Bearneza vs. Dequilla

The death of a partner in a particular civil partnership dissolves the partnership and places it in liquidation; the deceased partner's testamentary heir inherits only the rights resulting from liquidation and cannot maintain an action to recover a specific share of partnership property before liquidation.

Balbino Dequilla and Perpetua Bearneza carried on a civil partnership for the exploitation of a fish pond in Talisay, Barotac Nuevo, Iloilo. Domingo Bearneza was the testamentary heir named by Perpetua to succeed to her rights and interests in the fish pond. The dispute required application of the Civil Code provisions on particular partnerships, dissolution by death, and liquidation, including articles 1670, 1678, 1700, and 1704.

In 1903, Balbino Dequilla and Perpetua Bearneza formed a partnership to exploit a fish pond in the barrio of Talisay, municipality of Barotac Nuevo, Province of Iloilo. Perpetua obligated herself to contribute to the payment of the expenses of the business, an obligation she fulfilled, and both agreed to divide the profits between themselves. They continued to divide the profits until Perpetua died in 1912. The fish pond consisted of the portions known as "Alimango" and "Dalusan."

Perpetua left a will. In one of its clauses, she appointed Domingo Bearneza as her heir to succeed to all her rights and interests in the fish pond. After her death, Domingo demanded from Balbino delivery of the part of the fish pond belonging to Perpetua. Balbino refused. Domingo then brought an action to recover that part of the fish pond and one-half of the profits Balbino had received from the fish pond from 1913 to 1919 as damages. The amended complaint, filed on April 12, 1920, alleged damages amounting to thirteen thousand one hundred pesos (13,100).

In his answer, Balbino denied generally and specifically the allegations of the complaint. As a special defense, he alleged that the formation of the supposed partnership between Domingo and himself for the exploitation of the fish pond was not carried into effect because Domingo refused to defray the expenses of reconstruction and exploitation of the fish pond. As another special defense, he alleged that if the court should hold Domingo entitled to the undivided one-half of the fish pond claimed in the complaint, Domingo's action had prescribed.

The record showed that the land on which the fish pond was constructed was not proven to have been owned by Perpetua. Balbino paid the land tax thereon as exclusive owner, as shown by Exhibits 2 and 3, although in Exhibit X he stated that the land belonged to the State. Balbino's letters to Perpetua or her husband referred to the fish pond as "our" or "your fish pond."

No liquidation of the partnership was effected. There was no stipulation that the partnership would continue after Perpetua's death. Balbino required the heirs of Perpetua to contribute to the payment of the expenses of exploitation of the fishing industry, but neither the heirs collectively nor Domingo individually took any action in response to that requirement or made any promise to contribute. The trial court found that the damages claimed by Domingo were not proven.

• Non-Formation/Non-Continuation of Partnership: Balbino Dequilla, the defendant-appellant and the party appealing, alleged as a special defense that the supposed partnership between Domingo Bearneza and himself for the exploitation of the fish pond was not carried into effect because Domingo refused to defray the expenses of reconstruction and exploitation of the fish pond.
• Prescription: He further alleged that if the court should hold Domingo entitled to the undivided one-half of the fish pond, Domingo's action had prescribed.

• Community Property: Domingo Bearneza, the plaintiff-appellee, cited article 395 of the Civil Code in support of his contention, which the Court addressed as a claim that a community of property existed between him and Balbino Dequilla.
• Recovery of Decedent's Share and Profits: He sought recovery of the part of the fish pond belonging to Perpetua Bearneza and one-half of the profits received by Balbino from 1913 to 1919 as damages.

• Right of Action Before Liquidation: Whether Domingo Bearneza, as testamentary heir of Perpetua Bearneza, had the right to maintain an action to recover one-half of the fish pond before the partnership had been liquidated.
• Dissolution and Continuation of Partnership: Whether the particular civil partnership was dissolved by Perpetua's death and whether it continued after her death or between Domingo and Balbino.
• Community Property: Whether a community of property existed between Domingo and Balbino over the fish pond.
• Partnership Subject Matter: Whether the land on which the fish pond was constructed formed part of the subject matter of the partnership.

• Right of Action Before Liquidation: No. The heir inherited only the rights resulting from liquidation; before liquidation, it was impossible to determine the deceased's rights or interests, so no action for a specific share could be maintained.
• Dissolution and Continuation of Partnership: Yes, the partnership was dissolved by Perpetua's death under article 1700, subsection 3; it did not continue because no stipulation under article 1704 and no new contract was shown.
• Community Property: No. No community existed because it was not known whether the deceased still had any interest in partnership property that could have been transmitted by will.
• Partnership Subject Matter: No. The land was not proven to be part of the partnership; the partnership's subject matter was the exploitation of the fish pond, and Balbino paid land tax as exclusive owner.

• Right of Action Before Liquidation: The partnership between Perpetua and Balbino was civil and particular under article 1678, with the exploitation of the fish pond as its specified subject matter. It was not organized as a mercantile partnership, so the Code of Commerce did not apply under article 1670. It was dissolved by Perpetua's death under article 1700, subsection 3, and not under the exception in the last paragraph of article 1700. No stipulation continued it under article 1704. After dissolution, its legal status was a partnership in liquidation. The only rights inherited by Domingo, as testamentary heir, were those resulting from liquidation in favor of Perpetua, and nothing more. Because liquidation had not been effected, it was impossible to determine what rights or interests Perpetua had. Domingo therefore had not sufficiently shown a right of action.
• Dissolution and Continuation of Partnership: The partnership could not be maintained as continuing after Perpetua's death because no stipulation to that effect had been made by her and Balbino under article 1704. Nor did the partnership continue between Domingo and Balbino. Balbino's act in requiring Perpetua's heirs to contribute to the expenses of exploitation was an attempt to continue the partnership, but neither the heirs collectively nor Domingo individually took any action in response or made any promise to contribute. No new contract of partnership therefore existed.
• Community Property: There was no sufficient ground to hold that a community of property existed between Domingo and Balbino. It was not known whether Perpetua still had any interest in the partnership property that could have been transmitted by will to Domingo. Because there was no community of property, article 395 of the Civil Code, cited by Domingo, had no application.
• Partnership Subject Matter: Although Balbino's letters to Perpetua or her husband referred to the fish pond as "our" or "your fish pond," that reference could not be held to include the land on which the fish pond was built. It was not proven that Perpetua participated in the ownership of the land. Exhibits 2 and 3 showed Balbino paying the land tax as exclusive owner, although Exhibit X stated that the land belonged to the State. The land therefore did not constitute part of the subject matter of the partnership.

• Particular Civil Partnership — A partnership with a specified thing as its subject matter, such as the exploitation of a fish pond, is a particular partnership under article 1678 of the Civil Code. If not organized as a mercantile partnership, it is civil and the Code of Commerce does not govern it under article 1670. The Court applied this to classify the Perpetua-Balbino partnership as a particular civil partnership.
• Dissolution by Death — A particular civil partnership is dissolved by the death of a partner under article 1700, subsection 3, unless the partnership is continued by stipulation under article 1704. The Court applied this rule to hold that Perpetua's death dissolved the partnership and that no stipulation continued it.
• Partnership in Liquidation — Upon dissolution, the partnership enters liquidation; the deceased partner's testamentary heir inherits only the rights resulting from liquidation in favor of the deceased partner, not a specific share of partnership property. The Court applied this to deny Domingo's action to recover one-half of the fish pond before liquidation.
• No Community Property Absent Liquidation — No community of property can be recognized between the surviving partner and the deceased partner's heir where it is unknown whether the deceased still had any interest in partnership property after dissolution. The Court applied this to hold article 395 of the Civil Code inapplicable.
• Continuation of Partnership Requires New Contract — A surviving partner's unilateral demand for contributions does not continue the partnership or create a new one absent acceptance or promise by the heirs. The Court applied this to find no new partnership between Domingo and Balbino.

• "The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status was that of a partnership in liquidation, and the only rights inherited by her testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor of the deceased partner, and nothing more." — States the ratio decidendi on the limited rights inherited by the testamentary heir after dissolution.
• "Before this liquidation is made, which up to the present has not been effected, it is impossible to determine what rights or interests, if any, the deceased had, the partnership bond having been dissolved." — Explains why the heir's action to recover a specific share was premature before liquidation.
• "Neither can it be maintained that the partnership continued to exist after the death of Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been made by her and the defendant, pursuant to the provisions of article 1704 of the Code last cited." — Rules out continuation of the partnership by stipulation after the partner's death.
• "There is no sufficient ground for holding that a community of property existed between the plaintiff and the defendant, it not being known whether the deceased still had any interest in the partnership property which could have been transmitted by will to the plaintiff." — Rejects the community-property theory and supports the holding that article 395 was inapplicable.

• Article 1678, Civil Code — Defines a particular partnership as one having a specified thing as its subject matter. The Court applied it to the partnership for the exploitation of the fish pond.
• Article 1670, Civil Code — Provides that the Code of Commerce is not applicable to a civil partnership not organized as a mercantile partnership. The Court applied it to treat the partnership as civil.
• Article 1700, subsection 3, Civil Code — Provides that a partnership is dissolved by the death of a partner. The Court applied it to dissolve the partnership upon Perpetua's death; the exception in the last paragraph of article 1700 did not apply.
• Article 1704, Civil Code — Requires a stipulation for the partnership to continue after the death of a partner. None existed, so the partnership did not continue.
• Article 395, Civil Code — Cited by Domingo Bearneza in support of his contention. The Court held it inapplicable because no community of property existed.

Araullo, C.J., Malcolm, Avanceña, Villamor, Ostrand and Johns, JJ., concur.