GREGORIO MAGDUSA, ET AL., PETITIONERS, VS. GERUNDIO ALBARAN, ET AL., RESPONDENTS.

Appeal from a decision of the Court of Appeals (R.G. No. 24248-R)
reversing a judgment of the Court of First Instance of Bohol and
ordering appellant Gregorio Magdusa to pay to appellees, by way of
refund of their shares as partners, the following amounts: Gerundio
Albaran, P8,223.10; Pascual Albaran, P5,394,78; Zosimo Albaran,
11,979.28; and Telesforo Bebero, P3,020.24, plus legal interests from
the filing of the complaint, and costs. The Court of Appeals found that
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. The results of the computation were embodied in the document
Exhibit “C”, drawn in the handwriting of appellant. Appellees
thereafter made demands upon appellant for payment, but appellant
having refused, they filed the initial complaint in the court below.
Appellant defended by denying any partnership with appellees, whom he
claimed to be mere employees of his.

The Court of First Instance of Bohol refused to give credence to
Exhibit “C” and dismissed the complaint on the ground that the other
partners were indispensable parties but had not been impleaded. Upon
appeal, the Court of Appeals reversed, with the result noted at the
start of this opinion.

Gregorio Magdusa then petitioned for a review of the decision, and we gave it due course.

The main argument of appellant is that the appellees’ action can not
be entertained, because in the distribution of all or part of a
partnership’s assets, all the partners have an interest and are
indispensable parties without whose intervention no decree of
distribution can be validly entered. This argument was considered and
answered by the Court of Appeals in the following, words;

“We now come to the last issue involved. While
finding that some amounts are due the plaintiffs, the lower court
“withheld ail award in their favor, reasoning that a judgment ordering
the defendant to pay might affect the rights of other partners who were
not made parties in this case. The reason cited by the lower court does
not constitute a legal impediment to a judgment for the plaintiffs in
this case. This is not an action for a dissolution of a partnership and
winding up of its affairs or liquidation of its assets in which the
interest of other partners who are not brought into the case may be
affected. The action of the plaintiffs is one for the recovery of a sum
of money with Gregorio Magdusa as the principal defendant. The
partnership, with Gregorio Magdusa as managing partner, was brought
into the case as an alternative defendant only. Plaintiffs’ action was
based on the allegation, substantiated in evidence, that Gregorio
Magdusa, having taken delivery of their shares, failed and refused and
still fails and refuses to pay them their claims. The liability,
therefore, is personal to Gregorio Magdusa, and the judgment should be
against his sole interest, not against the partnership’s although the
judgment creditors may satisfy the judgment against the interest of
Gregorio Magdusa in the partnership subject to the conditions imposed
by Article 1814 of the Civil Code.”

We do not find the preceding reasoning tenable. 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), for
the return is dependent on the discharge of the creditors, whose claims
enjoy preference over those of the partners; and it is self-evident
that all members of the partnership are interested in its assets and
business, and are entitled to be heard in the matter of the firm’s
liquidation and the distribution of its property. 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. At the very least, they are entitled to be heard
upon its correctness.

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), and the firm’s property can not be diminished to their
prejudice. Finally, the appellant can not be held liable in his
personal capacity for the payment of partners’ shares, for he does not
hold them except as manager of, or trustee for, the partnership. It is
the latter that must refund their shares to the retiring partners.
Since not all the members of the partnership have been impleaded, no
judgment for refund can be rendered, and the action should have been
dismissed.

In view of the foregoing, the decision of the Court of Appeals is
reversed, and the action ordered dismissed, without prejudice to a
proper proceeding for the dissolution and liquidation of the common
enterprise. Costs against appellees.

Bengzon, CJ., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon, Regala, and Makalintal, JJ., concur.