Bonnevie vs. Hernandez

Upon dissolution, a withdrawing partner who accepts return of his investment under an agreement of settlement relinquishes all rights and interests in the partnership; no separate liquidation is required where the parties have agreed on what the retiring partner shall receive. Such acceptance precludes the withdrawing partner from later claiming a share in profits from subsequent transactions of the remaining partners.

Plaintiffs and other associates, including Judge Jaime Reyes, formed a syndicate or secret partnership to acquire the plants, franchises, and other properties of the Manila Electric Co. in Camarines Sur, Albay, and Sorsogon, with the intention of incorporating once the acquisition was completed. Jaime Hernandez was later taken in as a member to help push the purchase through and was given a power of attorney for that purpose. The partnership had no formal articles, elected Pedro Serranzana as general manager and David Serrano as secretary-treasurer, and used partnership funds to acquire the Meralco properties, with Hernandez named as vendee in the deed of sale although the transaction was for the partnership. The contemplated corporation was later named Bicol Electric Company.

Prior to January 1947, plaintiffs with other associates formed a syndicate or secret partnership for the purpose of acquiring the plants, franchises, and other properties of the Manila Electric Co. in the provinces of Camarines Sur, Albay, and Sorsogon, with the idea of continuing that company's business in that region. No formal articles were drawn because the members intended to incorporate once the deal had been consummated. In the meantime, they elected Pedro Serranzana and David Serrano as general manager and secretary-treasurer, respectively. Negotiation for the purchase commenced but made no headway, so defendant Jaime Hernandez was taken in as a member of the partnership to push the deal through, and he was given the necessary power of attorney. Using partnership funds, Hernandez bought the Meralco properties for P122,000, paying P40,000 upon the signing of the deed of sale and agreeing to pay the balance in two equal installments: P41,000 on or before July 31, 1947, and another P41,000 on or before January 31, 1948, with interest at 6 per cent per annum and a penalty clause allowing the vendor to annul the contract, forfeit all payments as liquidated damages, and reenter the premises upon nonpayment. Although Hernandez was the one named vendee in the deed of sale, the transaction was in reality made for the partnership, which assumed control of the business the day following the sale.

About the latter half of the following month, the members of the partnership proceeded with the formation of the proposed corporation, apportioning among themselves its shares of stock in proportion to their respective contributions to the capital of the partnership and their individual efforts in bringing about the acquisition of the Meralco properties. Before the incorporation papers could be perfected, several partners, not satisfied with the way matters were being run and fearful that the venture might prove a failure because the business was not going well and there was a possibility of their being assessed more than their original investments when the time came to meet the two installments of the unpaid purchase price due the Meralco, expressed their desire to withdraw from the partnership and get back the money they had invested. In accordance with this wish, Judge Jaime Reyes, in a meeting held on April 10, 1947, presented a resolution to the effect that those partners who did not want to remain in the association should be allowed to withdraw and get back their contributions. The resolution was approved, with plaintiffs voting affirmatively, and on that same day plaintiffs and Judge Reyes withdrew from the partnership, and the partnership was then dissolved. In accordance with the terms of the resolution, the withdrawing partners were, on the following day, reimbursed their respective contributions to the partnership fund.

Following the dissolution of the partnership, the members who preferred to remain in the business went ahead with the formation of the corporation, taking in new associates as stockholders. Defendant, on his part, in fulfillment of his trust, made a formal assignment of the Meralco properties to the treasurer of the corporation, giving them a book value of P365,000, in return for which the corporation issued, to the various subscribers to its capital stock, shares of stock of the total face value of P225,000 and assumed the obligation of paying what was still due the Meralco on the purchase price. The new corporation was named Bicol Electric Company. Though business was losing during the first year, that is, in 1947, the corporation, thanks to a loan obtained from the RFC, later prospered and made money.

Two years from their withdrawal from the partnership, when the corporate business was already in a prosperous condition, plaintiffs brought the present suit against Jaime Hernandez, claiming a share in the profit the latter is supposed to have made from the assignment of the Meralco properties to the corporation, estimated by plaintiffs to be P225,000 and their share of it to be P115,312.50. Defendant's answer denied that he had made any profit out of the assignment in question and alleged that in any event plaintiffs, after their withdrawal from the partnership, ceased to have any further interest in the subsequent transactions of the remaining members. After trial, the lower court found that the partnership had not realized any profit out of the assignment of the Meralco properties to the corporation and that, even supposing that profit had really been made, defendant would not be the one to answer to plaintiffs for their share thereof, because he did not receive the consideration for the assignment, which according to the court consisted of the subscriptions of various persons to the capital stock of the corporation.

• Share in Profits: Plaintiffs-appellants claimed that the assignment of the Meralco properties to Bicol Electric Company at a book value of P365,000, when acquired for P122,000, generated a profit of P225,000, of which their share was P115,312.50.
• Failure to Liquidate: Plaintiffs maintained that defendant, as managing partner, failed to perform his duty as liquidator of the dissolved partnership and should be held liable for damages equal to their alleged share in the profits.
• Defendant's Liability: Plaintiffs sought to hold Hernandez liable despite his not receiving the consideration, by characterizing their claim as damages for breach of his duty as liquidator.

• No Profit: Defendant denied that he had made any profit out of the assignment in question.
• No Further Interest: Defendant alleged that plaintiffs, after their withdrawal from the partnership, ceased to have any further interest in the subsequent transactions of the remaining members.

• Profit from Assignment: Whether the assignment of the Meralco properties to Bicol Electric Company realized a profit of P225,000 from which plaintiffs could claim a share.
• Liability of Defendant: Whether defendant Jaime Hernandez could be held liable for plaintiffs' alleged share in the profits or for damages for failure to liquidate the dissolved partnership.
• Effect of Withdrawal and Reimbursement: Whether plaintiffs, having withdrawn from the partnership and accepted reimbursement of their contributions, retained any right to share in subsequent profits or assets of the dissolved partnership.
• Necessity of Liquidation: Whether liquidation was required before plaintiffs could be deemed to have relinquished their interests.

• Profit from Assignment: No. The alleged profit was more apparent than real; the assignment was not for cash but in payment for subscriptions to shares, and the shares' real value depended on the corporation's assets over liabilities, which did not show a real profit.
• Liability of Defendant: No. Even assuming a profit, defendant did not receive the consideration for the assignment, which consisted of subscriptions of various persons to the capital stock of the new corporation.
• Effect of Withdrawal and Reimbursement: No. Acceptance of reimbursement was understood and intended by all parties as a final settlement of whatever rights or claim the withdrawing partners had in the dissolved partnership, precluding any later claim to profits.
• Necessity of Liquidation: No. Although a retiring partner is generally entitled to payment after liquidation, no liquidation is necessary where there is already a settlement or agreement as to what the retiring partner shall receive.

• Profit from Assignment: The value set for the Meralco properties in the deed of assignment was P365,000 while the acquisition price was only P122,000, but this difference did not establish profit. The assignment was not made for cash; it was made in payment for subscriptions to shares of stock in the assignee. The shares had a total face value of P225,000, but face value is not necessarily real worth. The real value of shares of stock of a corporation depends upon the value of its assets over and above its liabilities. Bicol Electric Company had no assets other than those acquired from the Meralco, and according to the evidence the company, aside from owing the Meralco P82,000, was actually "in the red." Thus, the alleged profit was more apparent than real.

• Liability of Defendant: Assuming that the assignment actually brought profit to the partnership, defendant could not be made to answer for plaintiffs' alleged share. The lower court stated that defendant did not receive the consideration for the assignment; the assignment was made in payment for subscriptions of various persons to the capital stock of the new corporation. Plaintiffs sought to hold defendant liable for damages for failure to perform his duty as liquidator, but no liquidation was asked, and none was called for because of the settlement understanding. Moreover, the stipulation of facts did not bear out that defendant was the managing partner; the partnership had Pedro Serranzana as general manager, who upon the formation of the new corporation also became its vice-president and general manager.

• Effect of Withdrawal and Reimbursement: When plaintiffs and Judge Jaime Reyes withdrew on April 10, 1947, they did so as agreed to by all the partners, subject only to the condition that they were to be repaid their contributions or investments within three days from that date. They were reimbursed the following day. The partnership was operating at a loss and lacked funds to meet its obligation to Meralco for the balance of the purchase price; nonpayment would have resulted in the partnership losing its entire investment because of the penalty clause in the deed of sale. Judge Reyes testified that it was clearly understood that upon their withdrawal and return of their investment they would have nothing more to do with the association. His refusal to join the claim, because he did not want to be a "sin verguenza," indicated that such was the understanding. If the withdrawing partners were still to share in profits and losses, it was unlikely that their investment would have been returned. The acceptance of their investment was therefore understood and intended by all the parties as a final settlement of whatever rights or claim they might have in the dissolved partnership, precluding them from claiming any share in the alleged profits.

• Necessity of Liquidation: The general rule is that when a partner retires from the firm, he is entitled to the payment of what may be due him after a liquidation. But no liquidation is necessary where there is already a settlement or an agreement as to what the retiring partner shall receive. Here, a settlement was agreed upon on the very day the partnership was dissolved, and the condition that the withdrawing partners be repaid their contributions within three days was fulfilled the following day. Thus, no liquidation was required.

• Retiring Partner's Right to Payment and Exception to Liquidation — As a general rule, when a partner retires from the firm, he is entitled to payment of what may be due him after liquidation. No liquidation is necessary, however, where there is already a settlement or an agreement as to what the retiring partner shall receive. In this case, the partnership was dissolved on April 10, 1947, the withdrawing partners were reimbursed the following day, and the parties had agreed on the return of their investments, so no liquidation was required.

• Final Settlement and Relinquishment of Partnership Interest — Acceptance by withdrawing partners of the return of their investment, under an agreement of settlement, is understood and intended as a final settlement of whatever rights or claim they may have in the dissolved partnership. Such acceptance precludes them from later claiming a share in alleged profits from subsequent transactions of the remaining partners. The Court applied this doctrine to plaintiffs, who withdrew, accepted reimbursement, and later sued for a share in the supposed profit from the assignment of Meralco properties to Bicol Electric Company.

• Real Value of Corporate Shares — The real value of shares of stock of a corporation depends upon the value of its assets over and above its liabilities, not merely on their face value. The Court used this principle to reject plaintiffs' claim that the P225,000 face value of shares issued in exchange for the Meralco properties represented real profit; Bicol Electric Company had no assets other than those acquired from Meralco and owed Meralco P82,000, leaving it "in the red."

• No Liability Absent Receipt of Consideration — A defendant cannot be held liable for an alleged share in profits from an assignment where he did not receive the consideration for that assignment. The Court noted that the assignment was made in payment for subscriptions of various persons to the capital stock of the new corporation, not to defendant personally.

• "As a general rule, when a partner retires from the firm, he is entitled to the payment of what may be due him after a liquidation. But certainly no liquidation is necessary where there is already a settlement or an agreement as to what the retiring partner shall receive." — This passage states the general rule on a retiring partner's right to payment and the exception applied by the Court, namely that no liquidation is required where the parties have agreed on the retiring partner's settlement.
• "It is, therefore, our conclusion that the acceptance by the withdrawing partners, including the plaintiffs, of their investment in the instant case was understood and intended by all the parties as a final settlement of whatever rights or claim the withdrawing partners might have in the dissolved partnership. Such being the case they are now precluded from claiming any share in the alleged profits, should there be any, at the time of the dissolution." — This is the ratio decidendi on the preclusive effect of the withdrawing partners' acceptance of reimbursement, which defeats plaintiffs' later claim to profits.
• "In the first place, the profit alleged to have been realized from the assignment of the Meralco properties to the new corporation, the Bicol Electric Company, is more apparent than real." — This passage encapsulates the Court's threshold factual and legal finding that no real profit was shown from the assignment.
• "Needless to say, the real value of the shares of stock of a corporation depends upon the value of its assets over and above its liabilities." — This defines the standard used to assess whether the shares issued in exchange for the Meralco properties represented actual profit.

Paras, C.J.; Pablo; Bengzon; Montemayor; Jugo; Bautista Angelo; Labrador; and Concepcion, JJ.