G.R. No.

110782 September 25, 1998 continue in the tannery business and had no use
for a share of the stocks
IRMA IDOS, petitioner,
vs. Trial court: accused guilty.
COURT OF APPEALS and PEOPLE OF
THE PHILIPPINES, respondents. CA: affirmed

The petitioner Irma L. Idos, is a businesswoman ISSUE: Whether or not Court of Appeals has
engaged in leather tanning. She was accused for merged into one the legal concepts of dissolution,
violating the B.P. 22 by her supplier and business liquidation and termination of a partnership and
partner, Eddie Alarilla. on the basis of such misconception of the law,
disregarded the fact of absence of consideration of
The complainant Eddie Alarilla supplied chemicals the check and convicted the accused.
and rawhide to the accused Irma L. Idos for
manufacturing leather. RULING: The elements of the offense penalized
under B.P. 22, are as follows: "(1) the making,
In 1985, he joined the accused-appellant's business drawing and issuance of any check to apply to
and formed with her a partnership under the style account or for value; (2) the knowledge of the
"Tagumpay Manufacturing," with offices in maker, drawer or issuer that at the time of issue he
Bulacan and Cebu City. does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full
However, the partnership was short lived. In upon its presentment; and (3) subsequent
January,1986 the parties agreed to terminate their dishonor of the check by the drawee bank for
partnership. Upon liquidation of the business the insufficiency of funds or credit or dishonor for the
partnership had as of May 1986 receivables and same reason had not the drawer, without any valid
stocks worth P1,800,000.00. The complainant's cause, ordered the bank to stop payment.
share of the assets was P900,000.00 to pay for
which the accused issued the postdated checks, In the present case, evidence on record would
show that the subject check was to be funded
The complainant was able to encash the first, from receivables to be collected and goods to
second, and fourth checks, but the third check be sold by the partnership, and only when
was dishonored on for insufficiency of funds. such collection and sale were realized.

The complainant demanded payment but the Thus, there is sufficient basis for the assertion that
accused failed to pay. The accused claimed that the petitioner issued the subject check (to
the check had been given upon demand of evidence only complainant's share or interest in
complainant only as "assurance" of his share in the partnership, or at best, to show her
the assets of the partnership and that it was not commitment that when receivables are collected
supposed to be deposited until the stocks had and goods are sold, she would give to private
been sold. complainant the net amount due him representing
his interest in the partnership. It did not involve a
Complainant then filed an information for debt of or any account due and payable by the
violation of BP Blg. 22 against accused-appellant. petitioner.

Complainant denied that the checks issued to him Two facts stand out. Firstly, three of four checks
by accused-appellant were subject to the were properly encashed by complainant; only one
disposition of the stocks and the collection of (the third) was not. But eventually even this one
receivables of the business. was redeemed by petitioner. Secondly, even
private complainant admitted that there was no
Acused claimed that the complainant himself consideration whatsoever for the issuance of the
asked for the checks because he did not want to check, whose funding was dependent on future

1
sales of goods and receipts of payment of account Art 1828. The dissolution of a partnership is the
receivables. change in the relation of the partners caused by
any partner ceasing to be associated in the carrying
Now, it could not be denied that though the on as distinguished from the winding up of the business.
parties — petitioner and complainant — had
agreed to dissolve the partnership, such Art. 1829. On dissolution the partnership is not
agreement did not automatically put an end to terminated, but continues until the winding up of
the partnership, since they still had to sell the partnership affairs is completed.
goods on hand and collect the receivables
from debtors. In short, they were still in the The best evidence of the existence of the
process of "winding up" the affairs of the partnership, which was not yet terminated (though
partnership, when the check in question was in the winding up stage), were the unsold goods
issued. and uncollected receivables, which were presented
to the trial court. Since the partnership has not
Under the Civil Code, the three final stages of a been terminated, the petitioner and private
partnership are (1) dissolution; (2) winding-up; complainant remained as co-partners.
and (3) termination. These stages are
distinguished, to wit: The check was thus issued by the petitioner to
complainant, as would a partner to another,
(1) Dissolution Defined and not as payment from a debtor to a
creditor.
Dissolution is the change in the relation of the
partners caused by any partner ceasing to be The check was issued merely to evidence the
associated in the carrying on of the business (Art. complainant's share in the partnership
1828). It is that point of time the time the partners property, or to assure the latter that he would
cease to carry on the business tonether. (Citation receive in time his due share.
omitted).
The alternative view that the check was in
(2) Winding Up Defined consideration of a "buy out" is but a theory,
favorable to the complainant, but lacking support
Winding up is the process of settling business in the record; and must necessarily be discarded.
affairs of dissolution.
What is very clear therefrom is that the petitioner
(NOTE: Examples of winding up: the paying of exerted her best efforts to sell the remaining
previous obligations; the collecting of assets previously goods and to collect the receivables of the
demandable; even new business if needed to wind partnership, in order to come up with the amount
up, as the contracting with a demolition company necessary to satisfy the value of complainant's
for the demolition of the garage used in a "used interest in the partnership at the dissolution. Thus,
car" partnership.) that the subject check was issued merely to
evidence complainant's interest in the
(3) Termination Defined partnership. Thus, we are persuaded that the
check was not intended to apply on account or
Termination is the point in time after all the for value; rather it should be deemed as having
partnership affairs have been wound up. 16 [Citation been drawn without consideration at the time of
omitted] (Emphasis supplied). issue.

These final stages in the life of a partnership are Absent the first element of the offense penalized
recognized under the Civil Code that explicitly under B.P. 22, which is "the making, drawing and
declares that upon dissolution, the partnership is issuance of any check to apply on account or for
not terminated, to wit: value", petitioner's issuance of the subject check

2
was not an act contemplated in nor made Payment of that share in the partnership was
punishable by said statute. conditioned on the subsequent realization of
profits from the unsold goods and collection of
As to the second issue, the Solicitor General the receivables of the firm. This condition must be
contends that under the Bouncing Checks Law, satisfied or complied with before the complainant
the elements of deceit and damage are not can actually "encash" the check. The reason for
essential or required to constitute a violation the condition is that petitioner has no independent
thereof. In his view, the only essential element is means to satisfy or discharge the complainant's
the knowledge on the part of the maker or drawer share, other than by the future sale and collection
of the check of the insufficiency of his/her funds of the partnership assets.
at the time of the issuance of said check.
Thus, prior to the selling of the goods and
Again, this matter could not be all that simple. collecting of the receivables, the complainant
For while "the maker's knowledge of the could not, as of yet, demand his proportionate
insufficiency of funds is legally presumed from the share in the business. This situation would hold
dishonor of his checks for insufficiency of funds, true until after the winding up, and subsequent
this presumption is rebuttable. termination of the partnership. For only then,
when the goods were already sold and receivables
In the instant case, there is only a prima paid that cash money could be availed of by the
facie presumption which did not preclude the erstwhile partners.
presentation of contrary evidence. In fact, such
contrary evidence on two points could be gleaned Complainant did not present any evidence that
from the record concerning (1) lack of actual petitioner signed and issued four checks actually
knowledge of insufficiency of funds; and (2) lack knowing that funds therefor would be insufficient
of adequate notice of dishonor. at the time complainant would present them to
the drawee bank. For it was uncertain at the time
Noteworthy for the defense, knowledge of of issuance of the checks whether the unsold
insufficiency of funds or credit in the drawee bank goods would have been sold, or whether the
for the payment of a check upon its presentment receivables would have been collected by the time
is an essential element of the offense.21 It must be the checks would be encashed. As it turned out,
proved, particularly where the prima three were fully funded when presented to the
facie presumption of the existence of this element bank; the remaining one was settled only later on.
has been rebutted. The prima facie presumption
arising from the fact of drawing, issuing or making Since petitioner issued these four checks without
a check, the payment of which was subsequently actual knowledge of the insufficiency of funds, she
refused for insufficiency of funds is, moreover, could not be held liable under B.P. 22 when one
not sufficient proof of guilt by the issuer. was not honored right away. For it is basic
doctrine that penal statutes such as B.P. 22 "must
Sec. 1 of B.P. 22 specifically requires that the be construed with such strictness as to carefully
person in making, drawing or issuing the check, be safeguard the rights of the defendant . . ." The
shown that he knows at the time of issue, that he element of knowledge of insufficiency of funds
does not have sufficient funds in or credit with the has to be proved by the prosecution; absent said
drawee bank for the payment of such check in full proof, petitioner could not be held criminally
upon its presentment. liable under that law. Moreover, the presumption
of prima facie knowledge of such insufficiency in
In the case, petitioner issued the check merely this case was actually rebutted by petitioner's
to evidence the proportionate share of evidence.
complainant in the partnership assets upon its
dissolution. Further, we find that the prosecution also failed to
prove adequate notice of dishonor of the subject
check on petitioner's part, thus precluding any

3
finding of prima facie evidence of knowledge of G.R. No. 97212 June 30, 1993
insufficiency of funds. There is no proof that
notice of dishonor was actually sent by the BENJAMIN YU, petitioner,
complainant or by the drawee bank to the vs.
petitioner. On this point, the record is bereft of NATIONAL LABOR RELATIONS
evidence to the contrary. COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY
But in fact, while the subject check initially CO, RHODORA D. BENDAL, LEA
bounced, it was later made good by petitioner. In BENDAL, CHIU SHIAN JENG and CHEN
addition, the terms of the parties' compromise HO-FU, respondents.
agreement, entered into during the pendency of
this case, effectively invalidates the allegation of Petitioner Yu was formerly the Assistant General
failure to pay or to make arrangement for the Manager of the marble quarrying and export
payment of the check in full. Verily, said business operated by a registered partnership with
compromise agreement constitutes an the firm name of "Jade Mountain Products
arrangement for the payment in full of the subject Company Limited".
check.
The partnership was originally organized with Lea
In the instant case, petitioner intimated to private Bendal and Rhodora Bendal as general partners
complainant the possibility that funds might be and Chin Shian Jeng, Chen Ho-Fu and Yu Chang,
insufficient to cover the subject check, due to the all citizens of the Republic of China (Taiwan), as
fact that the partnership's goods were yet to be limited partners.
sold and receivables yet to be collected.
The partnership business consisted of exploiting a
Under the circumstances obtaining in this case, we marble deposit found on land owned by the Sps.
find the petitioner to have issued the check in Ricardo and Guillerma Cruz, situated in Bulacan
good faith, with every intention of abiding by her Province.
commitment to return, as soon as able, the
investments of complainant in the partnership. Benjamin Yu was hired by virtue of a Partnership
Evidently, petitioner issued the check with benign Resolution as Assistant General Manager with a
considerations in mind, and not for the purpose of monthly salary of 4,000. Petitioner Yu, however,
committing fraud, deceit, or violating public actually received only half of his stipulated monthly
policy. salary, since he had accepted the promise of the
partners that the balance would be paid when the
Having resolved the foregoing principal issues, firm shall have secured additional operating funds
and finding the petition meritorious, we no longer from abroad. Benjamin Yu actually managed the
need to pass upon the validity and legality or operations and finances of the business; he had
necessity of the purported compromise agreement overall supervision of the workers at the marble
on civil liability between the petitioner and the quarry in Bulacan and took charge of the
complainant. preparation of papers relating to the exportation of
the firm's products.
SO ORDERED.
Without the knowledge of Benjamin Yu, the
general partners Lea Bendal and Rhodora Bendal
sold and transferred their interests in the
partnership to private respondent Willy Co and to
one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in
the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private

4
respondent Willy Co acquired the great bulk of the Such independent legal personality subsists,
partnership interest. petitioner claims, notwithstanding changes in the
identities of the partners. Consequently, the
The partnership now constituted solely by Willy employment contract between Benjamin Yu and
Co and Emmanuel Zapanta continued to use the the partnership Jade Mountain could not have
old firm name of Jade Mountain, though they been affected by changes in the latter's
moved the firm's main office from Makati to membership.
Mandaluyong. A Supplement to the Memorandum
Agreement relating to the operation of the marble ISSUE: (1) whether the partnership which had
quarry was entered into with the Cruz spouses in hired petitioner Yu as Assistant General Manager
February of 1988. The actual operations of the had been extinguished and replaced by a new
business enterprise continued as before. All the partnerships composed of Willy Co and
employees of the partnership continued working Emmanuel Zapanta; and (2) if indeed a new
in the business, all, save petitioner Benjamin Yu as partnership had come into existence, whether
it turned out. petitioner Yu could nonetheless assert his rights
under his employment contract as against the new
Petitioner was informed by Willy Co that he is not partnership.
allowed to work anymore in the Jade Mountain
business enterprise. His unpaid salaries remained RULING: The first issue, SC agrees with NLRC,
unpaid. legal effect of the changes in the membership
of the partnership was the dissolution of the
Benjamin Yu filed a complaint for illegal dismissal old partnership which had hired petitioner in
and recovery of unpaid salaries. 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in
Labor Arbiter: petitioner had been illegally 1987.
dismissed.
The applicable law is found in the Civil Code
NLRC reversed the decision of the Labor Arbiter provisions relating to partnerships. Article 1828 of
and dismissed petitioner's complaint. The NLRC the Civil Code provides as follows:
held that a new partnership consisting of Mr. Willy
Co and Mr. Emmanuel Zapanta had bought the Art. 1828. The dissolution of a partnership is the
Jade Mountain business, that the new partnership change in the relation of the partners caused by any
had not retained petitioner Yu in his original partner ceasing to be associated in the carrying on as
position as Assistant General Manager, and that distinguished from the winding up of the business.
there was no law requiring the new partnership to
absorb the employees of the old partnership. Article 1830 of the same Code must also be noted:
Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had Art. 1830. Dissolution is caused:
simply declined to retain him in his former
managerial position or any other position. Finally, (1) without violation of the agreement between
the NLRC held that Benjamin Yu's claim for the partners;
unpaid wages should be asserted against the
original members of the preceding partnership, (b) by the express will of any partner, who must act in good
but these though impleaded had, apparently, not faith, when no definite term or particular undertaking is
been served with summons in the proceedings specified;
before the Labor Arbiter.
(2) in contravention of the agreement between the
Petitioner Argument: NLRC has overlooked the partners, where the circumstances do not permit a
principle that a partnership has a juridical dissolution under any other provision of this
personality separate and distinct from that of each article, by the express will of any partner at any time;
of its members.

5
In this case, just about all of the partners had sold What is important for present purposes is that,
their partnership interests (amounting to 82% of under the above described situation, not only the
the total partnership interest) to Mr. Willy Co and retiring partners (Rhodora Bendal, et al.)
Emmanuel Zapanta. The record does not show but also the new partnership itself which
what happened to the remaining 18% of the continued the business of the old, dissolved,
original partnership interest. The acquisition of one, are liable for the debts of the preceding
82% of the partnership interest by new partners, (former) partnership. In Singson, et al. v. Isabela
coupled with the retirement or withdrawal of the Saw Mill, et al,8 the Court held that under facts very
partners who had originally owned such 82% similar to those in the case at bar, a withdrawing
interest, was enough to constitute a new partner remains liable to a third party creditor of
partnership. the old partnership.

The occurrence of events which precipitate the The liability of the new partnership, upon the
legal consequence of dissolution of a partnership other hand, in the set of circumstances obtaining
do not, however, automatically result in the in the case at bar, is established in Article 1840 of
termination of the legal personality of the old the Civil Code which reads as follows:
partnership. Article 1829 of the Civil Code states
that: Art. 1840. In the following cases creditors of the
dissolved partnership are also creditors of the person or
[o]n dissolution the partnership is partnership continuing the business:
not terminated, but continues
until the winding up of (1) When any new partner is admitted into an
partnership affairs is completed. existing partnership, or when any partner retires
and assigns (or the representative of the deceased
In the ordinary course of events, the legal partner assigns) his rights in partnership property
personality of the expiring partnership persists for to two or more of the partners, or to one or more
the limited purpose of winding up and closing of of the partners and one or more third persons, if
the affairs of the partnership. the business is continued without liquidation of the
partnership affairs;
In this case, it is important to underscore the fact
that the business of the old partnership was (2) When all but one partner retire and assign (or
simply continued by the new the representative of a deceased partner assigns)
partners, without the old partnership their rights in partnership property to the
undergoing the procedures relating to remaining partner, who continues the business without
dissolution and winding up of its business liquidation of partnership affairs, either alone or with
affairs. others;

In other words, the new partnership simply (3) When any Partner retires or dies and the business of
took over the business enterprise owned by the dissolved partnership is continued as set forth in
the preceeding partnership, and continued Nos. 1 and 2 of this Article, with the consent of
using the old name of Jade Mountain the retired partners or the representative of the
Products Company Limited, without winding deceased partner, but without any assignment of
up the business affairs of the old partnership, his right in partnership property;
paying off its debts, liquidating and distributing its
net assets, and then re-assembling the said assets (4) When all the partners or their representatives assign
or most of them and opening a new business their rights in partnership property to one or more third
enterprise. There were, no doubt, powerful tax persons who promise to pay the debts and who
considerations which underlay such an informal continue the business of the dissolved partnership;
approach to business on the part of the retiring
and the incoming partners. It is not, however, (5) When any partner wrongfully causes a dissolution and
necessary to inquire into such matters. remaining partners continue the business under the

6
provisions of article 1837, second paragraph, No. Court that under Article 1840 above, Benjamin
2, either alone or with others, and without liquidation of Yu is entitled to enforce his claim for unpaid
the partnership affairs; salaries, as well as other claims relating to his
employment with the previous partnership,
(6) When a partner is expelled and the remaining against the new Jade Mountain.
partners continue the business either alone or with others
without liquidation of the partnership affairs; The new partnership was entitled to appoint
and hire a new general or assistant general
The liability of a third person becoming a manager to run the affairs of the business
partner in the partnership continuing the enterprise take over. An assistant general
business, under this article, to the manager belongs to the most senior ranks of
creditors of the dissolved partnership management and a new partnership is entitled
shall be satisfied out of the partnership to appoint a top manager of its own choice
property only, unless there is a stipulation and confidence.
to the contrary.
The non-retention of Benjamin Yu as
When the business of a partnership after Assistant General Manager did not therefore
dissolution is continued under any constitute unlawful termination, or
conditions set forth in this article the termination without just or authorized cause.
creditors of the retiring or deceased The precise authorized cause for termination in
partner or the representative of the this case was redundancy. The new partnership had
deceased partner, have a prior right to any its own new General Manager, apparently Mr.
claim of the retired partner or the Willy Co, the principal new owner himself, who
representative of the deceased partner personally ran the business of Jade Mountain.
against the person or partnership Benjamin Yu's old position as Assistant General
continuing the business on account of the Manager thus became superfluous or
retired or deceased partner's interest in redundant. It follows that petitioner Benjamin Yu
the dissolved partnership or on account is entitled to separation pay at the rate of one
of any consideration promised for such month's pay for each year of service that he had
interest or for his right in partnership rendered to the old partnership, a fraction of at
property. least six (6) months being considered as a whole
year.
Nothing in this article shall be held to modify any right of
creditors to set assignment on the ground of fraud. In addition, we consider that petitioner Benjamin
Yu is entitled to interest at the legal rate of six
Under Article 1840 above, creditors of the old percent (6%) per annum on the amount of unpaid
Jade Mountain are also creditors of the new wages, and of his separation pay, computed from
Jade Mountain which continued the business of the date of promulgation of the award of the Labor
the old one without liquidation of the partnership Arbiter. Finally, because the new Jade Mountain
affairs. Indeed, a creditor of the old Jade compelled Benjamin Yu to resort to litigation to
Mountain, like petitioner Benjamin Yu in protect his rights in the premises, he is entitled to
respect of his claim for unpaid wages, is attorney's fees in the amount of ten percent (10%)
entitled to priority vis-a-vis any claim of any of the total amount due from private respondent
retired or previous partner insofar as such Jade Mountain.
retired partner's interest in the dissolved
partnership is concerned. It is not necessary for SO ORDERED.
the Court to determine under which one or more
of the above six (6) paragraphs, the case at bar
would fall, if only because the facts on record are
not detailed with sufficient precision to permit
such determination. It is, however, clear to the

7
G.R. No. 167379 June 27, 2006 applied the permit only on August 30, 1995. On
October 12, 1995, the City issued a Development
PRIMELINK PROPERTIES AND Permit to Primelink.
DEVELOPMENT CORPORATION and
RAFAELITO W. LOPEZ, Petitioners, The Lazatins, through counsel, demanded that
vs. Primelink comply with its obligations under the
MA. CLARITA T. LAZATIN-MAGAT, JVA, otherwise the appropriate action would be
Respondents. filed against it to protect their rights and interests.
In 1997, the Lazatins informed Primelink that they
Primelink Properties and Development had decided to rescind the JVA. The Lazatins
Corporation (Primelink for brevity) is a domestic demanded that Primelink cease and desist from
corporation engaged in real estate development. further developing the property.
Rafaelito W. Lopez is its President and Chief
Executive Officer. The Lazatins filed, with the Regional Trial Court
(RTC) of Tagaytay City a complaint for rescission
Ma. Clara T. Lazatin-Magat and her brothers, are accounting and damages. Plaintiffs alleged, among
co-owners of two (2) adjoining parcels of land in others, that, despite the lapse of almost four (4)
Tagaytay. years from the execution of the JVA and the
delivery of the title and possession of the land
The Lazatins and Primelink, represented by to defendants, the land development aspect of
Lopez, in his capacity as President, entered into a the project had not yet been completed.
Joint Venture Agreement5 (JVA) for the
development of the property into a residential Plaintiffs also claimed that in a sales-income-costs
subdivision to be known as "Tagaytay Garden projection prepared and submitted by defendants,
Villas." they (plaintiffs) stood to receive the amount
of P70,218,296.00 as their net share in the joint
Under the JVA, the Lazatin siblings obliged venture project; to date, however, after almost
themselves to contribute the two parcels of land four (4) years and despite the undertaking in the
as their share in the joint venture. For its part, JVA that plaintiffs shall initially get 20% of the
Primelink undertook to contribute money, labor, agreed net revenue during the first two (2) years
personnel, machineries, equipment, contractor’s (on the basis of the 60%-40% sharing) and their
pool, marketing activities, managerial expertise full 40% share thereafter, defendants had yet to
and other needed resources to develop the deliver these shares to plaintiffs which by
property and construct therein the units for sale to conservative estimates would amount to no less
the public. than P40,000,000.00.15

The parties agreed that any unsettled or Trial Court: Rescinding the Joint Venture
unresolved misunderstanding or conflicting Agreement; Ordering the defendants to render an
opinions between the parties relative to the accounting of all income generated as well as
interpretation, scope and reach, and the expenses incurred and disbursement made in
enforcement/implementation of any provision of connection with the project;
the agreement shall be referred to Voluntary
Arbitration in accordance with the Arbitration RTC: affirmed
Law.
CA: affirmed RTC
The Lazatins agreed to subject the title over the
subject property to an escrow agreement. The ISSUE:
owner’s duplicate of the title was deposited with
the China Banking Corporation.11 However, RULING: Petitioners maintain that the aforesaid
Primelink failed to immediately secure a portion of the decision which unconditionally
Development Permit from Tagaytay City, and awards to respondents "all improvements" on the

8
project without requiring them to pay the value rescissible contracts. What applies is Article 1191
thereof or to reimburse Primelink for all expenses of the New Civil Code, which reads:
incurred therefore is inherently and essentially
illegal and confiscatory, oppressive and ART. 1191. The power to rescind obligations is
unconscionable, contrary to the tenets of good implied in reciprocal ones, in case one of the
human relations, and will allow respondents to obligors should not comply with what is
unjustly enrich themselves at Primelink’s expense. incumbent upon him.

They also aver that, under Article 1384 of the New The injured party may choose between the
Civil Code, rescission shall be only to the extent fulfillment and the rescission of the obligation, with
necessary to cover the damages caused and that, the payment of damages in either case. He may also
under Article 1385 of the same Code, rescission seek rescission, even after he has chosen
creates the obligation to return the things which fulfillment, if the latter should become impossible.
were not object of the contract, together with their
fruits, and the price with its interest; consequently, The order of the court for PRIMELINK to return
it can be effected only when respondents can return possession of the real estate property belonging to
whatever they may be obliged to return. the LAZATINs including all improvements
Respondents who sought the rescission of the JVA thereon was not a judgment that was different in
must place petitioner Primelink in the status quo. kind than what was prayed for by the LAZATINs.
They insist that respondents cannot rescind and, at The order to return the property with all the
the same time, retain the consideration, or part of improvements thereon is just a necessary
the consideration received under the JVA. They consequence to the order of rescission.
cannot have the benefits of rescission without
assuming its burden. All parties must be restored to As a general rule, the relation of the parties in joint
their original positions as nearly as possible upon ventures is governed by their agreement. When
the rescission of a contract. In the event that the agreement is silent on any particular issue, the
restoration to the status quo is impossible, general principles of partnership may be resorted
rescission may be granted if the Court can balance to.
the equities and fashion an appropriate remedy that
would be equitable to both parties and afford
In Aurbach v. Sanitary Wares Manufacturing
complete relief.
Corporation, the Supreme Court discussed the
following points regarding joint ventures and
On the other hand, the CA ruled that although partnership: The legal concept of a joint venture is
respondents therein (plaintiffs below) did not of common law origin. It has no precise legal
specifically pray for their takeover of the property definition, but it has been generally understood to
and for the possession of the improvements on mean an organization formed for some temporary
the parcels of land, nevertheless, respondents were purpose.
entitled to said relief as a necessary consequence
of the ruling of the trial court ordering the
It is, in fact, hardly distinguishable from the
rescission of the JVA. The appellate court cited
partnership, since elements are similar –
the ruling of this Court in the Aurbach case and
community of interest in the business, sharing of
Article 1838 of the New Civil Code, to wit:
profits and losses, and a mutual right of control.
As a general rule, the relation of the parties in joint
While the joint venture is formed for the
ventures is governed by their agreement. When
execution of a single transaction, and is thus of a
the agreement is silent on any particular issue, the
temporary nature. This observation is not entirely
general principles of partnership may be resorted
accurate in this jurisdiction, since under the Civil
to.
Code, a partnership may be particular or universal,
and a particular partnership may have for its
Respondents, for their part, assert that Articles object a specific undertaking. (Art. 1783, Civil
1380 to 1389 of the New Civil Code deal with Code). It would seem therefore that, under

9
Philippine law, a joint venture is a form of Aurbach, is a form of partnership, and as such is
partnership and should thus be governed by to be governed by the laws on partnership.
the laws of partnership. The Supreme Court
has, however, recognized a distinction When the RTC rescinded the JVA on complaint
between these two business forms, and has of respondents based on the evidence on record
held that although a corporation cannot enter that petitioners willfully and persistently
into a partnership contract, it may, however, committed a breach of the JVA, the court thereby
engage in a joint venture with others. dissolved/cancelled the partnership.

The LAZATINs were able to establish fraud on With the rescission of the JVA on account of
the part of PRIMELINK which was a pattern of petitioners’ fraudulent acts, all authority of any
what appears to be a scheme or plot to reduce and partner to act for the partnership is terminated
eventually blot out the net incomes generated except so far as may be necessary to wind up the
from sales of housing units by the defendants. partnership affairs or to complete transactions
Under Article 1838 of the Civil Code, where the begun but not yet finished.
partnership contract is rescinded on the ground of
the fraud or misrepresentation of one of the On dissolution, the partnership is not terminated
parties thereto, the party entitled to rescind is, but continues until the winding up of partnership
without prejudice to any other right is entitled to a affairs is completed. Winding up means the
lien on, or right of retention of, the surplus of the administration of the assets of the partnership for
partnership property after satisfying the the purpose of terminating the business and
partnership liabilities to third persons for any sum discharging the obligations of the partnership.
of money paid by him for the purchase of an
interest in the partnership and for any capital or The transfer of the possession of the parcels of
advance contributed by him. In the instant case, land and the improvements thereon to
the joint venture still has outstanding liabilities to respondents was only for a specific purpose: the
third parties or the buyers of the property. winding up of partnership affairs, and the partition
and distribution of the net partnership assets as
The reason for the existence of the Escrow provided by law.
Agreement has ceased to exist when the joint
venture agreement was rescinded. After all, Article 1836 of the New Civil Code
provides that unless otherwise agreed by the
The trial court was not proscribed from placing parties in their JVA, respondents have the right to
respondents in possession of the parcels of land wind up the partnership affairs:
and the improvements on the said parcels of land.
It bears stressing that the parcels of land, as well Art. 1836. Unless otherwise agreed, the partners
as the improvements made thereon, were who have not wrongfully dissolved the
contributed by the parties to the joint venture partnership or the legal representative of the last
under the JVA, hence, formed part of the assets of surviving partner, not insolvent, has the right to
the joint venture. The trial court declared that wind up the partnership affairs, provided,
respondents were entitled to the possession not however, that any partner, his legal representative
only of the parcels of land but also of the or his assignee, upon cause shown, may obtain
improvements thereon as a consequence of its winding up by the court.
finding that petitioners breached their agreement
and defrauded respondents of the net income
Although respondents acquired possession of the
under the JVA.
lands and the improvements, the said lands and
improvements remained partnership property,
On the second issue, we agree with the CA ruling subject to the rights and obligations of the parties,
that petitioner Primelink and respondents inter se, of the creditors and of third parties under
entered into a joint venture as evidenced by Articles 1837 and 1838 of the New Civil Code,
their JVA which, under the Court’s ruling in and subject to the outcome of the settlement of

10
the accounts between the parties as provided in (a) If the business is not continued under the
Article 1839 of the New Civil Code, absent any provisions of the second paragraph, No. 2, all the
agreement of the parties in their JVA to the rights of a partner under the first paragraph,
contrary. Until the partnership accounts are subject to liability for damages in the second
determined, it cannot be ascertained how much paragraph, No. 1(b), of this article.
any of the parties is entitled to, if at all.
(b) If the business is continued under the second
It was thus premature for petitioner Primelink to paragraph, No. 2, of this article, the right as
be demanding that it be indemnified for the value against his co-partners and all claiming through
of the improvements on the parcels of land owned them in respect of their interests in the
by the joint venture/partnership. Notably, the partnership, to have the value of his interest in the
JVA of the parties does not contain any provision partnership, less any damage caused to his co-
designating any party to wind up the affairs of the partners by the dissolution, ascertained and paid
partnership. to him in cash, or the payment secured by a bond
approved by the court, and to be released from all
Thus, under Article 1837 of the New Civil Code, existing liabilities of the partnership; but in
the rights of the parties when dissolution is caused ascertaining the value of the partner’s interest the
in contravention of the partnership agreement are value of the good-will of the business shall note
as follows: considered.

(1) Each partner who has not caused And under Article 1838 of the New Civil Code,
dissolution wrongfully shall have: the party entitled to rescind is, without prejudice
to any other right, entitled:
(a) All the rights specified in the first
paragraph of this article, and (1) To a lien on, or right of retention of,
the surplus of the partnership property
(b) The right, as against each partner who after satisfying the partnership liabilities
has caused the dissolution wrongfully, to to third persons for any sum of money
damages for breach of the agreement. paid by him for the purchase of an
interest in the partnership and for any
(2) The partners who have not caused the capital or advances contributed by him;
dissolution wrongfully, if they all desire to
continue the business in the same name (2) To stand, after all liabilities to third
either by themselves or jointly with persons have been satisfied, in the place
others, may do so, during the agreed term of the creditors of the partnership for any
for the partnership and for that purpose payments made by him in respect of the
may possess the partnership property, partnership liabilities; and
provided they secure the payment by
bond approved by the court, or pay to (3) To be indemnified by the person guilty
any partner who has caused the of the fraud or making the representation
dissolution wrongfully, the value of his against all debts and liabilities of the
interest in the partnership at the partnership.
dissolution, less any damages recoverable
under the second paragraph, No. 1(b) of The accounts between the parties after dissolution
this article, and in like manner indemnify have to be settled as provided in Article 1839 of
him against all present or future the New Civil Code:
partnership liabilities.
Art. 1839. In settling accounts between the
(3) A partner who has caused the partners after dissolution, the following rules shall
dissolution wrongfully shall have: be observed, subject to any agreement to the
contrary:

11
(1) The assets of the partnership are: possession of a court for distribution,
partnership creditors shall have priority
(a) The partnership property, on partnership property and separate
creditors on individual property, saving
(b) The contributions of the the rights of lien or secured creditors.
partners necessary for the
payment of all the liabilities (9) Where a partner has become insolvent
specified in No. 2. or his estate is insolvent, the claims
against his separate property shall rank in
(2) The liabilities of the partnership shall the following order:
rank in order of payment, as follows:
(a) Those owing to separate
(a) Those owing to creditors creditors;
other than partners,
(b) Those owing to partnership
(b) Those owing to partners creditors;
other than for capital and profits,
(c) Those owing to partners by
(c) Those owing to partners in way of contribution.
respect of capital,
IN LIGHT OF ALL THE FOREGOING, the
(d) Those owing to partners in petition is DENIED. The assailed Decision and
respect of profits. Resolution of the Court of Appeals in CA-G.R.
CV No. 69200 are AFFIRMED insofar as they
(3) The assets shall be applied in the order conform to this Decision of the Court.
of their declaration in No. 1 of this article
to the satisfaction of the liabilities. Costs against petitioners.

(4) The partners shall contribute, as SO ORDERED.

provided by article 1797, the amount
necessary to satisfy the liabilities.
G.R. No. 30616
(5) An assignee for the benefit of
creditors or any person appointed by the EUFRACIO D. ROJAS, Plaintiff-Appellant,
court shall have the right to enforce the vs. CONSTANCIO B.
contributions specified in the preceding MAGLANA, Defendant-Appellee.
number.
In 1955, Maglana and Rojas executed their Articles
(6) Any partner or his legal representative
of Co-Partnership called Eastcoast Development
shall have the right to enforce the
Enterprises (EDE) with only the two of them as
contributions specified in No. 4, to the
partners. The partnership EDE with an indefinite
extent of the amount which he has paid in
excess of his share of the liability. term of existence was duly registered on January 21,
1955 with the Securities and Exchange
Commission.
(7) The individual property of a deceased
partner shall be liable for the Their purpose was to "apply or secure timber
contributions specified in No. 4. and/or minor forests products licenses and
concessions over public and/or private forest lands
(8) When partnership property and the and to operate, develop and promote such forests
individual properties of the partners are in rights and concessions."

12
A duly registered Articles of Co-Partnership was Rojas withdrew his equipment from the
filed together with an application for a timber partnership for use in the newly acquired area .
concession covering the area in Davao with the
The equipment withdrawn were his supposed
Bureau of Forestry.
contributions to the first partnership and was
Maglana shall manage the business affairs of the transferred to CMS Estate, Inc. by way of chattel
partnership, including marketing and handling of mortgage.
cash and is authorized to sign all papers and
On March 17, 1957, Maglana wrote Rojas
instruments relating to the partnership, while Rojas
reminding the latter of his obligation to contribute,
shall be the logging superintendent and shall
either in cash or in equipment, to the capital
manage the logging operations of the partnership.
investments of the partnership as well as his
All profits and losses of the partnership shall be
obligation to perform his duties as logging
divided share and share alike between the partners.
superintendent.
Because of the difficulties encountered, Rojas and
Rojas told Maglana that he will not be able to
Maglana decided to avail of the services of
comply with the promised contributions and he will
Pahamotang as industrial partner.
not work as logging superintendent. Maglana then
The partnership formed by Maglana, Pahamotang told Rojas that the latter's share will just be 20% of
and Rojas started operation on May 1, 1956, and the net profits. Such was the sharing from 1957 to
was able to ship logs and realize profits. An income 1959 without complaint or dispute.
was derived from the proceeds of the logs in the
Rojas took funds from the partnership more than
sum of P643,633.07
his contribution so Maglana notified Rojas that he
Pahamotang, Maglana and Rojas executed a dissolved the partnership (R.A. 949).
document entitled "CONDITIONAL SALE OF
Rojas filed an action before the Court of First
INTEREST IN THE PARTNERSHIP,
Instance of Davao against Maglana for the recovery
EASTCOAST DEVELOPMENT
of properties, accounting, receivership and
ENTERPRISE" (agreeing among themselves that
damages, docketed as Civil Case No. 3518 .
Maglana and Rojas shall purchase the interest, share
and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. It was also
Lower court:
agreed in the said instrument that after payment of
the sum of P31,501.12 to Pahamotang including "1. The nature of the partnership and the
the amount of loan secured by Pahamotang in favor legal relations of Maglana and Rojas after
of the partnership, the two (Maglana and Rojas) Pahamotang retired from the second
shall become the owners of all equipment partnership, that is, after August 31, 1957,
contributed by Pahamotang and the EASTCOAST when Pahamotang was finally paid his
DEVELOPMENT ENTERPRISES, the name share — the partnership of the defendant
also given to the second partnership, be dissolved. and the plaintiff is one of a de facto and at
will;
Pahamotang was paid in full. No other rights and
obligations accrued in the name of the second " The Court also directs and orders
partnership (R.A. 921). plaintiff Rojas to pay the sum of
P62,988.19 his personal account to the
After the withdrawal of Pahamotang, the
partnership;
partnership was continued by Maglana and Rojas
without the benefit of any written agreement or " The Court also credits the defendant the
reconstitution of their written Articles of amount of P85,000.00 the amount he
Partnership (Decision, R.A. 948). should have received as logging
superintendent, and which was not paid to
Rojas entered into a management contract with him, and this should be considered as part
another logging enterprise, the CMS Estate, Inc. He
of Maglana's contribution likewise to the
left and abandoned the partnership.
partnership; and

13
ISSUE: the nature of the partnership and legal fixed the term of the second partnership to thirty
relationship of the Maglana-Rojas after (30) years, everything else was the same.
Pahamotang retired from the second partnership.
Thus, they adopted the same name, EASTCOAST
RULING: The lower court is of the view that the DEVELOPMENT ENTERPRISES, they pursued
second partnership superseded the first, so that the same purposes and the capital contributions of
when the second partnership was dissolved there Rojas and Maglana as stipulated in both
was no written contract of co-partnership; there partnerships call for the same amounts.
was no reconstitution as provided for in the
Just as important is the fact that all subsequent
Maglana, Rojas and Pahamotang partnership
renewals of Timber License No. 35-36 were
contract.
secured in favor of the First Partnership, the
Hence, the partnership which was carried on by original licensee. To all intents and purposes
Rojas and Maglana after the dissolution of the therefore, the First Articles of Partnership were
second partnership was a de facto partnership and only amended, in the form of Supplementary
at will. Articles of Co-Partnership which was never
registered.
It was considered as a partnership at will because
there was no term, express or implied; no period Otherwise stated, even during the existence of the
was fixed, expressly or impliedly. second partnership, all business transactions were
carried out under the duly registered articles. As
On the other hand, Rojas insists that the registered
found by the trial court, it is an admitted fact that
partnership under the firm name of Eastcoast
even up to now, there are still subsisting obligations
Development Enterprises (EDE) has not been
and contracts of the latter. No rights and
novated, superseded and/or dissolved by the
obligations accrued in the name of the second
unregistered articles of co-partnership among
partnership except in favor of Pahamotang which
appellant Rojas, appellee Maglana and Agustin
was fully paid by the duly registered partnership.
Pahamotang, according to Articles of Co-
Partnership should govern the relations between On the other hand, the second partnership was
him and Maglana. dissolved by common consent. Said dissolution
did not affect the first partnership which continued
Upon withdrawal of Agustin Pahamotang from the
to exist.
unregistered partnership , the legally constituted
partnership EDE continues to govern the relations Significantly, Maglana and Rojas agreed to
between them and it was legal error to consider a purchase the interest, share and participation in the
de facto partnership between said two partners or a second partnership of Pahamotang and that
partnership at will. thereafter, the two (Maglana and Rojas) became the
owners of equipment contributed by Pahamotang.
Hence, the letter of appellee Maglana did not legally
dissolve the registered partnership between them, Maglana on March 17, 1957, wrote Rojas,
being in contravention of the partnership reminding the latter of his obligation to contribute
agreement agreed upon and stipulated in their either in cash or in equipment, to the capital
Articles of Co-Partnership. Rather, appellant is investment of the partnership as well as his
entitled to the rights enumerated in Article 1837 of obligation to perform his duties as logging
the Civil Code and to the sharing profits between superintendent. This reminder cannot refer to any
them of "share and share alike" as stipulated in the other but to the provisions of the duly registered
registered Articles of Co-Partnership. Articles of Co-Partnership. As earlier stated, Rojas
replied that he will not be able to comply with the
SC: It was not the intention of the partners to
promised contributions and he will not work as
dissolve the first partnership, upon the constitution
logging superintendent. By such statements, it is
of the second one, which they unmistakably called
obvious that Roxas understood what Maglana was
an "Additional Agreement".
referring to and left no room for doubt that both
Except for the fact that they took in one industrial considered themselves governed by the articles of
partner; gave him an equal share in the profits and the duly registered partnership.

14
Under the circumstances, the relationship of Rojas partner must share in the profits and losses of the
and Maglana after the withdrawal of Pahamotang venture. That is the essence of a partnership (Ibid.,
can neither be considered as a De Facto p. 95).
Partnership, nor a Partnership at Will, for as
Thus, as reported in the Commissioners' Report,
stressed, there is an existing partnership, duly
Rojas is not entitled to any profits. In their
registered.
voluminous reports which was approved by the
As to the question of whether or not Maglana can trial court, they showed that on 50-50% basis, Rojas
unilaterally dissolve the partnership in the case at will be liable in the amount of P131,166.00; on 80-
bar, the answer is in the affirmative. 20%, he will be liable for P40,092.96 and finally on
the basis of actual capital contribution, he will be
Hence, as there are only two parties when Maglana
liable for P52,040.31.
notified Rojas that he dissolved the partnership, it
is in effect a notice of withdrawal. Consequently, except as to the legal relationship of
the partners after the withdrawal of Pahamotang
Under Article 1830, par. 2 of the Civil Code, even
which is unquestionably a continuation of the duly
if there is a specified term, one partner can cause its
registered partnership and the sharing of profits
dissolution by expressly withdrawing even before
and losses which should be on the basis of share
the expiration of the period, with or without
and share alike as provided for in the duly registered
justifiable cause. Of course, if the cause is not
Articles of Co-Partnership, no plausible reason
justified or no cause was given, the withdrawing
could be found to disturb the findings and
partner is liable for damages but in no case can he
conclusions of the trial court.: nad
be compelled to remain in the firm.
As to whether Maglana is liable for damages
With his withdrawal, the number of members is
because of such withdrawal, it will be recalled that
decreased, hence, the dissolution. And in whatever
after the withdrawal of Pahamotang, Rojas entered
way he may view the situation, the conclusion is
into a management contract with another logging
inevitable that Rojas and Maglana shall be guided in
enterprise, the CMS Estate, Inc., a company
the liquidation of the partnership by the provisions
engaged in the same business as the partnership. He
of its duly registered Articles of Co-Partnership;
withdrew his equipment, refused to contribute
that is, all profits and losses of the partnership shall
either in cash or in equipment to the capital
be divided "share and share alike" between the
investment and to perform his duties as logging
partners.
superintendent, as stipulated in their partnership
But an accounting must first be made and which in agreement. The records also show that Rojas not
fact was ordered by the trial court and only abandoned the partnership but also took funds
accomplished by the commissioners appointed for in an amount more than his contribution
the purpose.
In the given situation Maglana cannot be said to be
On the basis of the Commissioners' Report, the in bad faith nor can he be liable for damages.
corresponding contribution of the partners from
The duly registered partnership of Eastcoast
1956-1961 are as follows: Eufracio Rojas who
Development Enterprises continued to exist until
should have contributed P158,158.00, contributed
liquidated and that the sharing basis of the partners
only P18,750.00 while Maglana who should have
should be on share and share alike as provided for
contributed P160,984.00, contributed P267,541.44.
in its Articles of Partnership, in accordance with the
It is a settled rule that when a partner who has computation of the commissioners.d
undertaken to contribute a sum of money fails to
SO ORDERED.
do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute
(Article 1786, Civil Code) and for interests and
damages from the time he should have complied G.R. No. 17024 March 24, 1922
with his obligation (Article 1788, Civil Code)
(Moran, Jr. v. Court of Appeals, 133 SCRA 94
[1984]). Being a contract of partnership, each

15
DOMINGO BEARNEZA, plaintiff-appelle, conclusive and there is no dispute, was of a civil
vs. nature.
BALBINO DEQUILLA, defendant-appellant.
It was a particular partnership, as defined in article
In1903, Balbino Dequilla, defendant, and Perpetua 1678 of the Civil Code, it having had for its subject-
Bearneza formed a partnership for the purpose of matter a specified thing, - the exploitation of the
exploiting a fish pond in Iloilo. Perpetua fish pond. Although, as the trial court says in its
obligating herself to contribute to the payment of decision, the defendant, in his letters to Perpetua or
the expenses of the business, which obligation she her husband, makes reference to the fish pond,
made good, and both agreeing to divide the profits calling it "our," or "your fish pond," this reference
between themselves, which they had been doing cannot be held to include the land on which the said
until the death of the said Perpetua in the year fish pond was built.
1912.
It has not been proven that Perpetua Bearneza
The deceased left a will in one of the clauses of participated in the ownership of said land, and
which she appointed Domingo Bearnez, plaintiff, that the defendant has been paying, as exclusive
as her heir to succeed to all her rights and interests owner of the fish pond, the land tax, although he
in the fish pond in question. says that the said land belongs to the State. The
conclusion from the evidence is that the land on
Domingo Bearneza demanded Dequilla for the which the fish pond was constructed did not
delivery of the part of the fish pond belonging to constitute a part of the subject- matter of the
his decedent but he refused. Bearneza brought this aforesaid partnership.
action to recover one-half of the profits received by
the defendant from the fish pond from the year Now, this partnership not having been organized
1913 to 1919, as damages amounting to P13,100. in the form of a mercantile partnership, and,
therefore, the provisions of the Code of
Defendant argued that the formation of the Commerce not being applicable thereto (article
supposed partnership between the plaintiff and 1670 of the Civil Code), it was dissolved by the
the defendant for the exploitation of the fish pond death of Perpetua Bearneza, and falls under the
was not carried into effect, on account of the provisions of article 1700, subsection 3, of the
plaintiff having refused to defray the expenses of same Code, and not under the exception
reconstruction and exploitation of said fish pond." established in the last paragraph of said article
Also, "that in the event that the court should hold 1700 of the Civil Code.
the plaintiff to be entitled to the undivided one-
half of the fish pond, claimed in the complaint, Neither can it be maintained that the partnership
the plaintiff's action has prescribed, the time for continued to exist after the death of Perpetua,
bringing the same having elapsed." inasmuch as it does not appear that any stipulation
to that effect has ever been made by her and the
Lower Court: declaring the plaintiff owner of one- defendant, pursuant to the provisions of article
half of the fish pond, which was composed of the 1704 of the Code last cited.
portions known as "Alimango" and "Dalusan,"
but without awarding him any of the damages The partnership having been dissolved by the
claimed by him. death of Perpetua Bearneza, its subsequent
legal status was that of a partnership in
ISSUE: Whether or not the plaintiff has any right liquidation, and the only rights inherited by
to maintain an action for the recovery of one-half her testamentary heir, the herein plaintiff,
of the said fish pond. were those resulting from the said liquidation
in favor of the deceased partner, and nothing
RULING: The partnership formed by Perpetua more. Before this liquidation is made, which up to
Bearneza and Balbino Dequilla, as to the existence the present has not been effected, it is impossible
of which the proof contained in the record is to determine what rights or interests, if any, the

16
deceased had, the partnership bond having been The articles of association, (not recorded in the
dissolved. mercantile registry) provide that the association
will be domiciled in Dagupan, Pangasinan; that it
There is no sufficient ground for holding that a cannot be dissolved except by the consent and
community of property existed between the agreement of 2/3 of its partners and in the event
plaintiff and the defendant, it not being known of the death of any of them, the heirs of the
whether the deceased still had any interest in the deceased, if they be minors, or otherwise
partnership property which could have been incapacitated, shall be represented in the
transmitted by will to the plaintiff. There being no association by their legal representatives or if 2/3
community of property, article 395 of the Civil of the surviving partners agree, the participation
Code cited by the plaintiff in support of his of the deceased partner may be liquidated; that the
contention can have no application to the case at management and direction of the association shall
bar. be in charged in Don Faustino Lichauco y Santos,
domiciled in Manila, with powers to direct and
Neither can it be said that the partnership manage the business, to carry out all manner of
continued between the plaintiff and the defendant. purchases and sales of palay, rice, chattels,
It is true that the latter's act in requiring the heirs machinery and whatsoever may be necessary and
of Perpetua to contribute to the payment of the proper for the business of the association; to make
expenses of exploitation of the fishing industry all contracts of every kind related to the business,
was an attempt to continue the partnership, but it either orally in private documents or in public
is also true that neither the said heirs collectively, instruments; to appoint subordinates and other
nor the plaintiff individually, took any action in employees such as may be necessary; and finally to
response to that requirement, nor made any perform whatever acts and things he may deem
promise to that effect, and therefore no new suitable to the interest of the association; and to
contract of partnership existed. appear before the courts of justice and other
authorities and public offices in such matters as
We find that the plaintiff has not sufficiently may concern the association and to appoint agents
shown his right of action. for those matter to which he cannot attend
personally.
The judgment appealed from is modified, the
The articles fixed the capital at Php100,000.
same being affirmed insofar as it denies the
plaintiff's claim for damages, and reversed insofar Php60,000 contributed by the defendant and his
as it declares the said plaintiff owner of one-half
of the fish pond, "Alimango" and "Dalusan," here brothers in the form of 
 machinery and the good
in dispute. will of the milling business formerly conducted

 at the place 

No special finding as to costs is made. So ordered.
The balance was contributed in cash. 

Eugenia Lichauco et al v Faustino Lichauco
The business carried on until May 190 when it was
[GR NO. L-10040] | [31 January 1916] | [Carson, discontinued by the defendant manager.
J.] Thereafter, the machinery of the rice mill was
dismantled by his orders and offered for sale.
FACTS
No accounting was made to his associates until
In October 1901, a partnership named F. this action was instituted in October 1912. 

Lichauco Hermanos was duly organized for the
purpose of carrying on a rice-cleaning business in Although in 1905, Mariano Limjap, one of the
Dagupan, and for the purchase and sale of palay partners, demanded a rendition of accounts and
and rice. Eugenia Lichauco made repeated unsuccessful

17
demands for the return of her share of the capital decree a distribution either in whole or in part of

 the capital or assets of the association. 


During all that time, the defendant manager had in The Court held that the subject provision denied
his possession a sum of money over and above all the right to a less number of the numbers to effect
claims of indebtedness after suspending a dissolution of the partnership through judicial
operations and that since then, he had received intervention or otherwise; but in no way limited or
substantial amounts from the sale of the restricted the rights of the individual partners in
machineries. 
 the event the dissolution of the association was
effected by the express mandate of statutory law.
Evidence shows that the defendant informed some It would be absurd and unreasonable to hold that
of his associates (1906/1907) that the whole an association could never be dissolved and
enterprise was bankrupt and rendered a so-called liquidated without the consent and agreement of
account prior to the institution of this action, 2/3 of the partners notwithstanding that it had
lost its capital, or had become bankrupt or that the
showing a balance to the credit of 
 the enterprise
of only Php643.64. However, at the trial, he business had been concluded or abandoned. 

expressly admitted the existence of a cash balance
of Php 23,131.53 and the amount by the trial judge c. Under various provisions of law, the association
as due by him on account of the venture was of was totally dissolved in 1904, when the rice mill
Php29,549. for the operation of which it was organized was
dismantled and offered for sale, the enterprise was
The defendant explained that the account concluded and abandoned.
rendered to counsel for the plaintiffs was mailed
by one of his employees without his knowledge. Upon dissolution, it became the duty of the

 defendant to liquidate its affairs and account to his
associates for their respective shares in the capital.
It seemed that his statement as to the bankruptcy The association having been dissolved by the
of the enterprise was not intended to be termination and abandonment for which it was
understood to mean that there was no balance due organized, he owed this duty to liquidate and
the partners, but merely that the enterprise had account to all and to each of his associates, and
not paid, and that the losses had exceeded the upon his failure to perform that duty, all or any of
them had a clear legal right to compel him to
profits. 
 fulfill it. Each of his associates had a perfect right
to demand for himself a full, complete and
Thus, this present action was brought to secure satisfactory accounting, and in the event that he
an accounting of the partnership’s affairs and the conceived himself aggrieved in this regard, to
payment to the plaintiffs of their shares of capital institute the appropriate judicial proceedings to
and profits.
secure relief. 


ISSUE and RATIO
 1. WON parties can

The duty of the defendant to liquidate the affairs
validly stipulate in the articles of partnership of the enterprise and to account to his associates
provisions prohibiting dissolution and promptly upon the dissolution of the association
liquidation NO in the year 1904 is expressly prescribed in the
Commercial Code, whether we regard the
Counsel for the defendant contends that the association, so far as it affects the mutual rights
dissolution and liquidation of 
 the association is and obligations of the partners, as clothed with the
absolutely prohibited by para 10 of the articles of forms of a "sociedad de cuentas en participacion"
association, except by concurrence of 2/3 of the (joint account partnership) or a "sociedad en
partners. As such, the court had no power to comindata." 


18
1 1700.Partnership is extinguished:
 (1) When the (3) The failure of any of the general partners.

term for which it was constituted expires
 (2)

When the thing is lost, or the business for which it f. An express statutory obligation imposed upon
the defendant an imperative obligation to
was constituted ends.
 (3) By the natural death,
proceed without delay to the liquidation
civil interdiction, or insolvency of any of the of the association in the year 1904 and the
partners, and in the case provided for in article further duty to account to his associates
1699.
 (4) By the will of any of the partners, for the result of that liquidation. 

subject to the provisions of articles 1705 and
1707.
g. Plaintiffs were entitled to bring the action to
Partnerships, to which article 1670 refers, are compel and accounting and they payment
excepted from the provisions of Nos. 3 and 4 of of their respective shares of the capital
this article, in the cases in which they should exist, invested. 

according to the Code of Commerce.

1670. Civil partnerships, on account of the objects DECISION
 Lower court decision
for which they are destined, may adopt all the reversed.
forms accepted by the Code of Commerce. In this
case, the provisions of the same shall be
applicable, in so far as they are not in conflict with
those of the present Code.
G.R. No. L-22825 February 14, 1925
Commercial Code. 221. Associations of any kind
whatsoever shall be completely dissolved for the TESTATE ESTATE OF LAZARO MOTA,
following reasons: deceased, ET AL., plaintiffs-appellants,
vs.
(1) The termination of the period fixed in the SALVADOR SERRA, defendant-appellee.
articles of association of the conclusion of the
enterprise which constitutes its purpose.
In 1919, plaintiffs and defendant entered into a
contract of partnership, for the construction and
. (2) The entire loss of the capital. 
 exploitation of a railroad line from the "San
Isidro" and "Palma" centrals to the place known
. (3) The failure of the association. 
 as "Nandong." The original capital stipulated was
P150,000. It was covenanted that the parties
should pay this amount in equal parts and the
222. General and limited copartnerships shall
plaintiffs were entrusted with the administration
furthermore be totally dissolved for the following
of the partnership.
reasons:

(1) The death of one of the general partners if the The agreed capital of P150,000, however, did not
articles of copartnership do not contain an express prove sufficient, as the expenses reached the
agreement that the heirs of deceased partner are to amount of P226,092.92.
continue in the copartnership, or an agreement to
the effect that said copartnership will continue In 1920, the defendant entered into a contract of
sale with Venancio Concepcion, Phil. C. Whitaker,
between the surviving partners.
 (2) The insanity
and Eusebio R. de Luzuriaga, whereby he sold to
of a managing partner or any other cause which the latter the estate and central known as "Palma"
renders him incapable of administering his
property. Before the delivery to the purchasers of
the hacienda thus sold, Eusebio R. de Luzuriaga

19
renounced all his rights under the contract in favor together with all the improvements made by
of Messrs. Venancio Concepcion and Phil. C. Messrs. Phil. C. Whitaker and Venancio
Whitaker. This gave rise to the fact that on July 17, Concepcion.
1920, Venancio Concepcion and Phil. C. Whitaker
and the defendant executed before Mr. Antonio Since the defendant Salvador Serra failed to pay
Sanz, a notary public in and for the City of Manila, one-half of the amount expended by the plaintiffs
another deed of absolute sale of the said "Palma" upon the construction of the railroad line, that is,
Estate for the amount of P1,695,961.90, of which P113,046.46, as well as Phil. C. Whitaker and
the vendor received at the time of executing the Venancio Concepcion, the plaintiffs instituted the
deed the amount of P945,861.90, and the balance present action praying: (1) That the deed of
was payable by installments in the form and manner February 1, 1919, be declared valid and binding;
stipulated in the contract. (2) that after the execution of the said document
the defendant improved economically so as to be
The purchasers guaranteed the unpaid balance of able to pay the plaintiffs the amount owed, but
the purchase price by a first and special mortgage that he refused to pay either in part or in whole
in favor of the vendor upon the hacienda and the the said amount notwithstanding the several
central with all the improvements, buildings, demands made on him for the purpose; and (3)
machineries, and appurtenances then existing on that the defendant be sentenced to pay plaintiffs
the said hacienda. the aforesaid sum of P113,046.46, with the
stipulated interest at 10 per cent per annum
Afterwards, Venancio Concepcion and Phil. C. beginning June 4, 1920, until full payment thereof,
Whitaker bought from the plaintiffs the one-half with the costs of the present action.
of the railroad line pertaining to the latter. The
price of this sale was P237,722.15, excluding any Defendant set up three special defenses: (1) The
amount which the defendant might be owing to novation of the contract by the substitution of the
the plaintiffs. Of the purchase price, Venancio debtor with the conformity of the creditors; (2)
Concepcion and Phil. C. Whitaker paid the sum of the confusion of the rights of the creditor and
P47,544.43 only. the plaintiffs and Concepcion debtor; and (3) the extinguishment of the contract,
and Whitaker agreed, among other things, that the
partnership "Palma" and "San Isidro," formed by Trial Court: held that there was a novation of the
the agreement of February 1, 1919, between Serra, contract by the substitution of the debtor, and
Lazaro Mota, now deceased, and Juan J. therefore absolved the defendant from the
Vidaurrazaga for himself and in behalf of his complaint with costs against the plaintiffs; no way
brother, Felix and Dionisio Vidaurrazaga, should of reviving the contract which the parties
be dissolved upon the execution of this contract, themselves in interest had spontaneously and
and that the said partnership agreement should be voluntarily extinguished.
totally cancelled and of no force and effect
whatever. Ruling: There is a letter written by plaintiffs to
Phil. C. Whitaker and Venancio Concepcion for
So it results that the "Hacienda Palma," with the the very reason that the defendant had told them
entire railroad, the subject-matter of the contract (plaintiffs) that after the sale of the "Hacienda
of partnership between plaintiffs and defendant, Palma" to Messrs. Phil. C. Whitaker and Venancio
became the property of Whitaker and Concepcion. Concepcion, the latter from then on would bear
Phil. C. Whitaker and Venancio Concepcion the cost of the repairs and maintenance of the
having failed to pay to the defendant a part of the railroad line and of the construction of whatever
purchase price, that is, P750,000, the vendor, the addition thereto might be necessary.
herein defendant, foreclosed the mortgage upon
the said hacienda, which was adjudicated to him at Defendant transferred his hacienda to Messrs. Phil.
the public sale held by the sheriff for the amount C. Whitaker and Venancio Concepcion and made
of P500,000, and the defendant put in possession it known to the plaintiffs that the new owners
thereof, including what was planted at the time,

20
would hold themselves liable for the cost of evident because the judicial demand made on the
constructing the said railroad line. new debtor to comply with the obligation of the
first debtor is the best proof that the creditor
Plaintiffs could not prevent the defendant from accepts the change of the debtor. His complaint is
selling to Phil. C. Whitaker and Venancio an authentic document where his consent is given
Concepcion his "Hacienda Palma" with the rights to the change of the debtor. We are not holding
that he had over the railroad in question. The that the creditor's consent must necessarily be
defendant ceased to be a partner in said line and, given in the same instrument between the first and
therefore, the plaintiffs had to take the vendees as the new debtor. The consent of the creditor may
their new partners. be given subsequently, but in either case it must be
expressly manifested. In the present case,
Plaintiffs had to come to an understanding with however, the creditor makes judicial demand upon
the new owners of the "Hacienda Palma" in the first debtor for the fulfillment of his
connection with the railroad line "Palma-San obligation, evidently showing by this act that he
Isidro-Nandong." But in all of this, there was does not give his consent to the substitution of
nothing to show the express consent, the manifest the new debtor. We are of the opinion that the
and deliberate intention of the plaintiffs to exempt decision of the supreme court of Spain of June 16,
the defendant from his obligation and to transfer 1908, cannot be successfully invoked in support of
it to his successors in interest, Messrs. Phil. C. defendant's contention. Wherefore, we hold that
Whitaker and Venancio Concepcion. in accordance with article 1205 of the Civil Code,
in the instant case, there was no novation of the
Notwithstanding the doctrines , defendant's contract, by the change of the person of the
counsel calls our attention to the decision of the debtor.
supreme court of Spain of June 16, 1908, wherein
it was held that the provisions of article 1205 of Another defense urged by the defendant is the
Code do not mean nor require that the consent of merger of the rights of debtor and creditor,
the creditor to the change of a debtor must be whereby under article 1192 of the Civil Code, the
given just at the time when the debtors agree on obligation, the fulfillment of which is demanded in
the substitution, because its evident object being the complaint, became extinguished. It is
the full protection of the rights of the creditor, it is maintained in appellee's brief that the debt of the
sufficient if the latter manifests his consent in any defendant was transferred to Phil. C. Whitaker and
form and at any time as long as the agreement Venancio Concepcion by the document Exhibit 1.
among the debtors holds good. And defendant These in turn acquired the credit of the plaintiffs
insists that the acts performed by the plaintiffs by virtue of the debt, ; thus the rights of the
after the "Hacienda Palma" was sold to Messrs. debtor and creditor were merged in one person.
Phil. C. Whitaker and Venancio Concepcion The argument would at first seem to be
constitute evidence of the consent of the creditor. incontrovertible, but if we bear in mind that the
First of all, we should have an idea of the facts rights and titles which the plaintiffs sold to Phil. C.
upon which that decision was rendered by the Whitaker and Venancio Concepcion refer only to
supreme court of Spain. one-half of the railroad line in question, it will be
seen that the credit which they had against the
By comparing the facts of La Union y Fenix defendant for the amount of one-half of the cost
Espanol case with the defenses of the case at bar, of construction of the said line was not included
it will be seen that, whereas in the former case the in the sale contained in Exhibit 5.
creditor sued the new debtor, in the instant case
the creditor sues the original debtor. That the plaintiffs sold their rights and titles over
one-half of the line, is evident from the very
The supreme court of Spain in that case held that Exhibit 5. The purchasers, Phil. C. Whitaker and
the fact that the creditor sued the new debtor was Venancio Concepcion, to secure the payment of
proof incontrovertible of his assent to the the price, executed a mortgage in favor of the
substitution of the debtor. This would seem plaintiffs on the same rights and titles that they

21
had bought and also upon what they had partnership, is exempt from complying with his
purchased from Mr. Salvador Serra. obligation by the mere fact of the dissolution of
the partnership. Defendant's contention is
In other words, Phil. C. Whitaker and Venancio untenable. The dissolution of a partnership must
Concepcion mortgaged unto the plaintiffs what not be understood in the absolute and strict sense
they had bought from the plaintiffs and also what so that at the termination of the object for which
they had bought from Salvador Serra. If Messrs. it was created the partnership is extinguished,
Phil. C. Whitaker and Venancio Concepcion had pending the winding up of some incidents and
purchased something from Mr. Salvador Serra, the obligations of the partnership, but in such case,
herein defendant, regarding the railroad line, it was the partnership will be reputed as existing until the
undoubtedly the one-half thereof pertaining to juridical relations arising out of the contract are
Mr. Salvador Serra. This clearly shows that the dissolved.
rights and titles transferred by the plaintiffs to
Phil. C. Whitaker and Venancio Concepcion were This doctrine has been upheld by the supreme
only those they had over the other half of the court of Spain in its decision of February 6, 1903,
railroad line. Therefore, as already stated, since in the following case: There was a partnership
there was no novation of the contract between the formed between several persons to purchase some
plaintiffs and the defendant, as regards the lands sold by the state. The partnership paid the
obligation of the latter to pay the former one-half purchase price and distributed among its members
of the cost of the construction of the said railroad the lands so acquired, but after the lapse of some
line, and since the plaintiffs did not include in the time, one of the partners instituted an action in
sale, evidenced by Exhibit 5, the credit that they the court of Badajoz, praying that he be accepted
had against the defendant, the allegation that the as a partner with the same rights and obligations
obligation of the defendant became extinguished as the others, for the reason that he had not been
by the merger of the rights of creditor and debtor allowed all that he had a right to. The court
by the purchase of Messrs. Phil. C. Whitaker and granted the petition, which judgment was affirmed
Venancio Concepcion is wholly untenable. by the Audiencia de Caceres.

Appellants assign also as a ground of their appeal From that decision the defendant sued out a writ
the holding of the court that by the termination of of error alleging infringement of articles 1680 and
the partnership, as shown by the document 1700 of the Civil Code, on the proposition that all
Exhibit 5, no legal rights can be derived contracts are reputed consummated and therefore
therefrom. extinguished, when the contracting parties fulfill
all the obligations arising therefrom and that by
By virtue of the contract, the plaintiffs and Phil. C. the payment of the money and the granting and
Whitaker and Venancio Concepcion, by common distribution of the lands without any opposition,
consent, decided to dissolve the partnership the juridical relations between the contracting
between the "Hacienda Palma" and "Hacienda San parties become extinguished and none of the
Isidro," thus cancelling the contract of partnership parties has any right of action under the contract.
of February 1, 1919. The supreme court, holding that some corrections
and liquidations asked by the actor were still
Counsel for appellee in his brief and oral pending, denied the writ, ruling that the articles
argument maintains that the plaintiffs cannot cited were not infringed because a partnership
enforce any right arising out of that contract of cannot be considered as extinguished until all the
partnership, which has been annulled, such as the obligations pertaining to it are fulfilled. (11
right to claim now a part of the cost of the Manresa, page 312.)
construction of the railroad line stipulated in that
contract. The dissolution of a firm does not relieve any of
its members from liability for existing obligations,
Defendant's contention signifies that any person, although it does save them from new obligations
who has contracted a valid obligation with a to which they have not expressly or impliedly

22
assented, and any of them may be discharged from This is an action for the recovery of the sum of
old obligations by novation of other form of P115,312.50, with interests, as plaintiffs' alleged
release. It is often said that a partnership share in the profits of a partnership.
continues, even after dissolution, for the purpose
of winding up its affairs. (30 Cyc., page 659.) Plaintiffs with other associates formed a syndicate
or secret partnership for the purpose of acquiring
Another question presented by appellee's counsel the plants, franchises and other properties of the
in his memorandum and oral argument is that as Manila Electric Co. —called the Meralco — in the
in the partnership articles of February 1, 1919, it provinces of Camarines Sur, Albay, and Sorsogon,
was covenanted that the defendant would put up with the idea of continuing that company's
one-half of the cost of the railroad line within five business in that region. No formal articles were
years from the date, that is, from February 1, drawn for it was the purpose of the members to
1919, with interest at 10 per cent per annum, the incorporate once the deal had been consummated.
present action is premature since, from the They elected Pedro Serranzana and David Serrano
execution of the contract until October 25, 1922, general manager and secretary-treasurer,
the date of the complaint, the five years, within respectively, of the partnership.
which the defendant could pay his part of the cost
of the construction of the line, had not yet Negotiation for the purchase was commenced,
elapsed. Suffice it to say that the plaintiff and the defendant was taken in as a member of the
successors in interest of the defendant, by mutual partnership so that he could push the deal
consent, dissolved the partnership on June 16, through, and to that end he was given the
1920, cancelling the contract Exhibit A to all of necessary power of attorney. Using partnership
which the defendant consented as evidence by his funds, defendant was able to buy the Meralco
allegations in his answer. If this is so, there is no properties for P122,000.
reason for waiting for the expiration of the five
years which the parties themselves had seen fit to Although defendant was the one named vendee in
stipulate and therefore the provisions of article the deed of sale, there is no question that the
113, regarding the fulfillment of pure obligations, transaction was in penalty made for the
must be applied in this case. partnership so that the latter assumed control of
the business the day following the sale.
For all of the foregoing, the judgment appealed
from is reversed, and we hold that the defendant About the latter half of the following month the
Salvador Serra is indebted to the plaintiffs, the members of the partnership proceeded with the
Testate Estate of Lazaro Mota, et al., in the formation of the proposed corporation,
amount of P113,046.46, and said defendant is apportioning among themselves its shares of stock
hereby sentenced to pay the plaintiffs the said in proportion to their respective contributions to
amount, together with the agreed interest at the the capital of the partnership and their individual
rate of 10 per cent per annum from the date of the efforts in bringing about the acquisition of the
filing of the complaint. Meralco properties.

But before the incorporation papers could be

perfected, several partners, not satisfied with the
way matters were being run and fearful that the
G.R. No. L-5837 May 31, 1954 venture might prove a failure because the business
was not going well and there was a possibility of
CRISTOBAL BONNEVIE, ET AL., plaintiffs- their being assessed more than their original
appellants, investments when the time came to meet the two
vs. installments of the unpaid purchase price due the
JAIME HERNANDEZ, defendant-appellee. Meralco, expressed their desire to withdraw from
the partnership and get back the money they had
invested therein.

23
In accordance with this wish, one of them, Judge any further interest in the subsequent transactions
Jaime Reyes, in a meeting held on April 10, 1947, of the remaining members.
to consider various matters connected with the
business, presented a resolution to the effect that Lower court: found that the partnership had not
those partners who did not want to remain in the realized any profit out of the assignment of the
association should be allowed to withdraw and get Meralco properties to the corporation and that,
back their contributions. The resolution was even supposing that profit had really been made,
approved, with the plaintiffs voting affirmatively, defendant would not be the one to answer to
and on that same day plaintiffs and Judge Reyes plaintiffs for their share thereof, because he did
withdrew from the partnership, and, as admitted not receive the consideration for the assignment,
by both parties, the partnership was then which according to the court, consisted of the
dissolved. In accordance with the terms of the subscriptions of various persons to the capital
resolution, the withdrawing partners were, on the stock of the corporation. The court therefore
following day, reimbursed their respective dismissed the complaint with costs against the
contributions to the partnership fund. plaintiffs.

Following the dissolution of the partnership, the ISSUE: Whether or not the partnership had
members who preferred to remain in the business realized profit out of the Meralco properties made
went ahead with the formation of the corporation, by the defendant to the corporation. –NO
taking in new associates as stockholders. And
defendant, on his part, in fulfillment of his trust, If there was a profit, the plaintiffs are entitled for
made a formal assignment of the Meralco share –NO
properties to the treasurer of the corporation,
giving them a book value of P365,000, in return
for which the corporation issued, to the various RULING:
subscribers to its capital stock, shares of stock of
the total face value of P225,000 and assumed the
We find no merit in the appeal.
obligation of paying what was still due the Meralco
on the purchase price. The new corporation was
named "Bicol Electric Company." In the first place, the profit alleged to have been
realized from the assignment of the Meralco
properties to the new corporation, the Bicol
Though business was losing during the first year,
Electric Company, is more apparent than real.
that is, in 1947, the corporation, thanks to a loan
obtained from the RFC later prospered and made
money. Then trouble began for one of its big It is true that the value set for those properties in
stockholders, the defendant. the deed of assignment was P365,000 when the
acquisition price was only P122,000. But one
should not jump to the conclusion that a profit,
Two years from their withdrawal from the
consisting of the difference between the two sums
partnership, when the corporate business was
was really made out of the transaction, for the
already in a prosperous condition, plaintiffs
assignment was not made for cash but in payment
brought the present suit against Jaime Hernandez,
for subscriptions to shares of stock in the
claiming a share in the profit the latter is supposed
assignee, and while those shares had a total face
to have made from the assignment of the Meralco
value of P225,000, this is not necessarily their real
properties to the corporation, estimated by
worth.
plaintiffs to be P225,000 and their share of it to be
P115,312.50.
Needless to say, the real value of the shares of
stock of a corporation depends upon the value of
Defendant's answer denies that he has made any
its assets over and above its liabilities.
profit out of the assignment in question and
alleges that in any event plaintiffs, after their
withdrawal from the partnership, ceased to have It does not appear that the Bicol Electric
Company had any assets other than those acquired

24
from the Meralco, and according to the evidence and Judge Jaime Reyes withdrew from the
the company, aside from owing the Meralco, partnership on that day they did so as agreed to by
P82,000 was, in the language of the court below, all the partners, subject to the only condition that
actually "in the red." they were to be repaid their contributions or
investments within three days from said date. And
In the second place, assuming that the assignment this condition was fulfilled when on the following
actually brought profit to the partnership, it is day they were reimbursed the respective amounts
hard to see how defendant could be made to due them pursuant to the agreement.
answer for plaintiffs' alleged share. As stated in the
decision below, defendant did not receive the There is evidence that the partnership was at that
consideration for the assignment for, as already time operating its business at a loss and that the
stated, the assignment was made in payment for partnership did not have necessary funds to meet
subscriptions of various persons to the capital its obligation to Meralco for the balance of the
stock of the new corporation. Plaintiffs, in order purchase price. And in that, it should be recalled
to give color of legality to their claim against that nonpayment of that obligation would result in
defendant, maintain that the latter should be held the partnership losing its entire investment
liable for damages caused to them, consisting of because of the penalty clause in the deed of sale.
the loss of their share of the profits, due to
defendant's failure properly to perform his duty as Because of these circumstances there is every
a liquidator of the dissolved partnership, this on reason to believe that plaintiffs together with
the theory that as managing partner of the Judge Jaime Reyes, withdrew from the partnership
partnership, it was defendant's duty to liquidate its for fear that they might lose their entire
affairs upon its dissolutions. investment should they choose to remain in the
partnership which then faced the danger of losing
But it does not appear that plaintiffs have ever its entire assets.
asked for a liquidation, and as will presently be
explained no liquidation was called for because As testified to by Judge Reyes, one of the
when plaintiffs withdrew from the partnership the withdrawing partners, it was clearly understood
understanding was that after they had been that upon their withdrawal and return to them of
reimbursed their investment, they were no longer their investment they would have nothing more to
to have any further interest in the partnership or do with the association.
its assets and liabilities.
It must, therefore, have been the intention or
Moreover, the stipulation of facts made at the understanding of the parties that the withdrawing
hearing does not bear out the claim that defendant partners were relinquishing all their rights and
was the managing partner of the partnership, for if interest in the partnership upon the return to them
there appears that the partnership had its general of their investment. That Judge Reyes did not join
manager in the person of Pedro Serranzana, who the plaintiffs in this action is a clear indication that
upon the formation of the new corporation also such was really the understanding.
became its vice-president and general manager.
Judge Reyes has testified that when he was invited
As a general rule, when a partner retires from the to join in the present claim he refused because he
firm, he is entitled to the payment of what may be did not want to be a "sin verguenza." And, indeed,
due him after a liquidation. But certainly no if the agreement was that the withdrawing partners
liquidation is necessary where there is already a were still to have participation in the subsequent
settlement or an agreement as to what the retiring transactions of the partnership so that they would
partner shall receive. have a share not only in the profits but also in the
losses, it is not likely that their investment would
In the instant case, it appears that a settlement have been returned to them.
was agreed upon on the very day the
partnership was dissolved. For when plaintiffs

25
It is, therefore, our conclusion that the acceptance
by the withdrawing partners, including the
plaintiffs, of their investment in the instant case
was understood and intended by all the parties as a
final settlement of whatever rights or claim the
withdrawing partners might have in the dissolved
partnership. Such being the case they are now
precluded from claiming any share in the alleged
profits, should there be any, at the time of the
dissolution.

In view of the foregoing, we find plaintiffs' claim

against defendant to be without legal basis so that
the judgment of dismissal rendered by the court
below should be, as it is hereby, affirmed, with
costs against the appellants.

26