p r e s e n t e d b y L o p e z , i n h i s c a p a c i t y a s P r e s i d e n t , e n t e r e d i n t o a J o i n t V e n t u r e A g r e e m e nt5 (J VA ) fo r th edevelopment of the aforementioned property into a residential subdivis ion tobekno wn as "Tagay tay Garden Villas. " Un der the JVA, the Lazatin sibling s oblige dthemselves to contribute the twoparcels of land as their share in the jointventure.F o r i t s p a r t , P r i m e l i n k u n d e r t o o k t o c o n t r i b u t e m o n e y , l a b o r , p e r s o n n e l , m a ch i n e r i e s , e q u i p m e n t , c o n t r a c t o r ’ s po ol , ma rk et in g ac t iv it ie s, ma na ge ri al expertise and other needed resources todevelop the property and construct thereinthe units for sale to the public.In a Le tt er1 3 da ted Ap ril 10 , 1997, the Laza ti ns ,through counsel, demandedt ha tP r i m e l i nk c om p l y w i t h i t s ob l i ga t i ons unde r t he J V A , o t he r w i s e t he app r op r i a t eac ti on woul d be f il ed

against it to protect their rights and interests. This impelledthe officers of Primelink to meet with the Lazatins and enabled thelatter to reviewi ts bu s i ne ss re co rds /p ap ers . In an oth er Le t t er1 4 da te d Oct ob er 22, 19 97 , th eLazatins informedPrimelink that they had decided to rescind the JVA effective uponits receipt of the said letter. The Lazatins demanded that Primelinkcease and desistfrom further developing the property. Tria l cou rt rend ered a dec isio n resc ind ing the Joi nt Ven tur e Ag re em en t ex ec ut ed be tw ee n the pl ai nt if fs an d the def end an ts ; im medi at ely rest or in g to the pla in ti ff sp os se ss ion ofthe sub jec t par cel s of land; orderin g the def end ant s to render an accounting of all income generated as well as expensesincurred and disbursementmade in connection with the project. CA affirmed tr ial court’s decision rul ingthat, underPhilippine law, a joint venture is a form of partnership and is to be governedby the laws of partnership.ISSUE:

WON trial court erred in rescinding the JVA between the partiesHELD: SC affirmed appellate court’s decision.Ratio Decidendi: As a general rule, the relation of the parties in joint venturesisgove rn ed by th ei r ag re eme nt . Wh en th e ag re eme nt is s i len t on an y pa r t i cu lar ISSUE, the general principles



of partnership may be resorted to. The legal conceptof a join t v ent ure is of comm on law orig in. It has no prec ise legalde fi ni ti on , bu t it has been generally understood to mean an organization formed for some temporaryPage7 of22

purpose. It is, in fact, hardly distinguishable from the partnership, since elementsare si mi la r – community of interest in thebus iness, shar ing of prof i ts and losses,and a mutual r ight of cont ro l . Thema in d i st i n ct io n c it e d b y m o st o p i ni o n s i ncommon law jurisdictions is that the partnership contemplates a generalbusinesswith some degree of continuity, while the joint venture is formed for the executionof a single transaction, and is thus of atempo rary na tu re . th is observat ion is no t entirely accurate in this jurisdiction, since under the Civil Code, a partnership maybeparticular or universal, and a particular partnership may have for i ts object aspecific und ertaking. It would seemtherefore tha t , under Ph il ippine law, a j oi ntven tu re i s a f o rm o f par t ners h ip and sho u ld thu s b e g over ned

by th e la ws of partnership. The Supreme Court has, ho wever, recognized a distinction between these two businessforms, and has HELD that although a corporation cannot enterinto a partnership contract, it may, however, engage in a joint venture withothers.W h e n t h e R T C r e s c i n d e d t h e J V A o n c o m p l a i n t o f r e s p o n d e n t s b a s e d o n t h e evidence onrecord that petitioners willfully and persistently committed a breachof t h e J V A , t h e c o u r t t h e r e b y d i s s o l v e d / c a n c e l l e d t h e p a r t n e r s h i p . 5 4 W i t h t h e rescission of theJVA on account of petitioners’ fraudulent acts, all authority of anypartner to act for the partnership is terminated except so far as may benecessaryto wind up the partnership affairs or to complete transactions begun but not yetfinished.55 On dissolution, thepartnership is not terminated but continues untilthew i n d i n g u p o f p a r t n e r s h i p a f f a i r s i s c o m p l e t e d . 5 6 W i n d i n g u p m e a n s t h e administr ation of the assets of the partnership for the purpose of terminating thebusiness and discharging the obligations ofthe partnership.

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Villareal vs Ramirez



A share in a partnership can be returned only after the completion of the latter’s dissolution, liquidation and winding up of the business.

Facts:

Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for the operation of a restaurantand catering business under the name “Aquarius Food House and Catering Services.” Villareal was appointed general manager and

Carmelito Jose, operations manager. Respondent Donaldo Ramirez joined as a partner on September 5, 1984 with a capital contribution

of P250,000 which was paid by his parents, Respondents Cesar and Carmelita Ramirez. Jesus Jose withdrew from the partnership and

his capital contribution of P250,000 was refunded to him in cash by agreement of the partners.

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased

rental. The restaurant furniture and equipment were deposited in the respondents’ house for storage. On March 1, 1987, respondent

spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and

that they were accepting the latter’s offer to return their capital contribution. Respondent wrote another letter informing petitioners of the

deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-

third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded.

Respondents filed before the RTC for the collection of a sum of money from petitioners. Petitioners contended that respondents had

expressed a desire to withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831; that respondents

had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a



return of their equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible

business losses.

In their Reply, respondents alleged that had not received any regular report or accounting from the latter, who had solely managed thebusiness. Respondents also alleged that they expected the equipment and the furniture stored in their house to be removed by

petitioners as soon as the latter found a better location for the restaurant. RTC 17 ruled that the parties had voluntarily entered into a

partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant.

Hence, the trial court rendered a judgment in favor of respondents and ordering the petitioners to pay jointly and severally.

Issue: WON petitioners are liable to respondents for the latter’s share in the partnership

Held:

The Petition has merit. Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on

March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue.

Respondents consequently demanded from petitioners the return of their one-third equity in the partnership. We hold that respondents

have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not

personally hold its equity or assets. “The partnership has a juridical personality separate and distinct from that of each of the

partners.” Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the

retiring partners.



The amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which

consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be

compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the

partners’ shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents’ one-third share in the partnership cannot be

determined until all the partnership assets will have been liquidated.

-------------------------------------------VILLAREAL V. RAMIREZGR 144214, JULY 14, 2003

1. Since the capital was contributed to thepartnership, not to partners themselves asindividuals, it is the partnership that mustrefund the equity of the retiring partners.

2. Before the partners can be paid their shares,the creditors of the partnership must first becompensated.

dissolution and winding- up to limited partnership

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