Dan Fue Leung v. Hon.
Intermediate As between the conflicting evidence of the
Appellate Court and Leung Yiu
Facts: This case originated from a complaint
filed by respondent Leung Yiu to recover the
sum equivalent to twenty-two percent (22%) of
the annual profits derived from the operation of
Sun Wah Panciteria since October, 1955 from
petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located
at Florentino Torres Street, Sta. Cruz, Manila,
was established sometime in October, 1955. It
was registered as a single proprietorship and its
licenses and permits were issued to and in favor
of Dan Fue Leung as the sole proprietor. About
the time the Sun Wah Panciteria started to
become operational, Leung Yiu gave P4,000.00
as his contribution to the partnership. This is
evidenced by a receipt wherein Dan Fue Leung
acknowledged his acceptance of the P4,000.00
by affixing his signature thereto. The receipt was
written in Chinese characters so that the trial
court commissioned an interpreter in the person
of Ms. Florence Yap to translate its contents into
English. Witnesses So Sia and Antonio Ah Heng
corroborated Yiu ‘s testimony to the effect that
they were both present when the receipt was
signed. Sia further testified that he himself
received from Leung a similar receipt
evidencing delivery of his own investment in
another amount of P4,000.00. Furthermore, the
Yiu from the Leung the amount of P12,000.00
covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the
profits of the operation of the restaurant for the
year 1974.
Leung denied having received Yiu the amount
of P4,000.00. Allegedly, he used his savings
from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at
the Toho Restaurant amounting to a little more
than P2,000.00 as capital in establishing Sun
Wah Panciteria. To bolster his contention,
Leung presented various government licenses
and permits showing the Sun Wah Panciteria
was and still is a single proprietorship solely
owned and operated by himself alone. Fue
Leung also flatly denied having issued Equitable
Banking Corporation's Check No. 13389470 B
in the amount of P12,000.00.
parties, the trial court gave credence to that of
the plaintiff, Yiu. Leung appealed the trial court's
amended decision to the then Intermediate
Appellate Court affirming it in toto. Both the trial
court and the appellate court found that the Yiu
is a partner in the setting up and operations of
the panciteria. Hence, the two courts declared
that the private petitioner is entitled to a share of
the annual profits of the restaurant. Leung
argues that the courts erroneously interpreted
'financial assistance' to mean the contribution of
capital by a partner to a partnership." He also
raises the issue of prescription since the alleged
receipt is dated October 1, 1955 and the
complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9)
months and twelve (12) days considering no
written demands were ever made by Yiu.
Issue: whether or not the private respondent is
a partner of the petitioner in the establishment
of Sun Wah Panciteria.
Ruling: 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. We
agree with the appellate court's observation to
the effect that "... given its ordinary meaning,
financial assistance is the giving out of money to
another without the expectation of any returns
therefrom'. It connotes an ex gratia dole out in
favor of someone driven into a state of
destitution. But this circumstance under which
the P4,000.00 was given to the petitioner does
not obtain in this case.'The complaint explicitly
stated that "as a return for such financial
assistance, plaintiff would be entitled to twenty-
two percentum (22%) of the annual profit
derived from the operation of the said
panciteria.'
The private respondent is a partner of the
petitioner in Sun Wah Panciteria. The requisites
of a partnership which are — 1) two or more
persons bind themselves to contribute money,
property, or industry to a common fund; and 2)
intention on the part of the partners to divide the
profits among themselves (Article 1767, Civil
Code; Yulo)-have been established. As stated
by the respondent, a partner shares not only in
profits but also in the losses of the firm. If
excellent relations exist among the partners at
the start of business and all the partners are
more interested in seeing the firm grow rather
than get immediate returns, a deferment of
sharing in the profits is perfectly plausible. It
would be incorrect to state that if a partner does
not assert his rights anytime within ten years
from the start of operations, such rights are
irretrievably lost. The private respondent's
cause of action is premised upon the failure of
the petitioner to give him the agreed profits in
the operation of Sun Wah Panciteria. In effect
the private respondent was asking for an
accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction
with Articles 1144 and 1155 which is applicable.
Article 1842 states:
The right to an account of his
interest shall accrue to any
partner, or his legal representative
as against the winding up partners
or the surviving partners or the
person or partnership continuing
the business, at the date of
dissolution, in the absence or any
agreement to the contrary.
Regarding the prescriptive period within which
the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show
that the right to demand an accounting exists as
long as the partnership exists. Prescription
begins to run only upon the dissolution of the
partnership when the final accounting is done.
Catalan vs Gatchalian
FACTS: It appears that Eligio Catalan and
Ramon Gatchalian, as partners, mortgaged to
Dr. Dionisio Marave two lots in Tacloban City,
including the improvements thereon, all
belonging to the partnership, to secure the
payment of a loan. The partnership failed to pay
the loan; the mortgage was foreclosed and the
properties were sold at public auction to Dr.
Marave. Before the expiration of the one-year
period of redemption, Catalan, on his own
behalf, redeemed the properties with his private
funds. The Sheriff issued the corresponding
certificate of redemption in favor of Catalan.
Upon Catalan's petition, the lower court
ordered the cancellation of the title in the name
of the partnership and to issue in its stead
another in the name of Catalan.
Issue: Did Catalan’s redemption of the
properties make him the absolute owner of the
lands?
Held: NO! The theory of Catalan, accepted by
the trial court, that he became the absolute
owner of the properties in question upon
making the redemption because he was
subrogated to the rights of Dr. Marave who
made the purchase at public auction, is
untenable. Under general principles of law, a
partner is an agent of the partnership. (Art.
1818, new Civil Code). Furthermore, every
partner becomes a trustee for his copartner
with regard to any benefits or profits derived
from his act as partner (Art. 1807, new Civil
Code). 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. The principle of subrogation
cannot be applied because at the time Catalan
redeemed the property, Dr.
Marave, the purchaser at public auction, had
not yet become the absolute owner of said
properties. He never received the definite and
formal certificate of sale constituting muniment
of title, for the reason that redemption was
made. Consequently, there was no title to the
properties which he could convey to Catalan as
redemptioner.
EVANGELISTA VS ABAD SANTOS
FACTS: On October 9, 1954 a co-partnership
was formed under the name of "Evangelista &
Co." On June 7, 1955 the Articles of Co-
partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial
partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos
and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a
contribution of P17,500 each. The amended
Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of
her industry being an industrial partner", and
that the profits and losses "shall be divided and
distributed among the partners ... in the
proportion of 70% for the first three partners,
Domingo C. Evangelista, Jr., Conchita P.
Navarro and Leonardo Atienza Abad Santos to
be divided among them equally; and 30% for
the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed
suit against the three other partners alleging
that the partnership, had been paying
dividends to the partners except to her; and
that notwithstanding her demands the
defendants had refused and continued to
refuse and let her examine the partnership
books or to give her information regarding the
partnership affairs to pay her any share in the
dividends declared by the partnership. She
therefore prayed that the defendants be
ordered to render accounting to her of the
partnership business and to pay her
corresponding share in the partnership profits
after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever
having declared dividends or distributed profits
of the partnership; denied likewise that the
plaintiff ever demanded that she be allowed to
examine the partnership books; and byway of
affirmative defense alleged that the amended
Articles of Co-partnership did not express the
true agreement of the parties, which was that
the plaintiff was not an industrial partner; that
she did not in fact contribute industry to the
partnership; and that her share of 30% was to
be based on the profits which might be realized
by the partnership only until full payment of
the loan which it had obtained in December,
1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which
the plaintiff had signed a promisory note as co-
maker and mortgaged her property as security.
ISSUE: Whether or not the respondent is an
industrial partner as claimed by her or merely
a profit sharer entitled to 30% of the net profits
that may be realized by the partnership from
June 7, 1955 until the mortgage loan from the
Rehabilitation Finance Corporation shall be
fully paid, as claimed by petitioners
RULING YES
As a matter of fact, all the appellant
Evangelista, Jr., would have us believe — that
the agreement does not express the true intent
and agreement of the parties thereto, the real
understanding between them being the
appellee would be merely a profit sharer
entitled to 30% of the net profits that may be
realized between the partners from June 7,
1955, until the mortgage loan of P30,000.00 to
be obtained from the RFC shall have been fully
paid. This version, however, is discredited not
only by the aforesaid documentary evidence
brought forward by the appellee, but also by
the fact that from June 7, 1955 up to the filing
of their answer to the complaint on February 8,
1964 — or a period of over eight (8) years —
appellants did nothing to correct the alleged
false agreement of the parties contained in
Exhibit "A". It is thus reasonable to suppose
that, had appellee not filed the present action,
appellants would not have advanced this
obvious afterthought that Exhibit "A" does not
express the true intent and agreement of the
parties thereto.
'ART. 1789. An industrial partner cannot engage
in business for himself, unless the partnership
expressly permits him to do so; and if he should
do so, the capitalist partners may either exclude
him from the firm or avail themselves of the
benefits which he may have obtained in
violation of this provision, with a right to
damages in either case.'
It is not disputed that the provision against the
industrial partner engaging in business for
himself seeks to prevent any conflict of interest
between the industrial partner and the
partnership, and to insure faithful compliance
by said partner with this prestation. There is no
pretense, however, even on the part of the
appellee is engaged in any business
antagonistic to that of appellant company,
since being a Judge of one of the branches of
the City Court of Manila can hardly be
characterized as a business.
On the ground that plaintiff has never
contributed her industry to the partnership,
instead she has been and still is a judge of the
City Court (formerly Municipal Court) of the
City of Manila, devoting her time to
performance of her duties as such judge and
enjoying the privilege and emoluments
appertaining to the said office, aside from
teaching in law school in Manila, without the
express consent of the herein defendants'.
They’ve always knew the respondent as
a City judge even before she joined appellant
company on June 7, 1955 as an industrial
partner, why did it take appellants many yearn
before excluding her from said company as
aforequoted allegations? And how can they
reconcile such exclusive with their main theory
that appellee has never been such a partner
because "The real agreement evidenced by
Exhibit "A" was to grant the appellee a share of
30% of the net profits which the appellant
partnership may realize from June 7, 1955,
until the mortgage of P30,000.00 obtained from
the Rehabilitation Finance Corporal shall have
been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold
with the lower Court that appellee is an
industrial partner of appellant company, with
the right to demand for a formal accounting
and to receive her share in the net profit that
may result from such an accounting, which
right appellants take exception under their
second assigned error. Our said holding is
based on the following article of the New Civil
Code:
'ART. 1899. Any partner shall have the right to
a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just
and reasonable.
We find no reason in this case to depart from
the rule which limits this Court's appellate
jurisdiction to reviewing only errors of law,
accepting as conclusive the factual findings of
the lower court upon its own assessment of the
evidence.
The judgment appealed from is affirmed, with
costs.
PNB vs Lo
FACTS: In September 1916, Severo Eugenio Lo
and Ling, together with Ping, Hun, Lam and
Peng formed a commercial partnership under
the name of “Tai Sing and Co.,” with a capital
of P40,000 contributed by said partners. The
firm name was registered in the mercantile
registrar in the Province of Iloilo. Ping, in the
articles of partnership, was assigned as the
general manager. However, in 1917, he
executed a special power of attorney in favor of
Lam to act in his behalf as the manager of the
firm. Subsequently, Lam obtained a loan from
PNB – the loan was under the firm’s name. In
the same year, Ping died in China. From 1918
to 1920, the firm, via GM Lam, incurred other
loans from PNB. The loans were not objected
by any of the partners. Later, PNB sued the firm
for non-payment. Lo, in his defense, argued
that he cannot be liable as a partner because
the partnership, according to him, is void; that
it is void because the firm’s name did not
comply with the requirement of the Code of
Commerce that a firm name should contain the
“names of all of the partners, of several of them,
or only one of them”. Lo also argued that the
acts of Lam after the death of Ping is not
binding upon the other partners because the
special power of attorney shall have already
ceased.
ISSUE: Whether or not Lo is correct in both
arguments.
HELD: No. The anomalous adoption of the firm
name above noted does not affect the liability of
the general partners to third parties under
Article 127 of the Code of Commerce. The object
of the Code of Commerce in requiring a general
partnership to transact business under the
name of all its members, of several of them, or
of one only, is to protect the public from
imposition and fraud; it is for the protection of
the creditors rather than of the partners
themselves. It is unenforceable as between the
partners and at the instance of the violating
party, but not in the sense of depriving
innocent parties of their rights who may have
dealt with the offenders in ignorance of the
latter having violated the law; and that
contracts entered into by a partnership firm
defectively organized are valid when voluntarily
executed by the parties, and the only question
is whether or not they complied with the
agreement. Therefore, Lo cannot invoke in his
defense the anomaly in the firm name which
they themselves adopted. Lo was not able to
prove his second argument. But even assuming
arguendo, his second contention does not
deserve merit because (a) Lam, in acting as a
GM, is also a partner and his actions were
never objected to by the partners, and (b) it also
appeared from the evidence that Lo, Lam and
the other partners authorized some of the
loans.