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EUFRACIO D. ROJAS v. CONSTANCIO B. MAGLANA

FACTS:

In January 1955, Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership was duly registered on January 21, 1955. One of the purposes of the partnership was to secure timber licenses and concessions and operate and develop them. The partnership filed an application for a timber concession with the Bureau of Forestry, which was approved, and a timber license was issued.

Due to difficulties encountered, Maglana and Rojas decided to bring in another partner, Pahamotang. On March 4, 1956, they executed new Articles of Co-Partnership under the firm name EDE. The partnership started operations on May 1, 1956, and was successful, earning income from the sale of logs. In October 1956, Pahamotang decided to withdraw from the partnership, and Maglana and Rojas agreed to purchase his interest and dissolve the partnership. The payment was made in August 1957.

After Pahamotang's withdrawal, Maglana and Rojas continued the partnership without any written agreement or reconstitution of their partnership. However, on January 28, 1957, Rojas entered into a management contract with another logging enterprise and abandoned the partnership. He also withdrew his equipment from the partnership for use in the new area.

Maglana reminded Rojas of his obligations in March 1957, but Rojas informed Maglana that he cannot fulfill his promised contributions and will no longer work as the logging superintendent. Maglana then informed Rojas that his share will be reduced to 20% of the net profits. This arrangement continued without complaint from 1957 to 1959.

In 1961, Maglana dissolved the partnership after discovering that Rojas had taken funds from the partnership more than his contribution. Rojas filed a complaint for recovery of properties, accounting, receivership, and damages against Maglana before the Court of First Instance of Davao. The motion to dismiss the complaint was denied, and commissioners were appointed to examine the partnership's accounts.

The trial court rendered its decision on March 11, 1968, declaring that the partnership between Maglana and Rojas was one of a de facto and at will nature after Pahamotang's retirement, the sharing of profits and losses was based on actual contributions, properties bought by Maglana did not belong to the partnership, neither party was entitled to damages, and the partnership was dissolved on February 23, 1961.

ISSUES:

  1. Whether the partnership between Maglana and Rojas was dissolved by the second partnership agreement and if the partnership was subsequently reconstituted

  2. Whether the letter of Maglana dated February 23, 1961, legally dissolved the partnership

  3. Whether the first partnership and the second partnership are separate and distinct entities.

  4. Whether Maglana has the right to unilaterally dissolve the partnership.

  5. Whether Rojas is entitled to profits from the partnership.

  6. Whether Maglana is liable for damages due to his withdrawal from the partnership.

  7. Whether or not the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated.

  8. Whether or not the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership.

RULING:

  1. The Court held that the second partnership agreement did not dissolve the first partnership, as it was evident that the intention of the partners was not to dissolve the first partnership upon the constitution of the second one. The second partnership agreement was considered an "Additional Agreement" and the terms and stipulations of the registered Articles of Co-Partnership still governed the relations between Rojas and Maglana.

  2. The Court declared that the letter of Maglana dated February 23, 1961, effectively dissolved the partnership between him and Rojas.

  3. The first partnership and the second partnership are not separate and distinct entities. The First Articles of Partnership were only amended to form the Supplementary Articles of Co-Partnership. All business transactions were carried out under the duly registered articles of the first partnership. No rights and obligations accrued in the name of the second partnership, except for Pahamotang who was paid by the duly registered partnership.

  4. Maglana has the right to unilaterally dissolve the partnership. Even with the existence of a specified term, one partner can cause the dissolution by expressly withdrawing before the expiration of the period, with or without justifiable cause. Maglana's notice of dissolution to Rojas was a notice of withdrawal, decreasing the number of members and resulting in dissolution.

  5. Rojas is not entitled to profits from the partnership. Rojas failed to contribute the required amount of capital to the partnership as provided in the duly registered Articles of Co-Partnership. When a partner fails to contribute the promised amount, they become a debtor of the partnership.

  6. Maglana is not liable for damages due to his withdrawal from the partnership. Rojas abandoned the partnership, entered into a management contract with another logging enterprise, and took funds in excess of his contribution. Maglana cannot be considered in bad faith or held liable for damages.

  7. Yes, the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated.

  8. Yes, the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership.

PRINCIPLES:

  • The intention of the partners is a crucial factor in determining the dissolution of a partnership.

  • A letter expressing the intention to dissolve a partnership can be considered a valid means of dissolution.

  • Partnerships may be dissolved by the withdrawal of a partner, even before the expiration of a specified term, with or without justifiable cause. (Article 1830, par. 2 of the Civil Code)

  • When a partner fails to contribute the promised capital, they become a debtor of the partnership. (Article 1786, Civil Code)

  • Each partner must share in the profits and losses of the partnership. (Essence of a partnership)

  • Partnership is a contract wherein two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. It is a juridical entity separate and distinct from that of its partners.

  • The dissolution of a partnership does not necessarily mean its termination or the end of its existence. Dissolution refers to the change in the relation of partners caused by death, retirement, withdrawal, or any event that makes it impossible to carry on the partnership business. Termination, on the other hand, denotes the end of the legal existence of a partnership.

  • A partnership continues until it is terminated by the act of the partners or by operation of law. Its affairs may still be wound up even after it has been dissolved.

  • In the absence of an agreement, the sharing of the profits and losses of a partnership shall be in proportion to the value of the original contributions of the partners. However, if there is a specific agreement in the Articles of Partnership regarding the sharing basis, the provisions of such agreement shall prevail.