BUSINESS LAW CASES – COMPILED

1. DAN FUE LEUNG VS IAC

FACTS:
 Dan Fue Leung.The Sun Wah Panciteria was registered as a single proprietorship and its licenses and permits were issued to and
in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00 to its
initial establishment. Lower court ruled in favor of the private respondent. Petitioner appealed the trial court's amended decision.
However,the questioned decision was further modified and affirmed by the appellate court.
 Both the trial court and the appellate court declared that the private petitioner is a partner and is entitled to a share of the annual
profits of the restaurant. Hence, an appeal to the SC.The petitioner argues that private respondent extended 'financial assistance' to
herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent allegedly will
receive a share in the profits of the restaurant. It was, therefore, error for the Appellate Court to interpretor construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership.

ISSUE:
WON the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

HELD:
In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived from the operation of the said panciteria.
These allegations, which were proved, make the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria
because Article 1767 of the Civil Code provides that"By the contract of partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among themselves". Therefore, the lower courts did not err in
construing the complaint as one wherein the private respondent asserted his rights as partner of the petitioner in the establishment of the Sun
Wah Panciteria, notwithstanding the use of the term financial assistance therein.SC affirmed appellate court's decision and ordered the
dissolution of the partnership

2. Munasque vs. Court of Appeals,

G.R. No. L-39780 November 11, 1985
FACTS:
 Munasque (petitioner) entered into a partnership with Galan under the registered name\“Galan and Associates” as Contractor. They
entered into a written contract with respondent Tropical for remodeling the latter’s Cebu branch building. Under the contract, the
project totaled 25,000 to be paid in installments; 7, 000 upon signing and 6, 000 every 15 working days.
 Tropical made the first payment by check in the name of Munasque. Munasque indorsed the check in favor of Galan to enable
Galan to deposit it in the bank and pay for the materials and labor used in the project. However, Galan allegedly spent P6, 183.37
for his personal use. When the second check came, Munasque refused to indorse it again to Galan.
 Galan informed Tropical of the misunderstanding between him and Munasque as partners. Hence upon second payment, Tropical
changed the name of the payee on the second check from Munasque to “Galan and Associates” which enabled Galan to encash the
second check.
 Meanwhile, the construction was continued through Munasque’s sole efforts by incurring debts from various suppliers. The
construction work was finished ahead of schedule with the total expenditure reaching P 34, 000 (note yung contract nila 25k lang).
 Munasque filed a complaint for payment of sum of money and damages against Galan, Tropical, and Tropical’s Cebu branch
manager Pons. Cebu Southern Hardware Company and Blue Diamond Glass Palace intervened in the case for the credit which
they extended to the partnership of Munasque and Galan for the construction project.
 Both trial court and Court of Appeals absolved respondents Tropical and its Cebu manager, Pons, from any liability. TC held Galvan
and Munasque “jointly and severally” liable to its creditors which decision was modified by CA and held them “jointly” liable.
ISSUE:
Whether the obligation of Munasque and Galan is joint or solidary?
HELD:
Solidary. While it is true that under Article 1816 of CC, “All partners, including industrial ones, shall be liable pro rate with all their
property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and for account of
the partnership, under its signature and by a person authorized to act for the partnership. xxx”, this provision should be construed together
with Article 1824 which provides that:

“All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. ”

While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with
said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 and
1823.The obligation is solidary because the law protects him, who in good faith relied upon the authority of a partner, whether such authority
is real or apparent.

Tropical had every reason to believe that a partnership existed between Munasque and Galan and no fault or error can be imputed
against it for making payments to “Galan and Associates” because as far as it was concerned, Galan was a true partner with real authority to
transact in behalf of the partnership it was dealing with (because in the first place they entered into a duly registered partnership name and
secondly, Munasque endorsed the first check payment to Galan). This is even more true in the cases of the intervenors who supplied
materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein
should be answered solidarily by all the partners and the partnership as a whole.

However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors as it was
satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.
BUSINESS LAW CASES – COMPILED

3. BEARNEZA VS. DEQUILLA, 43 Phil 237

FACTS:
 During the year 1903, the partnership is formed by Perpetua Berneaza and Balbino Dequilla. This partnership is for the purpose of
exploiting a fish pond with the former, obligating herself to contribute for the payment of expenses of the business, and both
agreeing on the division of profits between themselves. Those are what they have been doing until the death of Perpetua in the year
1912.
 According to the left will of the deceased partner, she appointed Domingo Bearneza, the plaintiff, as her heir to all her rights and
interests in the fish pond in question.
 Domingo Bearneza then made actions to recover a part from the fish pond as well as the half of profits received by the defendant
from the years 1913-1919.
 The defendant denies allegations from the compliant and alleges that "the formation of the supposed partnership between the
plaintiff and the defendant for the exploitation of the aforesaid fish pond was not carried into effect, on account of the plaintiff having
refused to defray the expenses of reconstruction and exploitation of said fish pond". Moreover, the defendant also said that "the
plaintiff's action has prescribed, the time for bringing the same having elapsed".
 Proceedings have been held and the court made a judgement of declaring that the plaintiff owner of the half of the fish pond but
without awarding him any of the damages claimed by him.The defendant appeals.
ISSUE:
Does the plaintiff has any right to maintain an action for recovery of the one-half or the fish pond.
RULING:
The partnership made was a particular partnership as defined in article 1678 of the Civil Code, it having had for its subject-matter a
specified thing. It was not been proven that Perpetua anticipated in the ownership of the said land on which thwe fish pond was built.
In conclusion, the land where the fish pond was built does not constiture a subject matter for the partnership.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status was that of a partnership in liquidation,
and the only rights inherited by her testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor of the
deceased partner, and nothing more.

4. PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs.THE HON. COURT OF APPEALS, BORDER MACHINERY &
HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

FACTS:
 In 1965, Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines (SAL), a single proprietorship.
On May 17, 1965, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract for the sale and purchase of
two aircrafts and one set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. On May
22, 1965, Pioneer Insurance and Surety Corporation as surety executed and issued its Surety Bond No. 6639in favor of JDA, in
behalf of its principal, Lim, for the balance price of the aircrafts and spare parts.
 It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes
(Cervanteses) and Constancio Maglana contributed some funds used in the purchase of the above aircrafts and spare parts. The
funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. On June 10,
1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for
the latter's suretyship in favor of the former. It was stipulated therein that Lim transfer and convey to the surety the two aircrafts.
 However, Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Hence,
Pioneer paid a total sum of P298,626.12. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage.
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim
and respondents, the Cervanteses, Bormaheco and Maglana.
 RTC held Lim liable to pay Pioneer but dismissed Pioneer's complaint against Maglana, Bormaheco and the Cervanteses. On
appeal, the CA reversed the lower court’s decision. Lim contends that as a result of the failure of respondents Bormaheco, Spouses
Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution.
ISSUE:
Whether or not Maglana, Bormaheco and the Cervanteses must share in the loss of the venture in proportion to their contribution.
HELD:
No. Maglana, Bormaheco and the Cervanteseswill not share in the loss of the venture in proportion to their contribution because
there’s no de facto partnership.

Ordinarily, when co-investors agreed to do business through a corporation but failed to incorporate, a de facto partnership would
have been formed, and as such, all must share in the losses and/or gains of the venture in proportion to their contribution. Thus, where
persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to
come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the
company to the property acquired by the company will be recognized

However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as
between themselves, when their purpose is that no partnership shall exist.

In the instant case, it is to be noted that the petitioner denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana.It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite
his representations to them. This gives credence to the cross-claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement.
BUSINESS LAW CASES – COMPILED

Therefore, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-
be incorporators in transacting the sale of the airplanes and spare parts.

5. CATALAN vs. GATCHALIAN105 Phil 1270, G.R. No. L-11648, April 22, 1959

FACTS:
 Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Marave together with the improvements thereon to secure a
credit from the latter. The partnership failed to pay the obligation. The properties were sold to Dr. Marave at a public auction.
Catalan redeemed the property and he contends that title should be cancelled and a new one must be issued in his name.
ISSUE:
Did Catalans redemption of the properties make him the absolute owner of the lands?
HELD:
No. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any benefits or profits derived
from his act as a partner. Consequently, when Catalan redeemed the properties in question, he became a trustee and held the same in trust
for his copartner Gatchalian, subject to his right to demand from the latter his contribution to the amount of redemption.

6. ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs.SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee. G.R.
No. L-17295 July 30, 1962

FACTS:
 The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic Act No. 1180.
 May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a term of five years
from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was "to maintain the business of general
merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the
Securities & Exchange Commission on June 16, 1953.
 On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its
enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its
term.
 On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after the enactment of
the Republic Act 1180, the partners already mentioned amended the original articles of part ownership (Exhibit B) so as to extend
the term of life of the partnership to another five years. When the amended articles were presented for registration in the Office of
the Securities & Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension was in
violation of the aforesaid Act.
 From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.
ISSUE:
Whether the extension of the life of the partnership is permissible given that such extension is in violation of RA 1180
RULING:
The question before us is too clear to require an extended discussion. To organize a corporation or a partnership that could claim a
juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under
such terms as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by law, had the right
to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may engage in the retail
business can not be seriously disputed. That this provision was clearly intended to apply to partnership already existing at the time of the
enactment of the law is clearly showing by its provision giving them the right to continue engaging in their retail business until the expiration of
their term or life.

To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the
provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision constitute
a property right of which the partners can not be deprived without due process or without their consent. The agreement contain therein must
be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In the present case, as already
stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were already in force, and there can be
not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to another five years would be in
violation of the clear intent and purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.

7. ALFREDO N. AGUILA v. CA, GR No. 127347, 1999-11-25

FACTS:
 Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private respondent and her late
husband, Ruben M. Abrogar, were the registered owners of a house and lot... private respondent, with the consent of her late
husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement
 A.C. Aguila & Sons, Co.] shall buy the above-described property from the FIRST PARTY
 Deed of Absolute Sale shall be executed by the FIRST PARTY conveying the property to... the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos
 FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said property within a period of ninety (90)
days from the execution of this memorandum of agreement effective April 18, 1991, for the amount of TWO HUNDRED THIRTY
THOUSAND PESOS
BUSINESS LAW CASES – COMPILED

 In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within a period of ninety (90) days, the
FIRST PARTY is obliged to deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15) days after
the... expiration of the said 90 day grace period.
 During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or whatever claims on the property nor
shall be cause the annotation of say claim at the back of the title
 FIRST PARTY warrants her ownership of the property and shall defend the rights of the SECOND PARTY against any party whom
may have any interests over the property
 Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY after the expiration of the 15-
day grace period given in paragraph 3 above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the principal
amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of delay... Should the FIRST PARTY fail to exercise her
option to repurchase the property within ninety (90) days period above-mentioned, this memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale, executed by the parties shall be the final contract considered... as entered between the
parties and the SECOND PARTY... parties likewise executed a deed of absolute sale,[3] dated June 11, 1991, wherein private
respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons... private respondent authorized
petitioner to cause the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and
Sons... in the... event she failed to redeem the subject property as provided in the Memorandum of Agreement.
 Private respondent failed to redeem the property... petitioner caused the cancellation of TCT No. 195101 and the issuance of a new
certificate of... title in the name of A.C. Aguila and Sons, Co
 Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment case against her
Metropolitan Trial Court ruled in... favor of A.C. Aguila & Sons, Co. on the ground that private respondent did not redeem the subject
property before the expiration
 Private respondent appealed first to the Regional Trial Court, Branch 163, Pasig,... Metro Manila, then to the Court of Appeals, and
later to this Court, but she lost in all the cases
 Private respondent then filed a petition for declaration of nullity of a deed of sale. She alleged that the signature of her husband on
the deed of sale was a forgery because he was already... dead when the deed was supposed to have been executed on June 11,
1991.
 Private respondent had filed a criminal complaint for falsification against petitioner... which was dismissed. Court is convinced that
the three required documents, to... wit: the Memorandum of Agreement, the Special Power of Attorney, and the Deed of Absolute
Sale were all signed by the parties on the same date on April 18, 1991. It is a common and accepted business practice of those
engaged in money lending to prepare an undated absolute deed... of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff never questioned receiving the sum of P200,000.00
representing her loan from the defendant. Common sense dictates that an established... lending and realty firm like the Aguila &
Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who are virtual strangers to it, without the simultaneous
accomplishment and signing of all the required documents, more particularly the Deed of Absolute Sale, to... protect its interest...
facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is indubitably an equitable
mortgage. Article 1602 of the New Civil Code finds strong application in the case at bar
 It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil Code is sufficient to declare a
contract of sale with right to repurchase an equitable mortgage.
 Plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has retained possession of the subject property and
has continued paying the realty taxes over the subject property, (circumstances mentioned in par. (1) (2) and (5) of Article 1602... of
the New Civil Code), it must be conclusively presumed that the transaction the parties actually entered into is an equitable
mortgage, not a sale with right to repurchase.
 Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium which is clearly prohibited
by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code reads:

“ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation
to the contrary is null and void.”

Clearly, the agreement entered into by the parties is in the nature of pactum commissorium. Therefore, the deed of sale should
be declared void as we hereby so declare to be invalid, for being violative of law.

Appealed decision is hereby REVERSED and SET ASIDE.

The loan in the amount of P230,000.00 shall be paid within ninety (90) days from the... finality of this decision. In case of
failure to pay the amount of P230,000.00 from the period therein stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess
ISSUES:
 he is not the real party in interest but A.C. Aguila & Co., against which this case should have been brought;
 the judgment in the ejectment case is a bar to the filing of the complaint for declaration of nullity of a deed of sale in this... case; and
 the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an equitable mortgage as
held by the appellate court.
RULING:
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of the partners."
The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical...
personality is being used for fraudulent, unfair, or illegal purposes.
Private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or
illegal purposes. Moreover,... the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement
was executed between private respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co., represented by petitioner.
Hence, it is the... partnership, not its officers or agents, which should be impleaded in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint.
BUSINESS LAW CASES – COMPILED

We cannot understand why both the Regional Trial Court and the Court of Appeals sidestepped this issue when it was squarely
raised before them by petitioner.

Our conclusion that petitioner is not the real party in interest against whom this action should be prosecuted makes it unnecessary
to discuss the other issues raised by him in this appeal.

8. HEIRS OF TANG ENGKEE VS CA

FACTS:
After the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, to revive a business
engaged in the business of selling lumber and hardware and construction supplies called "Benguet Lumber". The heirs of Tang Eng Kee
herein claimed Eng Kee and Tan Eng Lay entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. Moreover, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet Lumber Company." The incorporation was supposedly a ploy to deprive Tan EngKee and his
heirs of their rightful participation in the profits of the business. Tan Eng Lay denied that there was a partnership between him and his brother.
He said that Tan Eng Kee was merely an employee of Benguet Lumber. In fact, Tan Eng Lay was able to show evidence that Benguet
Lumber is a sole proprietorship. He registered the same as such in 1954; that Kee was just an employee based on the latter’s payroll and
SSS coverage, and other records indicating Tan Eng Lay as the proprietor. The heirs of Tang Eng Kee requested for the accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber. The
RTC ruled in favor of petitioners, declaring that Benguet Lumber is a joint venture which is akin to a particular partnership. The Court of
Appeals reversed the judgement of RTC.
ISSUE:
Whether Tang Eng Kee is a partner
RULING:
There was no partnership whatsoever. The heirs were not able to show the agreement between the brothers as to the sharing of
profits. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the partnership. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a partnership. Also, the Supreme Court emphasized that for 40
years, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses. Each
has the right to demand an accounting as long as the partnership exists.

9. Hanlon vs. Haussermann and Beam

FACTS:
 This action was originally instituted by R. Y. Hanlon to compel the defendants, John W.Haussermann and A. W. Beam, to account
for a share of the profits gained by them in rehabilitating the plant of the Benguet Consolidated Mining Company and in particular to
compel them to surrender to the plaintiff 50,000 shares of the stock of said company, with dividends paid there on. It was initially
agreed by Hanlon, Haussermann, Beam and Sellner that P75,000.00 was needed to rehabilitate the mine; P50,000.00 would come
from Hanlon by securing and obtaining subscriptions for the company’s stocks, P25,000.00 would come from Haussermann and
Beam.
 They were to receive compensation in the form of shares of stock for the services rendered in the flotation of this proposition. The
funds were needed on a certain date. It was also stated in the contract that Haussermann and Beam would be discharged if Sellner
could not provide the amount due from him within the time frame stipulated. Hanlon was unable to raise the P75,000.00, so that
Haussermann and Beam made arrangements to finance the rehabilitation of the mine. Because of this new arrangement, the
company became profitable that it was able to pay dividends. Because of this, the value of the company’s stocks appreciated.
HELD:
Hanlon is not entitled to an accounting for his share in the profits of the company; Haussermann and Beam are absolved. Under the
equitable doctrine, if the contracting parties have treated time as of the essence of the contract, the delinquency will not be excused and
specific performance will not be granted; but on the other hand, if it appears that time has not been made of the essence of the contract,
equity will relieve from the delinquency and specific performance may be granted, due compensation being made for the damage caused by
the delay.
Time is of the essence of the contract for the sale of an option on mining property, or a contractfor the sale thereof, even though
there is no express stipulation to that effect.
The same idea is clearly applicable to a contract like that now under consideration which provides for the rehabilitation of a mining
plant with funds to be supplied by the contractor within a limited period.

10. Idos v. CA G.R. NO. 110782, September 25, 1998

FACTS:
In 1985, Eddie Alarilla and Irma Idos formed a partnership which they decided to terminate after a year. To pay Alarilla’s share of the
asset, Idos issued 4 post dated checks. Alarilla was able to encash the first, second and fourth checks but the third was dishonored for
insufficiency of funds. He demanded payment but Idos failed to pay. She claimed that the checks were issued as assurance of Alarilla’s share
in the assets of the partnership and that it was supposed to be deposited until the stocks were sold. He filed an information for violation of BP
blg. 22 against Idos in which she was found guilty by the trial court.
ISSUE:
Did the court confused and merged into one the legal concepts of dissolution, liquidation and termination of a partnership?
RULING:
The partners agreement to terminate the partnership did not automatically dissolved the partnership. They were in the process of
winding-up when the check in question was issued. The best evidenceof the existence of the partnership, which was not yet terminated were
the unsold goods and uncollected receivables which were presented to the trial court. Article 1829 of the Civil Code provides that “on
dissolution the partnership is not terminated but continues until the winding-up of partnership affairs is completed. Since the partnership has
BUSINESS LAW CASES – COMPILED

not been terminated, Idos and Alarilla remained co-partners. The check was issued by petitioner to respondent as would a partner to another
and not as a payment by debtor to creditor. Thus, absent the first element of the complained offense, the act is not punishable by the statute.

11. LAGUNA TRANSPORTATION CO., INC. VS SSS

DOCTRINE:
Where a corporation was formed by, and consisted of members of a partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its business, in payment for which corporate capital stock was issued, such
corporation is presumed to have assumed partnership debts, and is prima facie liable therefor
FACTS:
 Sometime in 1949 the Binan Transportation Co sold part of the lines and equipment it operates to Gonzalo Mercado, Artemio
Mercado, Florentino Mata and Dominador Vera Cruz. After this sale, the vendees formed an unregistered partnership under the
name of Laguna Transportation Company which continued to operate the lines and equipment bought from Binan Transpo
Company.
 The original partners with an additional two members, organized a corporation known as the Laguna Transportation Company, Inc
which was registered with the SEC. the petitioner corporation filed this case praying that an order be issued by the court declaring
that it is not bound to register as a member of respondent SSS and that they are not obliged to pay the latter the contributions
required under the Social Security Act. It is worthy to note that the corporation continued the same transportation business of the
unregistered partnership. The corporation was claiming exemption from coverage for it only started its business on June 20, 1956
but Nov. 11 1957 the SSS notified it that it was within the coverage of the Social Security Act.
ISSUE:
WON the plaintiff is within the coverage of the Social Security Act already? YES.
HELD:
Section 9 of the Social Security Act, in part, provides:

SEC. 9 Compulsory Coverage. — Coverage in the System shall be compulsory upon all employees between the ages of sixteen and sixty
years, inclusive, if they have been for at least six months in the service of an employer who is a member of the System. Provided, That the
Commission may not compel any employer to become a member of the System unless he shall have been in operation for at least two
years .

The partnership Laguna Transportation Company commenced its business as a common carrier in 1949. When it filed to be formed
as a corporation, it only added the word “Inc” to indicate that it was now duly incorporated under existing laws. Since it continued the same
business like the unregistered partnership, there was only a change in form.

Where a corporation was formed by, and consisted of members of a partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its business, in payment for which corporate capital stock was issued, such
corporation is presumed to have assumed partnership debts, and is prima facie liable therefor. The reason for the rule is that the members of
the partnership may be said to have simply put on a new coat, or taken on a corporate cloak, and the corporation is a mere continuation of
the partnership. Hence, there was really no need to exempt them for it has been operating already for more than six years by continuing with
the business of the partnership.

12. Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO. L-11840, December 10, 1963
FACTS:
Tan Sin An and Goquiolay entered into a general commercial partnership under the partnership name “Tan Sin An and Antonio
Goquiolay” for the purpose of dealing in real estate. The agreement lodged upon Tan Sin An the sole management of the partnership affairs.
The lifetime of the partnership was fixed at ten years and the Articles of Co-partnership stipulated that in the event of death of any of the
partners before the expiration of the term, the partnership will not be dissolved but will be continued by the heirs or assigns of the deceased
partner. But the partnership could be dissolved upon mutual agreement in writing of the partners. Goquiolay executed a GPA in favor of Tan
Sin An. The plaintiff partnership purchased 3 parcels of land which was mortgaged to “La Urbana” as payment of P25,000. Another 46
parcels of land were purchased by Tan Sin An in his individual capacity which he assumed payment of a mortgage debt for P35K. A
downpayment and the amortization were advanced by Yutivo and Co. The two obligations were consolidated in an instrument executed by
the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of “Banco Hipotecario”. Tan Sin An died leaving his
widow, Kong Chai Pin and four minor children. The widow subsequently became the administratrix of the estate. Repeated demands were
made by Banco Hipotecario on the partnership and on Tan Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the
remaining balance of the mortgage debt, the mortgage was cancelled Yutivo Sons and Sing Yee filed their claim in the intestate proceedings
of Tan Sin An for advances, interest and taxes paid in amortizing and discharging their obligations to “La Urbana” and “Banco Hipotecario.”
Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land. She then sold it to Sycip and Lee in
consideration of P37K and of the vendees assuming payment of the claims filed by Yutivo Sons and Sing Yee. Later, Sycip and Lee executed
in favor of Insular Development a deed of transfer covering the 49 parcels of land.When Goquiolay learned about the sale to Sycip and Lee,
he filed a petition in the intestate proceedings to set aside the order of the probate court approving the sale in so far as his interest over the
parcels of land sold was concerned. Probate court annulled the sale executed by the administratrix w/ respect to the 60% interest of
Goquiolay over the properties Administratrix appealed.The decision of probate court was set aside for failure to include the indispensable
parties. New pleadings were filed. The second amended complaint prays for the annulment of the sale in favor of Sycip and Lee and their
subsequent conveyance to Insular Development. The complaint was dismissed by the lower court hence this appeal.
ISSUE/S:
BUSINESS LAW CASES – COMPILED

Whether or not a widow or substitute become also a general partner or only a limited partner. Whether or not the lower court err in
holding that the widow succeeded her husband Tan Sin An in the sole management of the partnership upon Tan’s death Whether or not the
consent of the other partners was necessary to perfect the sale of the partnership properties to Sycip and Lee?
HELD:
Kong Chai Pin became a mere general partner. By seeking authority to manage partnership property, Tan Sin An’s widow showed
that she desired to be considered a general partner. By authorizing the widow to manage partnership property (which a limited partner could
not be authorized to do), Goqulay recognized her as such partner, and is now in estoppel to deny her position as a general partner, with
authority to administer and alienate partnership property. The articles did not provide that the heirs of the deceased would be merely limited
partners; on the contrary, they expressly stipulated that in case of death of either partner, “the co partnership will have to be continued” with
the heirs or assignees. It certainly could not be continued if it were to be converted from a general partnership into a limited partnership since
the difference between the two kinds of associations is fundamental, and specially because the conversion into a limited association would
leave the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation actually contemplated that the
heirs would become general partners rather than limited ones.

13. VILLANUEVA v. DE LEON [G.R. No. L-23729, August 27, 1925.], MALCOLM, J.:
FACTS:
 Domingo Florentino died at Vigan, Ilocos Sur, on January 16, 1924, leaving a considerable estate. Shortly thereafter, the will of the
late Florentino was admitted to probate and Jose Villanueva named executor. Villanueva qualified as executor by filing the
necessary bond in the amount of P20,000. He was granted the usual letters of administration.
 In the meantime, one Roberta de Leon had presented a motion in which she prayed in effect that the court allow her to intervene in
the proceedings. She alleged that she and the deceased Florentino had been living together as husband and wife since 1888; that
in that year they formed a partnership to which each contributed P1,000 for the purpose of engaging in business; and that the
partnership was dissolved by the death of Florentino without there having been any liquidation. This motion was denied by Judge
Quintero as improper, inasmuch as the movant could present her claims to the commissioners or institute an independent action to
confirm her rights in the estate. In accordance with the suggestion of the court, Roberta de Leon did in fact bring suit against Jose
Villanueva, executor, in which she asked that she be declared the owner of one-half of the property left by Domingo Florentino.
 Later, Roberta de Leon filed another motion duly sworn to in which she alleged that the executor had made it appear that the
property of the deceased was worth only P50,000, whereas the same was valued at over P300,000. Specific mention was made by
her of jewelry and tobacco leaf. Accordingly, movant prayed the court to order the executor to correct the inventory to the end that
the true amount should appear in the same. On October 31, 1924, Judge Mariano issued an order commanding the executor within
three days to give reasons under oath why the jewels referred to in one of Roberta de Leon's motions, should not be included in the
inventory, and to explain what had been done with the tobacco leaf.
ISSUE:
Whether or not an alleged partner of a deceased person has such interest in the estate of the deceased as to allow her to take part
in the approval of the accounts.
RULING:
The court ruled that Roberta de Leon had the right to intervene in the settlement of the accounts. The contents of this order were
objected to by counsel for the executor and steps taken to perfect an appeal. In turn, counsel for Roberta de Leon entered opposition on the
ground that the executor had no right of appeal. The court admitted the appeal in so far as it related to the right of Roberta de Leon to
intervene, but denied the appeal in so far as it related to the order to the executor to state under oath why the jewels in question should not be
included in the inventory and also to explain what had been done with the consignments of tobacco leaf.

On the supposition that that part of the order of the trial court which relates to the right of Roberta de Leon, the alleged partner of the
deceased, to intervene in the testate proceedings is appealable, we entertain the view that the action taken by the trial judge was correct.
Accordingly, it results that the order is affirmed, with costs against the appellant. So ordered.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, and Johns, JJ., concur.

14. SY vs. COURT OF APPEALS

FACTS:
Sometime in 1958, private respondent Jaime Sahot[5] started working as a truck helper for petitioners’ family-owned trucking
business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T. Paulino Trucking Service,
later 6B’s Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in
names and for 36 years, private respondent continuously served the trucking business of petitioners. When Sahot was 59 years old, he
incurred several absences due to various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of
his task as a driver. He inquired about his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but
discovered that his premium payments had not been remitted by his employer.Sahot filed a week-long leave to get medical attention. He was
treated for EOR, presleyopia, hypertensive retinopathy G II and heart enlargement. Because of such, Belen Paulino of the SBT Trucking
Service management told him to file a formal request for extension of his leave. When Sahot applied for an extended leave, he was
threatened of termination of employment should he refuse to go back to work. Eventually, Sahot was dismissed from employment which
prompted the latter to file an illegal dismissal case with the NLRC. For their part, petitioners admitted they had a trucking business in the
1950s but denied employing helpers and drivers. They contend that private respondent was not illegally dismissed as a driver because he
was in fact petitioner’s industrial partner. They add that it was not until the year 1994, when SBT Trucking Corporation was established, and
only then did respondent Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his
separation. The NLRC and the CA ruled that Sahot was an employee of petitionr
ISSUE:
Whether Sahot is an industrial partner
RULING:
No. Article 1767 of the Civil Code states that in
BUSINESS LAW CASES – COMPILED

‘a contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with
the intention of dividing the profits among themselves.’

Not one of these circumstances is present in this case. No written agreement exists to prove the partnership between the parties.
Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business. There is no proof
that he was receiving a share in the profits as a matter of course, during the period when the trucking business was under operation. Neither
is there any proof that he had actively participated in the management, administration and adoption of policies of the business. Thus, the
NLRC and the CA did not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from 1958 to 1994.
On this point, the Court affirmed the findings of the appellate court and the NLRC. Private respondent Jaime Sahot was not an
industrial partner but an employee of petitioners from 1958 to 1994. The existence of an employer-employee relationship is ultimately a
question of fact and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but finality when
supported by substantial evidence. Substantial evidence is such amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion.

15. LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA, respondent. [G.R. No. 143340], 08/15/01
FACTS:
 Lamberto Chua alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane LPG. For
business convenience, Lamberto and Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS
APPLIANCE CENTER, under the name of Jacinto as a sole proprietorship. Both Lamberto and Jacinto contributed P100,000.00 to
the partnership, with the intention that the profits would be equally divided between them.
 The partnership allegedly had Jacinto as manager, assisted by Josephine Sy, sister-in-law of Lamberto. Upon Jacinto’s death in the
later part of 1989, his daughter, Lilibeth took over the operations of Shellite without Lamberto’s consent. Despite Lamberto’s
repeated demands for accounting, she failed to comply.
 On June 22m 1992, Lamberto filed a complaint against Lilibeth with the RTC. RTC decided in favor of Lamberto.
 Lilibeth questions the correctness of the finding that a partnership existed between Lamberto and Jacinto. In the absence of any
written document to show such partnership between Lamberto and Jacinto, Lilibeth argues that these courts were proscribed from
hearing the testimonies of Lamberto and his witness, Josephine, to prove the alleged partnership three (3) years after Jacinto’s
death.
 To support the argument, Lilibeth invokes the “DEAD MAN’S STATUTE OR SURVIVORSHIP RULE” under Sec. 23, Rule 130.
Lilibeth thus implores this Court to rule that the testimonies of Lamberto and his alter ego, Josephine, should not have been
admitted to prove certain claims against a deceased person (Jacinto).
ISSUE:
Whether or not the “DEAD MAN’S STATUTE” applies to this case so as to render inadmissible Lamberto’s testimony and that if his
witness, Josephine.
HELD:
No. The “Dead Man’s Statute” provides that if one party to the alleged transaction is precluded from testifying by death, insanity, or
other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own contradicted and unexplained account of
the transaction.

Lilibeth filed a compulsory counterclaim against Lamberto in their answer before the RTC, and with the filing of their counterclaim,
Lilibeth herself effectively removed this case from the ambit of the “Dead Man’s Statute”. Well entrenched is the rule that when it is the
executor or administrator or representatives of the estate that sets up the counterclaim, Lamberto, may testify to occurrences before the
death of the deceased to defeat the counterclaim. Moreover, as defendant in the counterclaim, Lamberto is not disqualified from testifying as
to matters of fact occurring before the death of the deceased, said action not having been bought against but by the estate or representatives
of the deceased.

The testimony of Josephine is not covered by the “Dead Man’s Statute” for the simple reason that she is not “a party or assignor of a
party to a case or persons in whose behalf a case is prosecuted”. Lamberto offered the testimony of Josephine to establish the existence of
the partnership between Lamberto and Jacinto. Lilibeth’s insistence that Josephine is the alter ego of Lamberto does not make her an
assignor because of the term “assignor” of a party means “assignor of a cause of action which has arisen, and not the assignor of a right
assigned before any cause of action has arisen”. Plainly then, Josephine is merely a witness of Lamberto, latter being the plaintiff.

Lilibeth’s reliance alone on the “Dead Man’s Statue” to defeat Lamberto’s claim cannot prevail over the factual findings that a
partnership was established between Lamberto and Jacinto. Based not only on the testimonial evidence, but the documentary evidence as
well, they considered the evidence for Lamberto as sufficient to prove the formation of a partnership, albeit an informal one.

16. RAMNANI v. CA, [196 scra 731; May 7, 1991], Ponente: J. Gancayco
FACTS:
 Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood. Ishwar and his spouse Sonya had
their main business based in New York. Realizing the difficulty of managing their investments in the Philippines they executed a
general power of attorney on January 24, 1966 appointing Navalrai and Choithram as attorneys-in-fact, empowering them to
manage and conduct their business concern in the Philippines
 On February 1, 1966 and on May 16, 1966, Choithram entered into two agreements for the purchase of two parcels of land located
in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership. A building was constructed thereon by Choithram in 1966.
Three other buildings were built thereon by Choithram through a loan of P100,000.00 obtained from the Merchants Bank as well as
the income derived from the first building.
 Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative to these properties during the period
1967 to 1970. Choithram failed and refused to render such accounting. Thereafter, Ishwar revoked the general power of attorney.
Choithram and Ortigas were duly notified of such revocation on April 1, 1971 and May 24, 1971, respectively. Said notice was also
BUSINESS LAW CASES – COMPILED

registered with the Securities and Exchange Commission on March 29, 1971 and was published in the April 2, 1971 issue of The
Manila Times for the information of the general public.
 Nevertheless, Choithram, transferred all rights and interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani,
on February 19, 1973.
 On October 6, 1982, Ishwar and Sonya filed a complaint against Choitram and/or spouses Nirmla and Moti and Ortigas for
reconveyance of said properties or payment of its value and damages.
ISSUE:
Whether Ishram can recover the entire properties subject in the ligitation
HELD:
No, Ishram cannot recover the entire properties subject.
The Supreme Court held that despite the fact that Choithram, et al., have committed acts which demonstrate their bad faith and
scheme to defraud spouses Ishwar and Sonya of their rightful share in the properties in litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong conviction that as the industrial partner in the acquisition of said assets he has as much
claim to said properties as Ishwar, the capitalist partner in the joint venture.

Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels of land in question from Ortigas as
attorney-in-fact of Ishwar. Instead of paying for the lots in cash, he paid in installments and used the balance of the capital entrusted to him,
plus a loan, to build two buildings. Although the buildings were burned later, Choithram was able to build two other buildings on the property.
He rented them out and collected the rentals. Through the industry and genius of Choithram, Ishwar's property was developed and improved
into what it is now.

Justice and equity dictate that the two share equally the fruit of their joint investment and efforts. Perhaps this Solomonic solution
may pave the way towards their reconciliation. Both would stand to gain. No one would end up the loser. After all, blood is thicker than water.

17. G.R. No. L-22493 July 31, 1975 - ISLAND SALES, INC. vs. UNITED PIONEERS GENERAL CONSTRUCTION COMPANY
FACTS:
United Pioneers General Construction Company is a general partnership formed by Benjamin Daco, Daniel Guizona, Noel Sim,
Augusto Palisoc and Romulo Lumauig. In 1961, United Pioneers purchased by installment a motor vehicle from Island Sales, Inc. United
Pioneers defaulted in its payment hence it was sued and the 5 partners were impleaded as co-defendants. Upon motion of Island Sales,
Lumauig was removed as a defendant. United Pioneers lost the civil case and the trial court rendered judgment ordering United Pioneers to
pay the outstanding balance plus interest and costs. It further decreed that the remaining 4 co-defendants shall pay Island Sales in case
United Pioneers’ property will not be enough to satisfy its indebtedness to Island Sales.
ISSUE:
What is the extent of the liability of the partners considering that one partner was removed as a co-defendant on motion of Island Sales?
HELD:
Their liability is pro-rata pursuant to Article 1816 of the Civil Code. But is should be noted thatsince there were 5 partners when the
purchase was made in behalf of the partnership, the liability ofeach partner should be 1/5 (of the company’s obligation) each. The fact that the
complaint against Lumauig was dismissed, upon motion of the Island Sales, does not unmake Lumauig as a general partner in the company.
In so moving to dismiss the complaint, Island Sales merely condoned Lumauig’s individual liability to them.

18. URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator of the Estate of URBANO LOTA), plaintiff-appellant,
vs.BENIGNO TOLENTINO, defendant-appellee.
FACTS:

 Nature of the action for accounting and liquidation of the partnership filed by plaintiff. The 1plaintiff filed an action against defendant
to order the latter (a) to render an accounting of his management of their partnership, and (b) to deliver to plaintiff whatever share he
may have in the assets of the partnership after the liquidation has been... approved by the Court.
 The partnership was entered into by and between plaintiff and defendant in the year 1918, whereby they agreed to engage in
general business in the municipality of Alabat, province of Batangas and defendant to be manager of the partnership.
 Plaintiff alleges that from 1918 until 1928 defendant had rendered an annual accounting, but had refused to do so from 1929 to
1937, hence, plaintiff's complaint.
 Defendant filed answer, alleging that defendant was the industrial partner that he rendered a yearly accounting and liquidation
thereof from 1918 to 1932, and that in1932, the partnership was dissolved and the defendant delivered all its properties and assets
to the plaintiff.
 The plaintiff died in 1938, and he was substituted by the administrator of his estate, Solomon Lota.
 Court ordered the dismissal of the case for lack of prosecution. This order was reconsidered and set aside upon a showing by
plaintiff that he had filed a petition for the issuance of letters of administration to deceased defendants' surviving spouse, Marta
Sadiasa, for the purpose of substituting her for the deceased defendant.
 "It will thus be seen that from defendant's death on 1939, to the present, or almost ten years, no administrator or legal
representative has been actually substituted to take the place of said defendant. It was only on
49, that plaintiff made another try... to substitute said deceased by filing his motion, referred to in the first paragraph of this
resolution, praying that defendant's heirs be substituted for him as parties defendant.
ISSUES:
 Whether the motion for substitution should be granted and the ease allowed to go to trial on the merits, or whether the defendant's
opposition should be sustained and the case dismissed.
 Whether or not, after the death of the defendant Benigno Tolentino, plaintiff's action for accounting and liquidation of the partnership
formed in 1918 between Urbano Lota and Benigno Tolentino, of which the latter was the industrial and managing partner, may be
continued against the heirs of Benigno Tolentino.
RULING:
BUSINESS LAW CASES – COMPILED

It is well settled that when a member of a mercantile partnership dies, the duty of liquidating its affairs-devolves upon the surviving
member or members of the firm, not upon the legal representatives of the deceased partner.

And the same rule must be equally applicable to a civil partnership clothed with the form of a commercial association.
But, in the second place, as already indicated, the proceedings in this cause, considered in the character of an action" for an accounting;
were futile; and the court, abandoning entirely the effort to obtain an accounting gave judgment" against the administrator upon the supposed
liability of his intestate to respond for the plaintiff's proportionate share of the capital and assets. But of course the action was not
maintainable in this aspect after the death of the defendant; and the motion to discontinue the action as against the administrator should have
been granted dismissing the present action for accounting, is lack of prosecution on the part of the appellant.
It may fittingly be recalled that the action for accounting and liquidation was filed on March 3, 1937. No sooner had the defendant
Benigno Tolentino died on November 22, 1939, than said fact was made of record by his attorney. On January 9, 1940, the lower court gave
the plaintiff (who had then died and was substituted on September 28, 1939, by the administrator of his estate, Solomon Lota), 30 days to
amend the complaint by substituting the administrator or legal representative of the deceased defendant Benigno Tolentino. On January 28,
1941, the lower court dismissed the case for lack of prosecution on the part of the plaintiff, but... the order of dismissal was reconsidered,
upon a showing by the plaintiff that on March 28, 1941, an administration proceeding for the estate of Benigno Tolentino was instituted by the
plaintiff.

On August 8, 1941, the lower court issued, at the instance of the plaintiff, letters of administration to Tolentino's surviving spouse,
Marta Sadiasa, who however failed to qualify. Accordingly, the court dismissed the administration proceeding on January 3, 1949, for lack of
interest. It was only as late as April 6, 1949, that the plaintiff filed the motion to substitute, not even the legal representative of Benigno
Tolentino, but his heirs.

If the plaintiff was genuinely interested in substituting the proper party, he should have taken timely measures to have the
administratrix appointed on August 8, 1941, qualify or, in case of her failure or refusal, to procure the appointment of another administrator;
because the plaintiff could have availed himself of section 6, Rule 80, of the Rules of Court, providing that "letters of administration may be
granted to any qualified applicant, though it appears that there are other competent persona having better right to the administration, if such
persons fail to appear when notified and claim the issuance of letters to themselves." Certainly, inaction for almost eight years (after the
issuance of letters of administration) on the part of the appellant, sufficiently implies indifference to or desistance from its suit.

19. Sison v. Helen McQuaid December 29, 1953 [94 PHIL 201]
Principle:
Liquidation shall happen before a partner may claim his share of profit from the partnership.
Facts:

 Plaintiff brought an action in the CFI against defendant.’

- Defendant borrowed from him money (P 2,210) to enable her to pay her obligations and to add to her capital in her lumber
business.
- She cannot pay so she proposed to take plaintiff as a partner in her business, plaintiff to contribute P 2,210 due him from
defendant.
 Before the last World War, partnership has sold 230,000‐board ft. of lumber to the US Army for P 13,800.00.
 Defendant refused to deliver 1⁄2 of it (P 6,900.00) to plaintiff despite his repeated demands.
 Plaintiff filed an action to compel defendant to pay him his half of the profit from the partnership.
- Case was dismissed upon the ground of prescription.
ISSUE:
Whether or not plaintiff is entitled to the sum he claims?
HELD:
NO. Order of dismissal was affirmed, but on the ground that the complaint states no cause of action.
RATIO:

 It is not clear from the complaint just when the cause of action accrued. Thus the dismissal of the case is erroneous.
 However order should be retained on the ground that the complaint has no cause of action.
 Also, the profits of the business cannot be determined based only to one transaction. Thus the need for a general liquidation before
a member may claim his share of profit.

20. Lim vs. Philippine Fishing Gear Industries Inc. [GR 136448, 3 November 1999]
FACTS:
Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him. The three agreed to purchase two
fishing boats but since they do not have the money they borrowed from one Jesus Lim the brother of Lim Tong Lim. Subsequently, they again
borrowed money for the purchase of fishing nets and other fishing equipments. Yao and C hua represented themselves as acting in behalf of
“Ocean Quest Fishing Corporation” (OQFC) and they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing
nets amounting to more than P500k. However, they were unable to pay PFGI and hence were sued in their own names as Ocean Quest
Fishing Corporation is a non-existent corporation. Chua admitted his liability while Lim Tong Lim refused such liability alleging that Chua and
Yao acted without his knowledge and consent in representing themselves as a corporation.
ISSUE:
Whether Lim Tong Lim is liable as a partner.
HELD:
Yes. It is apparent from the factual milieu that the three decided to engage in a fishing business. Moreover, their Compromise
Agreement had revealed their intention to pay the loan with the proceeds of the sale and to divide equally among them the excess or loss.
The boats and equipment used for their business entails their common fund. The contribution to such fund need not be cash or fixed assets; it
BUSINESS LAW CASES – COMPILED

could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be
divided equally among them also shows that they had indeed formed a partnership. The principle of corporation by estoppel cannot apply in
the case as Lim Tong Lim also benefited from the use of the nets in the boat, which was an asset of the partnership. Under the law on
estoppel, those acting in behalf of a corporation and those benefited by it, knowing it to be without valid existence are held liable as general
partners. Hence, the question as to whether such was legally formed for unknown reasons is immaterial to the case.

21. Oña vs CIR, [45 SCRA 74]

FACTS:
 Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A civil case was instituted for the
settlement of her state, in which Oña was appointed administrator and later on the guardian of the three heirs who were still minors
when the project for partition was approved. This shows that the heirs have undivided ½ interest in 10 parcels of land, 6 houses and
money from the War Damage Commission.
 Although the project of partition was approved by the Court, no attempt was made to divide the properties and they remained under
the management of Oña who used said properties in business by leasing or selling them and investing the income derived therefrom
and the proceeds from the sales thereof in real properties and securities. As a result, petitioners’ properties and investments
gradually increased. Petitioners returned for income tax purposes their shares in the net income but they did not actually receive
their shares because this left with Oña who invested them.
 Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore, subject to the corporate
income tax, particularly for years 1955 and 1956. Petitioners asked for reconsideration, which was denied hence this petition for
review from CTA’s decision.
ISSUES:
W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income tax
HELD:
Unregistered partnership. The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition, the heirs allowed their properties to remain under the management of Oña and let him use their shares as
part of the common fund for their ventures, even as they paid corresponding income taxes on their respective shares.

Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the
moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate proceeding. The reason is simple. From the moment of such
partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage
and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all taxes
in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be
used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were
executed, for the purpose, for tax purposes, at least, an unregistered partnership is formed.

For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships —

The term “partnership” includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which
any business, financial operation, or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)

with the exception only of duly registered general co-partnerships — within the purview of the term “corporation.” It is, therefore, clear to our
mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.
Judgment affirmed.

22. MARJORIE TOCAO and WILLIAM T. BELO vs. CA and NENITA A. ANAY, [342 SCRA 20]
FACTS:
 William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form a joint venture for the sale of cooking
wares. Belo was to contribute P2.5 million; Tocao also contributed some cash and she shall also act as president and general
manager; and Anay shall be in charge of marketing. Belo and Tocao specifically asked Anay because of her experience and
connections as a marketer. They agreed further that Anay shall receive the following:
- 10% share of annual net profits
- 6% overriding commission for weekly sales
- 30% of sales Anay will make herself
- 2% share for her demo services
 They operated under the name Geminesse Enterprise, this name was however registered as a sole proprietorship with the Bureau
of Domestic Trade under Tocao. The joint venture agreement was not reduced to writing because Anay trusted Belo’s assurances.
 The venture succeeded under Anay’s marketing prowess.
 But then the relationship between Anay and Tocao soured. One day, Tocao advised one of the branch managers that Anay was no
longer a part of the company. Anay then demanded that the company be audited and her shares be given to her.
ISSUE:
Whether or not there is a partnership
Whether or not Belo acted as a guarantor
BUSINESS LAW CASES – COMPILED

RULING:
Yes, even though it was not reduced to writing, for a partnership can be instituted in any form. The fact that it was registered as a
sole proprietorship is of no moment for such registration was only for the company’s trade name.

Anay was not even an employee because when they ventured into the agreement, they explicitly agreed to profit sharing this is even
though Anay was receiving commissions because this is only incidental to her efforts as a head marketer.

The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty
partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits “realized from the
appropriation of the partnership business and goodwill.” An innocent partner thus possesses “pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled.”

An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a
partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve the
partnership.
Tocao’s unilateral exclusion of Anay from the partnership is shown by her memo to the Cubao office plainly stating that Anay was, as of
October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal
from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business

Motion for Reconsideration filed by Tocao and Belo decided by the SC on September 20, 2001.

Belo is not a partner. Anay was not able to prove that Belo in fact received profits from the company. Belo merely acted as
guarantor. His participation in the business meetings was not a partner but as a guarantor. He in fact had only limited partnership. Tocao also
testified that Belo received nothing from the profits. The Supreme Court also noted that the partnership was yet to be registered in the
Securities and Exchange Commission. As such, it was understandable that Belo, who was after all petitioner Tocao’s good friend and
confidante, would occasionally participate in the affairs of the business, although never in a formal or official capacity.

23. AGAD vs MABATO, [23 SCRA 1223]

FACTS:
 Plaintiff Mauricio Agad claimed that he and defendant Severino Mabato formed a partnership in relation to fishpond business.
Plaintiff Agad was to contribute P1,000.00 of capital and is entitled with 50% of the partnership’s profit. However, Mabato, who was
responsible with the partnership funds and rendering accounts of its operations, failed to do so and also to pay Agad in his share in
the profits. From 1957 to 1963. For this reason, Agad filed a complaint for the recovery of the amount with additional payment for
legal fees.
 Mabato defended that no partnership has even existed because the contract was not perfected or void ab initio. He contended that
Agad allegedly failed to contribute his P1,000.00 part. The lower court, Court of First Instance of Davao, dismissed however the
complaint because of the alleged contribution of a fishpond property which was postulated to be in violation of Article 1773 of the
New Civil Code of the Philippines, which hereby states; “A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.” The
lower court had concluded so because an inventory of the fishpond was not attached thereto.
ISSUE:
Whether or not the immovable property is a contribution and indeed in violation of the Article 1773
RULING:
No. Mabato allegedly claimed that "it is really inconceivable how a partnership engaged in the fishpond business could exist without
said fishpond property (being) contributed to the partnership." But in the Appendix “A” of the public instrument attached to the case, it is “to
operate a fishpond business” not “to engage a fishpond business”. Hence, the immovable property nor a real right over the fishpond was
neither for capital contribution; it is limited to their P1,000.00 agreement. The court held that Article 1773 has no relation to the case at all
predicated on the latter statement

24. EMNACE vs. CA

FACTS:
 Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma. Nelma Fishing
Industry. Sometime in January of 1986, they decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them.
 Petitioner failed to submit to Tabanao's heirs any statement of assets and liabilities of the partnership, and to render an accounting
of the partnership's finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3 share in the
total assets of the partnership. Tabanao's filed against petitioner an action for accounting, payment of shares, division of assets and
damages.
ISSUE:
WON the heirs of Vicente Tabanao Lacks the capacity to sue the petitioner.
HELD:
No. The surviving spouse does not need to be appointed as executrix or administratrix of the estate before she can file the action.
She and her children are complainants in their own right as successors of Vicente Tabanao. From the very moment of Vicente Tabanao's
death, his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the succession are transmitted from the
moment of death of the decedent.

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to respondents by
operation of law, more particularly by succession, which is a mode of acquisition by virtue of which the property, rights and obligations to the
BUSINESS LAW CASES – COMPILED

extent of the value of the inheritance of a person are transmitted. Moreover, respondents became owners of their respective hereditary
shares from the moment Vicente Tabanao died.

25. Lino P. Bernardo v. Eufemia Pascual, {109 Phil 93}, [GR No. L-13260]
FACTS:
 On March 9, 1955, Pedro Pascual was found dead on the woods by his two co-laborers, Rogelio Bacane and Martin Quinto in an
accident while felling a tree in lumber concession at Corona, San Miguel, Bulacan.
 The widow of the deceased filed a claim on compensation on March 31, 1955. Originally filed against Bernardo Sawmill, the claim
was amended on February 6, 1956 to include herein Lino Bernardo, timber concessionaire and owner and operator of sawmill.
Bernardo denied that he was a timber concessionaire and that he had no employer- employee relationship with the deceased before
October 13, 1955.
 On August 27, 1957, the commissioner asked Bernardo to pay claimants, reimburse them for burial expenses, and to pay to the
Workmen’s Compensation fund as fees.
 Bacane and Quinto whose employment was never denied and were working together with Pascual at the time of incident testified at
hearing of the case that he was their co-laborer in the timber concession of Bernardo.
 The commissioner expressly found the testimonies a clear existence of employer- employee relationship. It also appears that they
used to receive wages from Emilio Bautista (katiwala). Bernardo claims that Bautista was a forest guard of government and was not
his employee. Forest guards hired by lumber concessionaires, though appointed by Department of Agriculture and Natural
Resources are still deemed employees of concessionaires.
 Bernardo even made a reckless accusation that the deceased was a lumber smuggler.
ISSUE:
Whether or not Bernardo is liable to the deceased.
HELD::
Yes, he is liable. With respect to the claim that he became a lumber concessionaire only on October 13, 1955, suffice it to say that
prior to that date, he was a partner to several persons owning the concession in San Miguel, Bulacan. And subsequent thereto, he acquired
the interest of his partners and became the soul concessionaire. Under those circumstances, he became liable to the creditors of partnership.
(Article 1840, new civil code)

26. Sharuff and Co. v. Baloise Fire Insurance Co.- Proceeds of the Policy, [64 SCRA 258]
FACTS:
 Sharuff and Eskenazi were doing business under the firm name Sharuff and Co.
 They insured their merchandise with Baloise. Later on, Sharuff and Eskenazi entered into a contract of partnership and thereby
changed the firm name to Sharuff and Eskenazi.
 The merchandise insured was subsequently destroyed by fire. Sharuff and Eskenazi filed their claim against the insurance
company.
 Baloise refused to pay on the ground that the policy was issued in the name of Sharuff and Co. and not Sharuff and Eskenazi.
ISSUE:
Whether or not the partnership can claim the proceeds of the policy.
HELD:
Yes.The subsequent partnership did not alter the composition of the firm. The people involved are actually the same. Furthermore,
such change of firm name was not made to defraud the insurance company or some other person.

27. Commissioner of Internal Revenue, petitioner, vs.William J. Suter and the Court of Tax Appeals, respondents. (27 SCRA 152)
FACTS:
 William Suter as the general partner, together with Julia Spirig and Gustav Carlson as the limited partners, formed a limited
partnership under the name “William J. Suter ‘Morcoin’ Co., Ltd.” on September 03, 1947. Each partner contributed P20,000,
P18,000, and P2,000 respectively. The partnership then was registered with the Securities and Exchange Commission. However, in
1948, Gustav Carlson sold his share to the partnership months after William Suter and Julia Spirig got married.
 The limited partnership had been filing its income tax return as a corporation for years until in 1959, when the Commission on
Internal Revenue, through an assessment, consolidated the partnership income and individual income of the spouses Suter and
Spirig which resulted on a deficiency income tax of P2,678.06 for 1954 and P4,567.00 for 1955 against Suter. Suter protested for
the cancellation of the said assessment but he was denied. He then brought his objection to the Court of Tax Appeal which in a
decision, favored him. The Commission on Internal Revenue now filed for the review of Court of Tax Appeal’s decision.
ISSUE:
Whether or not the partnership was dissolved after the marriage of the partners and subsequent acquisition of Carlson’s interest in
the partnership.
RULING:
No. William J. Suter ‘Morcoin’ Co., Ltd. is not a universal partnership but rather a limited partnership since each partner contributed
only specific amount of money to the partnership and neither one of them is an industrial partner. It is only on the universal partnership which
the law as stated in Article 1782 of the New Civil Code, prohibits the entrance of spouses Suter and Spirig.
Note:
(1) Thus, the juridical personality of the limited partnership has been maintained so it should be taxed as a person distinct and separate from
its partners.
(2) It is in accordance with the Article 87 of the Family Code which states that “Every donation or grant of gratuitous advantage, direct or
indirect, between the spouses during the marriage shall be void, except moderate gifts, which the spouses may give to each other on the
occasion of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife without a valid marriage.” If
we will allow the spouses to enter in a universal partnership, it will clearly violate the said article because they will virtually receive donation
from each other as partners.
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28. PANG LIM v. LO SENG 42 Phil. 282, [ GR No. 16318, Oct 21, 1921 ]
FACTS:
 For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese residents of the
City of Manila, were partners, under the firm name of Lo Seng & Co., in the business of running a distillery, known as "El Progreso,"
in the Municipality of Paombong, in the Province of Bulacan. The land where the distillery was situated during that time was a
property of Lo Yao, a Chinaman who resides in Hongkong, who leased the said property to Lo Seng and Co. for the term of three
years.
 Upon expiration of the lease, a new written contact was issued by an attorney in fact of Lo Yao, Lo Shui, whereby the lease was
extended for another fifteen years.
 Among the provisions contained in said lease we note this:

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

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

 On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position of sole
owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary
public a deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant including the
land used in connection therewith. As in case of the lease this document also was never recorded in the registry of property.
Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the present action
of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to
recover possession of the premises.
ISSUE:
Pang Lim, having been a participant in the contract of lease now in question, is in a position to terminate it.
HELD:
NO. While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his
interest in that firm to Lo Seng, this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which he has
received full value.

29. PHILIPPINE AIR LINES v. ANTONIO BALANGUIT, GR No. L-8715, 1956-06-30

FACTS:
 Sometime before May 21, 1947, the Philippine Air Lines, Inc. (hereinafter referred to as PAL for brevity) purchased and acquired a
majority of the shares of the Far Eastern Air Transport, Inc.
 Those two airlines were, previous to the said purchases, then competing in various air routes through the Philippines, with the result
that both companies were losing and it became necessary to... maintain only one airline. The purchase gave rise to the problem of
what to do with the FEATI employees. After some negotiations between the representatives of the FEATI Employees Association
and the PAL, the parties finally reached an agreement on
 May 21, 1947, whereby the PAL agreed to absorb some 70 per cent of the FEATI employees, and the said employees agreed to
work for PAL under the same terms and conditions as they worked for the FEATI until such time as they come to a definite...
understanding.
 On July 9, 1947, the PAL reached a 'definite understanding' with the Public Utilities Employees Association aforesaid whereby they
entered into an agreement cancelling the agreements of May 21, 1947 and August 1, 1946, and declaring them 'void and of no
further force and effect.' It also provided for the laying off of all the FEATI employees as of June 15, 1947 and the payment to them
of one and a half month's separation pay which amounted, roughly to P150,000.00.
 Public Utilities Employees Association aforesaid filed a petition with the Court of Industrial Relations praying that the PAL be ordered
to ... pay them the twelve (12) days vacation leave and twelve (12) days sick leave with pay, from August 1, 1946, which had
already accrued at the time they were laid off on June 15, 1947.
 The PAL, in its Answer to the Employees' petition, denied liability, alleging that it was not a party to the Agreement of August 1,
1946. The said employees were absorbed by the PAL only on May 21, 1947 and were laid off on June 15, 1947.
 Court of Industrial Relations, through Associate Judge V. Jimenez Yanson, issued an Order requiring the PAL to pay the said
employees the money value of whatever... vacation and sick leave might have accrued to the said employees from August 1, 1946
to June 15, 1947.
ISSUE:
The question to determine is whether or not the PAL is legally liable... for the payment of this amount.
RULING:
In some cases, when one company buys out another and continues the business of the latter company, the buyer may be said... to
assume the obligations of the company bought out when said obligations are not of considerable amount or value, specially when incurred in
the ordinary course of trade, and when the business of the latter company is continued.
BUSINESS LAW CASES – COMPILED

However, when said obligation is of extraordinary value, as in this case, amounting to about P100,000, and the FEATI was bought
out not to continue its business but to stop its operation in order to eliminate competition, as shown by the... fact that all the employees of the
FEATI were laid-off, we cannot say that the vendee assumed all the obligations of the rival airline.

What the employees should have done at the time of the negotiation among the PAL, the FEATI and themselves preparatory to the
execution of the agreement of July 9, 1947, was to raise the question as to who would pay them the equivalent of the vacation and sick...
leave already earned by them under the FEATI. Had they insisted on its payment, the FEATI could perhaps have been made to pay unless,
of course, the PAL agreed to assume the obligation. When they (employees) failed to raise that question... or have it embodied in the
agreement, said failure may be regarded as a waiver of their right
It may be recalled that the separation pay was not only for one month but it was for one month and a half, exceeding the "mesada"
provided for in the Code of Commerce (still in force in 1947) by half a month. It is highly possible... that the extra half month pay was to take
care of the vacation and sick leave, especially when we consider the fact that at the time of separation on June 15, 1947, the employees had,
for purposes of earning the leave, not yet completed one year service
(from August 1, 1946 to June 15, 1947).
It would be unfair now to demand this payment from the PAL after... more than five years when the papers and the records of the
service of said employees from August 1, 1946 to May or June, 1947, may no longer exist.
30. Po Yeng Cheo vs. Lim Ka Yam, [ G.R. No. L-18707 December 9,1922]
FACTS:
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and such Po Yeng Cheo inherited the interest left by Po
Gui Yao in a business conducted in Manila under the style of Kwong Cheong Tay. This business had been in existence in Manila for many
years prior to 1903, as a mercantile partnership, with a capitalization of P160,000, engaged in the import and export trade; and after the death
of Po Gui Yao the following seven persos were interested therein as partners in the amounts set opposite their respective names, to wit: Po
Yeng Cheo, P160,00;Chua Chi Yek,P50,000; Lim Ka Yam,P10,000; Lee Kom Chuen,P10,000; Ley Wing Kwong,P10,000; Chan Liong
Chao,P10,000; Lee Ho Yuen,P10,000. The manager of Kwong Cheong Tay, for many years prior of its complete cessation from business in
1910, was Lim Ka Yam, the original defendant herein. Among the properties pertaining to Kwong Cheong Tay and consisting part of its
assets were ten shares of a total par value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski and certain
shares to the among of P1,000 in the Manila Electric Railroad and Light Company, of Manila. In the year 1910 (exact date unstated) Kwong
Cheong Tay ceased to do business, owing principally to the fact that the plaintiff ceased at that time to transmit merchandise from Hongkong,
where he then resided. Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of the business, though
repeated demands to that effect have been made upon him by the plaintiff.
ISSUE:
Whether or not the managing partner is liable.
RULING:
No, Proceeding then to consider the appealed decision in relation with the facts therein stated and other facts appearing in the
orders and proceedings in the cause, it is quite apparent that judgment cannot be sustained. In the first place, it was erroneous in any event
to give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong Cheong Tay. The managing partner of mercantile
enterprise is not a debtor to the shareholders for the capital embarked by them in the business; and he can only be made liable for the capital
when, upon liquidation of the business, there are found to be assets in his hands applicable to capital account. That the sum of one hundred
and sixty thousand pesos (P160,000) was embarked in this business many years ago reveals nothing as to the capital account at the time the
concern ceased to do business; and even supposing- as the court possibly did- that the capital was intact in 1908, this would not prove it was
intact in 1910 when the business ceased to be a going concern; for in that precise interval of time the capital may have been diminished or
dissipated from causes in no wise chargeable to the negligence or misfeasance of the manager.