G.R. No. 144214 – 453 Phil. 999 – 406 SCRA 145 – Civil Law – Partnership – Dissolution and Winding Up – Need for Accounting Proceedings to Determine Partner’s Share
In 1984, Villareal, Carmelito Jose and Jesus Jose, formed a partnership for the purpose of operating a restaurant. Each contributed P250,000.00. In 1984, Ramirez was added as a partner after he contributed P250,000.00. In 1987, Jesus withdrew from the partnership and his capital share of P250k was returned to him as agreed upon by the other partners.
Thereafter, the restaurant suffered losses. Without informing Ramirez, Villareal and Carmelito shut down the restaurant. They then turned over the restaurant equipment to Ramirez.
Later, Ramirez sent a letter to Villareal and Carmelito telling them he’s no longer interested in being a partner and that he’s demanding his shares in the partnership. Villareal and Carmelito ignored the request of Ramirez hence the latter sued them.
In their defense, Villareal and Carmelito said that the restaurant equipment served as payment to Ramirez when they were delivered to them; that Ramirez cannot ask for share in equity because the restaurant incurred debts (P240,658.00) and irreversible business losses. Ramirez argued by saying that the equipment were merely placed in their house for storage as the two partners allegedly searched for a better restaurant location; that he was not aware of any losses or any indebtedness because he never took part in the management of the restaurant.
The trial court ruled in favor of Ramirez. The Court of Appeals affirmed the trial court and it further ordered Villareal and Carmelito to pay Ramirez P253,114.00. The computation was done as follows: (Original Partnership Capital – Partnership Debt = Partnership Asset) ÷ Number of partners; hence: (P1,000,000.00 – P240,658.00 = P759,342.00) ÷ 3 = P253,114.00.
ISSUE: Whether or not the Court of Appeals is correct.
HELD: No. It is impossible that the said P1,000,000.00 original capital did not fluctuate. It could not have remained stagnant. Further, the Court of Appeals missed to note that one partner left and his contribution was returned (Jesus Jose). Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the business.
The Supreme Court also noted that Ramirez cannot demand his equity shares from Villareal and Carmelito – because it should be the partnership - the partners and the partnership has a separate and distinct personality.
In determining Ramirez’ share in the equity, losses must be accounted for. He cannot ask for an amount equivalent to his capital contribution especially in this case where the partnership incurred debts and losses. At any rate, Ramirez’ share is 1/3 of whatever assets the partnership still has after debts and losses are deducted. Hence there is a need for a proper proceeding for the accounting, liquidation, and distribution of the remaining partnership assets. share in a partnership can be returned only after the completion of the latter’s dissolution, liquidation and winding up of the business.
On the issue of whether or not the turning over of the restaurant equipment to Ramirez served as payment of the latter’s share, it is wrong for Villarreal and Carmelito to assert that it served as a payment. Ramirez was merely made to believe that said equipment are being stored in his place and not being given to him as payment.
