Island Sales, Inc. v. Daco
REITERATIONFacts
The Antecedents: Island Sales, Inc. (plaintiff) sold a motor vehicle to United Pioneers General Construction Company (defendant company) on an installment basis. The defendant company executed a promissory note for P9,440.00, payable in twelve monthly installments. Failure to pay any installment would render the entire unpaid balance immediately due and demandable. The defendant company failed to pay the installment due on July 22, 1961. Procedural History: The plaintiff sued the defendant 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. Daniel A. Guizona was declared in default. The complaint was subsequently dismissed with respect to Romulo B. Lumauig upon motion of the plaintiff. The defendants and their counsels failed to appear at the hearing, leading the trial court to authorize the plaintiff to present its evidence ex-parte. The Court of First Instance of Manila rendered a decision holding the defendant company liable for the unpaid balance, plus interest, attorney's fees, and costs. The individual defendants were held jointly and subsidiarily liable, enforceable only if the company had no more leviable properties. The individual defendants were also ordered to pay costs. The Petition: Benjamin C. Daco and Noel C. Sim moved to reconsider the decision, arguing that since there were five general partners, their individual liability should not exceed one-fifth of the company's obligations. The trial court denied this motion, despite the plaintiff's conformity to limit the liability of Daco and Sim to one-fifth. This led to the present appeal.
Issue(s)
Whether the dismissal of the complaint against one general partner increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership. Whether the liability of a general partner for a partnership obligation is limited to his pro rata share based on the number of general partners at the time the obligation was incurred.
Ruling
The appealed decision, as clarified, is hereby AFFIRMED, without pronouncement as to costs.
Ratio Decidendi
On the issue of whether the dismissal of the complaint against one general partner increases the joint and subsidiary liability of the remaining partners: The Supreme Court held that the dismissal of the complaint against Romulo B. Lumauig does not alter the pro rata liability of the remaining general partners. Article 1816 of the Civil Code states that all partners shall be liable pro rata with all their property after all partnership assets have been exhausted for contracts entered into in the name and for the account of the partnership. The fact that the complaint against Lumauig was dismissed, upon motion of the plaintiff, merely condoned Lumauig's individual liability to the plaintiff. It did not unmake Lumauig as a general partner in the defendant company. Therefore, the number of general partners at the time the obligation was incurred remains relevant in determining the pro rata share of each partner. On the issue of whether the liability of a general partner is limited to his pro rata share: The Court affirmed that the liability of the partners is pro rata. In this case, there were five (5) general partners when the promissory note was executed. Consequently, the liability of the appellant Benjamin C. Daco is limited to only one-fifth (1/5) of the obligations of the defendant company. The Court cited Co-Pitco vs. Yulo (8 Phil. 544) which held that for civil partnerships, partners are not liable for the whole debt but pro rata. The fact that one partner left the country did not increase the liability of the other partner. Similarly, the dismissal of the complaint against one partner does not increase the liability of the remaining partners beyond their pro rata share.
Main Doctrine
The dismissal of a complaint against one general partner does not alter the pro rata liability of the remaining partners for the partnership's obligations, as their liability is limited to their respective shares based on the number of general partners at the time the obligation was incurred.