Island Sales, Inc. vs. United Pioneers General Construction Company, et al.
**Facts:**
1. On April 22, 1961, United Pioneers General Construction Company, a registered general partnership, purchased a motor vehicle from Island Sales, Inc. The purchase was made on an installment basis, under a promissory note amounting to P9,440.00. The payment terms were set at twelve equal monthly installments of P786.63, with the first installment due on May 22, 1961, and each subsequent installment due on the 22nd of every month thereafter.
2. The promissory note stipulated that failure to pay any installment when due would render the entire remaining balance immediately due and demandable.
3. When the installment due on July 22, 1961, was not paid, Island Sales, Inc. filed a complaint against United Pioneers General Construction Company for the unpaid balance of P7,119.07.
4. The complaint included general partners: Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc.
5. Daniel A. Guizona was declared in default for failing to file an answer. Subsequently, on the plaintiff’s motion, the complaint against Romulo B. Lumauig was dismissed.
6. When the case was called for hearing, the defendants and their counsel did not appear, despite having been notified. The trial court allowed the plaintiff to present its evidence ex-parte and rendered a decision.
7. The Court of First Instance sentenced United Pioneers General Construction Company to pay P7,119.07 with 12% annual interest, plus P800.00 in attorney’s fees and costs. It ordered the individual partners to pay the amount if the partnership had no leviable properties.
8. Benjamin C. Daco and Noel C. Sim filed a motion for reconsideration, arguing their liability should be limited to one-fifth of the partnership’s obligation, given there were five general partners. Despite the plaintiff’s agreement to this limitation, the trial court denied the motion.
9. As a result, Benjamin C. Daco appealed the decision to the Supreme Court.
**Issues:**
1. Whether the dismissal of the complaint against one general partner increases the liability of the remaining partners for the partnership’s obligations.
2. How the pro rata liability among general partners is affected by the partial dismissal of the complaint.
**Court’s Decision:**
1. **Pro Rata Liability of Partners:**
– The Supreme Court held that general partners are liable pro rata for the obligations of the partnership, per Article 1816 of the Civil Code, which necessitates distributing the liability equally among all general partners.
2. **Effect of Dismissal Against One Partner:**
– The Court clarified that the dismissal of the complaint against Romulo B. Lumauig did not alter his status as a general partner, and the pro rata obligation remains the same. Thus, Benjamin C. Daco’s liability should be limited to one-fifth of the partnership’s overall debt.
**Doctrine:**
1. Article 1816 of the Civil Code establishes that all partners in a general partnership are liable pro rata for the partnership’s obligations, and their liability arises only after the partnership’s assets are exhausted.
2. The liability of one partner is not increased due to the non-availability or dismissal of other partners from the litigation.
**Class Notes:**
1. **Pro Rata Liability of Partners:**
– Each partner’s liability is proportionate to the number of general partners.
– Reference: Article 1816, Civil Code of the Philippines.
– Key principle: The liability is distributive, not joint, unless otherwise specified in the partnership contract.
2. **Judicial Precedent on Partner Liability:**
– The pivotal holding in Co-Pitco vs. Yulo.
– Key understanding: Dismissal of action against one partner does not increase the others’ liabilities.
**Historical Background:**
– During the early 1960s, the development of Philippine commercial law saw reinforcement through case laws, particularly focusing on the individual liabilities of partners within general partnerships.
– This case underscores an evolving jurisprudence aiming to clarify the application of the Civil Code concerning partnerships, ensuring clear guidelines for partner liabilities amidst partnership transactions and disputes.
Leave a Reply