ART. 1816

LA COMPAÑIA MARITIMA vs. FRANCISCO MUÑOZ, ET AL.

G.R. No. L-3704 December 12, 1907

FACTSFrancis Muñoz de Bustillo, Emilio Muñoz and Rafael Naval formed

an ordinary general commercial partnership, Francis Muñoz and Sons, for the purpose of carrying a mercantile business. Muñoz de Bustillo was a capitalist partner while Muñoz and Naval were industrial partners. Plaintiff La Compania Maritima brought an action to recover the sum of P26,828.30 against the partnership and the partners in their own individual capacity. Muñoz and Naval were absolved from liability.

In their brief, it is claimed that it is not an ordinary general commercial partnership while in their article of partnership it is expressly stated that they have agreed and do form an ordinary general commercial partnership. The object of the partnership is purely mercantile and all requirements under the Code of Commerce were complied with. The articles of partnership were even recorded in the mercantile registry of Albay. There is no doubt that there is a partnership.

Appellees also claimed that Muñoz is not a partner because 1) he contributed nothing to the partnership, 2) he has no salary and 3) he is excluded from the management. The Supreme court in upholding that Muñoz is a partner stated that 1) he contributed as much as other industrial partner, 2) he receives a salary, the only difference between him and Naval is that the latter was entitled to a fixed salary while he is not and 3) that the partners can validly do the exclusion from management in accordance with the provision of Art. 125 of the Code of Commerce.

ISSUE

Is an industrial partner in an ordinary general mercantile partnership liable to third persons for debts and obligations contracted by the partnership?

RULINGYes. In an ordinary general partnership an industrial partner is

liable to third parties for debts and obligations of partnership. The construction of the law should be avoided which would enable two persons, each with a large amount of private property, to form and carry on a partnership and, upon the bankruptcy of the latter, to say to its creditors that they contributed no capital to the company but only their services, and that their private property is not, therefore, liable for its debts.

It should be noted, however, that the execution of the judgment should not issue against the private property of the partners until the property of the partnership is exhausted.

ART. 1816

TEODORO DE LOS REYES vs. VICENTE LUKBAN and ESPERIDION BORJA

G.R. No. 10695, December 15, 1916

FACTSTeodoro delos Reyes brought a suit in the Court of First Instance

of Manila against Vicente Lukban and Espiridion Borja to recover from them payment for the merchandise they bought on credit by the firm Lukban & Borja from the plaintiff's ship supply store named La Industria.

A judgment was rendered, on which the defendant firm was ordered to pay the sum of P1,086.65 with interest thereon amounting to P1,102.95. Esperidion Borja paid P522.69. Teodoro delos Reyes later on brought a suit against Lukban & Borja to recover the sum of P853, the remaining unpaid balance plus legal interest.

Defendant Lukban contended that he is not liable, he was merely an industrial partner in the firm and it was Borja who furnished the capital. As it was proven on trial that the partnership has no more remaining property, as it is already insolvent, the court rendered judgment holding Borja and Lukban jointly and severally liable to pay the sum to plaintiff delos Reyes.

ISSUEIs a creditor entitled to collect individually from the partners the

amount of the debt that the dissolved partnership owed at the time of its dissolution?

RULINGYes. The creditor has the right to recover from the partners thereof

in the manner provided by Art. 127 of the Code of Commerce (now governed by Art. 1816 of the Civil Code of the Philippines).

Art. 127 of the Code of Commerce provides:"All the members of the general co-partnership, be they or be they

not managing partners of the same, are personally and severally liable with all their properties for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by the person authorized to make use thereof".

Art. 1816

PACIFIC COMMERCIAL COMPANY vs. ABOITIZ & MARTINEZ, ET AL.,

G.R. No. L-25007, March 2, 1926

FACTSArnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose

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

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

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

ISSUEIs an industrial partner liable for partnership's debt?

RULING

Yes. The language of Art. 127 of the Code of Commerce is clear and specific and must be taken to mean exactly what it says, namely, that all the members of a general co partnership are liable with all their property for the results of the duly authorized transactions made in the name and for the account of the partnership.

Defendant's reliance to Art. 141 is misplaced. This article of the Code of Commerce relates merely to the distribution of losses among partners themselves in the settlement of the partnership affairs and has no obligations to third parties.

Art. 1816

ISLAND SALES, INC. vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL

G.R. No. L-22493, July 31, 1975

FACTSUnited Pioneers Gen. Cons. Co. is a general partnership duly

organized under the laws of the Philippines. Among the general partners are Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo R. Lumauig and Augusto Palisoc.

The partnership purchased from the plaintiff a motor vehicle on installment basis and issued a promissory note for P9,440 payable in twelve monthly installments with an acceleration clause. It failed to pay the second monthly installment which caused the plaintiff to file an action

for the unpaid balance amounting to P7,119.07, the general partners were named as co-defendants.

On motion of plaintiff, the complaint against defendant Lumauig was dismissed. The other defendants were declared in default due to their failure to appear when the case was set for hearing. The plaintiff was allowed to present evidence ex parte, consequently, the trial court rendered a decision holding the remaining defendants solidarily liable to pay the P7,119.07 plus 12% interest until fully paid

Defendants Daco and Sim moved for reconsideration of the decision claiming that since there are five general partners the joint and subsidiary liability of each partner should not exceed 1/5 of the obligations of the defendant partnership. The trial court denied the motion notwithstanding the conformity of plaintiff to limit the liability of each partner to 1/5 of the obligation.

ISSUEIs 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 obligation of the partnership?

RULINGNo. Condonation by creditor of share in partnership debt of one

partner does not increase pro rata liability of other partners.

There were five general partners when the promissory note was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, their liability shall be limited to only 1/5 of the obligation. The fact that the complaint against Lumauig was dismissed does not unmake him as a general partner in the defendant company. In moving to dismiss the complaint, the plaintiff merely condoned Lumauig's liability to him.

ART. 1816

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

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

FACTSPetitioner Elmo Muñasque in behalf of the partnership "Galan &

Muñasque", as a Contractor, entered into a written contract with respondent Tropical for remodeling of its Cebu Branch building. A total amount of P25,000 was to be paid under the contract for the entire services of the Contractor. The first payment made by Tropical was in the form of a check for P7,000 in the name of petitioner. Petitioner endorsed the check in favor of Galan to enable the latter to deposit it in the bank and pay for the materials and labor used. A misunderstanding ensued between Muñasque and Galan which came to the knowledge of Tropical, thus, the second check issued by the latter was drawn in the name of "Galan and Associates" and was encashed by Galan. Meanwhile, the

construction continued through the sole efforts of petitioner, which caused him to borrow money from a certain Mr. Espina. Two checks were subsequently given to petitioner pursuant to a court order.

Petitioner filed a complaint for payment of sum of money and damages against the respondents seeking to recover the amounts covered by the two checks and the additional expenses that petitioner incurred in the construction. Both the trial and appellate courts absolved respondents from any liability and held petitioner together with Galan jointly liable to intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit that they extended to the partnership.

ISSUEIs Petitioner Muñasque solidarily or jointly liable with Respondent

Galan to pay the credits of intervenors Blue Diamond Glass and Cebu Southern Hardware?

RULINGPetitioner is solidarily liable with respondent Galan to pay the

credits of the two intervenors. Therefore, petitioner may recover from respondent Galan any amount that he pays, in his capacity as a partner, to the above intervenors.

Art. 1816 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". 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 this case, Tropical, Blue Diamond and Cebu Hardware had every reason to believe that partnership existed between petitioner and Galan, thus, it is fair that 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.

As between petitioner Muñasque and Galan, justice so dictates that Muñasque be reimbursed by Galan for the payments made by the former as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.

Art. 1818

ILDEFONSO DE LA ROSA vs. ENRIQUE ORTEGA GO-COTAY

G.R. No. L-24243, January 15, 1926

FACTSChinamen Go-Lio and Vicente Go-Sengco formed a partnership

of purchase and sale of article of commerce in Nueva Ecija, during

Spanish Regime. Go-Lio went to China, where he later on died, leaving a widow and three children. When Vicente Go-Sengco died his son, defendant Enrique Ortega Go-Cotay took charge of the business. Plaintiff Ildefonso dela Rosa was appointed as administrator of the estate of Go-Sengco here in the Philippines. As administrator, he requested for the winding up of the partnership which was refused by defendant.

Plaintiff filed a complaint for the delivery of the one half of all the property of the partnership and his appointment as receiver of the property. The Court appointed three commissioners to make an inventory and liquidate all of the property in question. In order to prevent commissioner Cabo-Chan from assuming the office of receiver, the defendant filed a bond. The court later on adopted the report submitted by commissioner Cabo-Chan, wherein it was stated that the partnership incurred losses in the amount of P89,099.22, in view of which the plaintiff has nothing to recover, as their was no profit to divide.

ISSUEShould the partnership bear the losses incurred under the

management of defendant?

RULINGNo. Defendant Ortega Go-Cotay assumed complete responsibility

for the business by objecting to the appointment of a receiver as prayed for by plaintiff dela Rosa, and by giving bond therefore. He ceases to be a managing partner at that time in order to become a receiver and while before that date the property was liable for his acts, yet that is not the case with his subsequent acts. Without judicial authority he cannot continue the business of partnership, being personally liable for the losses.

Art. 1818

GEORGE LITTON vs. HILL & CERON, ET AL.

G.R. No. L-45624, April 25, 1939

FACTSPlaintiff Litton sold and delivered to Carlos Ceron, managing

partner of Hill & Ceron, certain number of mining claims. Ceron paid to Litton the sum of P1,150 leaving a balance of P720. Plaintiff filed a complaint when he failed to collect from the partnership and the surety. Hill testified that he had the same power to buy and sell, and that on the day of transaction, the partnership was in existence. Hill also mentioned that he advised Litton not to deliver the sales because the partnership was about to dissolve. The court ordered Ceron to personally pay the claim, which was later on affirmed by the Court of Appeals. According to the Court of Appeals for one of the partners to bind the partnership the consent of the other is necessary.

ISSUEIs the partnership liable to pay the claim of the petitioner?

RULINGThe partnership is liable for the payment of the obligation.

"There is a general presumption that each individual partner is an authorized agent for the firm and that he has authority to bind the firm in carrying on the partnership transactions." (Mills vs. Riggle, 112 Pac., 617.) "The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting apparently in its behalf and within the scope of his authority." (Le Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)

Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners, to ascertain whether or not this partner with whom the transaction is made has the consent of the other partner. The public need not make inquiries as to the agreements had between the partners. Its knowledge is enough that it is contracting with the partnership which is represented by one of the managing partners.

ART. 1818

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

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

FACTSPetitioner Elmo Muñasque in behalf of the partnership "Galan &

Muñasque", as a Contractor, entered into a written contract with respondent Tropical for remodeling of its Cebu Branch building. A total amount of P25,000 was to be paid under the contract for the entire services of the Contractor. The first payment made by Tropical was in the form of a check for P7,000 in the name of petitioner. Petitioner endorsed the check in favor of Galan to enable the latter to deposit it in the bank and pay for the materials and labor used. A misunderstanding ensued between Muñasque and Galan which came to the knowledge of Tropical, thus, the second check issued by the latter was drawn in the name of "Galan and Associates" and was encashed by Galan. Meanwhile, the construction continued through the sole efforts of petitioner, which caused him to borrow money from a certain Mr. Espina. Two checks were subsequently given to petitioner pursuant to a court order. Petitioner filed a complaint for payment of sum of money and damages against the respondents seeking to recover the amounts covered by the two checks and the additional expenses that petitioner incurred in the construction. Both the trial and appellate courts absolved respondents from any liability and held petitioner together with Galan jointly liable to intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit that they extended to the partnership.

ISSUEDo the payments made to Galan bind the partnership?

RULING Yes. The payments made to Galan bind the partnership.

The payments made to the partnership are valid where the recipient made it appear that he and another were true partners in the partnership. Likewise, when Muñasque received the first payment of Tropical in the amount of P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner claims, then he has only himself to blame for making the relationship appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the partnership were, therefore, valid payments.

Liability of partners to third persons who extended credit to the partnership. No error was committed by the appellate court in holding that the payment made by Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the two were partners when the debts were incurred, they are also both liable to third persons who extended credit to their partnership.

Art. 1819

SANTIAGO SYJUCO, INC. vs. HON. JUDGE JOSE P. CASTRO, ET. AL.GR No. 70403,July 7, 1989

FACTSRespondent Lims borrowed money in the aggregate sum of

P2,460,000 secured by mortgages from pettitioner Santiago Syjuco, Inc. The Lims failed to pay their obligations despite several demands which caused the the petitioner to file a petition for foreclosure of one of the mortgages which resulted to various suits that have dragged on for more than twenty years. On various cases filed by Lims to assail the validity of the mortgage such as; due to usurious interest and lack of notice of publication and various appeals. The Lims now petitions for the nullification of the mortgage on the ground that the property cannot be foreclosed as it had been contributed to the respondent partnership when the individual Lims unauthorizedly mortgaged the property to Syjuco.

ISSUEShould the property be exempted from foreclosure as it is owned

by the respondent partnership and not in personal capacity of the Lims?

RULINGNo. There can be no dispute that the respondent partnership was

chargeable with knowledgee of the mortgagee from the moment of its execution. The legal fiction of a separate juridical personality will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows from the undenied facts.

Equally or even more preclusive of the respondent's claim is the last paragraph of Art. 1819 of the Civil Code, which contemplates a situation duplicating the circumstances that attended the execution of the mortgage in favor of Syjuco.

Art. 1819 of the Civil Code provides:Where the title to real property is in the names of all the partners a

conveyance executed by all the partners passes all their rights in such property.

It has been held that the right to mortgage is included in the right to convey.

Art. 1171

MAURICIO AGAD vs. SEVERINO MABATO and MABATO and AGAD COMPANY.

G.R. No. L-24193, June 28, 1968

FACTSPlaintiff Mauricio Agad alleging that he and defendant Severino

Mabato are partners in a fishpond business, filed a complaint for payment of sum of money amounting to P14,000 as share of profits in the partnership from 1957 to 1963 and for the dissolution of partnership. Mabato, on the other hand, moved to dismissed the complaint for lack of cause of cause of action alleging that the contract had not been perfected because Agad had failed to give his P1,000 contribution to the partnership capital. Defendant also raised the ground of lack of jurisdiction of the court because the case involves principally the determination of rights over public lands. The court granted the dismissal of the case on the ground of failure to state cause of action which was predicated on the theory that the contract of partnership is null and void pursuant to Art. 1773 of the Civil Code, because an inventory of the fishpond referred thereto has not been attached thereto.

ISSUEWhether or not an immovable property or real rights has been

contributed to the partnership which will render it null and void for non compliance with the inventory requirement as provided under Art. 1773, in connection with Art. 1711 of the Civil Code

RULINGNone of the partners contributed either a fishpond or real right to

any fishpond. Their contributions were limited to the sum of P1,000 each. It should be noted that the partnership was established "to operate a fishpond" not "to engage in fishpond business". The validity of the partnership was upheld.

A partnership may be constituted in any form, except where

immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (Art. 1771, Civil Code)

A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties and attached to public instrument.

Art. 1820

MANUEL ORMACHEA TIN-CONGCO vs. SANTIAGO TRILLANA

GR. No. 4776, March 18, 1909.

FACTSPlaintiff Manuel Ormachea Tin-Congco and Luis Vizmanos Ong

Queco were engaged in business in Hagonoy, Malolos. Defendant Santiago Trillana purchased from them merchandise amounting to P4,000. The partnership was later on dissolved and the business was divided up between the partners and all the accounts and debts belonging to defendant were allotted to plaintiff.

Plaintiff filed a complaint against defendant praying that he be ordered to pay the amount plus interest which makes the total debt to P5,500. The indebtedness was proven by documents signed by defendant and his agents in favor of the partnership or their agent named Lawa.

Defendant contended that he had already settled his obligations by means of periodical payments in tuba or the liquor of nipa palm. Defendant used as evidence the document execute by Jose R. Lopez (Lawa), who used to be the manager of the partnership, declaring that defendant has no outstanding debt with the distillery which used to be under his management. Lawa admitted that he executed the document but because the latter was not indebted to him but to Manuel Ormachea, to whom the credits standing against Trillana was transferred.

ISSUEDoes a manager of a business, after definite dissolution of

partnership, has authority to release debtors?

RULINGNone. After the close of the business, the management of which

was entrusted to a certain person, and after expiration of two years from the date of his withdrawal, he could not legally issue a document of warrant which would fatally exempt the debtor from the payment of the debt existing in favor of the partner to whom the credit claimed to have been extinguished may belong, because he has no authority for such an act.

Art. 1821 to 1824

BENITO LIWANAG and MARIA LIWANAG REYES vs. WORKMEN'S COMPENSATION COMMISSION, ET AL.

G.R. No. L-12164, May 22, 1959

FACTS

Appellants Benito Liwanag and Maria Liwanag Reyes are partners of Liwanag Auto Supply, a commercial establishment located at Saaampaloc, Manila. They employed Roque Balderama as security guard who died in a criminal incident while on duty. The widow and minor children filed a claim for compensation before the Workmen's Compensation Commission which granted their claim and holding the appellants solidarily liable to pay the claim.

The appellants do not question the right of appellees to compensation what they are questioning is their solidary liability, they claim that the compensation is divisible because there is nothing in the Compensation Act which provides that the obligation of an employer arising from an injury or death of an employee should be solidary and that if the legislative intent in enacting the law is to impose solidary obligation, the same should have been specifically provided, in the absence of such clear provision, the responsibility of appellants should not be solidary but merely jointly.

ISSUE

Are the co-partners liable solidarily or jointly?

RULINGAlthough the Workmen's Compensation Act does not contain any

provision expressly declaring the obligation of business partners arising from compensable injury or death of an employee should be solidary, however, there are other provisions of law from which it could be inferred that the liability must be solidary. If the responsibility of the partners were to be merely joint and not solidary and one of them happens to be insolvent, the amount awarded to dependents of the deceased employee would only be partially satisfied, which is evidently contrary to the intent and purpose of the law to give full protection to the employee.

Art. 1826

ADRIANO MIRASOL vs. THE MUNICIPALITY OF TABACO, ALBAY, G.R. No. L-17877, July 10, 1922

FACTSSometime in 1916, the defendant municipality decided to have an

artesian well drilled in the central portion of the town. Plaintiff's lot is one of those included in the project, he interposed no objection, thus, the project was started. After the machinery were installed but before the drilling actually begun, the plaintiff objected the continuation of the work

and whereupon, the operations were immediately suspended. The acting president talked to the plaintiff and again the plaintiff gave his consent to its being drilled on his lot, the well was completed without any further obligation on the part of the plaintiff.

The plaintiff later on filed an action in ejectment and for damages, alleging that the defendant municipality, without his consent, caused an artesian well to be bored on a building lot owned by him thereby rendering the land unserviceable for the uses to which it was to be devoted by the plaintiff. The trial court rendered a decision absolving the defendant from the complaint.

ISSUEDoes the defendant municipality has the right over the land?

RULING

The defendant municipality has acquired no title to the land occupied by the well nor even easement therein; its interest can only be regarded as mere license. Ordinarily, a license is revokable at the pleasure of the licensor, but it has been held in most jurisdictions in the United States that where the licensee has entered upon land under a license and has with the express and implied consent of the owner expended money or labor for extensive improvements on the strength of such license, the owner is estopped from revoking the license.