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therein, all of which are property of the defendant

partnership "Isabela Sawmill",

G.R L-27343 Feb. 28, 1979


that the plaintiffs, as creditors of the defendant

partnership, have a preferred right over the assets of
the said partnership and over the proceeds of their
sale at public auction, superior to the right of the
defendant Margarita G. Saldajeno, as creditor of the
partners Leon Garibay and Timoteo Tubungbanua;


that the defendant Margarita G. Saldajeno, having

purchased at public auction the assets of the
defendant partnership over which the plaintiffs have
a preferred right, and having sold said assets for P
45,000.00, is bound to pay to each of the plaintiffs
the respective amounts for which the defendant

1. January 30, 1951 the defendants Leon Garibay,

Margarita G. Saldejeno, and Timoteo Tubungbanua
entered into a Contract of Partnership under the firm
name "Isabela Sawmill".

2. Despite the withdrawal of partner Saldejeno, the

remaining partners Garibay and Tunugbanua did not
liquidate the partnership. Instead, they continued to
operate in the same name and agreed among
themselves that the withdrawing partner shall not be
bound for any and all obligations of the defunct
partnerships to its creditors and third persons. The
withdrawal of partner Saldejeno was not published in the

3. To secure the performance of the obligations of Garibay

and Tubungbanua to Saldejeno, they constituted a chattel
mortgage over the properties of the partnership entitled
"Assignment of Rights with Chattel Mortgage"
partnership is held indebted to, them, as above
indicated and she is hereby ordered to pay the said
amounts in favor of the plaintiff Manuel G. Singson
4. Failure to pay Saldejeno, the latter filed a civil case. To
enforce judgment, a public auction was held . Certificate
of Sale was issued in favor Saldajeno. The latter then
sold the trucks, tractors, machinery, office equipment to
Pan Oriental Lumber Company.

5. Petitioners filed against respondents a complaint for

collection with prayer for a writ of preliminary
injunction restraining the Sheriff from proceeding
with the sales at public auction, and to declare null and
void the Chattel Mortgage executed by defendants
in favor of defendant Saldajeno, being in fraud of
creditors of the partnership.

RTC: After trial, judgment was rendered in favor of the plaintiffs.

1) that the contract, has not created a chattel mortgage
lien on the machineries and other chattels mentioned

Saldajeno appealed to the CA:

The she should not be held liable to partnership debts for

having withdrawn

That she should be help primarily liable to the plaintiffs for

having acquired the mortgaged chattels in the foreclosure

That the court erred in declaring the chattel mortgage null

& void.

CA: CA certified the records of this case to the Supreme Court

"considering that the resolution of this appeal involves purely
questions or question of law.
WON the Saldajeno, is liable to plaintiffs for the
properties of the partnership which were mortgaged to her and
which she purchased at the public auction.
On dissolution, the partnership is not terminated but continues
until the winding up of the business. It does not appear that the
withdrawal of Saldajeno from the partnership was published in the
newspapers. The Apellees and the public had a right to expect that
whatever credit they extended to the remaining partners doing

business in the name of the partnership could be enforced against

the partners of said partnership.
The judicial foreclosure of the chattel mortgage executed in the
favor of Saldajeno did not relieve her from liability to the creditors
of the partnership. It may be presumed Saldajeno acted in good
faith, the Apellees also acted in good faith in extending credit to
they partnership. Where one of the two innocent persons must
suffer, that persons must suffer, that person who gave occasion for
the damages to be caused must bear the consequences
Had Saldajeno not entered into the memorandum agreement
allowing the remaining partners to continue doing business of the
partnership, the appellees would not have been misled in to
thinking that they were still dealing with Isabela Sawmill