PO YENG CHEO vs LIM KA YAM [G.R. No. L-18707 December 9, 1922]

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PO YENG CHEO vs LIM KA YAM,

 G.R. No. L-18707 December 9, 1922

SUBJECT: LAW ON PARTNERSHIP

Facts: The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in Manila under the style of Kwong Cheong Tay (a partnership business). This business had been in existence in Manila for many years prior to 1903, as a mercantile partnership, engaged in the import and export trade; and after the death of Po Gui Yao the following seven persons were interested therein as partners in the amounts set opposite their respective names, to wit: Po Yeng Cheo, Chua Chi Yek, Lim Ka Yam, Lee Kom Chuen, Ley Wing Kwong, Chan Liong Chao, Lee Ho Yuen. 

The manager of Kwong Cheong Tay, for many years prior of its complete cessation from business in 1910, was Lim Ka Yam, the original defendant herein. Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were ten shares of a total par value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski and certain shares to the among of P1,000 in the Manila Electric Railroad and Light Company, of Manila. 

In the year 1910 Partnership business, Kwong Cheong Tay ceased to do business, owing principally to the fact that the plaintiff ceased at that time to transmit merchandise from Hongkong, where he then resided. Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of the business, though the trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty thousand pesos (P60,000), constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in shares of the Yut Siong Chyip Konski and Manila Electric Railroad and Light Company, estimated at P11,000, together with the costs. From this judgment the defendant appealed.

ISSUE: Whether or not the decision of the trial court was proper in the liquidation of the partnership.

RULING: NO. It was erroneous in any event to give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the shareholders for the capital embarked by them in the business; and he can only be made liable for the capital when, upon liquidation of the business, there are found to be assets in his hands applicable to capital account. That the sum of one hundred and sixty thousand pesos(P160,000) was embarked in this business many years ago reveals nothing as to the condition of the capital account at the time the concern ceased to do business; and even supposing--as the court possibly did--that the capital was intact in1908, this would not prove it was intact in 1910 when the business ceased to be a going concern; for in that precise interval of time the capital may have been diminished or dissipated from causes in no wise chargeable to the negligence

or misfeasance of the manager. 

In the present case, the shares referred to--constituting the only assets of Kwong Cheong Tay--have not been converted into ready money and doubtless still remain in the name of Kwong Cheong Tay as owner. Under these circumstances it is impossible to sustain a judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which would be equivalent to allowing one of several co-owners to recover from another, without process of division, a part of an undivided property. 

Another condition will be noted as present in this case which in our opinion is fatal to the maintenance of the appealed judgment. This is that, after the death of the original defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim Yock Tock, as his administrator, and entered judgment for a sum of money against said administrator as the accounting party,--notwithstanding the insistence of the attorneys for the latter that the action should be discontinued in the form in which it was then being prosecuted. The error of the trial court in so doing can be readily demonstrated from more than one point of view. 

In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of liquidating its affair devolves upon the surviving member, or members, of the firm, not upon the legal representative of the deceased partner. Upon the death of Lim Ka Yam it therefore became the duty of his surviving associates to take the proper steps to settle the affairs of the firm, and any claim against him, or his estate, for a sum of money due to the partnership by reason of any misappropriation of its funds by him, or for damages resulting from his wrongful acts as manager, should be prosecuted against his estate in administration in the manner pointed out in sections 686 to 701,inclusive, of the Code of Civil Procedure. Moreover, when it appears, as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the proper step for the surviving associates to take would be to make application to the court having charge to the administration to require the administrator to surrender such property.

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