Island Sales, Inc. vs. United Pioneers General Construction Company, et al.

The dismissal of a complaint against one general partner does not increase the pro rata liability of the remaining general partners for the partnership's obligations; the plaintiff's dismissal merely condones the dismissed partner's individual liability and does not unmake him a partner.

Island Sales, Inc. was the creditor of United Pioneers General Construction Company, a general partnership duly registered under Philippine laws, under an installment sale of a motor vehicle. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were general partners of the company and were impleaded in that capacity. Article 1816 of the Civil Code governs the liability of partners for partnership contracts, providing for pro rata liability after partnership assets are exhausted.

On April 22, 1961, United Pioneers General Construction Company, a general partnership duly registered under the laws of the Philippines, purchased from Island Sales, Inc. a motor vehicle on the installment basis. For that purpose, the company executed a promissory note for P9,440.00, payable in twelve equal monthly installments of P786.63, with the first installment due on or before May 22, 1961 and subsequent installments due on the 22nd day of every month thereafter until fully paid. The promissory note provided that failure to pay any installment when due would render the whole unpaid balance immediately due and demandable.

When the installment due on July 22, 1961 was not paid, Island Sales, Inc. sued United Pioneers General Construction Company for the unpaid balance of P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the company. At the time the promissory note was executed, there were five general partners in the defendant company. Daniel A. Guizona failed to file an answer and was declared in default. On motion of the plaintiff, the complaint was subsequently dismissed insofar as Romulo B. Lumauig was concerned.

When the case was called for hearing, the defendants and their counsels failed to appear despite the notices sent to them. The trial court authorized the plaintiff to present its evidence ex-parte, after which it rendered the decision appealed from. Thereafter, Benjamin C. Daco and Noel C. Sim moved for reconsideration, claiming that because there were five general partners, the joint and subsidiary liability of each partner should not exceed one-fifth of the obligations of the defendant company. The trial court denied the motion notwithstanding the conformity of the plaintiff to limit the liability of Daco and Sim to only one-fifth of the obligations of the defendant company. Daco appealed from the decision.

• Pro Rata Liability: Appellant Benjamin C. Daco maintained that because there were five general partners when the promissory note was executed, his joint and subsidiary liability should not exceed one-fifth of the obligations of the defendant company.

• Conformity to Pro Rata Limit: Respondent-appellee Island Sales, Inc. conformed to limiting the liability of defendants Daco and Sim to only one-fifth of the obligations of the defendant company.

• Effect of Dismissal on Partner Liability: Whether the dismissal of the complaint in favor of one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership.

• Effect of Dismissal on Partner Liability: No. The dismissal of the complaint against one general partner does not increase the joint and subsidiary liability of the remaining partners. Under Article 1816 of the Civil Code, partner liability is pro rata, and the plaintiff's dismissal merely condoned Lumauig's individual liability without unmaking him a general partner.

• Effect of Dismissal on Partner Liability: Article 1816 of the Civil Code provides that all partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for contracts entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. The Court cited Co-Pitco vs. Yulo, where a civil partnership's partners were held liable only pro rata, and the fact that one partner had left the country could not increase the liability of the remaining partner. In the instant case, there were five general partners when the promissory note in question was executed for and in behalf of the partnership. Because the liability of the partners is pro rata, the liability of appellant Benjamin C. Daco was limited to only one-fifth of the obligations of the defendant company. The dismissal of the complaint against Romulo B. Lumauig, upon motion of the plaintiff, did not unmake Lumauig as a general partner in the defendant company; in so moving to dismiss, the plaintiff merely condoned Lumauig's individual liability to the plaintiff. The appealed decision was therefore affirmed as clarified.

• Pro Rata Liability of Partners — Under Article 1816 of the Civil Code, all partners, including industrial ones, are liable pro rata with all their property and after all partnership assets have been exhausted, for contracts entered into in the name and for the account of the partnership under its signature by an authorized person. In this case, because there were five general partners when the promissory note was executed, appellant Daco's liability was limited to one-fifth of the partnership's obligations.
• Exhaustion of Partnership Assets — Partner liability is subsidiary to partnership assets; the trial court's judgment against the individual defendants was enforceable only if the defendant company had no more leviable properties with which to satisfy the judgment against it. The Supreme Court affirmed the decision as clarified, maintaining the pro rata limitation on the individual partners' liability.
• Dismissal or Condonation of One Partner's Liability — The dismissal of the complaint against one general partner upon motion of the plaintiff does not increase the pro rata liability of the remaining partners. The dismissed partner remains a general partner; the plaintiff merely condones his individual liability. Applied here, the dismissal of the complaint against Lumauig did not increase Daco's share beyond one-fifth.

• "Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract." — This is the controlling statutory basis for the Court's holding that partner liability is pro rata and limited to each partner's proportionate share.
• "The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo." — This excerpt from Co-Pitco vs. Yulo supplies the precedent that the absence or removal of one partner does not increase the remaining partner's liability.
• "In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5) of the obligations of the defendant company." — This is the ratio decidendi applying Article 1816 to the facts and limiting Daco's liability to one-fifth.
• "The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff." — This passage directly resolves the sole issue by holding that dismissal of one partner does not increase the remaining partners' pro rata liability.

• Co-Pitco vs. Yulo, 8 Phil. 544 — Cited by the Court as authority that partners in a civil partnership are not liable each for the whole debt of the partnership; their liability is pro rata, and the fact that another partner left the country cannot increase the remaining partner's liability. The Court applied this principle to limit appellant Daco's liability to one-fifth.

• Article 1816, Civil Code — Provides that all partners, including industrial ones, shall be liable pro rata with all their property and after all partnership assets have been exhausted, for contracts entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership; any partner may enter into a separate obligation to perform a partnership contract. The provision was applied to limit Daco's liability to one-fifth of the defendant company's obligations and to hold that the dismissal of Lumauig did not increase the remaining partners' liability.

Makalintal, C.J.; Fernando (Chairman); Barredo; and Aquino, JJ., concur.