Testate Estate of Mota v.
Serra The agreed capital (P150k) however, did not prove sufficient, as the
February 14, 1925
TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs-
appellants,
vs.
SALVADOR SERRA, defendant-appellee.
VILLAMOR, J.:
SUMMARY: Serra, as owner of Palma Central, entered into a contract of
partnership with Mota et al, as owners of San Isidro Central, for the
construction of a railroad line. In said agreement, they stipulated that
expenses will be borne by both parties 50-50 although expenses will be
initially for the account of Mota et. al. Subsequently however, Serra sold
Palma to Whitaker & Concepcion, the latter expressing awareness of above
contract and willingness to subrogate themselves into the obligations therefor.
Thereafter, Concepcion & Whitaker also bought from Mota et al. the of the
railroad line and they agreed that the partnership "Palma" and "San Isidro,"
formed between Serra & Mota et al, should be dissolved upon the execution
of the contract. Serra being unable to pay his obligation under the contract of
partnership (1/2 of the expenses), Mota et. al. instituted an action for
collection. As defense, Serra alleged that at the termination of the partnership
between them, his obligation therein has been extinguished. HELD: Serra is
still liable to the partnership.
DOCTRINE: The dissolution of a firm does not relieve any of its members
from liability for existing obligations, although it does save them from new
obligations to which they have not expressly or impliedly assented, and any
of them may be discharged from old obligations by novation or other form of
release. A partnership continues, even after dissolution, for the purpose
of winding up its affairs. At the termination of the object for which it was
created the partnership is extinguished, pending the winding up of some
incidents and obligations of the partnership, but in such case, the partnership
will be reputed as existing until the juridical relations arising out of the
contract are dissolved. A partnership cannot be considered as
extinguished until all the obligations pertaining to it are fulfilled.
FACTS:
Feb. 1, 1919: Defendant Salvador Serra, Lazaro Mota, now deceased,
and Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix
and Dionisio Vidaurrazaga, entered into a contract of partnership for
the construction and exploitation of a railroad line of about 10 kms. from
the "San Isidro" and "Palma" centrals to the place known as "Nandong."
o Original capital stipulated: P150,000 to be paid by parties in
equal parts
o Mota et. al. were entrusted with the administration of the
partnership.
o Mota et al owns "San Isidro" Central while Serra owns Palma
Central
o The expenses until the termination of which shall be for the
account of the "San Isidro" Central (Mota et al)
o of expenses shall be borne by the "Palma" Central (Serra)
with the obligation to reimburse Mota et al within 5 years with
interest at the rate of 10% p.a.
expenses up to May 15, 1920, had reached P226,092.92
Jan. 29, 1920: Serra entered into a contract of sale with Venancio
Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
o Serra sold the estate and central known as "Palma" with its
running business, as well as all the improvements, machineries
and buildings, real and personal properties, rights, choses in
action and interests, including the sugar plantation of the
harvest year of 1920 to 1921, covering all his property
o They were willing to assume the Serra's obligation to Mota et al
o Contract, par. 5: xxx The vendee hereby obligates himself to
respect the aforesaid contract (Contract of Partnership) and all
obligations arising therefrom.
Before the delivery to the purchasers of the hacienda thus sold,
Luzuriaga renounced all his rights under the contract of sale in favor of
Concepcion & Whitaker.
July 17, 1920: Thus, Concepcion, Whitaker & Serra executed another
deed of absolute sale of the said "Palma" Estate for P1,695,961.90.
o Serra received at the time of executing the deed and the
balance was payable by installments in the form and manner
stipulated in the contract.
o Purchasers guaranteed the unpaid balance of the purchase
price by a first and special mortgage in favor of Serra upon
the hacienda and the central with all the improvements,
buildings, machineries, and appurtenances then existing on the
said hacienda.
o Clause 6 of the deed: Whitaker & Concepcion state that they
are aware of the contract that Serra has with the proprietors of
the "San Isidro" Central and hereby obligate themselves to
respect the said contract and subrogate themselves into
the rights and obligations thereunder. They also bind
themselves to comply with all the contracts heretofore entered
by the vendor with the customers, coparceners on shares and
employees.
Jan. 8, 1921: Concepcion & Whitaker bought from Mota et al. the of
the railroad line pertaining to the latter, executing a Contract of Sale.
o Price: P237,722.15, excluding any amount which Serra might
be owing to Mota et al.
o Of the purchase price, Concepcion & Whitaker paid P47,544.43
only.
o They agreed that the partnership "Palma" and "San Isidro,"
formed by the agreement of Feb. 1, 1919 should be
dissolved upon the execution of the contract, and that the
said partnership agreement should be totally cancelled and
of no force and effect whatever.
Thus, "Hacienda Palma," with the entire railroad, the subject-matter of
the contract of partnership between Mota et al. and Serra, became the
property of Whitaker & Concepcion.
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 Whitaker & Concepcion having failed to pay to Serra a part of the
purchase price (P750,000), Serra, foreclosed the mortgage upon the
said hacienda.
o It was adjudicated to him at the public sale for P500,000. He
was put in possession including what was planted at the time,
together with all the improvements made by Whitaker &
Concepcion.
Since Serra failed to pay of the amount expended by Mota et al. upon
the construction of the railroad line (P113,046.46), as well as Whitaker &
Concepcion, Mota et al. instituted the present action. PRAYER:
o (1) That the deed of Feb. 1, 1919 (Contract of Partnership) be
declared valid and binding;
o (2) That after the execution of the said document, Serra
improved economically so as to be able to pay Mota et al. the
amount owed, but that he refused to pay either in part or in
whole the said amount notwithstanding the several demands
made on him for the purpose; and
o (3) Serra be sentenced to pay Mota et al. P113,046.46, with the
stipulated interest at 10% p.a.
Serra set up three special defenses:
o (1) The novation of the contract by the substitution of the debtor
with the conformity of the creditors;
o (2) the confusion of the rights of the creditor and debtor; and
o (3) the extinguishment of the contract (Contract of partnership)
TC: Absolved Serra from the complaint.
o There was a novation of the contract by the substitution of the
debtor. Whitaker & Concepcion, upon purchasing the "Palma"
Central, were subrogated in the place of the Serra in all his
rights and obligations under the contract relating to the railroad
line existing between "Palma" and "San Isidro" centrals and
Mota et al. agreed to this subrogation
o As to the prayer that contract of partnership be declared valid
and binding, there was no way of reviving the contract which the
parties themselves in interest had spontaneously and voluntarily
extinguished thru the Contract of Sale bet. Concepcion,
Whitaker & Mota et al. on of the railroad
Mota et al. appealed to SC.
ISSUE: Whether Serra cannot be held liable to pay Mota et. al. a part of the
cost of the construction of the railroad line stipulated in the contract of
partnership by reason of the dissolution of the partnership? (NO, Serra is
liable)
RATIO:
NOVATION
Serra: By the substitution of the debtor with the consent of the creditor,
the obligation of Serra to pay his obligation under the contract of
partnership was extinguished since there was a novation of the contract
SC: There was no novation. There was none intended; Mota et. al have
not expressly consented to the substitution of Serra.
It should be noted that in order to give novation its legal effect, the law
requires that the creditor should consent to the substitution of a new
debtor. This consent must be given expressly for the reason that, since
novation extinguishes the personality of the first debtor who is to be
substituted by new one, it implies on the part of the creditor a waiver of
the right that he had before the novation which waiver must be express
The fact that Phil. C. Whitaker and Venancio Concepcion were willing to
assume the Serra's obligation to Mota et al. is of no avail, if the latter
have not expressly consented to the substitution of the first debtor.
Letter presented as proof of alleged consent of Mota et. al to the
substitution of Whitaker & Concepcion only shows that they asked the
two to be their new partners (not substituted). It is natural that Mota et
al. should have done this. Still, there was nothing to show the express
consent, the manifest and deliberate intention of Estate of Mota et al. to
exempt Serra from his obligation and to transfer it to his successors in
interest, Whitaker & Concepcion.
o Serra transferred his hacienda to C. Whitaker & Concepcion
and made it known to Mota et al. that the new owners would
hold themselves liable for the cost of constructing the said
railroad line. Mota et al. could not prevent the Serra from selling
to them his "Hacienda Palma" with the rights that he had over
the railroad in question.
o Serra ceased to be a partner in said line and, therefore,
Mota et al. had to take the vendees as their new partners.
o Mota et al. had to come to an understanding with the new
owners of the "Hacienda Palma" in connection with the railroad
line "Palma-San Isidro-Nandong."
Mota et al. were not a party to the Contract of Sale between Serra,
Whittaker, Concepcion & Luzuriaga. No stipulation whereby the
obligation of the Serra was novated with the consent of the creditor
MERGING OF DEBTOR & CREDITOR
Serra: There was a merger of the rights of debtor and creditor, whereby
the fulfillment of the obligation became extinguished.
o Debt of Serra was transferred to Whitaker & Concepcion by the
Contract of Sale bet. Serra, Whittaker, Concepcion & Luzuriaga.
o These in turn acquired the credit of the Testate Estate of Lazaro
Mota et al. by virtue of the debt (Contract of Sale on of the
railroad); thus the rights of the debtor and creditor were merged
in one person.
SC: No. The rights and titles which Mota et al. sold to Whitaker &
Concepcion refer only to one-half of the railroad line. The credit which
they had against Serra for of the cost of construction of the said line
was not included in the sale contained in the Contract of Sale on of the
railroad.
That Mota et al. sold their rights and titles over of the line, is evident
from the very Contract of Sale. The purchasers, Whitaker and
Concepcion, to secure the payment of the price, executed a mortgage in
favor of Mota et al. on the same rights and titles that they had bought
and also upon what they had purchased from Serra.
In other words, Whitaker & Concepcion mortgaged unto Mota et al. what
they had bought from Mota et al. and also what they had bought from
Serra.
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 The rights and titles transferred by Mota et al. to Whitaker & Concepcion
were only those they had over the other half of the railroad line.
No novation of the contract between Mota et al. and Serra, as regards
the obligation of the latter to pay the former of the cost of the
construction of the said railroad line, and since Mota et al. did not include
in the sale, evidenced by Contract of Sale, the credit that they had
against the Serra.
That the obligation of the Serra became extinguished by the merger of
the rights of creditor and debtor by the purchase of Whitaker and
Concepcion is wholly untenable.
TERMINATION OF PARTNERSHIP
By virtue of the Contract of Sale on of the railroad, the Testate Estate
of Lazaro Mota et al. and Phil. C. Whitaker and Venancio Concepcion, by
common consent, decided to dissolve the partnership between
"Hacienda Palma" and "Hacienda San Isidro," thus cancelling the
contract of partnership of February 1, 1919.
TC: By the termination of the partnership, as shown by the Contract of
Sale bet. Concepcion, Whitaker & Mota et al, no legal rights can be
derived therefrom.
Serra: Mota et al. cannot enforce any right arising out of that contract of
partnership, which has been annulled, such as the right to claim now a
part of the cost of the construction of the railroad line stipulated in that
contract.
SC: Serra's contention signifies that any person, who has contracted a
valid obligation with a partnership, is exempt from complying with his
obligation by the mere fact of the dissolution of the partnership. Serra's
contention is untenable.
The dissolution of a partnership must not be understood in the absolute
and strict sense so that at the termination of the object for which it
was created the partnership is extinguished, pending the winding
up of some incidents and obligations of the partnership, but in such
case, the partnership will be reputed as existing until the juridical
relations arising out of the contract are dissolved.
SC of Spain (Feb. 6, 1903): Upheld this doctrine
FACTS: There was a partnership formed between several persons to
purchase some lands sold by the state. The partnership paid the
purchase price and distributed among its members the lands so
acquired.
o After the lapse of some time, one of the partners instituted an
action in the court of Badajoz, praying that he be accepted as a
partner with the same rights and obligations as the others, for
the reason that he had not been allowed all that he had a right
to.
o The court granted the petition, which judgment was affirmed by
the Audiencia de Caceres.
o From that decision, the other partner sued out a writ of error
There is infringement of the Civil Code since all
contracts are reputed consummated and therefore
extinguished, when the contracting parties fulfill
all the obligations arising therefrom
By the payment of the money and the granting and
distribution of the lands without any opposition, the
juridical relations between the contracting parties
become extinguished and none of the parties has
any right of action under the contract.
HELD: Denied the writ. Some corrections and liquidations asked by the
actor were still pending. The articles cited were not infringed because a
partnership cannot be considered as extinguished until all the
obligations pertaining to it are fulfilled. (11 Manresa, page 312.)
30 Cyc., page 659: The dissolution of a firm does not relieve any of
its members from liability for existing obligations, although it does
save them from new obligations to which they have not expressly
or impliedly assented, and any of them may be discharged from old
obligations by novation of other form of release. It is often said that
a partnership continues, even after dissolution, for the purpose of
winding up its affairs
INTEREST
Serra: As in the articles of partnership on Feb. 1, 1919, it was agreed
that Serra would put up of the cost of the railroad line within 5 years
from Feb. 1, 1919, with interest at 10% p.a. Present action is premature
since, from the execution of the contract until the date of the complaint
(Oct. 25, 1922), the 5 years, within which the Serra could pay his part of
the cost of the construction of the line, had not yet elapsed.
SC: Mora et.al and the successors in interest of the Serra, by
mutual consent, dissolved the partnership on June 16, 1920,
cancelling the contract of partnership to all of which Serra consented
as evidenced by his allegations in his answer. Thus, there is no reason
for waiting for the expiration of 5 years which the parties themselves had
seen fit to stipulate. The provisions of Art. 113, regarding the fulfillment
of pure obligations, must be applied in this case.
DISPOSITIVE: Judgment appealed from Reversed. Serra is indebted to
Testate Estate of Lazaro Mota, et al., for P113,046.46 with the agreed interest
@ 10% p.a. from the date of the filing of the complaint.
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