TUASON & SAN PEDRO, plaintiffs-appellees, vs.GAVINA ZAMORA & SONS, defendants-appellants.

Del Pan and Ortigas for appellants.Palma, Gerona and Mercado for appellees.

MAPA, J.:

Don Mariano Tuason and Don Manuel Garcia San Pedro had entered into a mercantile partnership en comanditawith Luis Vives, under the firm name of "Luis Vives & Co." By the death of Luis Vives the partnership was dissolved, and was then reorganized under the name of "Tuason & San Pedro" on the 31st of December, 1898, composed solely of the surviving partners. This partnership assumed the business of the former partnership as wood sawyers and building contractors, the liability of the firm being made retroactive to the 11th of July, 1897. In February, 1898, Don Mariano Tuason entered into the contract with Don Juan Feliciano upon which this case turns, the contract being for the construction of a house. He did not mention in the contract that it was made on behalf of the firm of Tuason & San Pedro. In the protest, dated the 23d day of June, 1898, it is seen that Don Manuel San Pedro makes this protest with respect to the delivery of the house, and makes it on behalf of the firm of "Tuason & San Pedro," the manager of which, Don Mariano Tuason, says Don Manuel San Pedro had contracted for the building. On the 25th of August, 1900, Tuason & San Pedro brought this action. Objection having been made to the right of the plaintiff partnership to sue, the question must be determined whether a partnership can maintain an action in its own behalf upon a contract entered into by one of the partners in his own name, thus binding the third person who contracted with this partner.

The purpose of the complaint is the recovery of the price of the house built. The entire question is reduced to these terms: Should this payment be made to the partnership?

The following facts had been made to appear of record before the exception was taken: (1) That the partnership claimed to be the owner of this credit by its protest against default. (2) That it was in the possession of the document evidentiary of the credit and others connected with it, such as the notarial record of demand for payment made by the partner Tuason, and the record made of the offer to deliver the keys of the house, prepared at the instance of Tuason. (3) That the attorney appearing for the partnership held a power of attorney from the partnership, executed by Tuason as managing partner. There can not, therefore, by any duality, any incompatibility, or repetition of action. Everything which Tuason might have done is being done by the partnership, and after what the partnership has done Tuason can do nothing. The action being a solidary one, therefore, the result is the same whether it has been brought by Tuason & San Pedro or by Tuason alone. "Payment should be made to the person in whose favor the obligation is constituted, or to some other person authorized to receive it in his name." (Art. 1162 of the Civil Code.)

"The first of these cases," says Manresa, "the most natural and simple, refers not only to the person who may have been the creditor at the time the obligation was created but rather to the person who is the creditor at the time payment is due. . . . That the principle laid down by the code has this wide meaning is demonstrated by the fact that it has no rules, as have other codes (for instance, the Argentine code) which expressly authorized heirs, assignees, and subrogated creditors to demand payment, and the right of these persons being unquestionable they must be regarded as included in the first part of article 1162, because, although the obligation was not created in their favor, it has subsequently resulted that its constitutions is to their benefit." (Manresa, Commentaries on the Civil Code, vol. 8, p. 252.)

When process was served upon the defendant to answer the complaint, it could be seen that the plaintiff was not an heir, an assignee, or a subrogated creditor, physically distinct from the person who made the contract, but this very same person, also bringing with him into the case the responsibility of a general partnership, which, far from declining to entertain the exceptions, set-offs, and counter claims which might be available against the original creditor, undertakes to defend against them as the original, actual, and sole creditor.

Hence it is that the defense of the defendant is by no means limited, nor will the effects of the payment be frustrated. Furthermore, it is evident that although Tuason may have operated in his own name, it certainly was not with his own private funds. Therefore it was that this contract was communicated to the partnership which became responsible therefor. (Art. 134, Code of Commerce.)

In view of the understanding and agreement between Tuason and the partnership, shown by the facts stated, the responsibility of the partner Tuason being included in the responsibility of Tuason & San Pedro, the liability of the firm is not less than the personal liability of the partner, as the partnership was a general one. And the action brought by the firm being simply the action in favor of the partner assumed by the firm as the result of the assumption of the business and the filing of the complaint, the exception, practically speaking, is entirely unnecessary, although, from a theoretical point of view, it might perhaps be supported. We therefore decide that the action brought by the partnership will lie, and the payment which may be made to the partnership upon the circumstances stated will be perfectly legal.

The legal grounds on which paragraph 8 of the conclusions of law of the appealed judgment was based, are hereby modified to conform to the preceding opinion, and so modified we accept the findings of fact and the conclusions of law of the court below, with the following amendment: That part of the first conclusion of law which reads, "the owner of the property, Don Juan Feliciano, and, by reason of his death, his heirs, now defendants, are bound to pay the entire price agreed upon with the contractor, as the work was terminated and delivered," being amended to read as follows: "The owner, Don Juan Feliciano, and, by his death, his heirs, now defendants, are bound to pay all the price agreed upon to the contractor, because the house burned after the work terminated, and after the defendants had become in default with respect to their obligation to receive it," for although it is evident, as stated in the seventh conclusion of law, that the contractor has done everything incumbent upon him for the delivery of the house, it is none the less true, as a matter of fact, that no such delivery took place.

We therefore affirm the judgment below, with costs in this instance to the appellant. So ordered.

Arellano, C.J., Torres, Cooper, Willard and Ladd, JJ., concur.McDonough, J., did not sit in this case.

G.R. No. 1472           September 30, 1905

E.J. SMITH AND RAFAEL REYES, proprietors of the Philippine Gas Light Company, plaintiffs-appellees, vs.JACINTA LOPEZ AND IGNACIA LOPEZ DE PINEDA, defendants-appellants.

Gregorio Pineda for appellants.Lionel D. Hargis for appellees.

TORRES, J.:

On November 19, 1902, Messrs. Smith and Reyes, as proprietors of the Philippine Gas Light Company, brought this action against the defendant sisters, Jacinta and Ignacia Lopez de Pineda, to recover from them the sum of 3,270 pesos, Mexican currency, with interest due thereon and costs of proceedings, for work performed in connection with the installation of a water system, urinals, closets, shower baths, and drain pipes in the house at No. 142 Calle Dulumbayan, district of Santa Cruz, the same being the property of the defendants. The plaintiffs alleged that they had complied with the agreement made with the father of the defendants, the administrator of the property, and that the labor performed and the material used were reasonably worth the sum of 4,020 pesos, Mexican currency, of which sum they acknowledged having received 750 pesos, and prayed that judgment be entered against the defendants and in favor of the plaintiffs for the sum of 3,270 pesos, together with accrued interest and costs of proceedings, defendants having refused to pay the same as agreed.

Attorney Gregorio Pineda appeared in behalf of the defendants, denied all the facts set out in the complaint, and alleged that it did not appear from the pleadings that plaintiffs had ever entered into a mercantile partnership under the aforesaid name and style, or that any such partnership legally existed; that Nicasio Lopez was not the administrator nor was he empowered by the defendants to make any contract for repairs and improvements to and in the said house; that there was no allegation as to the extent and importance of the work performed on the premises nor as to the quality or quantity of the materials used; that the work was not reasonably worth 4,020 pesos; and that, assuming that plaintiffs had performed work in the said house pursuant to an agreement with Nicasio Lopez, without defendants' authority, the defendants set up a counterclaim for 600 pesos, Mexican currency, for damages caused to the house as a result of said work. Defendants finally prayed that the complaint be dismissed and that plaintiffs be ordered to pay the costs of proceedings and the amount of the counterclaim.

The court, after considering the allegations made and the evidence introduced by both parties, on April 3, 1903, entered judgment against the defendants and in favor of the plaintiffs for the sum of 2,717.40 pesos, local currency, and accrued interest thereon at the legal rate of 6 per cent per annum, from November 19, 1902, and costs of proceedings. To this judgment defendants duly excepted, having first moved for a new trial.

This is an action upon a contract to recover for labor performed on the premises, No. 142 Calle Dulumbayan, district of Santa Cruz, in connection with the installation of a water system, urinals, water-closets, shower baths, and drain pipes. The contract in question was entered into between one of the plaintiffs and Nicasio Lopez, the father of the defendants, who was at the time in charge of the house and cared for the same for

the defendant sisters. There was no stipulation in the contract as to the specific cost of the work to be performed.

There is no doubt that the work was actually performed as alleged. It thus appears from the answer of the defendants to plaintiffs' complaint, and it was also admitted by the witness Nicasio Enrico Lopez, who, among other things, testified under oath, that if Mr. Smith had presented to them a bill for 1,500 or, at most, 2000 pesos for the work performed he would have paid him with pleasure. In view of the foregoing the court made the statement during the course of the trial that the only question was the reasonable value of the work.

One of the errors assigned by counsel for defendants and appellants in this court is that the court below erred in recognizing plaintiffs' capacity to sue as a partnership, there being no evidence to show that they were legally organized as such.

There was no such error. Messrs. Smith and Reyes executed the contract in their own individual capacity and not in the name of any partnership. They acted as coowners of the Philippine Gas Light Company. In their complaint they sought to enforce a legitimate right which they had as such coowners. (Arts. 392 et seq., and 1669 of the Civil Code.)

The plaintiffs were not seeking to enforce a right pertaining to a legal entity. They were not obliged to register in the Mercantile Registry. They were merely merchants having a common interest in the business. They were under no obligation to register. (Arts. 16 and 17 of the Code of Commerce.)

As to the second, third, and fourth errors, it must be borne in mind that Nicasio Lopez, the father of the defendants, was the administrator of the property; that having been notified of an order of the Board of Health he took the necessary steps to comply with the same, calling upon one of the plaintiffs to do the work required, and that he made certain payments on account. He, the father of the defendants, did all this as a voluntary agent of the actual owners of the house, and, although there is no proof of an express power of attorney, it can not be denied that there was an implied power, because the defendants did not object to the work being done on the house, which was really benefited and improved by such work. For this reason it is evidently just that the owners be held liable for the cost of the work and the value of the material used therein. They can not now allege that there was no contract and that they did not agree to pay for such labor and material. There was a quasi contract which created certain reciprocal obligations between them and the plaintiffs. (Arts. 1887, 1888, 1892, and 1893 of the Civil Code.)

At the request of Nicasio Lopez there were installed in the house of defendants a water-supply system, baths, water-closets, and drain pipes pursuant to orders from the Board of Health, for the purpose of bettering the sanitary condition of the premises, and the defendants never objected to the performance of the necessary work. It therefore must be presumed that they, the defendants, approved of the work done upon the house and

ratified the action of their father in the premises as though he acted under an express power from them. (Art. 1892 of the Civil Code.)

But, even assuming that the defendants did not expressly ratify or approve the action of their father, Nicasio Lopez, the fact remains that the house was improved by said work, and, for this reason, the owners of the premises are liable for the obligations incurred by their agent, Lopez, for their benefit and advantage.

Furthermore, if the work had not been done as required by the Board of Health, it would have been to the disadvantage of the defendants because the work would have been eventually undertaken by the authorities and at the expense of the said defendants. (Art. 1893 of the Civil Code.)

As to the second error relating to the price of the work fixed by the court in its judgment, it should be noticed that when no price has been expressly stipulated in a contract of this nature, it is understood that the contracting parties have impliedly agreed to pay and receive the usual and reasonable value of the services rendered. Otherwise it must be presumed that the parties intended that the price be fixed by experts in case they fail to agree as to the same.

The rule as laid down by the authorities is to the effect that in a contract for services it shall be presumed that a certain compensation was intended to be fixed, although there may not be any express stipulation in regard thereto; taking into consideration the law in force and the customs of the country where the contract was executed, except where such compensation is to be fixed by a third person or by a competent court upon the testimony of experts.

A contract for services or work to be performed exists not only where a certain and definite compensation has been expressly agreed upon, but also where the same can be ascertained from the customs and usages of the place in which such services were rendered. (Judgment of the supreme court of Spain of October 18, 1899.)

The foregoing disposes of the second, third, and fourth assignments of error.

It appears from the bill of exceptions that the defendants were the owners of one-half of the house in question, the other half belonging to the heirs of the deceased, Vicente Faustino Cruz. The action, however, was brought solely against these defendants. neither the executor of the deceased coowner of the house nor his surviving heirs having an interest in the property were joined as parties defendant in this case.

Section 114 of the Code of Civil Procedure provides, among other things, that every action must be prosecuted in the name of the real party in interest and that an executor or administrator of a deceased person may sue or be sued without joining with him the person for whose benefit the action is prosecuted or defended.

This action was prosecuted without the intervention of the executor or legal representatives of the deceased Vicente F. Cruz, one of the coowners of the house in question. Therefore this decision can not, under section 277 of the Code of Civil Procedure, affect the rights of the successors or legal heirs of the said deceased.

For this reason, which is a perfectly legal one, a judgment against the defendants in this case enforcing the obligation incurred by them under article 1893 of the Civil Code would be of no effect as to the successors or heirs of the deceased Vicente F. Cruz, but a separate action must be commenced against such successors or legal heirs. It would not be just or proper that the defendants should pay the whole amount of the claim but only one-half thereof, since they only owned half of the house wherein the work was done; the recovery of the cost of such work being the subject-matter of this action.

As to the fifth and sixth assignments of error, it must be said that the bill tendered by the plaintiffs for material furnished and labor performed on the premises in question, was made up from the books kept by the plaintiffs, and was admitted in evidence by the court for what it might be worth, as shown by the bill of exceptions, and that notwithstanding defendants' objection, the fact is that they introduced no evidence tending to prove (1) that less material was used in the work than that stated in the bill; (2) that the work done was worth less than the amount charged in the bill. Therefore, after a consideration of the evidence of record in this case, we find that 3,467.40 pesos and not 4,020 pesos, Mexican currency, as alleged in the complaint was the reasonable value of the work performed, plaintiffs having agreed that the 552.60 pesos claimed by them as interest be deducted from the latter amount. They have expressly waived any right to the recovery of such amount.

From the sum of 3,467 pesos and 40 cents there should be deducted 750 pesos paid to the plaintiffs on account of their claim, thus leaving a balance of 2,717 pesos and 40 cents. One-half of this latter amount, to wit, 1,358 pesos and 70 cents, Mexican currency, plus interest due thereon at the rate of 6 per cent per annum from the 19th of November, 1902, is the total sum which the plaintiffs are entitled to recover from the defendants in this case.

For the foregoing reasons it is hereby adjudged and decreed that the defendants, Jacinta Lopez and Ignacia Lopez de Pineda, pay to the plaintiffs in this case the sum of 1,358 pesos and 70 cents, Mexican currency, or its equivalent in Philippine currency, said amount representing one-half of the total sum awarded by the judgment of the court below. The defendants shall further pay to the plaintiffs whatever interest may have accrued from the 19th of November, 1902, at the rate of 6 per cent per annum on the said sum. Defendants shall also pay the costs of proceedings in both instances. The judgment appealed from, thus modified, is in all other respects hereby affirmed, without prejudice to the right of the plaintiffs to institute a separate action against the heirs and successors of the deceased Vicente F. Cruz for the recovery of the other half of the value of the work performed in and upon the premises No. 142 Calle Dulumbayan. After the expiration of twenty days let judgment be entered in accordance herewith and the

case be remanded to the Court of First Instance for action in accordance with the law. So ordered.

Arellano, C.J., Mapa, Johnson, Carson, and Willard, JJ., concur.

.R. No. L-16318             October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees, vs.LO SENG, defendant-appellant.

Cohn, Fisher and DeWitt for appellant. No appearance for appellees.

 

STREET, J.:

          For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of running a distillery, known as "El Progreso," in the Municipality of Paombong, in the Province of Bulacan. The land on which said distillery is located as well as the buildings and improvements originally used in the business were, at the time to which reference is now made, the property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911, leased the same to the firm of Lo Seng and Co. for the term of three years.

          Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years. The reason why the contract was made for so long a period of time appears to have been that the Bureau of Internal Revenue had required sundry expensive improvements to be made in the distillery, and it was agreed that these improvements should be effected at the expense of the lessees. In conformity with this understanding many thousands of pesos were expended by Lo Seng and Co., and later by Lo Seng alone, in enlarging and improving the plant.

          Among the provisions contained in said lease we note the following:

          Know all men by these presents:

x x x           x x x           x x x

1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede by way of lease for fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing business under the firm name of Lo Seng and Co.), after the termination of the previous contract, because of the fact that they are required, by the Bureau of Internal Revenue, to rearrange, alter and clean up the distillery.

2. That all the improvements and betterments which they may introduce, such as machinery, apparatus, tanks, pumps, boilers and buildings which the business may require, shall be, after the termination of the fifteen years of

lease, for the benefit of Mr. Lo Yao, my principal, the buildings being considered as improvements.

3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of September 11, 1911, acknowledged before the notary public D. Vicente Santos; and all modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and Lo Seng.

          We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present conducting, hereby accept this contract in each and all its parts, said contract to be effective upon the termination of the contract of September 11, 1911.

          Neither the original contract of lease nor the agreement extending the same was inscribed in the property registry, for the reason that the estate which is the subject of the lease has never at any time been so inscribed.

          On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary public a deed purporting to convey to Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant including the land used in connection therewith. As in case of the lease this document also was never recorded in the registry of property. Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to recover possession of the premises. From the decision of the justice of the peace the case was appealed to the Court of First Instance, where judgment was rendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court.

          The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which reads in part as follows:

          ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time of making the sale, unless the contrary is stipulated, and subject to the provisions of the Mortgage Law.

          In considering this provision it may be premised that a contract of lease is personally binding on all who participate in it regardless of whether it is recorded or not, though of course the unrecorded lease creates no real charge upon the land to which it relates. The Mortgage Law was devised for the protection of third parties, or those who have not participated in the contracts which are by that law required to be registered; and none of its provisions with reference to leases interpose any obstacle whatever to the giving of full effect to the personal obligations incident to such contracts, so far as concerns the immediate parties thereto. This is rudimentary, and the law appears to be so understood by all commentators, there being, so far as we are aware, no authority suggesting the contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent observation: "The Mortgage Law is enacted in aid of and in respect to third persons only; it does not affect the relations between the contracting parties, nor their capacity to contract. Any question affecting the former will be determined by the dispositions of the special law [i.e., the Mortgage Law], while any question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a la Legislacion Hipotecaria, vol. I, p. 461.)

          Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed therein, the lease in question was from the beginning, and has remained, binding upon all the parties thereto — among whom is to be numbered Pang Lim, then a member of the firm of Lo Seng and Co. — this does not really solve the problem now before us, which is, whether the plaintiffs herein, as purchasers of the estate, are at liberty to terminate the lease, assuming that it was originally binding upon all parties participating in it.

          Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the Civil Code; and the position of the defendant derives no assistance from the mere circumstance that the lease was admittedly binding as between the parties thereto. 1awph!l.net

          The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a qualification which evidently has reference to the familiar proposition that recorded instruments are effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be respected by any purchaser of the estate whomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease which is unrecorded; nothing in that law that can be considered as arresting the force of article 1571 as applied to the lease now before us.

          Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority for the proposition that the lease in question cannot be terminated by one who, like Pang Lim, has taken part in the contract. That provision is practically identical in terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall be of no effect as against third persons; and the same observation will suffice to dispose of it that was made by us above in discussing the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease is binding on all persons who participate therein, this does not determine the question whether, admitting the lease to be so binding, it can be terminated by the plaintiffs under article 1571.

          Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as article 1549 of the Civil Coded — all of which, as we have seen, are undecisive — we are brought to consider the aspect of the case which seems to us conclusive. This is found in the circumstance that the plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely, first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease. These two positions are essentially antagonistic and incompatible. Every competent person is by law bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to respect the rights of any person whom he has placed in his own shoes as regards any contract previously entered into by himself.

          While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which he has received full value.

          The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the circumstance that prior to the acquisition of this property Pang Lim had been partner with Lo Seng and Benito Galvez an employee. Both therefore had been in relations of confidence with Lo Seng and in that position had acquired knowledge of the possibilities of the property and possibly an experience which would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On account of his status as partner in the firm of Lo Seng and Co.,

Pang Lim knew that the original lease had been extended for fifteen years; and he knew the extent of valuable improvements that had been made thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in a business, worthless without the lease, could intervene as purchaser of the property and confiscate for his own benefit the property which he had sold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere possibility of such eventuality.

          Above all other persons in business relations, partners are required to exhibit towards each other the highest degree of good faith. In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply exclusively to his own benefit the results of the knowledge and information gained in the character of partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the renewal of a lease on property used by the firm, to commence at a date subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name of one partner after the dissolution of the firm and pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.)

          An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable is deducible from articles 1461 and 1474 of the Civil Code, which declare that every person who sells anything is bound to deliver and warrant the subject-matter of the sale and is responsible to the vendee for the legal and lawful possession of the thing sold. The pertinence of these provisions to the case now under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to the latter, was this very lease; and while it cannot be supposed that the obligation to warrant recognized in the articles cited would nullify article 1571, if the latter article had actually conferred on the plaintiffs the right to terminate this lease, nevertheless said articles (1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in our opinion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo Seng.

          It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in courts of common law under the head of estoppel by deed, in accordance with which it is held that if a person, having no title to land, conveys the same to another by some one or another of the recognized modes of conveyance at common law, any title afterwards acquired by the vendor will pass to the purchaser; and the vendor is estopped as against such purchaser from asserting such after-acquired title. The indenture of lease, it may be further noted, was recognized as one of the modes of conveyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.)

          From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now in question, is not in a position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful detainer by him. Moreover, it is fatal to the maintenance of the action brought jointly by Pang Lim and Benito Galvez. The reason is that in the action of unlawful detainer, under section 80 of the Code of Civil Procedure, the only question that can be adjudicated is the right to possession; and in order to maintain the action, in the form in which it is here presented, the proof must show that occupant's possession is unlawful, i. e., that he is unlawfully withholding possession after the determination of the right to hold possession. In the case before us quite the contrary appears; for, even admitting that Pang Lim and Benito Galvez have purchased the estate from Lo Yao, the original landlord, they are, as between themselves, in the position of tenants in common or owners pro indiviso, according to the proportion of their respective contribution to the

purchase price. But it is well recognized that one tenant in common cannot maintain a possessory action against his cotenant, since one is as much entitled to have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one cotenant, he is entitled to retain it against both. Furthermore, it is obvious that partition proceedings could not be maintained at the instance of Benito Galvez as against Lo Seng, since partition can only be effected where the partitioners are cotenants, that is, have an interest of an identical character as among themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound to respect Lo Seng's lease, at least in so far as the present action is concerned.

          We have assumed in the course of the preceding discussion that the deed of sale under which the plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in behalf of the plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng that this document, having never been recorded in the property registry, cannot under article 389 of the Mortgage Law, be used in court against him because as to said instrument he is a third party. The important question thus raised is not absolutely necessary to the decision of this case, and we are inclined to pass it without decision, not only because the question does not seem to have been ventilated in the Court of First Instance but for the further reason that we have not had the benefit of any written brief in this case in behalf of the appellees.

          The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It is so ordered, without express adjudication as to costs.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.

July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E.

FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.

R E S O L U T I O N

MELENCIO-HERRERA, J.:

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue using, in the names of their firms, the names of partners who had passed away. In the Court's Resolution of September 2, 1976, both Petitions were ordered consolidated. chanrobles virtual law library

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the name of a deceased partner; in fact, Article 1840 of the Civil Code explicitly sanctions the practice when it provides in the last paragraph that:

The use by the person or partnership continuing the business of the partnership name, orthe name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. 1

2. In regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption of firm names without any restriction as to the use, in such firm name, of the name of a deceased partner;2 the legislative authorization given to those engaged in the practice of accountancy - a profession requiring the same degree of trust and confidence in respect of clients as that implicit in the relationship of attorney and client - to acquire and use a trade name, strongly indicates that there is no fundamental policy that is offended by the continued use by a firm of professionals of a firm name which includes the name of a deceased partner, at least where such firm name has acquired the characteristics of a "trade name." 3

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner in the firm name of a law partnership because Canon 33 of the Canons of Professional Ethics adopted by the American Bar Association declares that:

... The continued use of the name of a deceased or former partner when permissible by local custom, is not unethical but care should be taken that no imposition or deception is practiced through this use. ... 4

4. There is no possibility of imposition or deception because the deaths of their respective deceased partners were well-publicized in all newspapers of general circulation for several days; the stationeries now being used by them carry new letterheads indicating the years when their respective deceased partners were connected with the firm; petitioners will notify all leading national and international law directories of the fact of their respective deceased partners' deaths. 5

5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's name; 6 there is no custom or usage in the Philippines, or at least in the Greater Manila Area, which recognizes that the name of a law firm necessarily Identifies the individual members of the firm. 7

6. The continued use of a deceased partner's name in the firm name of law partnerships has been consistently allowed by U.S. Courts and is an accepted practice in the legal profession of most countries in the world. 8

The question involved in these Petitions first came under consideration by this Court in 1953 when a law firm in Cebu (the Deen case) continued its practice of including in its firm name that of a deceased partner, C.D. Johnston. The matter was resolved with this Court advising the firm to desist from including in their firm designation the name of C. D. Johnston, who has long been dead."

The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled Register of Deeds of Manila vs. China Banking Corporation. The law firm of Perkins & Ponce Enrile moved to intervene as amicus curiae.Before acting thereon, the Court, in a Resolution of April 15, 1957, stated that it "would like to be informed why the name of Perkins is still being used although Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of Perkins and Ponce Enrile, raising substantially the same arguments as those now being raised by petitioners, prayed that the continued use of the firm name "Perkins & Ponce Enrile" be held proper. chanrobles virtual law library

On June 16, 1958, this Court resolved:

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and Associates for their continued use of the name of the deceased E. G. Perkins, the Court found no reason to depart from the policy it adopted in June 1953 when it required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from including in their firm designation, the name of C. D. Johnston, deceased. The Court

believes that, in view of the personal and confidential nature of the relations between attorney and client, and the high standards demanded in the canons of professional ethics, no practice should be allowed which even in a remote degree could give rise to the possibility of deception. Said attorneys are accordingly advised to drop the name "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court. chanrobles virtual law library

The Court finds no sufficient reason to depart from the rulings thus laid down. chanrobles virtual law library

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code which provides:

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.chanrobles virtual law library

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics "prohibits an agreement for the payment to the widow and heirs of a deceased lawyer of a percentage, either gross or net, of the fees received from the future business of the deceased lawyer's clients, both because the recipients of such division are not lawyers and because such payments will not represent service or responsibility on the part of the recipient. " Accordingly, neither the widow nor the heirs can be held liable for transactions entered into after the death of their lawyer-predecessor. There being no benefits accruing, there ran be no corresponding liability. chanrobles virtual law library

Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased partners. The public relations value of the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession. An able lawyer without connections will have to make a name for himself starting from scratch. Another able lawyer, who can join an old firm, can initially ride on that old firm's reputation established by deceased partners. chanrobles virtual law library

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title IX of the Code entitled "Dissolution and Winding Up." The Article primarily deals with the exemption from liability in cases of a dissolved partnership, of the individual property of the deceased partner for debts contracted by the person or partnership which continues the business using the partnership name or the name of the deceased partner as part thereof. What the law contemplates therein is a hold-over situation preparatory to formal reorganization.chanrobles virtual law library

Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of aprofessional partnership, with no saleable good will but whose reputation depends on the personal qualifications of its individual members. Thus, it has been held that a saleable goodwill can exist only in a commercial partnership and cannot arise in a professional partnership consisting of lawyers. 9

As a general rule, upon the dissolution of a commercial partnership the succeeding partners or parties have the right to carry on the business under the old name, in the absence of a stipulation forbidding it, (s)ince the name of a commercial partnership is a partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)

On the other hand,

... a professional partnership the reputation of which depends or; the individual skill of the members, such as partnerships of attorneys or physicians, has no good win to be distributed as a firm asset on its dissolution, however intrinsically valuable such skill and reputation may be, especially where there is no provision in the partnership agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)

C. A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. For one thing, the law on accountancy specifically allows the use of a trade name in connection with the practice of accountancy. 10

A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a particular purpose. ... It is not a partnership formed for the purpose of carrying on trade or business or of holding property." 11 Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law practice is improper. 12

The usual reason given for different standards of conduct being applicable to the practice of law from those pertaining to business is that the law is a profession. chanrobles virtual law library

Dean Pound, in his recently published contribution to the Survey of the Legal Profession, (The Lawyer from Antiquity to Modern Times, p. 5) defines a profession as "a group of men pursuing a learned art as a common calling in the spirit of public service, - no less a public service because it may incidentally be a means of livelihood."

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

1. A duty of public service, of which the emolument is a byproduct, and in which one may attain the highest eminence without making much money.chanrobles virtual law library

2. A relation as an "officer of court" to the administration of justice involving thorough sincerity, integrity, and reliability.chanrobles virtual law library

3. A relation to clients in the highest degree fiduciary. chanrobles virtual law library

4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to current business methods of advertising and encroachment on their practice, or dealing directly with their clients. 13

"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or franchise. 14 It is limited to persons of good moral character with special qualifications duly ascertained and certified. 15 The right does not only presuppose in its possessor integrity, legal standing and attainment, but also the exercise of a special privilege, highly personal and partaking of the nature of a public trust." 16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association" in support of their petitions.chanrobles virtual law library

It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or former partner in the firm name of a law partnership when such a practice is permissible by local custom but the Canon warns that care should be taken that no imposition or deception is practiced through this use.chanrobles virtual law library

It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or former partner's name in the firm names of law partnerships. Firm names, under our custom, Identify the more active and/or more senior members or partners of the law firm. A glimpse at

the history of the firms of petitioners and of other law firms in this country would show how their firm names have evolved and changed from time to time as the composition of the partnership changed.

The continued use of a firm name after the death of one or more of the partners designated by it is proper only where sustained by local custom and not where by custom this purports to Identify the active members. ...chanrobles virtual law library

There would seem to be a question, under the working of the Canon, as to the propriety of adding the name of a new partner and at the same time retaining that of a deceased partner who was never a partner with the new one. (H.S. Drinker, op. cit., supra, at pp. 207208) (Emphasis supplied).

The possibility of deception upon the public, real or consequential, where the name of a deceased partner continues to be used cannot be ruled out. A person in search of legal counsel might be guided by the familiar ring of a distinguished name appearing in a firm title. chanrobles virtual law library

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased partner's name in the firm name of law partnerships. But that is so because it is sanctioned by custom.chanrobles virtual law library

In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. quoted in their memorandum, the New York Supreme Court sustained the use of the firm name Alexander & Green even if none of the present ten partners of the firm bears either name because the practice was sanctioned by customand did not offend any statutory provision or legislative policy and was adopted by agreement of the parties. The Court stated therein:

The practice sought to be proscribed has the sanction of custom and offends no statutory provision or legislative policy. Canon 33 of the Canons of Professional Ethics of both the American Bar Association and the New York State Bar Association provides in part as follows: "The continued use of the name of a deceased or former partner, when permissible by local custom is not unethical, but care should be taken that no imposition or deception is practiced through this use." There is no question as to local custom. Many firms in the city use the names of deceased members with the approval of other attorneys, bar associations and the courts. The Appellate Division of the First Department has considered the matter and reached The conclusion that such practice should not be prohibited. (Emphasis supplied)

xxx xxx xxx

Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of the firm name herein is also sustainable by reason of agreement between the partners.18

Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has been defined as a rule of conduct formed by repetition of acts, uniformly observed (practiced) as a social rule, legally binding and obligatory. 19 Courts take no judicial notice of custom. A custom must be proved as a fact, according to the rules of evidence. 20 A local custom as a source of right cannot be considered by a court of justice unless such custom is properly established by competent evidence like any other fact. 21We find such proof of the existence of a local custom, and of the elements requisite to constitute the same, wanting herein. Merely because something is done as a matter of practice does not mean that Courts can rely on the same for purposes of adjudication as a juridical custom. Juridical custom must be differentiated from social custom. The former can supplement statutory law or be applied in the absence of such statute. Not so with the latter. chanrobles virtual law library

Moreover, judicial decisions applying or interpreting the laws form part of the legal system. 22 When the Supreme Court in the Deen and Perkins cases issued its Resolutions directing lawyers to desist from including the names of deceased partners in their firm designation, it laid down a legal rule against which no custom or practice to the contrary, even if proven, can prevail. This is not to speak of our civil law which clearly ordains that a partnership is dissolved by the death of any partner. 23Custom which are contrary to law, public order or public policy shall not be countenanced. 24

The practice of law is intimately and peculiarly related to the administration of justice and should not be considered like an ordinary "money-making trade."

... It is of the essence of a profession that it is practiced in a spirit of public service. A trade ... aims primarily at personal gain; a profession at the exercise of powers beneficial to mankind. If, as in the era of wide free opportunity, we think of free competitive self assertion as the highest good, lawyer and grocer and farmer may seem to be freely competing with their fellows in their calling in order each to acquire as much of the world's good as he may within the allowed him by law. But the member of a profession does not regard himself as in competition with his professional brethren. He is not bartering his services as is the artisan nor exchanging the products of his skill and learning as the farmer sells wheat or corn. There should be no such thing as a lawyers' or physicians' strike. The best service of the professional man is often rendered for no equivalent or for a trifling equivalent and it is his pride to do what he does in a way worthy of his profession even if done with no expectation of reward, This spirit of public service in which the profession of law is and ought to be exercised is a prerequisite of sound administration of justice according to law. The other two elements of a profession, namely, organization and pursuit of a learned art have their justification in that they secure and maintain that spirit.25

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical impediment.chanrobles virtual law library

ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names "SYCIP" and "OZAETA" from their respective firm names. Those names may, however, be included in the listing of individuals who have been partners in their firms indicating the years during which they served as such.chanrobles virtual law library

SO ORDERED.

Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur

Fernando, C.J. and Abad Santos, J., took no part. chanrobles virtual law library

 

Separate Opinions

 

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary view, as explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate in the disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the undersigned wishes to invite the attention of all concerned, and not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of June 10, 1975, prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office. chanrobles virtual law library

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in their petition of August 13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two partners, former Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively. chanrobles virtual law library

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Justice Ozaeta and his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotation. chanrobles virtual law library

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part of the partnership name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the name of a deceased partner, "when permissible by local custom, is not unethical" as long as "no imposition or deception is practised through this use" (Canon 33 of the Canons of Legal Ethics).chanrobles virtual law library

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two firms (as the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when they served as partners should be stated therein. chanrobles virtual law library

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the clients who had customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of those respected and esteemed law practitioners. That is a legitimate motivation. chanrobles virtual law library

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James Ross. Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained in the firm name with an indication of the year when he died. No one complained that the retention of the name of Judge Ross in the firm name was illegal or unethical.

 

# Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary view, as explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate in the disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the undersigned wishes to invite the attention of all concerned, and not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of June 10, 1975, prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office. chanrobles virtual law library

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in their petition of August 13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two partners, former Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively. chanrobles virtual law library

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Justice Ozaeta and his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotation. chanrobles virtual law library

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part of the partnership name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the name of a deceased partner, "when permissible by local custom, is not unethical" as long as "no imposition or deception is practised through this use" (Canon 33 of the Canons of Legal Ethics).chanrobles virtual law library

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two firms (as the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when they served as partners should be stated therein. chanrobles virtual law library

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the clients who had customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of those respected and esteemed law practitioners. That is a legitimate motivation. chanrobles virtual law library

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James Ross. Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained in the firm name with an indication of the year when he died. No one complained that the retention of the name of Judge Ross in the firm name was illegal or unethical.

#

Endnotes:

1 See Memorandum of Salazar, et al., p. 5: see also Petition of Romulo, et al., p. 3. chanrobles virtual law library

2 Citing Sec, 16-A, Public Act No. 3105, as amended by Commonwealth Act No. 342; Sec. 39, Commonwealth Act No. 294; Sec. 23, Republic Act No. 318; Sec. 39, Republic Act No. 184. chanrobles virtual law library

3 Memorandum of Salazar, et al., pp. 7-8. chanrobles virtual law library

4 Memorandum of Salazar, et al., pp. 8-10; Petition of Romulo, et al., pp. 3- 4. chanrobles virtual law library

5 Memorandum of Salazar, et al., p. 13; Petition of Romulo, et al., p. 4. chanrobles virtual law library

6 Petition of Romulo, et al., p. 4. chanrobles virtual law library

7 Memorandum of Salazar, et al., p. 11. chanrobles virtual law library

8 Memorandum of Salazar, et al., pp. 6-7 and pp. 16-18; Petition of Romulo. et al., p, 5. chanrobles virtual law library

9 Seddal vs. Keating, 8 App. Div. 2d 44, 185 NYS 2d 630, affd 7 NY 2d 846, 196 NYS 2d 986, 164 NE 2d 860. chanrobles virtual law library

10 Section 16-A, Commonwealth Act No. 342. chanrobles virtual law library

11 In re Crawford's Estate, 184 NE 2d 779, 783. chanrobles virtual law library

12 H.S. Drinker, Legal Ethics (1953), p. 206; see also Canon 33, par. 2, Canons of Professional Ethics. chanrobles virtual law library

13 H.S, Drinker, Legal Ethics (1953) pp. 4-5. chanrobles virtual law library

14 7 C.J.S. 708.chanrobles virtual law library

15 Am Jur 270.chanrobles virtual law library

16 In re Lavine, 41 P2d 161, all cited in Martin, Legal and Judicial Ethics, Fifth Ed., p. 8. chanrobles virtual law library

17 Canons 1 to 32 which were adopted by the American Bar Association in 1908 were also adopted by the Philippine Bar Association in 1917. The American Bar Association adopted Canons 33 to 45 in 1928, Canon 46 in 1933 and Canon 47 in 1937. On April 20, 1946, when Canons 33 to 47 where already in effect, the Revised Constitution of the Philippine Bar Association was approved and it provided that the Association "adopts and makes its own the Code of Ethics of the American Bar Association." (Martin, Legal and Judicial Ethics, Fifth Ed. p, 341). chanrobles virtual law library

18 33 N.Y.S. 2d 733, 734.chanrobles virtual law library

19 JBL Reyes & RC Puno, Outline of Philippine Civil Law. Fourth Ed., Vol. I, p. 7

20 Article 12, Civil Code.chanrobles virtual law library

21 Patriarca vs. Orate, 7 Phil. 390, 395 (1907). chanrobles virtual law library

22 Art. 8, Civil Code

23 Art. 1830, Civil Code.chanrobles virtual law library

24 Art. 11, Civil Code.chanrobles virtual law library

25 Roscoe Pound, The Lawyer From Antiquity To Modern Times, (1953), pp. 9-10.

G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner, vs.PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

 

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20,

1990 (date of attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. 6The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF

APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and

operation of the boats would be divided equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine

is obvious — an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom

he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., pls. see concurring opinion.

Separate Opinions

VITUG, J., concurring opinion;

I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V. Panganiban, particularly the finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely would wish to elucidate a bit, albeit briefly, the liability of partners in a general partnership.

When a person by his act or deed represents himself as a partner in an existing partnership or with one or more persons not actual partners, he is deemed an agent of such persons consenting to such representation and in the same manner, if he were a partner, with respect to persons who rely upon the representation. 1 The association formed by Chua, Yao and Lim, should be, as it has been deemed, a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third persons. The liability of general partners (in a general partnership as so opposed to a limited partnership) is laid down in Article 1816 2 which posits that all partners shall be liable pro rata beyond the partnership assets for all the contracts which may have been entered into in its name, under its signature, and by a person authorized to act for the partnership. This rule is to be construed along with other provisions of the Civil Code which postulate that the partners can be held solidarily liable with the partnership specifically in these instances — (1) where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act; (2) where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (3) where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership 3 — consistently with the rules on the nature of civil liability in delicts and quasi-delicts.

Footnotes

1 Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ. Buenaventura J. Guerrero, Division chairman, and Presbitero J. Velasco Jr., member.

2 CA Decision, p. 12; rollo, p. 36.

3 RTC Decision penned by Judge Maximiano C. Asuncion. pp. 11-12; rollo, pp. 48-49.

4 CA Decision, pp. 1-2; rollo, pp. 25-26.

5 Ibid., p. 2; rollo, p. 26.

6 RTC Decision, p. 2; Rollo, p. 39.

7 Petition, p. 4; rollo, p. 11.

8 Ibid.

9 RTC Decision, pp. 6-7; rollo, pp. 43-44.

10 Respondent's Memorandum, pp. 5, 8; rollo, pp. 107, 109.

11 CA Decision, pp. 9-10; rollo, pp. 33-34.

12 RTC Decision, p. 10; rollo, p. 47.

13 Ibid.

14 This case was deemed submitted for resolution on August 10, 1999, when this Court received petitioner's Memorandum signed by Atty. Roberto A. Abad. Respondent's Memorandum signed by Atty. Benjamin S. Benito was filed earlier on July 27, 1999.

15 Nos. 1-7 are from CA Decision p. 9 (rollo, p. 33); No. 8 is from RTC Decision, p. 5 (rollo, p. 42); and No. 9 is from CA Decision, pp. 9-10 (rollo, pp. 33-34).

16 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.

17 Salvatierra v. Garlitos, 103 SCRA 757, May 23, 1958, per Felix J.; citing Fay v. Noble, 7 Cushing [Mass.] 188.

18 The liability is joint if it is not specifically stated that it is solidary," Maramba v. Lozano, 126 Phil 833, June 29, 1967, per Makalintal, J. See also Article 1207 of the Civil Code, which provides: "The concurrence of two or more creditors or of two or more debtors in one [and] the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

19 16 Phil. 315, July 26, 1910, per Moreland, J.

VITUG, J., concurring opinion;

1 Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or

communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:

(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;

(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.

2 All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract.

3 Art. 1824 in relation to Article 1822 and Article 1823, New Civil Code.

G.R. No. L-3704 December 12, 1907

LA COMPAÑIA MARITIMA, plaintiff-appellant, vs.FRANCISCO MUÑOZ, ET AL., defendants-appellees.

Rosado, Sanz and Opisso, for appellant.

Haussermann, Cohn and Williams, for appellees.

 

WILLARD, J.:

The plaintiff brought this action in the Court of First Instance of Manila against the partnership of Franciso Muñoz & Sons, and against Francisco Muñoz de Bustillo, Emilio Muñoz de Bustillo, and Rafael Naval to recover the sum of P26,828.30, with interest and costs. Judgment was rendered in the court below acquitting Emilio Muñoz de Bustillo and Rafael Naval of the complaint, and in favor of the plaintiff and against the defendant partnership, Francisco Muñoz & Sons, and Francisco Muñoz de Bustillo form the sum of P26,828.30 with interest at the rate of 8 per cent per annum from the 31st day of March, 1905, and costs. From this judgment the plaintiff appealed.

On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio Muñoz, and Rafael Naval formed on ordinary general mercantile partnership under the name of Francisco Muñoz & Sons for the purpose of carrying on the mercantile business in the Province of Albay which had formerly been carried on by Francisco Muñoz. Francisco Muñoz was a capitalist partner and Emilio Muñoz and Rafael Naval were industrial partners.

It is said in the decision of the court below that in the articles of partnership it was called an ordinary, general mercantile partnership, but that from the article it does not appear to be such a partnership. In the brief of the appellees it is also claimed that it is not an ordinary, general commercial partnership. We see nothing in the case to support either the statement of the court below in its decision or the claim of the appellees in their brief. In the articles of partnership signed by the partners it is expressly stated that they have agreed to form, and do form, an ordinary, general mercantile partnership. The object of the partnership, as stated in the fourth paragraph of the articles, is a purely mercantile one and all the requirements of the Code of Commerce in reference to such partnership were complied with. The articles of partnership were recorded in the mercantile registry in the Province of Albay. If it should be held that the contract made in this case did not create an ordinary, general mercantile partnership we do not see how one could be created.

The claim of the appellees that Emilio Muñoz contributed nothing to the partnership, either in property, money, or industry, can not be sustained. He contributed as much as did the other industrial partner, Rafael Naval, the difference between the two being that Rafael Naval was entitled by the articles of agreement to a fixed salary of P2,500 as long as he was in charge of the branch office established at Ligao. If he had left that branch office soon after the partnership was organized, he would have been in the same condition then that Emilio Muñoz was from the beginning. Such a change would have deprived him of the salary P2,500, but would not have affected in any way the partnership nor have produced the effect of relieving him from liability as a partner. The argument of the appellees seems to be that, because no yearly or monthly salary was assigned to Emilio Muñoz, he contributed nothing to the partnership and received nothing from it. By the articles themselves he was to receive at the end of five years one-eighth of the profits. It can not be said, therefore, that he received nothing from the partnership. The fact that the receipt of this money was postponed for five years is not important. If the contention of the appellees were sound, it would result that, where the articles of partnership provided for a distribution of profits at the end of each year, but

did not assign any specific salary to an industrial partner during that time, he would not be a member of the partnership. Industrial partners, by signing the articles, agree to contribute their work to the partnership and article 138 of the Code of Commerce prohibits them from engaging in other work except by the express consent of the partnership. With reference to civil partnerships, section 1683 of the Civil Code relates to the same manner.

It is also said in the brief of the appellees that Emilio Muñoz was entirely excluded from the management of the business. It rather should be said that he excluded himself from such management, for he signed the articles of partnership by the terms of which the management was expressly conferred by him and the others upon the persons therein named. That partners in their articles can do this, admits of no doubt. Article 125 of the Code of Commerce requires them to state the partners to whom the management is intrusted. This right is recognized also in article 132. In the case of Reyes vs. The Compania Maritima (3 Phil. Rep., 519) the articles of association provided that the directors for the first eight years should be certain persons named therein. This court not only held that such provision was valid but also held that those directors could not be removed from office during the eight years, even by a majority vote of all the stockholders of the company.

Emilio Muñoz was, therefore, a general partner, and the important question in the case is whether, as such general partner, he is liable to third persons for the obligations contracted by the partnership, or whether he relieved from such liability, either because he is an industrial partner or because he was so relieved by the express terms of the articles of partnership.

Paragraph 12 of the articles of partnership is as follows:

Twelfth. All profits arising from mercantile transactions carried on, as well as such as may be obtained from the sale of property and other assets which constitute the corporate capital, shall be distributed, on completion of the term of five years agreed to for the continuation of the partnership, in the following manner: Three-fourths thereof for the capitalist partner Francisco Muñoz de Bustillo and one-eighth thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso, and the remaining one-eighth thereof for the partner Rafael Naval y Garcia. If, in lieu of profits, losses should result in the winding up of the partnership, the same shall be for the sole and exclusive account of the capitalist partner Francisco Muñoz de Bustillo, without either of the two industrial partners participating in such losses.

Articles 140 and 141 of the Code of Commerce are as follows:

ART. 140. Should there not have been stated in the articles of copartnership the portion of the profits to be received by each partner, said profits shall be divided pro rata, in accordance with the interest each one has on the copartnership, partners who have not contributed any capital, but giving their services, receiving

in the distribution the same amount as the partner who contributed the smallest capital.

ART. 141. Losses shall be charged in the same proportion among the partners who have contributed capital, without including those who have not, unless by special agreement the latter have been constituted as participants therein.

A comparison of these articles with the twelfth paragraph above quoted will show that the latter is simply a statement of the rule laid down in the former. The article do not, therefore, change the rights of the industrial partners as they are declared by the code, and the question may be reduced to the very simple one namely, Is an industrial partner in an ordinary, general mercantile partnership liable to third persons for the debts and obligations contracted by the partnership?

In limited partnership the Code of Commerce recognizes a difference between general and special partners, but in a general partnership there is no such distinction-- all the members are general partners. The fact that some may be industrial and some capitalist partners does not make the members of either of these classes alone such general partners. There is nothing in the code which says that the industrial partners shall be the only general partners, nor is there anything which says that the capitalist partners shall be the only general partners.

Article 127 of the Code of Commerce is as follows:

All the members of the general copartnership, be they or be they not managing partners of the same, are liable personally and in solidum with all their property for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to make use thereof.

Do the words "all the partners" found in this article include industrial partners? The same expression is found in other articles of the code. In article 129 it is said that, if the management of the partnership has not been limited by special act to one of the partners, all shall have the right to participate in the management. Does this mean that the capitalist partners are the only ones who have that right, or does it include also industrial partners? Article 132 provides that, when in the articles of partnership the management has been intrusted to a particular person, he can not be deprived of such management, but that in certain cases the remaining partners may appoint a comanager. Does the phrase "remaining partners" include industrial partners, or is it limited to capitalist partners, and do industrial partners have no right to participate in the selection of the comanager? Article 133 provides that all the partners shall have the right to examine the books of the partnership. Under this article are the capitalist partners the only ones who have such right? Article 135 provides that the partners can not use the firm name in their private business. Does this limitation apply only to capitalist partners or does it extend also to industrial partners? Article 222 provides that a general partnership shall be dissolve by the death of one of the general partners

unless it is otherwise provided in the articles. Would such a partnership continue if all the industrial partners should die? Article 229 provides that upon a dissolution of a general partnership it shall be liquidated by the former managers, but, if all the partners do not agree to this, a general meeting shall be called, which shall determine to whom the settlement of the affairs shall be intrusted. Does this phrase "all the partners" include industrial partners, or are the capitalist partners the only ones who have a voice in the selection of a manager during a period of liquidation? Article 237 provides that the private property of the general partners shall not be taken in payment of the obligations of the partnership until its property has been exhausted. Does the phrase "the general partners" include industrial partners?

In all of these articles the industrial partners must be included. It can not have been intended that, in such a partnership as the one in question, where there were two industrial and only one capitalist partner, the industrial partners should have no voice in the management of the business when the articles of partnership were silent on that subject; that when the manager appointed mismanages the business the industrial partners should have no right to appoint a comanager; that they should have no right to examine the books; that they might use the firm name in their private business; or that they have no voice in the liquidation of the business after dissolution. To give a person who contributed no more than, say, P500, these rights and to take them away from a person who contributed his services, worth, perhaps, infinitely more than P500, would be discriminate unfairly against industrial partners.

If the phrase "all the partners" as found in the articles other than article 127 includes industrial partners, then article 127 must include them and they are liable by the terms thereof for the debts of the firm.

But it is said that article 141 expressly declares to the contrary. It is to be noticed in the first place that this article does not say that they shall not be liable for losses. Article 140 declares how the profits shall be divided amongthe partners. This article simply declares how the losses shall be divided among the partners. The use of the words se imputaran is significant. The verb means abonar una partida a alguno en su cuenta o deducirla de su debito. Article 141 says nothing about third persons and nothing about the obligations of the partnership.

While in this section the word "losses" stand's alone, yet in other articles of the code, where it is clearly intended to impose the liability to third persons, it is not considered sufficient, but the word "obligations" is added. Thus article 148, in speaking of the liability of limited partners, uses the phrase las obligaciones y perdidas. There is the same use of the two same words in article 153, relating to anonymous partnership. In article 237 the word "obligations" is used and not the word "losses."

The claim of the appellees is that this article 141 fixes the liability of the industrial partners to third persons for the obligations of the company. If it does, then it also fixes the liability of the capitalist partners to the same persons for the same obligations. If this article says that industrial partners are not liable for the debts of the concern, it also

says that the capitalist partners shall be only liable for such debts in proportion to the amount of the money which they have contributed to the partnership; that is to say, that if there are only two capitalist partners, one of whom has contributed two-thirds of the capital and the other one-third, the latter is liable to a creditor of the company for only one-third of the debt and the former for only two-thirds. It is apparent that, when given this construction, article 141 is directly in conflict with article 127. It is not disputed by the appellees that by the terms of article 127 each one of the capitalist partners is liable for all of the debts, regardless of the amount of his contribution, but the construction which they put upon article 141 makes such capitalist partners liable for only a proportionate part of the debts.

There is no injustice in imposing this liability upon the industrial partners. They have a voice in the management of the business, if no manager has been named in the articles; they share in the profits and as to third persons it is no more than right that they should share in the obligations. It is admitted that if in this case there had been a capitalist partner who had contributed only P100 he would be liable for this entire debt of P26,000.

Our construction of the article is that it relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing to do with the liability of the partners to third persons; that each one of the industrial partners is liable to third persons for the debts of the firm; that if he has paid such debts out of his private property during the life of the partnership, when its affairs are settled he is entitled to credit for the amount so paid, and if it results that there is not enough property in the partnership to pay him, then the capitalist partners must pay him. In this particular case that view is strengthened by the provisions of article 12, above quoted. There it is stated that if, when the affairs of the partnership are liquidated — that is, at the end of five years — it turns out that there had been losses instead of gains, then the capitalist partner, Francisco Muñoz, shall pay such losses — that is, pay them to the industrial partners if they have been compelled to disburse their own money in payment of the debts of the partnership.

While this is a commercial partnership and must be governed therefore by the rules of the Code of Commerce, yet an examination of the provisions of the Civil Code in reference to partnerships may throw some light upon the question here to be resolved. Articles 1689 and 1691 contain, in substance, the provisions of articles 140 and 141 of the Code of Commerce. It is to be noticed that these articles are found in section 1 of Chapter II [Title VIII] of Book IV. That section treats of the obligations of the partners between themselves. The liability of the partners as to third persons is treated in a distinct section, namely, section 2, comprising articles from 1697 to 1699.

If industrial partners in commercial partnerships are not responsible to third persons for the debts of the firm, then industrial partners in civil partnerships are not. Waiving the question as to whether there can be a commercial partnership composed entirely of industrial partners, it seems clear that there can be such civil partnership, for article 1678 of the Civil Code provides as follows:

A particular partnership has for its object specified things only, their use of profits, or a specified undertaking, or the exercise of a profession or art.

It might very easily happen, therefor, that a civil partnership could be composed entirely of industrial partners. If it were, according to the claim of the appellees, there would be no personal responsibility whatever for the debts of the partnership. Creditors could rely only upon the property which the partnership had, which in the case of a partnership organized for the practice of any art or profession would be practically nothing. In the case of Agustin vs. Inocencio, 1 just decided by this court, it was alleged in the complaint, and admitted by the answer —

That is partnership has been formed without articles of association or capital other than the personal work of each one of the partners, whose profits are to be equally divided among themselves.

Article 1675 of the Civil Code is as follows:

General partnership of profits include all that the partners may acquire by their by their industry or work during the continuation of the partnership.

Personal or real property which each of the partners may possess at the time of the celebration of the agreement shall continue to be their private property, the usufruct only passing to the partnership.

It might very well happen in partnership of this kind that no one of the partners would have any private property and that if they did the usufruct thereof would be inconsiderable.

Having in mind these different cases which may arise in the practice, that construction of the law should be avoided which would enable two persons, each with a large amount of private property, to form and carry on a partnership and, upon the bankruptcy of the latter, to say to its creditors that they contributed no capital to the company but only their services, and that their private property is not, therefore, liable for its debts.

But little light is thrown upon this question by the authorities. No judgment of the supreme court of Spain has been called to our attention, and we have been able to find none which refers in any way to this question. There is, therefore, no authority from the tribunal for saying that an industrial partner is not liable to third persons for the debts of the partnership.

In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it is said that industrial partners are not liable for debts. The author, at page 127, divides general partnership into ordinary and irregular. The irregular partnership are those which include one or more industrial partners. It may be said in passing that his views can not apply to this case because the articles of partnership directly state that it is an ordinary partnership and do not state that it is an irregular one. But his view of the law

seems to be derived from something other than the Code of Commerce now in force. He says:

. . . but it has not been very fortunate in sketching the characters of a regular collective partnership (since it says nothing conclusive in reference to the irregular partnership) . . . . (p. 127.)

And again:

This article would not need to be commented upon were it not because the writer entirely overlooked the fact that there might exist industrial partners who did not contribute with capital in money, credits, or goods, which partners generally participate in the profits but not in the losses, and whose position must also be determined in the articles of copartnership. (p. 128.)

And again: lawphil.net

The only defect that can be pointed out in this article is the fact that it has been forgotten that in collective partnerships there are industrial partners who, not being jointly liable for the obligations of the copartnership, should not include their names in that of the firm. (p. 129.)

As a logical result of his theory he says that an industrial partner has no right to participate in the administration of the partnership and that his name can not appear in the firm name. In this last respect his view is opposed to that of Manresa, who says (Commentaries on the Spanish Civil Code, vol. 11, p. 330):

It only remains to us to state that a partner who contributes his industry to the concern can also confer upon it the name or the corporate name under which such industry should be carried on. In this case, so long as the copartnership lasts, it can enjoy the credit, reputation, and name or corporate name under which such industry is carried on; but upon dissolution thereof the aforesaid name or corporate name pertains to the partner who contributed the same, and he alone is entitled to use it, because such a name or style is an accessory to the work of industrial partner, and upon recovering his work or his industry he also recovers his name or the style under which he exercised his activity. It has thus been decided by the French court of cassation in a decision dated June 6, 1859.

In speaking of limited partnerships Benito says (p. 144) that here are found two kinds of partners, one with unlimited responsibility and the other with limited responsibility, but adopting his view as to industrial partners, it should be said that there are three kinds of partners, one with unlimited responsibility, another with limited responsibility, and the third, the industrial partner, with no responsibility at all. In Estasen's recent publication on mercantile partnerships (Tratado de las Sociedades Mercantiles) he quotes from the work of Benito, but we do not understand that he commits himself to the doctrines therein laid down. In fact, in his former treatise, Instituciones de Derecho Mercantil (vol.

3, pp. 1-99), we find nothing which recognizes the existence of these irregular general partnerships, or the exemption from the liability to third persons of the industrial partners. He says in his latter work (p. 186) that according to Dr. Benito the irregular general partner originated from the desire of the partnership to associate with itself some old clerk or employee as a reward for his services and the interest which he had shown in the affairs of the partnership, giving him in place of a fixed salary a proportionate part of the profits of the business. Article 269 of the Code of Commerce of 1829 relates to this subject and apparently provides that such partners shall not be liable for debts. If this article was the basis for Dr. Benito's view, it can be so no longer, for it does not appear in the present code. We held in the case of Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere agreement of that kind does not make the employee a partner.

An examination of the works of Manresa and Sanchez Roman on the Civil Code, and of Blanco's Mercantile Law, will shows that no one of these mentions in any way the irregular general partnership spoken of by Dr. Benito, nor is there anything found in any one of these commentaries which in any way indicates that an industrial partner is not liable to third persons for the debts of the partnership. An examination of the French law will also show that no distinction of that kind is therein anywhere made and nothing can be found therein which indicates that the industrial partners are not liable for the debts of the partnership. (Fuzier-Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, and 512.)

Our conclusion is upon this branch of the case that neither on principle nor on authority can the industrial partner be relieved from liability to third persons for the debts of the partnership.

It is apparently claimed by the appellee in his brief that one action can not be maintained against the partnership and the individual partners, this claim being based upon the provisions of article 237 of the Code of Commerce which provides that the private property of the partners shall not be taken until the partnership property has been exhausted. But this article furnishes to argument in support of the appellee's claim. An action can be maintained against the partnership and partners, but the judgment should recognize the rights of the individual partners which are secured by said article 237.lawphil.net

The judgment of the court below is reversed and judgment is ordered against all of the defendants for the sum of P26,828.30, with interest thereon at the rate of 8 per cent per annum since the 31st day of March, 1905, and for the cost of this action. Execution of such judgment shall not issue against the private property of the defendants Francisco Muñoz, Emilio Muñoz, or Rafael Naval until the property of the defendant Francisco Muñoz & Sons is exhausted. No costs will be allowed to their party in this court. So ordered.

Torres, Johnson and Tracey, JJ., concur.

 

 

 

Separate Opinions

ARELLANO, C. J., dissenting:

I consider that the judgment appealed from is entirely in accordance with the law.lawphil.net

The question set up in the majority decision, "In a regular collective commercial company, is an industrial partner liable as to third persons by reason of the debts and obligations contracted by the copartnership?" I decide in a negative sense; he is not; by express provision of the law he can not be held to be liable, save, of course, and agreement to the contrary, which in such case would be a special law, and would set aside the general law.

The basis for the contrary opinion and decision is article 127 of the Code of Commerce:

All the members of the general copartnership, be they or be they not managing partners of the same, are personally and in solidum liable with all their property for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to ake use thereof.

Now, do the words "all the members" found in this article include the industrial partners?

At first it would appear that they do. In order to complete such reasoning the following premise will be sufficient: That the industrial partners from the collective partnership; therefore the industrial partners are personally and jointly liable with all their property for the results of the transactions made in the name and for account of the partnership.

But they form the collective partnership in the manner in which our laws allows the same to be formed — that is, by contributing with their industry, not with property.

And the word all, in reference to property, which is common with the three classes of partnership defined by the code, to wit, collective, limited copartnership (comanditaria), and corporation (anonima), gives the rule for such personal and joint liability, which is the purpose of the provision in the above-quoted article.

The above three classes of partnership agree in that property must in each of them be contributed. "The articles of general copartnership must state . . . the capital which each partner contributes in cash, credits, or property, stating the value given the latter or the

basis on which their appraisal is to be made." (Art. 125.) "The same statements shall be included in articles of limited copartnerships (compañias en comandita) which are required for those of general copartnerships" — that is, among other things, the capital which each partner contributes. (Art. 145.) "The articles of incorporation (of corporations) must include . . . the corporate capital, stating the value at which property, not cash, contributed has been appraised, or the basis on which the appraisal is to be made; and the number of shares into which the corporate capital is divided and represented." (Art. 151.)

Now, then, "The liability of the members of a corporation for the obligations and losses of the same shall be limited to the funds they contributed or bound themselves to contribute to the corporate capital." (Art. 153.) "The liability of special partners for the obligations and losses of the copartnership shall be limited to the funds which they contributed or bound themselves to contribute to the limited copartnership, with the exception of the sense mentioned in article 147" — that is, if any of them include his name or permit its conclusion in the firm name. (Art. 148, par. 3.) However, in a collective partnership the liability is not limited to the funds or property contributed, but extends to all the property which partners may own within or without the copartnership.

In every mercantile copartnership it is the corporate capital that responds for the obligations of the same; this is elemental. The members of a joint stock, a limited, or a collective company respond with their capital for the obligations of the association; in the joint stock concerns, with their shares; in the limited class, with the amount contributed; in the collective, with their constituted capital. An industrial partner, with what principal sum, share, or quota in the corporate capital does he or can he respond for the obligations of the collective partnership? Evidently with none whatever.

If the capital of the association is exhausted, the extreme case of losses incurred by the company arises, and third persons can not recover the amount of the obligations of the company from the corporate capital, because the latter is sufficient to recover them. Shareholders in the case of a joint stock company, beyond the value of their stock, have no longer to think of any ulterior subsidiary responsibility. Neither do the partners of a limited company. In either case the partners are only liable to the extent of their corporate capital. Collective partners have to respond not only with their corporate capital but also with the whole of their property outside of the association. And it is desired that the industrial partner who, in a collective copartnership, did not primarily respond with his corporate capital, because he had none, shall subsidiary respond with such property as he may have outside of the company, and with which nobody, either within or without the copartnership, had counted upon, since both inside and outside of the company his industry or work only had been reckoned with. Therefore, the word all, of article 127 cited above, simply denoted the extent of the ulterior or subsidiary responsibility, and that which does not appear, which does not materially exist, can hardly be made to apply.

An industrial partner can not engage in transactions of any class whatever, otherwise he would be subject to serious consequences (art. 138), while a capitalist partner, as a

rule, may so engage without extending profits or liabilities to the company (arts. 134 and 136); an industrial partner, as regards profits, can only receive in the distribution the same amount as the partner who contributed the smallest amount of capital (art. 140); in the case at bar, one-eighth goes to each of the two industrial partners, three-fourths being for the capitalist, and even at the expiration of the copartnership they run the risk of having the one-eighth of the profits earned in former years absorbed by a total loss incurred during the last year of the contract of copartnership; and it is claimed that such industrial partner, so much delayed with regard to profits, who has not the same rights, shall be under the sameobligations as regards obligations because he is a collective partner? This seems neither just nor logical.

And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in the same proportion among the partners who have contributed capital, without including" the industrial partners (since they have not the same rights), and they should not be included therein nor in the corporation of the partner who contributed the smallest capital, simply for the reason that the industrial partner has nothing to lose, he not having contributed anything which the company may lose when the losses of the copartnership are considered, either among the partners thereof or with regard to third persons.

There need be no distinction made between obligations and losses. During the existence of a company the gains or the losses are set off the one against the other, and the difference is either in favor of or against the concern. As to the industrial partner, in connection with the question submitted, it is not a matter of striking a balance from time to time, but one of the final adjustment of assets and liabilities, because the matter under discussion refers only to his private property, which has nothing to do with the company nor with losses in liquidating the same. Article 127 is affected by article 237: "The private property of the general partners which is not included in the assets of the copartnership when it is established can not be seized for the payment of the obligations contracted by the copartnership until after the common assets have been attached." And such condition is stated in the majority decision. As long as there is property belonging to the company, obligations in favor of third persons are covered by the primary and direct responsibility of the company; the question arises when the assets of the company are exhausted and it becomes necessary to appeal to the ulterior or subsidiary liability of the private property of the partners; in this case such obligations constitute the extreme losses in the liquidation of the company.

The case at bar could only thus be set forth: Should an industrial partner be responsible for such losses, for such obligations in favor of third persons? Article 141 expressly states that he shall not. In order to state the contrary it would be necessary to appeal to discriminations in the wording of said article; and this is neither permitted where the law does not make them nor would they lead to anything after all. In the aforesaid article 237 the corroboration of the word all of article 127 may be found: "The private property of the general partners which is not included in the assets of the copartnership," differing from such as were included, can not seized for the payment of obligations contracted by the copartnership, until after the common assets have been attached;

after such attachment all the assets, according to article 127, such as were included, and those that were not included, in this order, shall be subject to the results of the transactions of the copartnership. An industrial partner has not contributed any property whatever; he therefore offers no subject for the principal and direct seizure when the assets of the copartnership are attached. How is it possible to conceive any ulterior, subsidiary, indirect responsibility over the property which it was not even thought to be included, since he only contributed to the company his industry and work, not property of any class whatever? It seems very anomalous that one who has not obligated himself in the least should be responsible or the greater part, that he who is not comprehended within the explicit terms should be included by implication, and that he who pledge nothing should be held to respond with his property.

As to the nature of the defendant company in this action, I take it to be:lawphil.net

1. That the defendant company is really a collective one such as is described in the Code of Commerce; the firm of "F. Muñoz & Sons" and the terms of the articles of association prove it so beyond all doubt.

2. That it is a regular collective company; the word regular means, as employed in the Code of Commerce, that the collective company is the rule, the standard in all commercial associations, the one combining all the effects which are consequent upon this form of convention; and the limited and the joint-stock companies are the exception.

3. That it is not irrelevant in view of the manner in which the present Code of Commerce, like the former one of 1829, has defined the collective company, that such a distinguished professor of law as Doctor Lorenzo de Benito should have established in his "Lessons on Mercantile Law" a difference between the regular collective associations and irregular collective companies; "regular are those wherein, as article 122 reads, all the members in a collective name and under a firm name bind themselves to participate in the proportion which they may establish with the same rights and obligations." "And irregular, those wherein one or more members who, though not contributing toward the company with anything but their industry, participate in the profits in the manner agreed to in the articles of association or as determined by law, and ordinarily do not share in the losses which the copartnership may sustain. Such members are called industrial partners, and the collective copartnership having a member of said class is also sometimes called an association of capital and industry.

This is what the law says (he continues), but it has not been very fortunate in sketching the characters of a regular collective partnership (since in conclusion it says nothing in reference to the irregular partnership), because precisely the collective name and the corporate name are applicable to both the collective and the limited companies; and as to the covenant entered into by the partners to participate in the proportion which they may establish with the same rights and obligations, this is inherent to all partnerships without distinction as to class. What characterizes this partnership is that all the members, "with the exception

of the industrial partners," are jointly responsible and with all their property for the corporate obligations.

4. That the code in force, by means of three articles, 138, 140, and 141, among those which regulate collective partnerships, has involved this association of capital and industry; whence irregularity necessarily arises; the irregularity of such an irregular system is that in a collective partnership wherein, besides the element property, common or generic to the three aforesaid classes, there appears this one, to wit, industry, a special features only in collective partnerships, according to the system of the code.

Had the system adopted by the codes of Portugal, Brazil, and the Argentine Republic been followed, a different classification would have been made of the association of capital and industry which, according to the last of the codes cited, is properly characterized by means of the following articles:

435. Habilitacion or association of capital and industry is the name given to the partnership formed on the one part by one or more persons who furnish funds for a general business, or for some particular commercial transaction, and on the other part by one or more individuals who join the copartnership with their industry alone.

438. The obligation of the partners who furnished capital is in solidum, and extends beyond the capital contributed by them to the concern.

439. The articles of association, besides the requirements contained in article 395, must specify the obligations of the industrial partner or partners and the share in the profits to which they are entitled in the apportionment.

In the absence of such declaration, the industrial partner shall draw from the profits a share equal to those of the partner who furnished the smallest capital.

440. An industrial partner can not contract on behalf of the partnership nor is he obligated with his own property toward the creditors of the company.

Nevertheless, if besides his industry he should contribute some capital toward the company either in money or thing of value, the association shall then be considered as a collective one, and the industrial partner, whatever might have been stipulated, shall respond in solidum.

In my opinion it can not be denied that there is no substantial difference between the three articles of our code and those transcribed from that of the Argentine Republic as regards the rights and obligations of industrial partners in conjunction with partners who furnish capital; there is no difference except in the system, the code of the Argentine Republic dealing with this class of association of capital and industry separately from the only three defined in our code, all of them of capital only or essentially of partners

who furnish capital. Therefore, as said code has an article almost literally identical with article 127 of our code, this question can not possibly arise in that country. That code contains article 454, which reads: "All those who form a collective commercial company, whether managing the corporate funds or not, are obligated in solidum (with all their property, as our code would state) for the results of the transactions made in the name and for account of the partnership," etc. To the question, Do the words "all the partners" found in said article include the industrial partners? undoubtedly the answer would be no.

And it would not suffice to say that the above article of the code of the Argentine Republic, namely, "on collective copartnership," involves no section which may refer to industrial partners, and that, therefore, there can be no question as to the words "all the members;" it is because, by reason of the nature thereof, whether under one system or another, the provisions and the principles being identical, the conclusions can not otherwise than identical. In a copartnership, and as the result of the obligations thereunder, an industrial partner can not lose except what he has actually contributed thereto for a limited or an unlimited purpose, subject ultimately to company or personal obligations; this is all that law and logic may demand of him; anything else would not come under the law, but may be demanded of him by reason of his express covenant, because he has consented to something beyond the character and the effects of the contract of partnership of capital and industry entered into by him, called collective; nothing else has been the subject of his consent and obligation.

Manuel Duran y Bas, a former professor of the University of Barcelona, in his addition to the work of Marti de Eixala, which is so generally and specially consulted in that eminently commercial and industrial city, has offered no remarks to the original text of said work which establish as an elemental doctrine that "When the copartnership is purely a collective one, each of its members is jointly obligated for the result of the transactions which should be charged to the copartnership . . . . From the general rule which we have just set up the industrial partners who contract no obligation to secure the liabilities of the company should be excepted, unless there be an express covenant to the contrary." (Art. 319 of the code of 1829, identical with art. 141 of the code now in force.)

During almost half a century no obligation has been raised by the professors of law, the press, or the bar, to this doctrine regarding the exemption, not merely with respect to losses but to company obligations of the industrial partner, on the suppositions, which I do not admit, as already shown, that it may be possible to discriminate between losses and obligations in connection with an industrial partner, for whom there are none but the final losses, such as absorb the assets of the company, which can not be otherwise than outstanding obligations in favor of third parties inasmuch as, so long as there are company assets, no recourse can be held to the private property of any partner.

G.R. No. L-39780 November 11, 1985

ELMO MUÑASQUE, Petitioner, vs. COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON

PONS, Respondents.

 

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of Appeals affirming the existence of a partnership between petitioner and one of the respondents, Celestino Galan and holding both of them liable to the two intervenors which extended credit to their partnership. The petitioner wants to be excluded from the liabilities of the partnership.chanroblesvirtualawlibrary chanrobles virtual law library

Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for remodelling a portion of its building without exchanging or expecting any consideration from Galan although the latter was casually named as partner in the contract; that by virtue of his having introduced the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in the form of some percentages or commission; that Tropical, under the terms of the contract, agreed to give petitioner the amount of P7,000.00 soon after the construction began and thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check persuading the latter that the same be deposited in a joint account; that on January 26, 1967 when the second check for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan but through later manipulations, respondent Pons succeeded in changing the payee's name from Elmo Muñasque to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his construction business and subjecting him to demands of creditors to pay' for construction materials, the payment of which should have been made from the P13,000.00 received by Galan; that petitioner undertook the construction at his own expense completing it prior to the March 16, 1967 deadline;that because of the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to Galan petitioner demanded that said amount be paid to him by respondents under the terms of the written contract between the petitioner and respondent company.chanroblesvirtualawlibrary chanrobles virtual law library

The respondents answered the complaint by denying some and admitting some of the material averments and setting up counterclaims.chanroblesvirtualawlibrary chanrobles virtual law library

During the pre-trial conference, the petitioners and respondents agreed that the issues to be resolved are:

(1) Whether or not there existed a partners between Celestino Galan and Elmo Muñasque; and chanrobles virtual law library

(2) Whether or not there existed a justifiable cause on the part of respondent Tropical to disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed to intervene, both having legal interest in the matter in litigation.chanroblesvirtualawlibrary chanrobles virtual law library

After trial, the court rendered judgment, the dispositive portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered: chanrobles virtual law library

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively; chanrobles virtual law library

(2) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability, chanrobles virtual law library

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for reconsideration.chanroblesvirtualawlibrary chanrobles virtual law library

On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as follows:

IN VIEW WHEREOF, Judgment is hereby rendered: chanrobles virtual law library

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the intervenors Cebu Southern Hardware Company and Blue

Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively, chanrobles virtual law library

(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware Company and Tan Siu jointly and severally interest at 12% per annum of the sum of P6,229.34 until the amount is fully paid; chanrobles virtual law library

(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees jointly and severally to Intervenor Cebu Southern Hardware Company: chanrobles virtual law library

(4) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability, chanrobles virtual law library

No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification that the liability imposed in the dispositive part of the decision on the credit of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly." chanrobles virtual law library

Not satisfied, Mr. Muñasque filed this petition.chanroblesvirtualawlibrary chanrobles virtual law library

The present controversy began when petitioner Muñasque in behalf of the partnership of "Galan and Muñasque" as Contractor entered into a written contract with respondent Tropical for remodelling the respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract for the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%) of the whole amount upon the signing of the contract and the balance thereof divided into three equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.chanroblesvirtualawlibrary chanrobles virtual law library

The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to enable the latter to deposit it in the bank and pay for the materials and labor used in the project.chanroblesvirtualawlibrary chanrobles virtual law library

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when the second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it again, the petitioner refused.chanroblesvirtualawlibrary chanrobles virtual law library

The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there was a"misunderstanding" between him and petitioner, respondent Tropical changed the name of the payee in the second check from Muñasque to "Galan and Associates" which was the duly registered name of the partnership between Galan and petitioner and under which name a permit to do construction business was issued by the mayor of Cebu City. This enabled Galan to encash the second check.chanroblesvirtualawlibrary chanrobles virtual law library

Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly due the laborers and partly due for the materials, the construction work was finished ahead of schedule with the total expenditure reaching P34,000.00.chanroblesvirtualawlibrary chanrobles virtual law library

The two remaining checks, each in the amount of P6,000.00,were subsequently given to the petitioner alone with the last check being given pursuant to a court order.chanroblesvirtualawlibrary chanrobles virtual law library

As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the respondents,seeking to recover the following: the amounts covered by the first and second checks which fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in the construction, moral and exemplary damages, and attorney's fees.chanroblesvirtualawlibrary chanrobles virtual law library

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons, from any liability but they also held the petitioner together with respondent Galan, hable to the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which the intervenors extended to the partnership of petitioner and Galan chanrobles virtual law library

In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the appellate court erred in holding that a partnership existed between petitioner and respondent Galan. (2) Assuming that there was such a partnership, whether or not the court erred in not finding Galan guilty of malversing the P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for the said amount; and (3) Whether or not the court committed grave abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan was "good payment, " chanrobles virtual law library

Petitioner contends that the appellate court erred in holding that he and respondent Galan were partners, the truth being that Galan was a sham and a perfidious partner who misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also contends that the appellate court committed grave abuse of discretion in holding that the payment made by Tropical to Galan was "good" payment when the same gave occasion for the latter to misappropriate the proceeds of such payment.chanroblesvirtualawlibrary chanrobles virtual law library

The contentions are without merit.chanroblesvirtualawlibrary chanrobles virtual law library

The records will show that the petitioner entered into a con-tract with Tropical for the renovation of the latter's building on behalf of the partnership of "Galan and Muñasque." This is readily seen in the first paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan and Muñasque hereinafter called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the owner do hereby for and in consideration agree on the following: ... .

There is nothing in the records to indicate that the partner-ship organized by the two men was not a genuine one. If there was a falling out or misunderstanding between the partners, such does not convert the partnership into a sham organization.chanroblesvirtualawlibrary chanrobles virtual law library

Likewise, when Muñasque received the first payment of Tropical in the amount of P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner claims, then he has only himself to blame for making the relationship appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the partnership were, therefore, valid payments.chanroblesvirtualawlibrary chanrobles virtual law library

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the appellees also acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences.

No error was committed by the appellate court in holding that the payment made by Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the two were partners when the debts were incurred, they, are also both liable to third persons who extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:

There is a general presumption that each individual partner is an authorized agent for the firm and that he has authority to bind the firm in carrying on the partnership transactions. (Mills vs. Riggle,112 Pan, 617).chanroblesvirtualawlibrary chanrobles virtual law library

The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting apparently in its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)

Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that although this was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless, alleged the same in his amended complaint which was, duly admitted by the court.chanroblesvirtualawlibrary chanrobles virtual law library

When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in his personal capacity. Although the petitioner made allegations as to the alleged malversations of Galan, these were the same allegations in his original complaint. The malversation by one partner was not an issue actually raised in the amended complaint but the alleged connivance of Pons with Galan as a means to serve the latter's personal purposes.chanroblesvirtualawlibrary chanrobles virtual law library

The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because he himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:

xxx xxx xxx chanrobles virtual law library

... The appellant is bound by the delimitation of the issues contained in the trial court's order issued on the very day the pre-trial conference was held. Such an order controls the subsequent course of the action, unless modified before trial to prevent manifest injustice.In the case at bar, modification of the pre-trial order was never sought at the instance of any party.

Petitioner could have asked at least for a modification of the issues if he really wanted to include the determination of Galan's personal liability to

their partnership but he chose not to do so, as he vehemently denied the existence of the partnership. At any rate, the issue raised in this petition is the contention of Muñasque that the amounts payable to the intervenors should be shouldered exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of their illstarred partnership. The records show that there is an existing judgment against respondent Galan, holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended credit to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber.chanroblesvirtualawlibrary chanrobles virtual law library

We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and severally" is plain error since the liability of partners under the law to third persons for contracts executed inconnection with partnership business is only pro rata under Art. 1816, of the Civil Code.chanroblesvirtualawlibrary chanrobles virtual law library

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be liable prorate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and fm the account cd the partnership, under its signature and by a person authorized to act for the partner-ship. ...". this provision should be construed together with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823.chanroblesvirtualawlibrary chanrobles virtual law library

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partner-ship or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.chanroblesvirtualawlibrary chanrobles virtual law library

Art. 1823. The partnership is bound to make good: chanrobles virtual law library

(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and chanrobles virtual law library

(2) Where the partnership in the course of its business receives money or property of a third person and t he money or property so received is misapplied by any partner while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily liable.chanroblesvirtualawlibrary chanrobles virtual law library

In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to transact on behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole chanrobles virtual law library

However. as between the partners Muñasque and Galan,justice also dictates that Muñasque be reimbursed by Galan for the payments made by the former representing the liability of their partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muñasque as a partner.chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any amount that he pays, in his capacity as a partner, to the above intervenors, chanrobles virtual law library

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ., concur.chanroblesvirtualawlibrary chanrobles virtual law library

Plana, J., took no part.chanroblesvirtualawlibrary chanrobles virtual law library

Relova, J., is on leave.