Obligations and Dealings With Third Persons

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PHILIPPINE NATIONAL BANK, plaintiff- appellee, vs. SEVERO EUGENIO LO, ET AL., defendants. SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants. Jose Lopez Vito for appellants. Roman Lacson for appellee. 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 attorney-in-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: 1 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 3,720.8 6 Total 20, 239.00 ======= ==

description

Law

Transcript of Obligations and Dealings With Third Persons

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

TAI SING & CO.

To your outstanding account (C. O. D.) with us on June 30, 1922P16,518.74

Interest on same from June 30, 1922 to December 31,1924, at 9 per cent per annum3,720.86

Total

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

Jose Lopez Vito for appellants.Roman Lacson for appellee.

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 attorney-in-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:

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

(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

(3) The defendants are furthermore ordered to pay the costs of the action.1awph!l.netDefendants 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, 1926, amount to P16,595.26, with a daily interest of P4.14 on the sum of P16,518.74.

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.

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

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 ofKwong-Wo-Sing vs. Kieng-Chiong-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 ofJo 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 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.

G.R. No. L-22493 July 31, 1975

ISLAND SALES, INC.,plaintiff-appellee,vs.UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO,defendant-appellant.

Grey, Buenaventura and Santiago for plaintiff-appellee.

Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR.,J.:This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:

WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced to pay the plaintiff in this case with the understanding that the judgment against these individual defendants shall be enforced only if the defendant company has no more leviable properties with which to satisfy the judgment against it. .

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they fall due would render the whole unpaid balance immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners of the defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default.1Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is concerned.2When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidenceex-parte3, after which the trial court rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth (1/5) of the obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth (1/5) of the obligations of the defendant company.4Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership.

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be liablepro ratawith 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.

In the case ofCo-Pitco vs. Yulo(8 Phil. 544) this Court held:

The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for the whole debt of the partnership. The liability ispro rataand in this case Pedro Yulo is responsible to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5) of the obligations of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as to costs.

SO ORDERED.

G.R. No. 44119 March 30, 1937SHARRUF & CO., known also as SHARRUF & ESKENAZI, SALOMON SHARRUF and ELIAS ESKENAZI,plaintiffs-appellees,vs.BALOISE FIRE INSURANCE CO., SUN INSURANCE OFFICE, LTD., and SPRINGFIELD INSURANCE CO., represented by KUENZLE & STREIFF, INC.,defendants-appellants.

Carlos A. Sobral for appellants.Ramon Diokno for appellee.VILLA-REAL,J.:This is an appeal taken by the defendant companies Baloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield Insurance Co., represented by Kuenzle & Streiff, Inc., from the judgment of the Court of First instance of Manila, the dispositive part of which reads as follows:

Wherefore, judgment is rendered ordering the defendant insurance companies to pay to the plantiffs Salomon Sharruf and Elias Eskenazi the total amount of P40,000 plus interest thereon at 8 per cent per annum from the date of the filing of the complaint, with the costs of the trial. The defendants shall pay this judgment jointly in proportion to the respective policies issued by them. The plaintiffs Salomon Sharruf and Elias Eskenazi shall recover the judgment share and share alike, deducting from the portion of the plaintiff Elias Eskenazi the sum of P3,000 which belongs and shall turned over to the intervenor E. Awad & Co., Inc. It is so ordered.

In support of their appeal the appellants assign the following alleged errors as committed by the courta quoin its decision in question, to wit:

1. the lower court erred in holding, that Salomon Sharruf and Elias Eskenazi had personality to sue, either as a partnership or individually, and therefore, an insurable interest.

2. The lower court erred in holding, that the fire that broke out in the premises at Nos. 299-301 Muelle de la Industria of this city, occupied by the alleged plaintiffs, was not of incendiary origin.

3. The lower court erred in holding, that the "idea of using petroleum in the fire in question, surged after the fire for the purpose of making it appear as a part of the evidence."

4. The lower court erred in holding, that the claim of loss filed by the alleged plaintiffs was not fraudulent, but merely inaccurate, due to the peculiar circumstances of the case, such as the loss of invoices and sales-slips.

5. The lower court erred in sentencing the defendants to pay jointly to the alleged plaintiffs the sum of P40,000, with interest thereon at the rate of 8 per cent year and costs.

6. The lower court erred in overruling defendants' motion for new trial and in failing to dismiss the case altogether, with costs against the alleged plaintiffs.

The preponderance of the evidence shows the existence of the following facts:.

In the months of June and July 1933, the plaintiffs Salomon Sharruf and Elias Eskenazi were doing business under the firm name of Sharruf & Co. As they had applied to the defendant companies for insurance of the merchandise they had in stock, the latter sent their representative P. E. Schiess to examine and asses it. On July 25, 1933, the defendant insurance companies issued insurance policies Exhibits D, E, and F in the total amount of P25,000 in the name of Sharruf & Co. issued an additional policy (Exhibit G) in the sum of P15,000 in favor of said firm Sharruf & Co., raising the total amount of the insurance on said merchandise to P40,000. On August 26, 1933, the plaintiffs executed a contract of partnership between themselves (Exhibit A) wherein they substituted the name of Sharruf & Co. with the Sharruf & Eskenazi, stating that Elias Eskenazi contributed to the partnership, as his capital, goods valued at P26,299.94 listed in an inventory Exhibit B. It was likewise stated in said contract that Salomon Sharruf brought to said partnership, as his capital, goods valued at P24,205.10, appearing in the inventories Exhibit C and C-1. The total value of the merchandise contributed by both partners amounted to P50,505.04. Part of said merchandise, most of which were textiles, was sold for P8,000, leaving goods worth P43,000. In all there were from 60 to 70 bolts of silk. All the goods, most of which were aluminum kitchen utensils, various porcelain and glass wares, and other articles of stucco, were contained in about 39 or 40 cases. The last time the plaintiffs were in the building was on September 19, 1933, at 4 o'clock in the afternoon. Up to the month of September 1933, about 30 or 40 cases of merchandise belonging to the plaintiffs were in Robles' garage at No. 1012 Mabini Street.

At about 12.41 o'clock on the morning of September 22, 1933, the fire alarm bell rang in the different fire stations of the city. The firemen of the San Nicolas Fire Station, headed by Captain Charles A. Baker, were the first to arrive at the scene of the fire, followed by Captain Thomas F. McIntyre of the Santa Cruz Fire Station, who arrived at 12.44 o'clock. Having found the door at No. 301, Muelle de la Industria Street, where the building was in flames, locked, the firemen pumped water on the upper part of the building and later broke open the door through which they an entered the premises. They then saw an inflamed liquid flowing towards the sidewalk, the flames thereon blazing more intensely every time water fell on them. The liquid apparently came from under the staircase of said floor. They likewise noted that the entire space occupied by the staircase was in flames except the adjoining room. After the fire had been extinguished, an earthen pot (Exhibit 15) containing ashes and the residue of a certain substance, all of which smelled of petroleum, was found by detective Manalo near the railing of the stairway of the second floor. At about 8.30 o'clock that same morning, detective Irada found nother earthen pot (Exhibit 16), one-fourth full of water smelled of petroleum, under the staircase of the first floor; straw and excelsior, that also smelled of petroleum, around said pot, a red rag (Exhibit 18) in front of the toilet, and a towel which also smelled of petroleum can, Exhibit 21. On the following day, September 23, 1933, photographs were taken of the condition of the different parts of the building and of the goods found therein. Said photographs are: Exhibit 1, showing the interior of the first floor partially burned, with the staircase, the doorway, the wooden partition wall and pieces of wood scattered on the floor supposed to be from the door that was demolished; Exhibit 2, showing about 8 or 9 scorched cases, some closed and others open; Exhibit 3, showing the space or hall of the upper floor partially damaged by the fire at the place occupied by the staircase, with chairs piled up and unburnt, pieces of wood and debris apparently from the cement partition wall beside the staircase and the attic; Exhibit 4, showing the same space taken from another angle, with the partition wall of cement and stone and some broken railings of the stairways; Exhibit 5, showing a room with partially burnt partition wall, with a wardrobe and a table in the background, another table in the center, a showcase near the wall with porcelain and iron articles on top thereof and fallen and burnt window shutters on the floor; Exhibit 6, showing an open unburnt showcase containing necklaces with limitation stones and other jewelry; Exhibit 7, showing piled up chairs and boxes and the burned and destroyed upper part of the partition wall and attic; Exhibit 8, presenting a showcase with a burnt top, containing kitchen utensils, tableware, dinner pails and other articles; Exhibit 9, presenting a half-open trunk with protruding ends of cloth, other pieces of cloth scattered on the floor, a step of the staircase and a bench; Exhibit 10, showing the partially destroyed attic and wires wound around the beams; Exhibit 11, presenting another view of the same attic from another angle. On the 27th of said month and year, the following photographs were taken: Exhibit 12, presenting a close-up of the beams and electric wiring on September 25, 1933, was of the opinion that the wires wound around the beam and a nail might have caused the fire, but he could not assure whether any of the wires was burned due to an electrical discharge the passed through it, or whether or not the fire started from the lighting system. In the burned building the plaintiffs kept petroleum used for cleaning the floor.

The first question to be decided in the present appeal, which is raised in the first assignment of alleged error, is whether or not Salomon Sharruf and Elias Eskenazi had juridical personality to bring this action, either individually or collectively, and whether or not they had insurable interest.

As already seen, Salomon Sharruf and Elias Eskenazi were doing business under the firm name of Sharruf & Co. in whose name the insurance policies were issued, Elias Eskenazi having paid the corresponding premiums.

In the case of Lim Cuan Syvs.Northern Assurance Co. (55 Phil., 248), this court said:

A policy insuring merchandise against fire is not invalidated by the fact that the name of the insured in the policy is incorrectly written "Lim Cuan Sy" instead of "Lim Cuan Sy & Co.", the latter being the proper legal designation of the firm, where it appears that the designation "Lim Cuan Sy" was commonly used as the name of the firm in its business dealings and that the error in the designation of the insured in the policy was not due to any fraudulent intent on the part of the latter and did not mislead the insurer as to the extent of the liability assumed.

In the present case, while it is true that at the beginning the plaintiffs had been doing business in said name of "Sharruf & Co.", insuring their business in said name, and upon executing the contract of partnership (exhibit A) on August 26, 1933, they changed the title thereof to "Sharruf & Eskenazi," the membership of the partnership in question remained unchanged, the same and only members of the former, Salomon Sharruf and Elias Eskenazi, being the ones composing the latter, and it does not appear that in changing the title of the partnership they had the intention of defrauding the herein defendant insurance companies. Therefore, under the above-cited doctrine the responsibility of said defendants to the plaintiffs by virtue of the respective insurance policies has not been altered. If this is true, the plaintiffs have juridical personality to bring this action.

The second question to be decided is that raised in the second assignment of alleged error, which consists in whether or not the fire which broke out in the building at Nos. 299-301 Muelle de la Industria, occupied by the plaintiffs, is of incentiary origin.

In maintaining the affirmative, the appellants call attention to the earthen pots Exhibits 15 and 16, the first found by detective Manalo beside the railing of the stairways of the upper floor and the second found by detective Irada on the first floor, both containing liquid, ashes and other residues which smelled of petroleum; a red rag (Exhibit 18) found by detective Irada in front of the toilet; the partially burnt box (Exhibit 20); and the old can (Exhibit 21) containing garbage. The fact that the liquid found by the detectives in the earthen jars smelled of petroleum, does not constitute conclusive evidence that they had been used as containers for petroleum to burn the house. Said smell could have very well come the strips of China wood of which boxes from abroad are made, the resin of which smells of petroleum, or from the rags found therein which might have been used to clean the floor by saturating them with petroleum. There being petroleum for cleaning the floor in the building, it is not strange that when the house caught fire the petroleum also caught fire, the flames floating on the water coming out from under the door from the pumps. There is neither direct nor strong circumstantial evidence that the plaintiffs personally or through their agents placed petroleum in the building in order to burn it, because it was locked on the outside and nobody was staying therein. As it cannot be assumed that the petroleum might have burned by itself, it is probable that the fire might have originated from the electric wiring, although electrical engineer Mora stated that he could not assure whether any of the wires was burned due to an electric discharge passing through it, or whether or not the fire was caused by the lighting system.

Upon consideration of all the evidence and circumstances surrounding the fire, this court finds no evidence sufficient to warrant a finding that the plaintiffs are responsible for the fire.

With respect to the question whether or not the claim of loss filed by the plaintiffs is fraudulent, it is alleged by them that the total value of the textiles contained in cases deposited inside the building when the partnership Sharruf & Eskenazi was formed was P12,000; that of the fancy jewelry with imitation stones from P15,000 to P17,000, and that of the kitchen utensils and tableware made of aluminum, bronze and glass P10,676 (Exhibits B, C, and C-1). If, as said plaintiffs claim, they had already sold articles, mostly textiles, valued at P8,000, a small quantity of cloth must have been left at the time the fire occured. In their claim, however, the textiles allegedly consumed by fire and damaged by water are assessed by them at P12,000. The claim of P12,000 is certainly not attributable to a mere mistake in estimate and counting because if they had textiles worth only P12,000 before the fire and they sold goods, mostly textiles, worth P8,000, surely textiles in the same amount of P12,000 could not have been burned and damaged after the fire. Of the kitchen utensils and tableware made of aluminum, bronze and glass, of which, according to the evidence for the plaintiffs, they had a stock valued at P10,676 (Exhibit B), there were found after the fire articles worth only P1,248.80 (Exhibit K). Therefore, utensils valued at P9,427.20 were lacking. A considerable amount of kitchen utensils made of noninflammable and fire-proof material could not, by the very nature of things have been totally consumed by the fire. At most, said articles would have been damaged, as the rest, and would have left traces of their existence. The same may be said of the fancy jewels with imitation stones, and others of which the fancy jewels with imitation stones, and others of which the plaintiffs claim to have had a stock worth from P15,000 to P17,000 at the time of the fire, of which only a few valued at P3,471.16, were left after the fire (Exhibit K). According to said plaintiffs, all the articles, for the alleged loss of which indemnity is sought, were contained in about 40 showcases and wardrobes. According to the testimony of the fire station chiefs, corrobarated by the photographs of record, the flames caused more damage in the upper part of the rooms than in the lower part thereof; since, of the ten or eleven cases found inside the building after the fire, only a few were partially burned and others scorched judging from their appearance, the goods were damaged more by water than by fire. According to the inventory made by White & Page, adjusters of the insurance companies, in the presence of the plaintiffs themselves and according to data supplied by the latter, the total value thereof, aside, from the articles not included in the inventories Exhibits B, C, and C-1, assessed at P744.50, amounts to only P8,077.35. If the plaintiffs' claim that at time of the fire there were about 40 cases inside the burnt building were true, a ten or eleven of them were found after the fire, traces of the thirty or twenty-nine cases allegedly burnt would be found, since experience has shown that during the burning of a building all the cases deposited therein are not so reduced to ashes that the least vestige thereof cannot be found. In the case of Go Luvs.Yorkshire Insurance Co. (43 Phil., 633), this court laid down the following doctrine:

This court will legally presume that in an ordinary fire fifty bales or boxes of bolt goods of cloth cannot be wholly consumed or totally destroyed, and that in the very nature of things some trace or evidence will be left remaining of their loss or destruction.

The plaintiffs, upon whom devolve the legal obligation to prove the existence, at the time of the fire, of the articles and merchandise for the destruction of which they claim indemnity from the defendant companies, have not complied with their duty because they have failed to prove by a preponderance of evidence that when the fire took place there where in the burnt building articles and merchandise in the total amount of the insurance policies or that the textiles and other damaged and undamaged goods found in the building after the fire were worth P40,000. On the contrary, their own witness, Robles, testified that up to the month of September, 1933, there were about 39 or 40 cases belonging to the plaintiffs in his garage on Mabini Street, indicating thereby that the cases of merchandise examined by the agent of the insurance companies on July 25 and August 15, 1933, and for which the insurance policies were issued, were taken from the burned building where they were found. So great is the difference between the amount of articles insured, which the plaintiffs claim to have been in the building before the fire, and the amount thereof shown by the vestige of the fire to have been therein, that the most liberal human judgment can not attribute such difference to a mere innocent error in estimate or counting but to a deliberate intent to demand of the insurance companies payment of an indemnity for goods not existing at the time of the fire, thereby constituting the so-called "fraudulent claim" which, by express agreement between the insurers and the insured, is a ground for exemption of the insurers from civil liability.

Therefore, as the herein plaintiffs-appellees have acted in bad faith in presenting a fraudulent claim, they are not entitled to the indemnity claimed by them by virtue of the insurance policies issued by the defendant-appellant companies in their favor.

For the foregoing considerations, this court is of the opinion and so holds: (1) that when the partners of a general partnership doing business under the firm name of "Sharruf & Co." obtain insurance policies issued to said firm and the latter is afterwards changed to "Sharruf & Eskenazi", which are the names of the same and only partners of said firm "Sharruf & Co.", continuing the same business, the new firm acquires the rights of the former under the same policies; (2) that when the evidence relative to the cause of a fire and the author thereof is so vague and doubtful, the insured cannot be attributed incendiary intervention therein for the mere fact that he had the keys to the unoccupied building in his possession; (3) that a person who presents a claim for damages caused by fire to articles and goods not existing at the time of the fire does so fradulently and his claim is fraudulent, and (4) that when immediately after a fire that broke out inside a completely locked building, lasting scarcely 27 minutes, only about ten or eleven partly burned and scorched cases, some containing textiles and wrapping paper and others, statutes of saints, have been found without any trace of the destruction of other cases by said fire, it can neither logically nor reasonably be inferred that 40 of said cases were inside the building when the fire broke out.

Wherefore, the appealed judgment is reversed, and the defendant companies are absolved from the complaint which is dismissed, with costs to the appellees. So ordered.

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

LA COMPAIA MARITIMA,plaintiff-appellant,vs.FRANCISCO MUOZ, 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 Muoz & Sons, and against Francisco Muoz de Bustillo, Emilio Muoz 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 Muoz de Bustillo and Rafael Naval of the complaint, and in favor of the plaintiff and against the defendant partnership, Francisco Muoz & Sons, and Francisco Muoz 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 Muoz, Emilio Muoz, and Rafael Naval formed on ordinary general mercantile partnership under the name of Francisco Muoz & Sons for the purpose of carrying on the mercantile business in the Province of Albay which had formerly been carried on by Francisco Muoz. Francisco Muoz was a capitalist partner and Emilio Muoz 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 Muoz 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 Muoz 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 Muoz, 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 Muoz 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 Reyesvs.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 Muoz 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 Muoz de Bustillo and one-eighth thereof for the industrial partner Emilio Muoz 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 Muoz 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 andin solidumwith 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 beliablefor losses. Article 140 declares how the profits shall be dividedamongthe partners. This article simply declares how the losses shall be dividedamong the partners. The use of the wordsse imputaranis significant. The verb meansabonar una partida a alguno en su cuenta o deducirla de su debito. Article 141 says nothing about third persons and nothing about theobligations 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 phraselas 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 Muoz, 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 ofAgustin vs. Inocencio,1just 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.netThe 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 Fortisvs.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.netThe 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 Muoz, Emilio Muoz, or Rafael Naval until the property of the defendant Francisco Muoz & Sons is exhausted. No costs will be allowed to their party in this court. So ordered.

G.R. No. L-6252 January 28, 1911GEORGE O. DIETRICH,plaintiff-appellee,vs.O.K. FREEMAN, JAMES L. PIERCE, and BURTON WHITCOMB,defendants.BURTON WHITCOMB,appellant.

O'Brien and De Witt for appellant.W. L. Wright for appellee.TRENT,J.:

This action was brought against O.K. Freeman, James L. Pierce, and Burton Whitcomb, as owners and operators of the Manila Steam Laundry, to recover the sum of P952 alleged to be the balance due the plaintiff for services performed during the period from January 9, 1907, to December 31, 1908. Judgment was rendered in favor of the plaintiff and against Freeman and Whitcomb, jointly and severally, for the sum of P752, with interest at the rate of 6 per cent per annum from the 27th day of August, 1909, and the costs of the cause. The complaint as to Pierce was dismissed, Whitcomb alone appealing.

When the plaintiff was first employed on the 9th of January, 1907, this steam laundry was owned and operated by Freeman and Pierce. Pierce, on the 18th of January, 1907, sold all of his right, title, and interest in the said laundry to Whitcomb, who, together with Freeman, then became the owners of this laundry and continued to operate the same as long as the plaintiff was employed.

The trial court found that the balance due the plaintiff for services performed amounted to the sum of P752. This finding is fully supported by the evidence of record.

Counsel for the appellant Whitcomb now insists

1. That the court erred in giving, jointly and severally, a judgment against Freeman and Whitcomb for any sum whatever; and

2. That the court erred in holding the appellant Whitcomb liable.

It appears from the record that Whitcomb never knew the plaintiff, never had anything to do with personally, and that the plaintiff's contract was with Freeman, the managing partner of the laundry. It further appears from the record that Pierce, after he sold his interest in this laundry to Whitcomb, continued to look after Whitcomb's interest by authority of the latter.

Articles 17 and 119 of the Code of Commerce provide:

Art. 17. The record in the commercial registry shall be optional for private merchants and compulsory for associations established in accordance with this code or with special laws, and for vessels.

Art. 119 Every commercial association before beginning business shall be obliged to record its establishment, agreements, and conditions in a public instrument, which shall be presented for record in the commercial registry, in accordance with the provisions of article 17.

Additional instrument which modify or alter in any manner whatsoever the original contracts of the association are subject to the same formalities, in accordance with the provisions of article 25.

Partners can not make private agreements, but all must appear in the articles of copartnership.

In the organization of this partnership by Freeman and Whitcomb the above provisions of law were not complied with; that is, no formal partnership was ever entered into by them, notwithstanding the fact that they were engaged in the operation of this laundry.

The purpose for which this partnership was entered into by Freeman and Whitcomb show clearly that such partnership was not a commercial one; hence the provisions of the Civil Code and not the Code of Commerce must govern in determining the liability of the partners. (Manresa, vol. 1, p. 184; Aramburo, Civil Capacity, 407, 432; Prautchvs. Hernandez, 1 Phil. Rep., 705; and Co Pitcovs. Yulo, 8 Phil. Rep., 544.)

In support of the second assignment of error our attention has been called to the cases ofHung-Man-Yoc vs. Kieng-Chiong-Seng(6 Phil. Rep., 498);Ang Quian Cieg vs. Te Chico(12 Phil. Rep., 533);Bourns vs. Carman(7 Phil. Rep., 117). In the first of these cases the partnership was a mercantile one, as it was engaged in the importation of goods for sale at a profit. This was also true in the second case. In neither of these cases were the provisions of articles 17 and 119 of the Code of Commerce complied with. Those partnerships, although commercial, were not organized in accordance with the provisions of the Code of Commerce as expressed in those articles. In determining the liability of the partners in these cases the court, after making the finding of facts, was governed by the provisions of article 120 of the Commercial Code. In the last case cited the partnership was one ofcuentas en participacion. "A partnership," quoting from the syllabus in this case, "constituted in such a manner that its existence was only known to those who had an interest in the same, there being no mutual agreement between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership ofcuentas en participaciondefined in article 239 of the Code of Commerce."

In a partnership ofcuentas en participacion, under the provisions of article 242 of the Code of Commerce, those who contract with the person in whose name the business of such a partnership was conducted shall have only the right of action against such person and not against other persons interested. So this case is easily distinguished from the case at bar, in that the one did not have the corporate name while the other was known as the Manila Steam Laundry.

The plaintiff was employed by and performed services for the Manila Steam Laundry and was not employed by nor did he perform services for Freeman alone. The public did not deal with Freeman and Whitcomb personally, but with the Manila Steam Laundry. These two partners were doing business under this name and, as we have said, it was not a commercial partnership. Therefore, by the express provisions of articles 1698 and 1137 of the Civil Code the partners are not liable individually for the entire amount due the plaintiff. The liability is pro rata and in this case the appellant is responsible to the plaintiff for only one-half of the debt.

For these reasons the judgment of the court below is reversed and judgment entered in favor of the plaintiff and against the defendant Whitcomb for the sum of P376, with interest as fixed by the court below. No costs will be allowed either party in this court.

A motion was filed on the 22nd of August, 1910, by O'Brien and De Witt, asking this court to strike from the record certain allegations in the printed brief of counsel for the appellee. These allegations are as follows: "Does the receipt bear the earmarks of newly discovered evidence? Or of newly manufactured evidence?" These questions were directed against O'Brien, one of the counsel for appellant in this case, and were intended to have the court believe that O'Brien had manufactured the receipt referred to. There is nothing in this record which shows that O'Brien did falsify or manufacture the receipt. These questions are clearly impertinent. It is our duty to keep our records clean and free from such unwarranted statements. It is, therefore, ordered that the same be stricken from the record. So ordered.

G.R. No. 70403 July 7, 1989

SANTIAGO SYJUCO, INC.,petitioner,vs.HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE CITY SHERIFF OF THE CITY OF MANILA, THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA, EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO P. CANLAS,respondents.

Doroteo B. Daguna and Felix D. Carao for petitioner.

Paterno Canlas for private respondents.

NARVASA,J.:

This case may well serve as a textbook example of how judicial processes, designed to promote the swift and efficient disposition of disputes at law, can be so grossly abused and manipulated as to produce precisely the opposite result; how they can be utilized by parties with small scruples to forestall for an unconscionably long time so essentially simple a matter as making the security given for a just debt answer for its payment.

The records of the present proceedings and of two other cases already decided by this Court expose how indeed the routine procedure of an extrajudicial foreclosure came by dint of brazen forum shopping and other devious maneuvering to grow into a veritable thicket of litigation from which the mortgagee has been trying to extricate itself for the last twenty years.

Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of his mother, the widow Maria Moreno (now deceased) and of his brother Lorenzo, together with his other brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively called the Lims, borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of P800,000.00. The loan was given on the security of a first mortgage on property registered in the names of said borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds of Manila. Thereafter additional loans on the same security were obtained by the Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00, exclusive of interest, and the security had been augmented by bringing into the mortgage other property, also registered as owned pro indiviso by the Lims under two titles: TCT Nos. 75416 and 75418 of the Manila Registry.

There is no dispute about these facts, nor about the additional circumstance that as stipulated in the mortgage deed the obligation matured on November 8, 1967; that the Lims failed to pay it despite demands therefor; that Syjuco consequently caused extra-judicial proceedings for the foreclosure of the mortgage to be commenced by the Sheriff of Manila; and that the latter scheduled the auction sale of the mortgaged property on December 27, 1968.1The attempt to foreclose triggered off a legal battle that has dragged on for more than twenty years now, fought through five (5) cases in the trial courts,2two (2) in the Court of Appeals,3and three (3) more in this Court,4with the end only now in sight.

1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-R; G.R. NO. L-34683

To stop the foreclosure, the Lims through Atty. Marcial G. Mendiola, who was later joined by Atty. Raul Correa filed Civil Case No. 75180 on December 24,1968 in the Court of First Instance of Manila (Branch 5). In their complaint they alleged that their mortgage was void, being usurious for stipulating interest of 23% on top of 11 % that they had been required to pay as "kickback." An order restraining the auction sale was issued two days later, on December 26,1968, premisedinter alia on the Lims' express waiver of "their rights to the notice and re-publication of the notice of sale which may be conducted at some future date."5On November 25,1970, the Court of First Instance (then presided over by Judge Conrado M. Vasquez6rendered judgment finding that usury tained the mortgage without, however, rendering it void, declaring the amount due to be only Pl,136,235.00 and allowing the foreclosure to proceed for satisfaction of the obligation reckoned at only said amount .7Syjuco moved for new trial to enable it to present additional evidence to overthrow the finding of usury, and the Court ordered the case reopened for that purpose. The Lims tried to negate that order of reopening in the Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-R. They failed. The Court of Appeals upheld the Trial Court. The Lims then sought to nullify this action of the Appellate Court; towards that end, they filed with this Court a petition forcertiorariand prohibition, docketed as G.R. No. L-34683. But here, too, they failed; their petition was dismissed.8Thereafter, and on the basis of the additional evidence adduced by Syjuco on remand of the case from this Court, the Trial Court promulgated an amended decision on August 16, 1972, reversing its previous holding that usury had flawed the Lims' loan obligation. It declared that the principal of said obligation indeed amounted to P2,460,000.00, exclusive of interest at the rate of 12% per annum from November 8, 1967, and, that obligation being already due, the defendants (Syjuco and the Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to secure its satisfaction.92. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R. NO. L-45752

On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in Civil Case No. 75180 as counsel for the Lims in collaboration with Atty. Raul Correa, and on the same date appealed to the Court of Appeals from the amended decision of August 16, 1972.10In that appeal, which was docketed as CA G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared usurious; that the principal of the loans be found to be in the total amount of Pl,269,505.00 only, and the interest thereon fixed at only 6% per annum from the filing of the complaint; and that the mortgage be also pronounced voidabinitio.11The appeal met with no success. In a decision promulgated on October 25,1976, the Court of Appeals affirmedin totothe Trial Court's amended decision.12The Lims came to this Court seeking reversal of the appellate Court's decision. However, their petition for review-filed in their behalf by Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752-was denied for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion for reconsideration was denied and entry of judgment was made on September 24,1977.13Here the matter should have ended; it marked only the beginning of Syjuco's travails.

3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9

Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the mortgaged property to be scheduled on December 20, 1977, only to be frustrated again by another action filed by the Lims on December 19, 1977, docketed as Civil Case No. 112762 of the Court of First Instance of Manila.14The action sought to stop the sale on the ground that the notice of foreclosure had not been republished; this, notwithstanding that as earlier stressed, the restraining order of December 26, 1968 issued in Civil Case No 75180 explicitly declared itself to be predicated on the Lims' waiver of "their rights to the notice and republication of the notice of sale which may be conducted at some future date."15An order restraining the sale issued in the case, although the petition for preliminary injunction was subsequently denied. A supplemental complaint was also filed by the Lims seeking recovery of some Pl million in damages allegedly suffered by reason of said lack of republication.164. CIVIL CASE NO. 75180

That very same claim that there had been no republication of the notice of sale,which was the foundation of the Lims' action in Civil Case No. 112762 as aforesaid was made by the Lims the basis of an urgent motion filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier narrated, the judgement authorizing the foreclosure had been affirmed by both the Court of Appeals and this Court, and had become final and executory. And that motion sought exactly the same remedy prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later, on December 19, 1977), i.e., the prevention of the auction sale. The Court -- Branch 5, then presided over by Judge Jose H. Tecson granted the restraining order on December 19, 1977,17the very same day that the Lims commenced Civil Case No. 112762 in the same Court and in which subsequent action they asked for and obtained a similar restraining order.

The Lims' counsel thus brought about the anomalous situation of two (2) restraining orders directed against the same auction sale, based on the same ground, issued by different courts having cognizance of two (2) separate proceedings instituted for identical objectives. This situation lasted for all of three (3) years, despite the republication of the notice of sale caused by Syjuco in January, 1978 in an effort to end all dispute about the matter, and despite Judge Tecson's having been made aware of Civil Case No. 112762. It should have been apparent to Judge Tecson that there was nothing more to be done in Civil Case No. 75180 except to enforce the judgment, already final and executory, authorizing the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to repeat, by both the Court of Appeals and the Supreme Court; that there was in truth no need for another publication of the notice since the Lims had precisely waived such republication, this waiver having been the condition under which they had earlier obtained an order restraining the first scheduled sale; that, in any event, the republication effected by Syjuco had removed the only asserted impediment to the holding of the same; and that, finally, the Lims were acting in bad faith: they were maintaining proceedings in two (2) different courts for essentially the same relief.18Incredibly, not only did Judge Tecson refuse to allow the holding of the auction sale, as was the only just and lawful course indicated by the circumstances,19he authorized the Lims to sell the mortgaged property in a private sale,20with the evident intention that the proceeds of the sale, which he directed to be deposited in court, would be divided between Syjuco and the Lims; this, in line with the patently specious theory advocated by the Lims' counsel that the bond flied by them for the postponement of the sale, set at P6 million by the Court (later increased by P 3 million) had superseded and caused novation of the mortgage.21The case lay fallow for a year, certain other, incidents arising and remaining unresolved on account of numerous postponements.

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably no longer disposed to await Judge Tecson's pleasure or the Lims' convenience. It filed a petition forcertiorariand prohibition, docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had gravely abused discretion in:

(1) unreasonably delaying the foreclosure of the mortgage;

(2) entertaining the Lims' motion to discharge said mortgage grounded on the theory that it had been superseded and novated by the Lims' act of filing the bond required by Judge Tecson in connection with the postponement of the foreclosure sale, and unreasonably delaying resolution of the issue; and

(3) authorizing the Lims to negotiate and consummate the private sale of the mortgaged property and motu proprio extending the period granted the Lims for the purpose, in disregard of the final and executory judgment rendered in the case.

By judgment rendered on September 21, 1982, after due proceedings, this Court22issued the writ prayed for and nullified the orders and actuations of Judge Tecson in Civil Case No. 75180. The judgment declared that:

(1) the republication by Syjuco of the notice of foreclosure sale rendered the complaint in Civil Case No. 112762 moot and academic; hence, said case could not operate to bar the sale;

(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms thereof been given to guarantee payment of damages to Syjuco and the Sheriff of Manila resulting from the suspension of the auction sale, could not in any sense and from any aspect have the effect of superseding the mortgage or novating it;

(3) in fact, the bonds had become worthless when, as shown by the record, the bondsman's authority to transact non-life insurance business in the Philippines was not renewed, for cause, as of July 1, 1981.

The decision consequently decreed that the Sheriff of Manila should proceed with the mortgage sale, there being no further impediment thereto.23Notice of the decision was served on the Lims, through Atty. Canlas, on October 2, 1982. A motion for reconsideration was filed,24but the same was denied with finality for lack of merit and entry of final judgment was made on March 22,1983.256. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P. CASTRO, PRESIDING

Twelve (12) days after the Lims were served, as above mentioned, with notice of this Court's judgment in G.R. No. 56014, or on October 14,1982, they caused the filing with the Regional Trial Court of Quezon City of still another action, the third, also designed, like the first two, to preclude enforcement of the mortgage held by Syjuco.

This time the complaint was presented, not in their individual names, but in the name of a partnership of which they themselves were the only partners: "Heirs of Hugo Lim." The complaint advocated the theory that the mortgage which they, together with their mother, had individually constituted (and thereafter amended during the period from 1964 to 1967) over lands standing in their names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at that time, having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more precisely, on March 30, 1959, hence, said mortgage was void because executed by them without authority from the partnership.

The complaint was signed by a lawyer other than Atty. Canlas, but the records disclose that Atty. Canlas took over as counsel as of November 4,1982. The case, docketed as Civil Case No. Q-39295, was assigned to Branch 35 of the Quezon City Regional Trial Court, then presided over by Judge Jose P. Castro.

Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G. Dalangin submitted a return of summons to the effect that on December 6, 1982 he

.. served personally and left a copy of summons together with a copy of Complaint and its annexes x x upon defendant's office formerly at 313 Quirino Ave., Paranaque, Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft Avenue, Manila, through the Manager, a person of sufficient age and discretion duly authorized to receive service of such nature, but who refused to accept service and signed receipt thereof.26A vaguer return will be hard to find. It is impossible to discern from it where precisely the summons was served, whether at Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is inexplicable that the name of the person that the sheriff had been able to identify as the manager is not stated, the latter being described merely as "a person of sufficient age and discretion." In any event, as it was to claim later, Syjuco asserts that it was never so served with summons, or with any other notice, pleading, or motion relative to the case, for that matter.

On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare Syjuco in default. The order of default issued the next day, also directing the plaintiff partnership to present evidence ex parte within three (3) days. On February 22, 1983, judgment by default was rendered, declaring void the mortgage in question because executed by the Lims without authority from the partnership which was and had been since March 30,1959 the exclusive owner of the mortgaged property, and making permanent an injunction against the foreclosure sale that had issued on January 14,1983.27Service of notice of the default judgment was, according to the return of the same Sheriff Perfecto Dalangin, effected on the following day, February 23, 1983. His return is a virtual copy of his earlier one regarding service of summons: it also states the place of service as the defendant's office, either at its former location, 313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco Building, Taft Avenue, Manila; and it also fails to identify the person on whom service was made, describing him only as "the clerk or person in charge" of the office.28Unaccountably, and contrary to what might be expected from the rapidity with which it was decided-twelve (12) days from February 10, 1983, when the motion to declare defendant Syjuco in default was filed-the case was afterwards allowed by Atty. Canlas to remain dormant for seventeen (17) months. He made no effort to have the judgment executed, or to avail of it in other actions instituted by him against Syjuco. The judgment was not to be invoked until sometime in or after July, 1984, again to stop the extrajudicial mortgage sale scheduled at or about that time at the instance of Syjuco, as shall presently be recounted.

7. Other Actions in the Interim:

a. CIVIL CASE No. 83-19018, RTC MANILA

While the Lims, through their partnership ("Heirs of Hugo Lim"), were prosecuting their action in the sala of Judge Castro, as above narrated, Syjuco once again tried to proceed with the foreclosure after entry of judgment had been made in G.R. No. 56014 on March 22, 1983. It scheduled the auction sale on July 30, 1983. But once again it was frustrated. Another obstacle was put up by the Lims and their counsel, Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional Trial Court. The case was filed to stop the sale on the theory that what was sought to be realized from the sale was much in excess of the judgment in Civil Case No. 75180, and that there was absence of the requisite notice. It is significant that the judgment by default rendered by Judge Castro in Civil Case No. Q-36485 was not asserted as additional ground to support the cause of action. Be this as it may, a restraining order was issued on July 20,1983 in said Civil Case No. 83-9018.29b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY

What the outcome of this case, No. 83-19018, is not clear. What is certain is (1) that the auction sale was re-scheduled for September 20, 1983, (2) that it was aborted because the Lims managed to obtain still another restraining order in another case commenced by their lawyer, Atty. Canlas: Civil Case No. Q-32924 of the Court of First Instance of Quezon City, grounded on the proposition that the publication of the notice of sale was defective; and (3) that the action was dismissed by the Regional Trial Court on February 3, 1984.30No other salient details about these two (2) cases are available in the voluminous records before the Court, except that it was Atty. Canlas who had filed them. He admits having done so unequivocally: "Thus, the undersigned counsel filed injunction cases in Civil Case No. 83-19018 and Civil Case No. 39294, Regional Trial Courts of Manila and Quezon City. ... "317. RE-ACTIVATION OF CIVIL CASE NO. Q-36