Rojas vs. Maglana

The duly registered Articles of Co-Partnership continued to govern the relations between the partners after the industrial partner's withdrawal from the second (unregistered) partnership, and profit sharing must follow the "share and share alike" stipulation therein—not the ratio of actual contributions—subject to the partnership's right to set off the defaulting partner's indebtedness against any share in profits.

Eufracio D. Rojas and Constancio B. Maglana were the two original partners of Eastcoast Development Enterprises (EDE), a partnership formed to secure and operate timber concessions over public forest lands in Cateel and Baganga, Davao. The partnership obtained Timber License No. 35-56 from the Bureau of Forestry, which served as the basis for all subsequent renewals. Under the Articles, Maglana was to manage business affairs, marketing, and cash handling, while Rojas was to serve as logging superintendent managing field operations. The partnership agreement stipulated that all profits and losses be divided "share and share alike" between the two partners.

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") under the firm name Eastcoast Development Enterprises (EDE), with only the two of them as partners. The partnership, which had an indefinite term, was duly registered with the Securities and Exchange Commission on January 21, 1955. Its purpose was to apply for and operate timber concessions over public and private forest lands. A copy of the registered Articles was filed with an application for a timber concession covering areas in Cateel and Baganga, Davao, and Timber License No. 35-56 was issued, serving as the basis for all subsequent renewals. Under the Articles, Maglana was to manage business affairs, marketing, and cash, while Rojas was to serve as logging superintendent managing logging operations. All profits and losses were to be divided "share and share alike" between the partners.

From January 14, 1955 to April 30, 1956, the partnership did not operate. Because of difficulties encountered, the partners decided to avail of the services of Agustin Pahamotang as an industrial partner. On March 4, 1956, Maglana, Rojas, and Pahamotang executed a second Articles of Co-Partnership (Exhibit "C") under the same firm name, with the slight differences that its purpose was to hold and secure renewal of the timber license rather than to secure the license, and the term was fixed at thirty years. Everything else remained the same. The second partnership began operations on May 1, 1956, shipped logs, and derived income of ₱643,633.07. On October 25, 1956, the three partners executed a "Conditional Sale of Interest in the Partnership" whereby Maglana and Rojas agreed to purchase Pahamotang's interest for ₱31,501.12, after which the second partnership would be dissolved. Pahamotang was paid in full on August 31, 1957, and no other rights or obligations accrued in the name of the second partnership.

After Pahamotang's withdrawal, the partnership was continued by Maglana and Rojas without any written agreement or reconstitution of the Articles. On January 28, 1957, Rojas entered into a management contract with CMS Estate, Inc., another logging enterprise, and left and abandoned the partnership. On February 4, 1957, he withdrew his equipment—his supposed contributions to the first partnership—and transferred it to CMS Estate, Inc. by way of chattel mortgage. On March 17, 1957, Maglana wrote Rojas reminding him of his obligation to contribute, in cash or equipment, to the capital investments of the partnership and to perform his duties as logging superintendent. Two weeks later, Rojas told Maglana that he would not comply with the promised contributions and would not work as logging superintendent. Maglana then told Rojas that his share would be 20% of the net profits. This 20%/80% sharing arrangement obtained from 1957 to 1959 without complaint or dispute. Meanwhile, Rojas took funds from the partnership in excess of his contribution.

On February 21, 1961, Maglana wrote Rojas notifying him that he was dissolving the partnership. On April 7, 1961, Rojas filed Civil Case No. 3518 before the CFI of Davao against Maglana for recovery of properties, accounting, receivership, and damages. Commissioners were appointed to examine the voluminous accounts, and their report—approved by the trial court—showed that Rojas, who should have contributed ₱158,158.00, contributed only ₱18,750.00, while Maglana, who should have contributed ₱160,984.00, contributed ₱267,541.44. The trial court found that on a 50-50% basis Rojas would be liable for ₱131,166.00; on an 80-20% basis, ₱40,092.96; and on the basis of actual capital contribution, ₱52,040.31. The trial court declared the post-Pahamotang relationship a de facto partnership at will, fixed profit sharing on the basis of actual contributions, found no evidence that properties bought in Maglana's or his wife's name were acquired with partnership funds, awarded no damages to either party, and ordered Rojas to pay ₱69,000.00 in profits received from CMS Estate, Inc. and ₱62,988.19 as his personal account to the partnership. Rojas appealed directly to the Supreme Court.

• Registered Partnership Governs: Rojas insisted that the registered partnership under the firm name EDE, evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A"), was not novated, superseded, or dissolved by the unregistered Articles among Rojas, Maglana, and Pahamotang dated March 4, 1956 (Exhibit "C"), and that the terms and stipulations of the registered Articles should govern the relations between him and Maglana.
• Continuation of First Partnership: Upon Pahamotang's withdrawal from the unregistered partnership, the legally constituted partnership EDE (Exhibit "A") continued to govern the relations between the two remaining partners, and it was legal error to consider a de facto partnership or a partnership at will.
• Invalidity of Unilateral Dissolution: The letter of Maglana dated February 23, 1961 did not legally dissolve the registered partnership, being in contravention of the partnership agreement stipulated in the Articles of Co-Partnership (Exhibit "A").
• Entitlement to Share-and-Share-Alike: Rojas invoked Article 1837 of the Civil Code and claimed entitlement to "share and share alike" profit sharing as stipulated in the registered Articles of Co-Partnership.

• Second Partnership Superseded First: The lower court, adopting Maglana's position, viewed that the second partnership superseded the first, so that when the second partnership was dissolved there was no written contract of co-partnership and no reconstitution as provided for in the second partnership contract, leaving only a de facto partnership at will.
• Profit Sharing Based on Actual Contributions: The sharing of profits and losses should be on the basis of actual contributions, not share and share alike, as reflected in the parties' verbal agreement and conduct from 1957 to 1959 under the 80%/20% arrangement.

• Nature of Partnership: Whether the relationship between Maglana and Rojas after Pahamotang's withdrawal from the second partnership was a de facto partnership at will or a continuation of the duly registered first partnership.
• Profit Sharing Basis: Whether profits and losses should be shared on the basis of actual contributions or on a "share and share alike" basis as stipulated in the registered Articles of Co-Partnership.
• Unilateral Dissolution: Whether Maglana could unilaterally dissolve the partnership by his letter dated February 23, 1961.
• Ownership of Properties: Whether properties bought by Maglana and placed in his or his wife's name were acquired with partnership funds.
• Damages: Whether either party was entitled to damages.
• Rojas's Liability to Partnership: Whether Rojas was liable to the partnership for profits received from CMS Estate, Inc. and for his personal account, and whether he was entitled to any share in partnership profits.

• Nature of Partnership: The duly registered first partnership (Exhibit "A") continued to exist; it was merely amended—not superseded—by the second partnership (Exhibit "C"). The relationship after Pahamotang's withdrawal was governed by the registered Articles, not a de facto partnership at will.
• Profit Sharing Basis: Share and share alike, as stipulated in the registered Articles of Co-Partnership. However, based on the Commissioners' Report, Rojas was not entitled to any profits because his indebtedness to the partnership exceeded any share.
• Unilateral Dissolution: Yes. Maglana's notice of dissolution was treated as a valid withdrawal under Article 1830 of the Civil Code, which allows a partner to cause dissolution by expressly withdrawing even before the expiration of a specified term.
• Ownership of Properties: No evidence showed the properties were acquired with partnership funds; the trial court's ruling that they did not belong to the partnership was affirmed.
• Damages: Neither party was entitled to damages. Maglana could not be said to be in bad faith given Rojas's own abandonment, withdrawal of equipment, and refusal to contribute.
• Rojas's Liability to Partnership: Affirmed. Rojas was liable for ₱69,000.00 in profits from CMS Estate, Inc. and ₱62,988.19 as his personal account, and was not entitled to any partnership profits due to his failure to contribute capital.

• Nature of Partnership: The Court examined the intention of the partners and found that it was not their intention to dissolve the first partnership upon constituting the second. The partners themselves called the second agreement an "Additional Agreement" (Exhibit "9-B"). Except for the addition of one industrial partner, an equal share in profits for him, and a fixed thirty-year term, everything else was the same: the same firm name, the same purposes, and the same capital contributions of Rojas and Maglana. Critically, all subsequent renewals of Timber License No. 35-56 were secured in favor of the first partnership, the original licensee. No rights or obligations accrued in the name of the second partnership except in favor of Pahamotang, which was fully paid by the duly registered partnership. The dissolution of the second partnership by common consent did not affect the first, which continued to exist. Maglana's March 17, 1957 letter reminding Rojas of his obligation to contribute and to serve as logging superintendent could refer only to the provisions of the duly registered Articles, and Rojas's reply showed he understood the same. The conclusion was inevitable that the registered partnership governed.

• Profit Sharing Basis: Because the duly registered Articles of Co-Partnership continued to govern, the stipulation that "all profits and losses of the partnership shall be divided share and share alike between the partners" controlled. The trial court's ruling that sharing should be based on actual contributions was therefore incorrect. However, an accounting was necessary and had been accomplished by the commissioners. The Commissioners' Report showed that Rojas, who should have contributed ₱158,158.00, contributed only ₱18,750.00, while Maglana contributed ₱267,541.44 against a commitment of ₱160,984.00. Under Article 1786 of the Civil Code, a partner who fails to contribute becomes a debtor of the partnership for the unpaid amount, and under Article 1788, liable for interest and damages. On a 50-50% basis, Rojas would be liable for ₱131,166.00; on an 80-20% basis, ₱40,092.96; and on the basis of actual contribution, ₱52,040.31. Thus, under any computation, Rojas was not entitled to profits.

• Unilateral Dissolution: Article 1830, paragraph 2 of the Civil Code provides that even where a specified term exists, one partner may cause dissolution by expressly withdrawing before the expiration of the period, with or without justifiable cause. If the cause is not justified, the withdrawing partner is liable for damages but cannot be compelled to remain. Since there were only two partners when Maglana notified Rojas of dissolution, the notice operated as a withdrawal, decreasing the number of members and effecting dissolution. Maglana was not liable for damages because Rojas himself had abandoned the partnership, entered into a management contract with a competing enterprise, withdrawn his equipment, refused to contribute capital, refused to perform his duties, and taken partnership funds in excess of his contribution.

• Ownership of Properties: The trial court found no evidence that the properties bought by Maglana and placed in his or his wife's name were acquired with partnership funds. The Court found no plausible reason to disturb this finding.

• Damages: Neither party was entitled to damages. The trial court's reasoning that it is not wise policy to place a price on the right to litigate was affirmed. Moreover, Maglana's withdrawal could not be considered in bad faith given Rojas's own conduct—abandoning the partnership, working for a competitor, withdrawing equipment, and refusing to fulfill his obligations.

• Rojas's Liability to Partnership: The trial court's orders directing Rojas to pay ₱69,000.00 in profits received from CMS Estate, Inc. and ₱62,988.19 as his personal account were affirmed, as was the denial of his claim for ₱85,000.00 still expected from CMS Estate, Inc. as speculative and unreceived. The trial court's credit to Maglana of ₱85,000.00 for unpaid logging superintendent services, treated as part of Maglana's contribution, was likewise affirmed.

• Amendment vs. Novation of Partnership Articles — Where a second Articles of Co-Partnership is executed among the original partners and an additional industrial partner, but the partners denominate it an "Additional Agreement," retain the same firm name, purposes, and capital contributions, and continue to secure license renewals in favor of the original registered partnership, the second articles merely amend rather than supersede or novate the first. The first partnership continues to exist and governs the partners' relations upon the withdrawal of the additional partner.

• Unilateral Dissolution as Withdrawal (Article 1830, Civil Code) — Even if a partnership has a specified term, one partner may cause its dissolution by expressly withdrawing before the expiration of the period, with or without justifiable cause. If the cause is unjustified, the withdrawing partner is liable for damages but cannot be compelled to remain in the firm. Where there are only two partners, a notice of dissolution operates as a notice of withdrawal.

• Partner's Failure to Contribute Creates Partnership Debt (Articles 1786 and 1788, Civil Code) — A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor of the partnership for the unpaid contribution and for interest and damages from the time performance was due. This indebtedness may be set off against any share in profits, such that a defaulting partner may receive nothing from the partnership's profits.

• "it was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an Additional Agreement" — This passage articulates the ratio decidendi on the central issue: the second partnership merely amended the first, and the registered Articles continued to govern the partners' relations after the industrial partner's withdrawal.

• "Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause." — This states the controlling rule on unilateral dissolution by withdrawal, applied to uphold Maglana's notice of dissolution as valid.

• "all profits and losses of the partnership shall be divided 'share and share alike' between the partners." — This is the pivotal stipulation from the registered Articles that the Court enforced, reversing the trial court's ruling that sharing should be based on actual contributions.

• Moran, Jr. vs. Court of Appeals, 133 SCRA 94 (1984) — Cited for the propositions that a partner who fails to contribute becomes a debtor of the partnership under Article 1786 and is liable for interest and damages under Article 1788, and that sharing in profits and losses is the essence of a partnership. Followed as controlling authority.

• Article 1786, Civil Code — Provides that a partner who undertakes to contribute a sum of money and fails to do so becomes a debtor of the partnership for the promised contribution. Applied to hold Rojas liable for his unpaid capital contribution.
• Article 1788, Civil Code — Provides that a partner who fails to contribute money is liable for interest and damages from the time performance was due. Applied in conjunction with Article 1786 to establish Rojas's indebtedness.
• Article 1830(2), Civil Code — Provides that even with a specified term, a partner may cause dissolution by expressly withdrawing before expiration, with or without justifiable cause. Applied to uphold Maglana's unilateral dissolution as a valid withdrawal.
• Article 1837, Civil Code — Invoked by Rojas as basis for his rights upon dissolution; the Court's ruling effectively subsumed this under the liquidation framework governed by the registered Articles.

Melencio-Herrera (Chairman), Sarmiento, and Regalado, JJ., concurred. Padilla, J., took no part, being related to petitioner's counsel.