G.R. No. 144214, 14 July 2003
FACTS:
Petitioners formed a partnership for the operation of a restaurant and catering business. Respondent joined as a partner in the business. Subsequently, one of the partners withdrew from the partnership, and his capital contribution of 1/4 was refunded to him in cash by agreement of the partners.
Meanwhile, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. Respondent informed petitioners that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latters offer to return their capital contribution consisting of 1/3 share. However, all their written requests left unheeded.
Respondents subsequently filed a Complaint for the collection of a sum of money from petitioners.
Petitioners contended that respondents 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. On the other hand, Respondents alleged that they did not know of any loan encumbrance on the restaurant. According to them, the loans incurred by petitioners should be regarded as purely personal and, as such, not chargeable to the partnership. Respondents further averred that they had not received any regular report or accounting from the latter, who had solely managed the business.
Hence, this Petition.
ISSUE:
Whether petitioners are liable to respondents for the latters share in the partnership.
RULING:
NO. We hold that respondents have no right to demand from petitioners the return of their equity share.
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved when respondents informed petitioners of the intention to discontinue it because of the formers dissatisfaction with, and loss of trust in, the latters management of the partnership affairs. 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, 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.
The records show that the partnership capital was actually reduced. When petitioners and respondents ventured into business together, they should have prepared for the fact that their investment would either grow or shrink. In the present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they had invested could no longer be returned to them, because one third of the partnership properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.
*Case digest by Doreena Pauline V. Aranal, JD – 4, Andres Bonifacio College, SY 2019 – 2020