LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE VS. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ

G.R. No. 144214             July 14, 2003

FACTS

Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for the operation of a restaurant and catering. Villareal was appointed general manager and Carmelito Jose, operations manager. Respondent Donaldo Efren C. Ramirez joined as a partner in the business with capital contribution of P250,000 paid by his parents, Respondents Cesar and Carmelita Ramirez. After Jesus Jose withdrew from the partnership, his capital contribution of P250,000 was refunded to him in cash by agreement of the partners. In the same time, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. The restaurant furniture and equipment were deposited in the respondents' house for storage.

Respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer to return their capital contribution. They repeated the oral and written requests, however, it was left unheeded. Respondents subsequently filed a Complaint before the RTC, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the partnership and had called for its dissolution; that respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of their equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible business losses. Respondents alleged that they did not know of any loan encumbrance on the restaurant. According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as purely personal and, as such, not chargeable to the partnership.

After trial, the RTC ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court rendered in favor of respondents and ordering the petitioners to pay jointly and severally. The CA however held that, although respondents had no right to demand the return of their capital contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant business with them. Petitioners never gave a proper accounting of the partnership accounts for liquidation purposes and no sufficient evidence was presented to show financial losses.

ISSUE

1.       Whether petitioners are liable to respondents for the latter's share in the partnership

2.       Whether the CA's computation of P253,114 as respondents' share is correct

RULING

1.       No. Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of trust in, the latter's management of the partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.

The SC holds that respondents have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The partnership has a juridical personality separate and distinct from that of each of the partners." Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners.

2.       No. Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners' shares.

             Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in the partnership cannot be determined until all the partnership assets will have been liquidated — in other words, sold and converted to cash — and all partnership creditors, if any, paid. The CA's computation of the amount to be refunded to respondents as their share was thus erroneous.