Partnership July 25, 2015 1

G.R. No. L-29182

October 24, 1928

LEONCIA VIUDA DE CHAN

NAW) appellee,
vs.
JOSE S. Y. PENG, assignee, appellant.
C.
A.
Sobral
Amador Constantino for appellee.

DIACO

(alias LAO

LIONG

12, 11925, appointed Ricardo Summers, the clerk of the Court of First
Instance of Manila, referee, authorizing him to take further evidence in
regard to the questions of fact raised by the motions of August 5th and 19th.
After various hearings and the taking of considerable testimony, the referee,
on February 18, 1926, rendered a report to the court in which he made the
following recommendations:

for

appellant.

OSTRAND, J.:
This is an appeal from a decision of the Court of First Instance of Manila
dismissing an insolvency proceeding.
It appears from the record that on June 13, 1925, the San Miguel Brewery,
Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted insolvency
proceedings against Leoncia Vda. de Chan Diaco (alias Lao Liong Naw),
alleged to be the owner of a grocery store on Calle Nueva, Binondo, known
as the store of "La Viuda de G. G. Chan Diaco."
In their petition for the declaration of the insolvency, the above-mentioned
firms alleged, among other things, that Leoncia was indebted to them in the
sum of P26,234.47, which debt was incurred within thirty days prior to the
filing of said petition. It further appears that other creditors have filed claims
against the estate to the amount of P50,000.
The petition for the declaration of insolvency was set down for hearing on
June 25, 1925. Leoncia did not appear at the hearing, notwithstanding the
fact that she was duly notified, and the court declared her insolvent and
ordered the sheriff to take possession of her property, the visible part of
which at that time consisting of some merchandise, afterwards sold at public
auction for P3,300. Judge Simplicio del Rosario, in an order dated September

That the insolvent deliver to the assignee:

(a) The sum of P56,000 more or less that the "encargado" of the
insolvent's business, Chan Chiao Wa, had delivered to her on the
18th of April, 1925, which amount was in fact, on the 19th day of
April, 1925, about P56,102.65.
(b) The accounts receivable as of June 19, 1925, or that is to say, two
months after the insolvent took charge of her store, amounting to
P40,000.
(c) The amount taken for her own use and out of the business on June
8, 1925, to wit, P2,000.
(d) Another P2,000 that on June 5, 1925, and being already insolvent,
the widow of Chan Diaco had taken from the China Banking
corporation for her personal use.
(e) The following account books: 1awph!l.net
Libros
de
Acreedores
Extranjeros.
Libros
de
Acreedores
Chinos.
Libros
de
Deudores
de
Manila.
Libros
de
Deudores
de
Provincias.
Libros de Entrada y salida de efectos y mercancias para
Manila y Provincias. Libro Diario de Caja.
Libro
de
Sueldos
de
Empleados.

Partnership July 25, 2015 2

Libros
de
Balances
Libro mayor de 1924 y 1925.

Inventarios.

set the motion down for hearing on the 14th of August, 1926. His Honor
again appointed Summers as referee.

The report was approved by Judge del Rosario on April 14, 1926, and the
merchants Cua Ico, Chan Keep, and Simon A. Chan Bona were ordered to
show cause why they should not return that alleged merchandise to the value
of P20,000, alleged to have been delivered to them by Leoncia, together with
P5,000 in cash alleged to have been received from her by the merchant Chua
Ico between the 8th and 11th days of June, 1925.

After several hearings in which various witnesses were examined and

documents presented on behalf of both sides, the referee, on February 28,
1927, rendered a second report, in which he found as facts that the alleged
partnership between the insolvent and some of her relatives and employees
was only a fictitious organization created for the purpose of deceiving the
Bureau of Customs and enable some of the aforesaid relatives, who were
mere coolies, to come to the Philippines under the status of merchants. He,
therefore, recommended that the motion of the insolvent to dismiss the
proceedings against her be denied.

On April 22, 1926, the attorney for the insolvent filed her exception to the
report of the referee, which had already been approved on April 14, and on
July 23, 1926, the court rendered a decision, reaffirming its order of April 14,
and ordered the insolvent to deliver to the assignee the sum of P56,000, more
or less. alleged to have been in her possession on April 19, 1925. The court
further ordered her to surrender the books of accounts mentioned in the
referee's report together with the accounts receivable amounting to P40,000
and the sums withdrawn by her from her current account with the China
Banking Corporation a few days prior to the declaration of insolvency; and
directed the assignee to file actions against the merchants Cua Ico, Chan
Keep, and Simon A. Chan Bona for the return by them of the sum of P5,000
in cash, plus the merchandise valued at P20,000 delivered to them by the
insolvent in fraud of her creditors.
On August 4, 1926, attorney for the insolvent filed a motion asking the court
to dismiss the proceedings against her on the ground that they should have
been brought against the partnership "Lao Liong Naw & Co.," of which she
was only a member. The alleged partnership was evidenced by an agreement
dated July 22, 1922, and from which it appeared that on that date Lao Liong
Naw (Leoncia), Chan Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn Bun Le,
and Juan Maquitan Chan had formed a partnership with a capital of P21,000,
of which only P4,000 was contributed by Leoncia.
In view of the aforesaid motion Judge Del Rosario on August 7, 1926,
suspended for the time being the effects of the decision of July 23, 1926, and

The report was assigned for hearing on May 21, 1927. Judge Del Rosario
was then absent on leave and the matter was, therefore, submitted to Judge
Francisco Zandueta, who had been temporarily assigned to take the place of
Judge Del Rosario, and on June 6, 1927, a decision was rendered
disapproving the report of the referee. The court, therefore, affirmed the
suspension of the decision of Judge Del Rosario, and on June 23, 1926,
dismissed the insolvency proceedings, and ordered the assignee to return to
the sheriff all the property of the insolvent which he, the sheriff, might have
in his possession. The decision further provided for leave to the petitioners to
file a new petition in insolvency against the partnership Lao Liong Naw &
Co. if they so desired. A motion for reconsideration was presented by the
assignee but was denied by the court in an order of July 1, 1927. the
assignee, thereupon, appealed to this court and presents the following
assignments of error:
1. The lower court erred in disapproving the report of the referee
dated February 28, 1927.
2. The lower court erred in dismissing the petition for the involuntary
insolvency of the merchant Leoncia Vda. de Chan Diaco (alias Lao
Liong Naw or Niew).

Partnership July 25, 2015 3

3. The lower court erred in ordering the filing of a new petition of
insolvency against the fictitious partnership Lao Liong Niew & Co.
and the delivery to the sheriff of all the property of the insolvency.
In our opinion, all of the assignments of error are well taken. The evidence
appearing in the record fully supports the findings of the referee and his
report should have been approved by the court below.
As to the second and third assignments of error it is to be observed that
conceding for the sake of the argument that the debts in question were
incurred by the alleged partnership, it clearly appears from the record that
said partnership, as such, has no visible assets that, therefore, the partners
individually must, jointly and severally, respond for its debts (Code of
Commerce, art. 127). As the appellee is one of the partners and admits that
she is insolvent, we can see no reason for the dismissal of the proceedings
against her. It is further to be noted that both the partnership and the separate
partners thereof may be joined in the same action, though the private
property of the latter cannot be taken in payment of the partnership debts
until the common property of the concern is exhausted (Comapnia Maritima
vs. Munoz, 9 Phil., 326) and, under this rule, it seems clear that the alleged
partnership here in question may, if necessary, be included in the case by
amendments to the insolvency petition.
We also call attention to the fact that the evidence clearly shows that the
business, alleged to have been that of the partnership, was carried on under
the name "Leoncia Vda. de Chan Diaco" or "La Vda. de G. G. Chan Diaco,"
both of which are names of the appellee, and we think it can be safely held
that a partnership may be adjudged bankrupt in the name of an ostensible
partner, when such name is the name under which the partnership did
business.
The decision appealed from is hereby reversed, the reports and
recommendations of the referee are approved, the order for the dismissal of
the case is set aside, and the decision of Judge Simplicio Del Rosario dated

July 23, 1926, will remain in full force and effect. No costs will be allowed.
So ordered.

Partnership July 25, 2015 4

Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

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.

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

ELMO
MUASQUE, petitioner,
vs.
COURT
OF
APPEALS,CELESTINO
GALAN
TROPICAL
COMMERCIAL COMPANY and RAMON PONS,respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.

Petitioner Elmo Muasque 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 Muasque to Galan and Associates, thus enabling Galan to cash

Partnership July 25, 2015 5

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.

The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.

The respondents answered the complaint by denying some and admitting

some of the material averments and setting up counterclaims.

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

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 Muasque; and
(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.
After trial, the court rendered judgment, the dispositive portion of which
states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque 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;
(2) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque 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,
(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;
(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to
Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability,
No damages awarded whatsoever.

Partnership July 25, 2015 6

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."

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.

Not satisfied, Mr. Muasque filed this petition.

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.

The present controversy began when petitioner Muasque in behalf of the

partnership of "Galan and Muasque" 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.
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.
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.
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 Muasque 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.
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,

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.
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
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, "
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

Partnership July 25, 2015 7

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.

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.

The contentions are without merit.

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

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).
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.
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

Partnership July 25, 2015 8

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.
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
... 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 Muasque 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.
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.
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.
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.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and t he money

Partnership July 25, 2015 9

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.
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
However. as between the partners Muasque and Galan,justice also dictates
that Muasque 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
Muasque as a partner.
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,
SO ORDERED.

G.R. No. L-26937

October 5, 1927

PHILIPPINE
NATIONAL
BANK, plaintiff-appellee,
vs.
SEVERO
EUGENIO
LO,
ET
AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.

Partnership July 25, 2015 10

Jose
Lopez
Roman Lacson for appellee.

Vito

for

appellants.

VILLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey
Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and
Co Sieng Peng formed a commercial partnership under the name of "Tai Sing
and Co.," with a capital of P40,000 contributed by said partners. In the
articles of copartnership, Exhibit A, it appears that the partnership was to last
for five years from after the date of its organization, and that its purpose was
to do business in the City of Iloilo, Province of Iloilo, or in any other part of
the Philippine Islands the partners might desire, under the name of "Tai Sing
& Co.," for the purchase and sale of merchandise, goods, and native, as well
as Chinese and Japanese, products, and to carry on such business and
speculations as they might consider profitable. One of the partners, J. A. Say
Lian Ping was appointed general manager of the partnership, with the
appointed general manager of the partnership, with the powers specified in
said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of
attorney (Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his
stead as manager and administrator of "Tai Sing & Co.," on July 26, 1918,
for, and obtained a loan of P8,000 in current account from the plaintiff bank.
(Exhibit C). As security for said loan, he mortgaged certain personal property
of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as
attorney-in-fact of "Tai Sing & Co., executed a chattel mortgage in favor of
plaintiff bank as security for a loan of P20,000 with interest (Exhibit D). This
mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorneyin-fact of "Tai Sing & Co., executed another chattel mortgage for the said
sum of P20,000 in favor of plaintiff bank. (Exhibit E.) According to this
mortgage contract, the P20,000 loan was to earn 9 per cent interest per
annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey
Ling, the latter represented by M. Pineda Tayenko, executed a power of

attorney in favor of Sy Tit by virtue of which Sy Tit, representing "Tai Sing

& Co., obtained a credit of P20,000 from plaintiff bank on January 7, 1921,
executing a chattel mortgage on certain personal property belonging to "Tai
Sing & Co.
Defendants had been using this commercial credit in a current account with
the plaintiff bank, from the year 1918, to May 22, 1921, and the debit
balance of this account, with interest to December 31, 1924, is as follows:
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June 30,
1922
P16,518.74
Interest on same from June 30, 1922 to December 31,1924,
at 9 per cent per annum
3,720.86
Total

20, 239.00
=========

This total is the sum claimed in the complaint, together with interest on the
P16,518.74 debt, at 9 per cent per annum from January 1, 1925 until fully
paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co.
was not a general partnership, and that the commercial credit in current
account which "Tai Sing & Co. obtained from the plaintiff bank had not been
authorized by the board of directors of the company, nor was the person who
subscribed said contract authorized to make the same, under the article of
copartnership. The other defendants, Yap Sing and Ng Khey Ling, answered
the complaint denying each and every one of the allegations contained
therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co.,
Sieng Peng indebted to plaintiff Philippine National Bank in sum of
P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the

Partnership July 25, 2015 11

balance on account of the partnership "Tai Sing & Co. for the sum of
P16,518.74 until September 9, 1922;

1926, amount to P16,595.26, with a daily interest of P4.14 on the

sum of P16,518.74.

(2) Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August 31,
1926, and from the date, P4.14 daily interest on the principal; and

VII. The trial court erred in ordering the defendants appellants to pay
jointly and severally to the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and interest on P16,518.74 from
that date until fully paid, with the costs of the action.

(3) The defendants are furthermore ordered to pay the costs of the
action.1awph!l.net

VIII. The trial court erred in denying the motion for a new trial filed
by defendants-appellants.

Defendants appealed, making the following assignments of error:

I. The trial court erred in finding that article 126 of the Code of
Commerce at present in force is not mandatory.
II. The trial court erred in finding that the partnership agreement of
"Tai Sing & Co., (Exhibit A), is in accordance with the requirements
of article 125 of the Code of Commerce for the organization of a
regular partnership.
III. The trial court erred in not admitting J. A. Sai Lian Ping's death
in China in November, 1917, as a proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian
Ping cannot extinguish the defendants' obligation to the plaintiff
bank, because the last debt incurred by the commercial partnership
"Tai Sing & Co., was that evidence by Exhibit F, signed by Sy Tit as
attorney-in-fact of the members of "Tai Sing & Co., by virtue of
Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not able
to collect its credit from the goods of "Tai Sing & Co., given as
security therefor through its own fault and negligence; and that the
action brought by plaintiff is a manifest violation of article 237 of the
present Code of Commerce.
VI. The trial court erred in finding that the current account of "Tai
Sing & Co. with plaintiff bank shows a debit balance of P16,518.74,
which in addition to interest at 9 per cent per annum from July 29,

Appellants admit, and it appears from the context of Exhibit A, that the
defendant association formed by the defendants is a general partnership, as
defined in article 126 of the Code Commerce. This partnership was registered
in the mercantile register of the Province of Iloilo. The only anomaly noted
in its organization is that instead of adopting for their firm name the names of
all of the partners, of several of them, or only one of them, to be followed in
the last two cases, by the words "and to be followed in the last two cases, by
the words "and company" the partners agreed upon "Tai Sing & Co." as the
firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. KiengChiong-Seng, cited by appellants, this court held that, as the company formed
by defendants had existed in fact, though not in law due to the fact that it was
not recorded in the register, and having operated and contracted debts in
favor of the plaintiff, the same must be paid by someone. This applies more
strongly to the obligations contracted by the defendants, for they formed a
partnership which was registered in the mercantile register, and carried on
business contracting debts with the plaintiff bank. The anomalous adoption
of the firm name above noted does not affect the liability of the general
partners to third parties under article 127 of the Code of Commerce. And the
Supreme Court so held in the case of Jo Chung Cang vs. Pacific Commercial
Co., (45 Phil., 142), in which it said that the object of article 126 of the Code
of Commerce in requiring a general partnership to transact business under the
name of all its members, of several of them, or of one only, is to protect the
public from imposition and fraud; and that the provision of said article 126 is
for the protection of the creditors rather than of the partners themselves. And
consequently the doctrine was enunciated that the law must be unlawful and
unenforceable only as between the partners and at the instance of the
violating party, but not in the sense of depriving innocent parties of their

Partnership July 25, 2015 12

rights who may have dealt with the offenders in ignorance of the latter
having violated the law; and that contracts entered into by commercial
associations defectively organized are valid when voluntarily executed by the
parties, and the only question is whether or not they complied with the
agreement. Therefore, the defendants cannot invoke in their defense the
anomaly in the firm name which they themselves adopted.
As to the alleged death of the manager of the company, Say Lian Ping, before
the attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial
court did not find this fact proven at the hearing. But even supposing that the
court had erred, such an error would not justify the reversal of the judgment,
for two reasons at least: (1) Because Ou Yong Kelam was a partner who
contracted in the name of the partnership, without any objection of the other
partners; and (2) because it appears in the record that the appellant-partners
Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as
manager, and he obtained from the plaintiff bank the credit in current
account, the debit balance of which is sought to be recovered in this action.
Appellants allege that such of their property as is not included in the
partnership assets cannot-be seized for the payment of the debts contracted
by the partnership until after the partnership property has been exhausted.
The court found that the partnership property described in the mortgage
Exhibit F no loner existed at the time of the filing of the herein complaint nor
has its existence been proven, nor was it offered to the plaintiff for sale. We
find no just reason to reverse this conclusion of the trial court, and this being
so, it follows that article 237 of the Code of Commerce, invoked by the
appellant, can in no way have any application here.

Appellants also assign error to the action of the trial court in ordering them to
pay plaintiff, jointly and severally, the sums claimed with 9 per cent interest
on P16,518.74, owing from them.
The judgment against the appellants is in accordance with article 127 of the
Code of Commerce which provides that all the members of a general
partnership, be they managing partners thereof or not, shall be personally and
solidarily 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 use it.
As to the amount of the interest suffice it to remember that the credit in
current account sued on in this case as been renewed by the parties in such a
way that while it appears in the mortgage Exhibit D executed on March 25,
1919 by the attorney-in-fact Ou Yong Kelam that the P20,000 credit would
earn 8 per cent interest annually, yet from that executed on April 16, 1920,
Exhibit E, it appears that the P20,000 would earn 9 per cent interest per
annum. The credit was renewed in January, 1921, and in the deed of pledge,
Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact
Sy Tit, it appears that this security is for the payment of the sums received by
the partnership, not to exceed P20,000 with interest and collection fees.
There can be no doubt that the parties agreed upon the rate of interest fixed in
the document Exhibit E, namely 9 per cent per annum.
The judgment appealed from is in accordance with the law, and must
therefore be, as it is hereby, affirmed with costs against the appellants. So
ordered.