G.R. No. L-22493 - Island Sales, Inc. vs. Daco

Case Summary (G.R. No. L-22493)

Petitioner / Respondent

Petitioner (on appeal): Benjamin C. Daco, a general partner of United Pioneers General Construction Company. Respondent (trial judgment creditor): Island Sales, Inc.

Key Dates (transactional)

Purchase and execution of promissory note: April 22, 1961. First installment due: on or before May 22, 1961; subsequent monthly installments on the 22nd of each month. Failure to pay noted for the installment due July 22, 1961, giving rise to suit for the unpaid balance.

Applicable Law

Constitutional context: the 1973 Philippine Constitution is the applicable constitution given the period of this decision. Controlling substantive law: Civil Code provisions on partnership liability, principally Article 1816; prior jurisprudence cited invoking Articles 1698 and 1137 regarding pro rata liability of partners.

Facts

The partnership United Pioneers purchased a motor vehicle from Island Sales and executed a promissory note for P9,440.00, payable in twelve equal monthly installments (P786.63). The note contained a clause making the entire unpaid balance immediately due should any installment not be paid when due. After default on the July 22, 1961 installment, Island Sales sued the partnership for the unpaid balance of P7,119.07. The partners were joined as co-defendants in their capacity as general partners. Daniel A. Guizona defaulted for failure to answer. The complaint against Romulo B. Lumauig was later dismissed on plaintiff’s motion.

Procedural History

At trial, defendants and their counsel failed to appear despite notice; the trial court permitted the plaintiff to present evidence ex parte and rendered judgment in favor of Island Sales for P7,119.07 plus 12% interest, attorney’s fees of P800, and costs. The trial court further decreed that the individual partners (including Daco, Guizona, Sim and Palisoc) would be liable subsidiarily — that is, only enforceable against their personal property if the partnership had no leviable assets left. Daco and Sim moved for reconsideration, arguing that with five general partners the joint and subsidiary liability of each partner should be limited to one-fifth of the partnership obligation; the trial court denied reconsideration though the plaintiff agreed to limit Daco’s and Sim’s liability to one-fifth. Daco appealed the decision.

Issue Presented

Whether the dismissal of the complaint as to one general partner (Lumauig), at the instance of the plaintiff, increases the joint and subsidiary liability of each remaining partner beyond their pro rata share of the partnership obligation.

Applicable Rule and Precedent

Article 1816 of the Civil Code: partners are liable pro rata with all their property and, after partnership assets are exhausted, for contracts entered into in the name and for the account of the partnership by an authorized person; any partner may, however, enter into a separate obligation. The Court relied on prior jurisprudence (Co-Pitco v. Yulo) applying Articles 1698 and 1137 to hold that in a civil partnership the partners’ liability for partnership debts is pro rata and does not become joint and several merely because one partner becomes unavailable or is not proceeded against.

Court’s Analysis

The Court examined Article 1816 and the cited precedent to determine the nature of general partners’ liability. Because the note was executed by the partnership and the partnership consisted of five general partners at the time of execution, liability under the Civil Code is pro rata. The dismissal of the complaint against Lumauig, effected by the plaintiff’s motion, did not retroactively undo his status as a general partner. The dismissal functioned as a condonation of Lumauig’s individual liability to the plaintiff; it did not transform the legal character of the partnership obligation nor increase the proportionate share of the remaining partners. Thus each partner’s subsidiary liability remains limited to his proportional share (one-fifth) of the partnership obligation, subject to enforcement only after partnership assets are exhausted.

Holding / Disposition

The Supreme Court affirmed the trial court’s judgment for the plaintiff but clarified that the individual liability of each general partner (including appellant Daco) is limited to

Case Syllabus (G.R. No. L-22493)

Citation and Court

Reported at 160 Phil. 577, Second Division, G.R. No. L-22493, decided July 31, 1975.
Decision authored by Justice Concepcion, Jr.
C.J. Makalintal, and Justices Fernando (Chairman), Barredo, and Aquino concurred.

Parties

Plaintiff-Appellee: Island Sales, Inc.
Defendant: United Pioneers General Construction Company (a general partnership duly registered under Philippine law).
Individual Defendants (co-defendants in their capacity as general partners): Benjamin C. Daco (defendant-appellant), Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc.
Note as to parties’ procedural statuses in trial court: Daniel A. Guizona failed to file an answer and was declared in default; complaint dismissed as to Romulo B. Lumauig on motion of the plaintiff.

Factual Background

On April 22, 1961, United Pioneers General Construction Company purchased from Island Sales, Inc. a motor vehicle on the installment basis.
To fund the purchase, the partnership executed a promissory note in the principal amount of P9,440.00.
The promissory note called for twelve (12) equal monthly installments of P786.63 each.
The first installment was due on or before May 22, 1961; subsequent installments were due on the 22nd day of each month thereafter until the obligation was fully paid.
The note contained a clause that failure to pay any installment as it fell due would render the whole unpaid balance immediately due and demandable.
The plaintiff failed to receive the installment due July 22, 1961 and thereafter sued the defendant partnership for the unpaid balance of P7,119.07.

Procedural History in Trial Court (Court of First Instance, Manila, Branch XVI; Civil Case No. 50682)

The partnership and the individual partners were named as defendants; individual capacity asserted for partners.
Daniel A. Guizona did not file an answer and was declared in default. [Reference: p. 3a. RA.]
On motion of the plaintiff, the complaint was dismissed insofar as it concerned Romulo B. Lumauig. [Reference: p. 4a. RA.]
At the hearing, the defendants and their counsels failed to appear despite notices sent to them; the trial court authorized the plaintiff to present its evidence ex parte. [Reference: p. 49. RA.]
After ex parte presentation of evidence by plaintiff, the trial court rendered judgment against the partnership and the individual defendants as follows (dispositive portion quoted in the source):
- United Pioneer General Construction Company ordered to pay plaintiff the sum of P7,119.07 with interest at 12% per annum until fully paid, plus attorney’s fees fixed at P800.00 and costs.
- The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc were sentenced to pay the plaintiff in the case with the understanding that the judgment against these individual defendants shall be enforced only if the defendant company has no more leviable properties with which to satisfy the judgment against it.
- The