In the Matter of the Petition for Authority to

Continue Use of the Firm Name Ozaeta,

Romula, etc.
(See Old Digest: Sycip Case)
Art. 1815. Every partnership shall
operate under a firm name, which
may or may not include the name of
one or more of the partners. Those
who, not being members of the
partnership, include their names in
the firm name, shall be subject to the
liability of a partner. (partners
should be living persons who can be
subjected to liability)
Art. 1840 treats more of a
commercial partnership with a good
will to protect rather than a
professional partnership, with no
sealable good will but whose
reputation depends on the personal
qualifications of its individual
members.
(NOTE: Rule 3.02 of the CPR approved and
promulgated by the SC on June 21,1988 in
effect abandoned the ruling in the Sycip case.)

Magdusa vs. Albaran
Facts:
Appellant and appellees, together with
various other persons, had verbally
formed a partnership de facto, for the sale
of general merchandise in Surigao,
Surigao, to which appellant contributed
P2,000 as capital, and the others
contributed their labor, under the
condition that out of the net profits of the
business 25% would be added to the
original capital, and the remaining 75%
would be divided among the members in
proportion to the length of service of
each.
Sometime in 1953 and 1954, the
appellees expressed their desire to
withdraw from the partnership, and
appellant thereupon made a computation
to determine the value of the partners'
shares to that date known as Exhibit "C".
Appellees thereafter made demands upon
appellant for payment, but appellant
having refused, they filed the initial
complaint in the court below.
Issue: W/N Appellees can collect their shares in
the partnership?
Rule: No. A partner's share can not be returned
without first dissolving and liquidating the
partnership (Po Yeng Cheo vs. Lim Ka Yam, 44
Phil. 177). The liquidation Exhibit "C" is not signed
by the other members of the partnership besides
appellees and appellant; it does not appear that
they have approved, authorized, or ratified the
same, and, therefore, it is not binding upon them.
In addition, unless a proper accounting and
liquidation of the partnership affairs is first had,
the capital shares of the appellees, as retiring
partners, can not be repaid, for the firm's outside
creditors have preference over the assets of the
enterprise (Civ. Code, Art. 1839).
Munasque vs. CA
Facts:
Elmo Muasque, in behalf of Galan and
Muasque partnership as Contractor,
entered into a written contract with
Tropical Commercial Co., through its
branch manager Ramon Pons, for
remodelling of Tropicals building in
Cebu. The consideration for the entire
services is P25,000 to be paid: 30% upon
signing of contract, and balance on 3
equal instalments of P6,000 every
15working days.

First payment of check worth P7,000 was
payable to Muasque, who indorsed it to
Galan for purposes of depositing the
amount and paying the materials already
used. But since Galan allegedly
misappropriated P6,183.37 of the check
for personal use, Muasque refused to
indorse the second check worth P6,000.
Galan then informed Tropical of the
misunderstanding between him and
Muasque and this prompted Tropical to
change the payee of the second check
from Muasque to Galan and Associates
(the duly registered name of Galan and
Muasque partnership). Despite the
misappropriation, Muasque alone was
able to finish the project. The two
remaining checks were properly issued to
Muasque.

Muasque filed a complaint for payment
of sum of money plus damages against
Galan, Tropical and Pons for the amount
covered by the first and second checks.
Cebu Southern Hardware Co and Blue
Diamond Glass Palace were allowed as
intervenors having legal interest claiming
against Muasue and Galan for materials
used.

Issue:
1. W/N Muasque and Galan are partners?
2. W/N payment made by Tropical to Galan
was good payment?
3. W/N Galan should shoulder exclusively
the amounts payable to the intervenors
(granting he misappropriated the amount
from the two checks)?

Rule:

1. Yes. Tropical had every right to presume
the existence of the partnership:
a. Contract states that agreement was
entered into by Galan and
Muasque
b. The first check issue in the name of
Muasque was indorsed to Galan
The relationship was made to appear as a
partnership.

2. YES. Muasque and Galan were
partners when the debts to the
intervenors were incurred, hence, they
are also liable to third persons who
extended credit to their partnership.

There is a general presumption that each
individual partner is an authorized agent
for the firm and that he has authority to
bind the firm in carrying on the
partnership transactions. The
presumption is sufficient to permit third
persons to hold the firm liable on
transactions entered into by one of the
members of the firm acting apparently in
its behalf and within the scope of his
authority.

3. NO. Article 1816 BUT construed
together with Article 1824.

Art. 1816. All partners, including
industrial ones, shall be liable pro rata x x
x for the contracts which may be entered
into the name and for the account of the
partnership, under its signature and by a
person authorized x x x

Art. 1824. All partners are liable
solidarily with the partnership for
everything chargeable to the partnership
under Articles 1822 and 1823

Art. 1822. Where, by any wrongful act or
omission of any partner acting in the
ordinary course of the business x x x or
with the authority of his co-partners, loss
or injury is caused to any person x x x

Art. 1823. The partnership is bound to
make good the loss:

(1) Where one partner acting
within the scope of his
apparent authority receives
money or property of a third
person and misapplies it, and
(2) Where the partnership in the
course of its business
receives money or property
of a third person x x x is
misapplied by any partner
while it is in the custody of
the partnership.

GR: In transactions entered into by the
partnership, the liability of the partners is
merely joint
Exception: In transactions involving third
persons falling under Articles 1822 and
1823, such third person may hold any
partner solidarily liable for the whole
obligation with the partnership.

Reason for exception: the law protects
him, who in good faith relied upon the
authority if a partner, whether real or
apparent.

However, as between Muasque and
Galan, justice also dictates
reimbursement in favour of Muasque
as Galan was proven to be in bad faith
in his dealings with his partner.


MacDonald vs. National City Bank of New York
Facts:
Stasikinocey is a partnership forme
d by da Costa, Gorcey, Kusik and Gavino.
It was denied registration by theSEC due
to a confusion between the partnership
and Cardinal Rattan.
Cardinal Rattan is the business name or
style used by Stasikinocey. Da Costa and Gorcey
are the general partners of Cardinal Rattan.
Moreover, Da Costa is the managing
partnerof Cardinal Rattan.
Stasikinocey had an overdaft account
with National City Bank, which was later
converted into an ordinary loan due
the partnerships failure in paying its
obligation.
Theor di nar y l oan was s ec ur ed
by a c hat t el mor t ga ge over 3
vehicles.
During the subsistence of the loan, the
vehicles weresold to MacDonald and
later on, MacDonald sold 2 of the 3
vehicles to Gonzales.
The bank brought an action for recovery
of its credit and foreclosure of
the chattel mortgage upon learning of
these transactions.

Issue:
WON the partnership, Stasikinocey is estop
ped f r om as s er t i ng t hat i t does not
have j ur i di c al personality since it is an unregistered
commercial partnership

Held:
Yes. While an unregistered commercial
partnership has no juridical personality,
nevertheless, where two or more personsattempt
to create a partnership failing to comply with all
thelegal formalities, the law considers them as
partners and theassociation is a partnership
in so far as it is a favorable tothird persons,
by reason of the equitable principle of
estoppel.Where a partnership not duly organized
has been recognized as s uc h i n i t s
deal i ngs wi t h c er t a i n per s ons , i t
s hal l beconsidered as partnership by esto
ppel and the persons dealing with it are
estopped from denying its partnership
existence.

(NOTE: Respondent and the Petitioners are all
third persons as regards the partnership
Stasikinocey; and even assuming that
the Petitioners are purchasers in good faith
and for value, the Respondent having
transacted with Stasikinocey earlier than the
Petitioners, it should enjoy and be given
priority.)



Island Sales, Inc vs. United Pioneers Gen.
Construction
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 that
since there were 5 partners when the purchase
was made in behalf of the partnership, the liability
of each partner should be 1/5
th
(of the companys
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 Lumauigs individual liability to them.


Compania Maritima vs. Munoz
Facts:
The plaintiff brought this action in the
Court of First Instance of Manila against
the partnership of Franciso Muoz &
Sons, and against Francisco Muoz de
Bustillo, Emilio Muoz de Bustillo, and
Rafael Naval to recover the sum of
P26,828.30, with interest and costs.
Judgment was rendered in the court
below acquitting Emilio Muoz de
Bustillo and Rafael Naval of the complain
On the 31st day of March, 1905, the
defendants Francisco Muoz, Emilio
Muoz, and Rafael Naval formed on
ordinary general mercantile partnership
under the name of Francisco Muoz &
Sons for the purpose of carrying on the
mercantile business in the Province of
Albay which had formerly been carried on
by Francisco Muoz. Francisco Muoz
was a capitalist partner and Emilio Muoz
and Rafael Naval were industrial
partners.
DEFENSE: (1) The contention of the
appellees were sound, it would result
that, where the articles of partnership
provided for a distribution of profits at
the end of each year, but did not assign
any specific salary to an industrial
partner during that time, he would not be
a member of the partnership. (2) It is also
said in the brief of the appellees that
Emilio Muoz was entirely excluded from
the management of the business

Issue: W/N defendant is relieved from such
liability, either because he is an industrial partner
or because he was so relieved by the express
terms of the articles of partnership?
Held: No. In limited partnership the Code of
Commerce recognizes a difference between
general and special partners, but in a general
partnership there is no such distinction-- all the
members are general partners. The fact that some
may be industrial and some capitalist partners
does not make the members of either of these
classes alone such general partners. There is
nothing in the code which says that the industrial
partners shall be the only general partners, nor is
there anything which says that the capitalist
partners shall be the only general partners.
Our construction of the article is that it relates
exclusively to the settlement of the partnership
affairs among the partners themselves and has
nothing to do with the liability of the partners to
third persons
Our conclusion is upon this branch of the case that
neither on principle nor on authority can the
industrial partner be relieved from liability to
third persons for the debts of the partnership.
(Note: Each one of the industrial partners is
liable to third persons for the debts of the firm;
that if he has paid such debts out of his private
property during the life of the partnership,
when its affairs are settled he is entitled to
credit for the amount so paid, and if it results
that there is not enough property in the
partnership to pay him, then the capitalist
partners must pay him.)
Santiago Syjuco, Inc. vs. Castro
Facts:
Eugenio Lim, along with his
brothers, all hereinafter collectively
called the Lims, borrowed from
petitioner Santiago Syjuco, Inc.
(hereinafter, Syjuco only) the sum
of 800,000.00. The loan was given
on the security of a first
mortgage on property
registered in the names of sai d
borrowers as owners in
common.Thereafter, additional
loans on the same security
were obtained by the Lims
from Syjuco, so that the
aggregate of the loans stood at
2,460,000.00, exclusive of interest.
When the obligation matured, t he
L i ms f ai l ed t o pay i t
des pi t e demands
t her ef or and c ons equent l y ,
Syj uc o c aus ed ex t r a-
j udi c i al proceedings for the
foreclosure of the mortgage.
The attempt to foreclose
triggered off a legal battle that
has dragged on for 20 years,
through 5 cases in the courts.
DEFENSE: The respondents
advocated the theory that the
mortgage,which they
had i ndivi dually constituted,
in fact no longer belonged to
them,having been earlier
deeded over by them to the
partnership, Heirs of Hugo
Lim, making the said
mortgage void because it was
executed by them without
authority from the
partnership.
Issue: W/N the Lims are estop from to
asserting the existence of the partnership?
Held: Yes. The court holds that the respondent
partnership was inescapably chargeable with
knowledge of the mortgage executed by all the
partners thereof, and therefore its silence and
failure to impugn said mor t gage wi t hi n a
r eas onabl e t i me, l et al one a s pac e
of mor e t han 17 y ear s , br ought i nt o
pl ay t he doctrine of estoppel to preclude
any attempt to avoid the mortgage as allegedly
unauthorized.
Also, Art. 1819 states that, where the title to
real property is in the names of all the
partners, a conveyance executed by all the
partners passes all their rights in such
property. Consequently, those members' acts,
declarations and omissions cannot be
deemed to be simply the individual acts
of said members, but infact and in law,
those of the partnership.

Pioneer Insurance & Security Corporation vs.
CA
Facts:
Jacob Lim was the owner of Southern
Air Lines, a single proprietorship.
In 1965, Lim convinced Constancio
Maglana, Modesto Cervantes,
Francisco Cervantes, and Border
Machinery and Heavy Equipment
Company (BORMAHECO) to
contribute funds and to buy two
aircrafts which would form part a
corporation which will be the
expansion of Southern Air Lines.
Maglana et al then contributed and
delivered money to Lim.
Instead of using the money given to
him to pay in full the aircrafts, Lim,
without the knowledge of Maglana et
al, made an agreement with Pioneer
Insurance for the latter to insure the
two aircrafts which were brought in
installment from Japan Domestic
Airlines (JDA) using said aircrafts as
security.
When Lim defaulted from paying JDA,
the two aircrafts were foreclosed by
Pioneer Insurance.

Issue: W/N Maglana et al must share in the
loss as general partners?

Held: No. There was 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. But in this
case, it was shown that Lim did not have the
intent to form a corporation with Maglana et al.
This can be inferred from acts of unilaterally
taking out a surety from Pioneer Insurance
and not using the funds he got from Maglana
et al. The record shows that Lim 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.