Singsong v. Isabela Sawmill G.R. No. L-27343, February 28, 1979, Fernandez, J.

Facts:

In 1951, defendants entered into a contract of partnership under the firm name “Isabela Sawmill”. In 1956 the
plaintiff sold to the partnership a motor truck and two tractors. The partnership was not able to pay their whole
balance even after demand was made. One of the partners withdrew from the partnership but instead of
terminating the said partnership it was continued by the two remaining partners under the same firm name.
Plaintiffs also seek the annulment of the assignment of right with chattel mortgage entered into by the
withdrawing partner and the remaining partners. The appellants contend that the chattel mortgage may no
longer be nullified because it had been judicially approved and said chattel mortgage had been judicially
foreclosed.

Issue:

Whether the withdrawal of one of the partners dissolved the partnership.

Ruling:

It does not appear that the withdrawal of the partner was not published in the newspapers. The appellees and
the public in general had a right to expect that whatever, credit they extended to the remaining partners could be
enforced against the properties of the partnership. The withdrawing partner cannot be relieved from her liability
to the creditor of the partnership due to her own fault by not insisting on the liquidation of the partnership.
Though she had acted in good faith, the appellees also acted in good faith in extending credit to the partnership.
Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused
must bear the consequences. Technically, the partnership was dissolved by the withdrawal of one of the partners.
Through her acts of entering into a memorandum with the remaining partners misled the creditors that they
were doing business with the partnership. Hence, from the order of the lower court ordering the withdrawing
partner to pay the plaintiffs, she is thus entitled for reimbursement from the remaining partners.

Villareal v. Ramirez
G.R. No. 144214, 14 July 2003

FACTS:

Petitioners formed a partnership for the operation of a restaurant and catering business. Respondent joined as a
partner in the business. Subsequently, one of the partners withdrew from the partnership, and his capital
contribution of 1/4 was refunded to him in cash by agreement of the partners.

Meanwhile, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because
of increased rental. Respondent informed petitioners that they were no longer interested in continuing their
partnership or in reopening the restaurant, and that they were accepting the latters offer to return their capital
contribution consisting of 1/3 share. However, all their written requests left unheeded.

Respondents subsequently filed a Complaint for the collection of a sum of money from petitioners.

Petitioners contended that respondents had no right to demand a return of their equity because their share,
together with the rest of the capital of the partnership, had been spent as a result of irreversible business losses.
On the other hand, Respondents alleged that they did not know of any loan encumbrance on the restaurant.
According to them, the loans incurred by petitioners should be regarded as purely personal and, as such, not
chargeable to the partnership. Respondents further averred that they had not received any regular report or
accounting from the latter, who had solely managed the business.

Hence, this Petition.

ISSUE:

Whether petitioners are liable to respondents for the latters share in the partnership.

RULING:

NO. We hold that respondents have no right to demand from petitioners the return of their equity share.

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved
when respondents informed petitioners of the intention to discontinue it because of the formers dissatisfaction
with, and loss of trust in, the latters management of the partnership affairs. Except as managers of the
partnership, petitioners did not personally hold its equity or assets. The partnership has a juridical personality
separate and distinct from that of each of the partners. Since the capital was contributed to the partnership, not
to petitioners, it is the partnership that must refund the equity of the retiring partners, the amount to be
refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners can be paid their shares, the creditors of the
partnership must first be compensated. After all the creditors have been paid, whatever is left of the partnership
assets becomes available for the payment of the partners shares.

The records show that the partnership capital was actually reduced. When petitioners and respondents ventured
into business together, they should have prepared for the fact that their investment would either grow or shrink.
In the present case, the investment of respondents substantially dwindled. The original amount of P250,000
which they had invested could no longer be returned to them, because one third of the partnership properties at
the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or
disastrous contracts they have entered into with all the required formalities and with full awareness of what they
were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply
because their contracts turn out to be disastrous deals or unwise investments.

GREGORIO MAGDUSA, ET AL., petitioners, vs.GERUNDIO ALBARAN, ET AL., respondents.G.R. No. L-17526
----------- June 30, 1962

Facts:

In the herein case, the appellant and appellees, together with other persons, had verbally formed apartnership de
facto, for the sale of general merchandise in Surigao, to which appellant contributedP2,000 as capital. Meanwhile,
the others contributed their labor, under the condition that out of the netprofits of the business 25% would be
added to the original capital, and the remaining 75% would bedivided among the members in proportion to the
length of service of each.However, sometime in 1953 and 1954, the appellees expressed their desire to withdraw
from thepartnership, and appellant thereupon made a computation to determine the value of the partners'shares
to that date. The results of the computation were embodied in a document, drawn in thehandwriting of
appellant. Appellees made demands upon appellant for payment, but appellant refused,they filed the initial
complaint in the court below. Appellant defended by denying any partnership withappellees, whom he claimed to
be mere employees of his.The Court of First Instance of Bohol refused to give credence to the document of the
computation, anddismissed the complaint on the ground that the others were indispensable parties but had not
beenimpleaded. Gregorio Magdusa then petitioned for a review of the decision, and was given it due
course.Upon appeal, the Court of Appeals reversed the decision stating that this is not an action for adissolution
of a partnership and winding up of its affairs or liquidation of its assets in which the interestof other partners who
are not brought into the case may be affected. The action of the plaintiffs is onefor the recovery of a sum of
money with Gregorio Magdusa as the principal defendant. The partnership,with Gregorio Magdusa as managing
partner, was brought into the case as an alternative defendantonly.

Issue:

Whether or not appellees' action can be entertained.

SC Ruling:

According to the Court, No, it cannot be entertained. As stated in the case of Po Yeng Cheo vs. Lim KaYam, a
partner's share cannot be returned without first dissolving and liquidating the partnership, for the return is
dependent on the discharge of the creditors, whose claims enjoy preference over those of the partners; and it is
self-evident that all members of the partnership are interested in his assets and business, and are entitled to be
heard in the matter of the firm's liquidation and the distribution of its property. The liquidation is not signed by
the other members of the partnership besides appellees and appellant; it does not appear that they have
approved, authorized, or ratified the same, and, therefore, it is not binding upon them. At the very least, they are
entitled to be heard upon its correctness. In addition, unless a proper accounting and liquidation of the
partnership affairs is first had, the capital shares of the appellees, as retiring partners, cannot be repaid, for the
firm's outside creditors have preference over the assets of the enterprise, as states in the Civil Code, Art. 1839),
and the firm’s property cannot be diminished to their prejudice. Finally, the appellant cannot be held liable in his
personal capacity for the payment of partners' shares for he does not hold them except as manager of, or trustee
for, the partnership. It is the latter that must refund their shares to the retiring partners. Since not all the
members of the partnership have been impleaded, no judgment for refund can be rendered. Thus, the decision of
the Court of Appeals was reversed and the action filed by the appellant was ordered dismissed such without
prejudice to a proper proceeding for the dissolution and liquidation of the common enterprise.