Republic of the Philippines said sum of P20,000 in favor of plaintiff bank. (Exhibit E.
) According to this
SUPREME COURT
Manila
EN BANC
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.
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
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
 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.net
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,
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 of Kwong-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 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 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 Republic of the Philippines
therefore be, as it is hereby, affirmed with costs against the appellants. So SUPREME COURT
ordered. Manila
 FIRST DIVISION
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.
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.
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
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 respondents answered the complaint by denying some and admitting
some of the material averments and setting up counterclaims.
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.
The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(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.
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."
Not satisfied, Mr. Muasque filed this petition.
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,
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.
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.
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 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.
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:
Although it may be presumed that Margarita G. Saldajeno
had acted in good faith, the appellees also acted in good
faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave
occasion for the damages to be caused must bear the
consequences.
No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan and
the petitioner. Since the two were partners when the debts were incurred,
they, are also both liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil.
513, 514), we ruled:
There is a general presumption that each individual partner
is an authorized agent for the firm and that he has authority
to bind the firm in carrying on the partnership transactions.
(Mills vs. Riggle,112 Pan, 617).
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
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
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.
EN BANC
 [G.R. No. L-7991. May 21, 1956.]
PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY
BANK OF NEW YORK, Respondent.
PARAS, J.:
This is an appeal by certiorari from the decision of the Court of Appeals from
which we are reproducing the following basic findings of
fact:chanroblesvirtuallawlibrary
STASIKINOCEY is a partnership doing business at No. 58, Aurora
Boulevard, San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da
Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was
denied registration in the Securities and Exchange Commission, and while it
is confusing to see in this case that the CARDINAL RATTAN, sometimes
called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of
which Defendants Gorcey and da Costa are considered general partners, we
are satisfied that, as alleged in various instruments appearing of record, said
Cardinal Rattan is merely the business name or style used by the partnership
Stasikinocey.
Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account with
The National City Bank of New York, a foreign banking association duly
licensed to do business in the Philippines. On June 3, 1949, the overdraft
showed a balance of P6,134.92 against the Defendant Stasikinocey or the
Cardinal Rattan (Exhibit D), which account, due to the failure of the
partnership to make the required payment, was converted into an ordinary
loan for which the corresponding promissory joint note non-negotiable was
executed on June 3, 1949, by Louis F. da Costa for and in the name of the
Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
promissory note was secured on June 7, 1949, by a chattel mortgage
executed by Louis F. da Costa, Jr., General Partner for and in the name of
Stasikinocey, alleged to be a duly registered Philippine partnership, doing
business under the name and style of Cardinal Rattan, with principal office at
69 Riverside, San Juan, Rizal (Exhibit A). The chattels mortgaged were the
following motor vehicles:chanroblesvirtuallawlibrary
(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with
plate No. T-7333 (1949);
(b) Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718
and with plate No. 10372; chan roblesvirtualawlibraryand
(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,
Serial No. 8869225 and with plate No. T-7222 (1949).
The mortgage deed was fully registered by the mortgagee on June 11, 1949,
in the Office of the Register of Deeds for the province of Rizal, at Pasig,
(Exhibit A), and among other provisions it contained the
following:chanroblesvirtuallawlibrary
(a) That the mortgagor shall not sell or otherwise dispose of the said
chattels without the mortgagees written consent; chan
roblesvirtualawlibraryand
(b) That the mortgagee may foreclose the mortgage at any time, after
breach of any condition thereof, the mortgagor waiving the 30- day notice of
foreclosure.
On June 7, 1949, the same day of the execution of the chattel mortgage
aforementioned, Gorcey and Da Costa executed an agreement purporting to
convey and transfer all their rights, title and participation
in Defendant partnership to Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed by them
and Defendant partnership to the latter (Exhibit J), which transaction is said
to be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine
Legislature).
While the said loan was still unpaid and the chattel mortgage
subsisting, Defendant partnership, through Defendants Gorcey and Da Costa
transferred to Defendant McDonald the Fargo truck and Plymouth sedan on
June 24, 1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949,
by William Shaeffer to Paul McDonald.
On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiffs
existing mortgage lien, in turn transferred the Fargo truck and the Plymouth
sedan to Benjamin Gonzales.
The National City Bank of New York, Respondent herein, upon learning of
the transfers made by the partnership Stasikinocey to William Shaeffer, from
the latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales,
of the vehicles previously pledged by Stasikinocey to the Respondent, filed
an action against Stasikinocey and its alleged partners Gorcey and Da
Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its
credit and to foreclose the corresponding chattel mortgage. McDonald and
Gonzales were made Defendants because they claimed to have a better
right over the pledged vehicle.
After trial the Court of First Instance of Manila rendered judgment in favor of
the Respondent, annulling the sale of the vehicles in question to Benjamin
Gonzales; chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to
pay to the Respondent jointly and severally the sum of P6,134.92, with legal
interest from the debt of the promissory note involved; chan
roblesvirtualawlibrarysentencing the Petitioner Gonzales to deliver the
vehicles in question to the Respondent for sale at public auction if Da Costa
and Gorcey should fail to pay the money judgment; chan
roblesvirtualawlibraryand sentencing Da Costa, Gorcey and Shaeffers to pay
to the Respondent jointly and severally any deficiency that may remain
unpaid should the proceeds of the sale not be sufficient; chan
roblesvirtualawlibraryand sentencing Gorcey, Da Costa, McDonald and
Shaeffer to pay the costs. Only Paul McDonald and Benjamin Gonzales
appealed to the Court of Appeals which rendered a decision the dispositive
part of which reads as follows:chanroblesvirtuallawlibrary
WHEREFORE, the decision appealed from is hereby modified,
relieving Appellant William Shaeffer of the obligation of paying, jointly and
severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any
deficiency that may remain unpaid after applying the proceeds of the sale of
the said motor vehicles which shall be undertaken upon the lapse of 90 days
from the date this decision becomes final, if by then Defendants Louis F. da
Costa, Jr., and Alan W. Gorcey had not paid the amount of the judgment
debt. With this modification the decision appealed from is in all other respects
affirmed, with costs against Appellants. This decision is without prejudice to
whatever action Louis F. da Costa, Jr., and Alan W. Gorcey may take against
their co-partners in the Stasikinocey unregistered partnership.
This appeal by certiorari was taken by Paul McDonald and Benjamin
Gonzales, Petitioners herein, who have assigned the following
errors:chanroblesvirtuallawlibrary
I partnership unquestionably has no juridical personality, can it have a
IN RULING THAT AN UNREGISTERED COMMERCIAL CO-
PARTNERSHIP WHICH HAS NO INDEPENDENT JURIDICAL
PERSONALITY CAN HAVE A DOMICILE SO THAT A CHATTEL
MORTGAGE REGISTERED IN THAT DOMICILE WOULD BIND THIRD
PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE.
II
IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY
ONE OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-
PARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF
ITS MEMBERS, IT NEED NOT BE REGISTERED IN THE ACTUAL
RESIDENCE OF THE MEMBERS WHO EXECUTED SAME; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF
SAID CHATTEL MORTGAGOR, DESPITE APPELLANTS RAISING THAT
QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING
THEREON.
III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN
AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF
THE TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS
VOID AND THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD
PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN
FACT EXECUTED, DESPITE APPELLANTS RAISING THAT QUESTION
PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A RULING
THEREON.
IV
IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN
UNREGISTERED COMMERCIAL CO-PARTNERSHIP TO MAKE ALL
OFFICIAL AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL
CITY BANK OF NEW YORK IN ORDER TO SIMPLIFY ALL MATTERS
RELATIVE TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER BANKING
MEDIUMS, WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO
EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK
SECURITY FOR A PRE-EXISTING OVERDRAFT, GRANTED WITHOUT
SECURITY. WHICH THE BANK HAD CONVERTED INTO A DEMAND
LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL
MORTGAGE WAS EXECUTED.
This is the first question propounded by
the Petitioners:chanroblesvirtuallawlibrary Since an unregistered commercial
domicile so that the registration of a chattel mortgage therein is notice to the
world?.
While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more persons attempt to create a partnership
failing to comply with all the legal formalities, the law considers them as
partners and the association is a partnership in so far as it is a favorable to
third persons, by reason of the equitable principle of estoppel. In Jo Chung
Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held that although
the partnership with the firm name of Teck Seing and Co. Ltd., could not be
regarded as a partnership de jure, yet with respect to third persons it will be
considered a partnership with all the consequent obligations for the purpose
of enforcing the rights of such third persons. Da Costa and Gorcey cannot
deny that they are partners of the partnership Stasikinocey, because in all
their transactions with the Respondentthey represented themselves as
such. Petitioner McDonald cannot disclaim knowledge of the partnership
Stasikinocey because he dealt with said entity in purchasing two of the
vehicles in question through Gorcey and Da Costa. As was held in Behn
Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly
organized has been recognized as such in its dealings with certain persons,
it shall be considered as partnership by estoppel and the persons dealing
with it are estopped from denying its partnership existence. The sale of the
vehicles in question being void as to Petitioner McDonald, the transfer from
the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot
have a better right than the seller.
It results that if the law recognizes a defectively organized partnership as de then there will have been established a very dangerous doctrine which would
facto as far as third persons are concerned, for purposes of its de facto throw wide open the doors to fraud.
existence it should have such attribute of a partnership as domicile. In Hung-
The last question raised by the Petitioners is as
Man Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was held that although it
follows:chanroblesvirtuallawlibrary Does only one of several partners of an
has no legal standing, it is a partnership de facto and the general provisions
unregistered commercial partnership have authority, by himself alone, to
of the Code applicable to all partnerships apply to it. The registration of the
execute a valid chattel mortgage over property owned by the unregistered
chattel mortgage in question with the Office of the Register of Deeds of Rizal,
commercial partnership in order to guarantee a pre-existing overdraft
the residence or place of business of the partnership Stasikinocey being San
previously granted, without guaranty, by the bank?
Juan, Rizal, was therefore in accordance with section 4 of the Chattel
Mortgage Law. In view of the conclusion that Stasikinocey is a de facto partnership, and Da
Costa appears as a co-manager in the letter of Gorcey to
The second question propounded by
the Respondent and in the promissory note executed by Da Costa, and that
the Petitioners is:chanroblesvirtuallawlibrary If not, is a chattel mortgage
even the partners considered him as such, as stated in the affidavit of April
executed by only one of the partners of an unregistered commercial
21, 1948, to the effect that That we as the majority partners hereby agree to
partnership validly registered so as to constitute notice to the world if it is not
appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly
registered at the place where the aforesaid partner actually resides but only
approved managing partner of the said firm, the partner who executed the
in the place where the deed states that he resides, which is not his real
chattel mortgage in question must be deemed to be so fully authorized.
residence? And the third question is as follows:chanroblesvirtuallawlibrary If
Section 6 of the Chattel Mortgage Law provides that when a partnership is a
the actual residence of the chattel mortgagor not the residence stated in
party to the mortgage, the affidavit may be made and subscribed by one
the deed of chattel mortgage is controlling, may the Court of Appeals
member thereof. In this case the affidavit was executed and subscribed by
refuse to make a finding of fact as to where the mortgagor resided despite
Da Costa, not only as a partner but as a managing partner.
your Petitioners having properly raised that question before it and expressly
requested a ruling thereon? There is no merit in Petitioners pretense that the motor vehicles in question
are the common property of Da Costa and Gorcey. Petitioners invoke article
These two questions have become academic by reason of the answer to the
24 of the Code of Commerce in arguing that an unregistered commercial
first question, namely, that as a de facto partnership, Stasikinocey had its
partnership has no juridical personality and cannot execute any act that
domicile in San Juan, Rizal.
would adversely affect innocent third persons. Petitioners forget that
The fourth question asked by the Petitioners is as the Respondent is a third person with respect to the partnership, and the
follows:chanroblesvirtuallawlibrary Is a chattel mortgage executed by only chattel mortgage executed by Da Costa cannot therefore be impugned by
one of the partners of an unregistered commercial partnership valid as to Gorcey on the ground that there is no partnership between them and that the
third persons when that partner executed the affidavit of good faith in vehicles in question belonged to them in common. As a matter of fact,
Quezon City before a notary public whose appointment is only for the City of the Respondent and the Petitioners are all third persons as regards the
Manila? If not, may the Court of Appeals refuse to make a finding of fact as partnership Stasikinocey; chan roblesvirtualawlibraryand even assuming that
to where the deed was executed, despite your Petitioners having properly the Petitioners are purchasers in good faith and for value,
raised that issue before it and expressly requested a ruling thereon? the Respondent having transacted with Stasikinocey earlier than
the Petitioners, it should enjoy and be given priority.
It is noteworthy that the chattel mortgage in question is in the form required
by law, and there is therefore the presumption of its due execution which Wherefore, the appealed decision of the Court of Appeals is affirmed with
cannot be easily destroyed by the biased testimony of the one who executed costs against the Petitioners.
it. The interested version of Da Costa that the affidavit of good faith
appearing in the chattel mortgage was executed in Quezon City before a
notary public for and in the City of Manila was correctly rejected by the trial
court and the Court of Appeals. Indeed, cumbersome legal formalities are
imposed to prevent fraud. As aptly pointed out in El Hogar Filipino vs. Olviga,
60 Phil., 17, If the biased and interested testimony of a grantor and the
vague and uncertain testimony of his son are deemed sufficient to overcome
a public instrument drawn up with all the formalities prescribed by the law
G.R. No. 206147
MICHAEL C. GUY, Petitioner,
vs.
ATTY. GLENN C. GACOTT, Respondent.
MENDOZA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by petitioner Michael C. Guy (Guy), assailing the June
25, 2012 Decision1 and the March 5, 2013 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 94816, which affirmed the June 28,
20093 and February 19, 20104 Orders of the Regional Trial Court, Branch 52,
Puerto Princesa City, Palawan (RTC), in Civil Case No. 3108, a case for
damages. The assailed RTC orders denied Guy's Motion to Lift Attachment
Upon Personalty5 on the ground that he was not a judgment debtor.
The Facts
It appears from the records that on March 3, 1997, Atty. Glenn
Gacott (Gacott) from Palawan purchased two (2) brand new transreceivers
from Quantech Systems Corporation (QSC) in Manila through its employee
Rey Medestomas (Medestomas), amounting to a total of P18,000.00. On
May 10, 1997, due to major defects, Gacott personally returned the
transreceivers to QSC and requested that they be replaced. Medestomas
received the returned transreceivers and promised to send him the
replacement units within two (2) weeks from May 10, 1997.
Time passed and Gacott did not receive the replacement units as promised.
QSC informed him that there were no available units and that it could not
refund the purchased price. Despite several demands, both oral and written,
Gacott was never given a replacement or a refund. The demands caused
Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott
filed a complaint for damages. Summons was served upon QSC and
Medestomas, afterwhich they filed their Answer, verified by Medestomas
himself and a certain Elton Ong (Ong). QSC and Medestomas did not
present any evidence during the trial.6
In a Decision,7 dated March 16, 2007, the RTC found that the two (2)
transreceivers were defective and that QSC and Medestomas failed to
replace the same or return Gacott's money. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering
the defendants to jointly and severally pay plaintiff the following:
1. Purchase price plus 6% per annum from March 3, P
1997 up to and until fully paid ------------ 18,000.00
2. Actual Damages ----------------------------------- 40,000.00
3. Moral Damages ----------------------------------- 75,000.00
4. Corrective Damages ------------------------------- 100,000.00
5. Attorneys Fees ------------------------------------ 60,000.00
6. Costs.
SO ORDERED.
The decision became final as QSC and Medestomas did not interpose an
appeal. Gacott then secured a Writ of Execution, 8 dated September 26,
2007.
During the execution stage, Gacott learned that QSC was not a corporation,
but was in fact a general partnership registered with the Securities and
Exchange Commission (SEC). In the articles of partnership,9 Guy was
appointed as General Manager of QSC.
To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff
Felizarte) went to the main office of the Department of Transportation and
Communications, Land Transportation Office (DOTC-LTO), Quezon City, and
verified whether Medestomas, QSC and Guy had personal properties
registered therein.10 Upon learning that Guy had vehicles registered in his
name, Gacott instructed the sheriff to proceed with the attachment of one of
the motor vehicles of Guy based on the certification issued by the DOTC-
LTO.11
On March 3, 2009, Sheriff Felizarte attached Guys vehicle by virtue of the
Notice of Attachment/Levy upon Personalty12 served upon the record
custodian of the DOTC-LTO of Mandaluyong City. A similar notice was
served to Guy through his housemaid at his residence.
Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing
that he was not a judgment debtor and, therefore, his vehicle could not be
attached.13 Gacott filed an opposition to the motion.
The RTC Order
On June 28, 2009, the RTC issued an order denying Guys motion. It
explained that considering QSC was not a corporation, but a registered
partnership, Guy should be treated as a general partner pursuant to Section
21 of the Corporation Code, and he may be held jointly and severally liable
with QSC and Medestomas. The trial court wrote:
All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof x x x. Where, by any
wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership x x x, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the partnership
is liable therefore to the same extent as the partner so acting or omitting to
act. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Article 1822 and 1823.14
Accordingly, it disposed:
WHEREFORE, with the ample discussion of the matter, this Court finds and
so holds that the property of movant Michael Guy may be validly attached in
satisfaction of the liabilities adjudged by this Court against Quantech Co., the
latter being an ostensible Corporation and the movant being considered by
this Court as a general partner therein in accordance with the order of this
court impressed in its decision to this case imposing joint and several liability
to the defendants. The Motion to Lift Attachment Upon Personalty submitted
by the movant is therefore DENIED for lack of merit.
SO ORDERED.15
Not satisfied, Guy moved for reconsideration of the denial of his motion. He
argued that he was neither impleaded as a defendant nor validly served with
summons and, thus, the trial court did not acquire jurisdiction over his
person; that under Article 1824 of the Civil Code, the partners were only
solidarily liable for the partnership liability under exceptional circumstances;
and that in order for a partner to be liable for the debts of the partnership, it
must be shown that all partnership assets had first been exhausted.16
On February 19, 2010, the RTC issued an order17denying his motion.
The denial prompted Guy to seek relief before the CA.
The CA Ruling
On June 25, 2012, the CA rendered the assailed decision dismissing Guys
appeal for the same reasons given by the trial court. In addition thereto, the
appellate court stated:
We hold that Michael Guy, being listed as a general partner of QSC during
that time, cannot feign ignorance of the existence of the court summons. The
verified Answer filed by one of the partners, Elton Ong, binds him as a
partner because the Rules of Court does not require that summons be
served on all the partners. It is sufficient that service be made on the
"president, managing partner, general manager, corporate secretary,
treasurer or in-house counsel." To Our mind, it is immaterial whether the
summons to QSC was served on the theory that it was a corporation. What is
important is that the summons was served on QSCs authorized officer xxx. 18
The CA stressed that Guy, being a partner in QSC, was bound by the
summons served upon QSC based on Article 1821 of the Civil Code. The CA
further opined that the law did not require a partner to be actually involved in
a suit in order for him to be made liable. He remained solidarily liable
whether he participated or not, whether he ratified it or not, or whether he
had knowledge of the act or omission.19
Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA
in its assailed resolution, dated March 5, 2013.
Hence, the present petition raising the following
ISSUE
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT PETITIONER GUY IS SOLIDARILY LIABLE
WITH THE PARTNERSHIP FOR DAMAGES ARISING FROM THE
BREACH OF THE CONTRACT OF SALE WITH RESPONDENT
GACOTT.20
Guy argues that he is not solidarily liable with the partnership because the
solidary liability of the partners under Articles 1822, 1823 and 1824 of the
Civil Code only applies when it stemmed from the act of a partner. In this
case, the alleged lapses were not attributable to any of the partners. Guy
further invokes Article 1816 of the Civil Code which states that the liability of
the partners to the partnership is merely joint and subsidiary in nature.
In his Comment,21 Gacott countered, among others, that because Guy was a
general and managing partner of QSC, he could not feign ignorance of the
transactions undertaken by QSC. Gacott insisted that notice to one partner
must be considered as notice to the whole partnership, which included the
pendency of the civil suit against it.
In his Reply,22 Guy contended that jurisdiction over the person of the
partnership was not acquired because the summons was never served upon
it or through any of its authorized office. He also reiterated that a partners
liability was joint and subsidiary, and not solidary.
The Courts Ruling
The petition is meritorious.
The service of summons was flawed; voluntary appearance cured the defect
Jurisdiction over the person, or jurisdiction in personam the power of the
court to render a personal judgment or to subject the parties in a particular
action to the judgment and other rulings rendered in the action is an
element of due process that is essential in all actions, civil as well as
criminal, except in actions in rem or quasi in rem.23Jurisdiction over the
person of the plaintiff is acquired by the mere filing of the complaint in court.
As the initiating party, the plaintiff in a civil action voluntarily submits himself
to the jurisdiction of the court. As to the defendant, the court acquires
jurisdiction over his person either by the proper service of the summons, or
by his voluntary appearance in the action.24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure,
when the defendant is a corporation, partnership or association organized
under the laws of the Philippines with a juridical personality, the service of
summons may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence
is replete with pronouncements that such provision provides an exclusive
enumeration of the persons authorized to receive summons for juridical
entities.25
The records of this case reveal that QSC was never shown to have been
served with the summons through any of the enumerated authorized persons
to receive such, namely: president, managing partner, general manager,
corporate secretary, treasurer or in-house counsel. Service of summons
upon persons other than those officers enumerated in Section 11 is
invalid. Even substantial compliance is not sufficient service of
summons.26 The CA was obviously mistaken when it opined that it was
immaterial whether the summons to QSC was served on the theory that it
was a corporation.27
Nevertheless, while proper service of summons is necessary to vest the
court jurisdiction over the defendant, the same is merely procedural in nature
and the lack of or defect in the service of summons may be cured by the
defendants subsequent voluntary submission to the courts jurisdiction
through his filing a responsive pleading such as an answer. In this case, it is
not disputed that QSC filed its Answer despite the defective summons. Thus,
jurisdiction over its person was acquired through voluntary appearance.
A partner must be separately and distinctly impleaded before he can be
bound by a judgment
The next question posed is whether the trial courts jurisdiction over QSC
extended to the person of Guy insofar as holding him solidarily liable with the
partnership. After a thorough study of the relevant laws and jurisprudence,
the Court answers in the negative.
Although a partnership is based on delectus personae or mutual agency,
whereby any partner can generally represent the partnership in its business
affairs, it is non sequitur that a suit against the partnership is necessarily a
suit impleading each and every partner. It must be remembered that a
partnership is a juridical entity that has a distinct and separate personality
from the persons composing it.28
In relation to the rules of civil procedure, it is elementary that a judgment of a
court is conclusive and binding only upon the parties and their successors-in-
interest after the commencement of the action in court. 29 A decision rendered
on a complaint in a civil action or proceeding does not bind or prejudice a
person not impleaded therein, for no person shall be adversely affected by
the outcome of a civil action or proceeding in which he is not a party. 30The
principle that a person cannot be prejudiced by a ruling rendered in an action
or proceeding in which he has not been made a party conforms to the
constitutional guarantee of due process of law.31
In Muoz v. Yabut, Jr.,32 the Court declared that a person not impleaded and
given the opportunity to take part in the proceedings was not bound by the
decision declaring as null and void the title from which his title to the property
had been derived. The effect of a judgment could not be extended to non-
parties by simply issuing an alias writ of execution against them, for no man
should be prejudiced by any proceeding to which he was a stranger.
In Aguila v. Court of Appeals,33 the complainant had a cause of action
against the partnership. Nevertheless, it was the partners themselves that
were impleaded in the complaint. The Court dismissed the complaint and
held that it was the partnership, not its partners, officers or agents, which
should be impleaded for a cause of action against the partnership itself. The
Court added that the partners could not be held liable for the obligations of
the partnership unless it was shown that the legal fiction of a different
juridical personality was being used for fraudulent, unfair, or illegal
purposes.34
Here, Guy was never made a party to the case. He did not have any
participation in the entire proceeding until his vehicle was levied upon and he
suddenly became QSCs co-defendant debtor during the judgment
execution stage. It is a basic principle of law that money judgments are
enforceable only against the property incontrovertibly belonging to the
judgment debtor.35 Indeed, the power of the court in executing judgments
extends only to properties unquestionably belonging to the judgment debtor
alone. An execution can be issued only against a party and not against one
who did not have his day in court. The duty of the sheriff is to levy the
property of the judgment debtor not that of a third person. For, as the saying
goes, one man's goods shall not be sold for another man's debts.36
In the spirit of fair play, it is a better rule that a partner must first be
impleaded before he could be prejudiced by the judgment against the
partnership. As will be discussed later, a partner may raise several defenses
during the trial to avoid or mitigate his obligation to the partnership liability.
Necessarily, before he could present evidence during the trial, he must first
be impleaded and informed of the case against him. It would be the height of
injustice to rob an innocent partner of his hard-earned personal belongings
without giving him an opportunity to be heard. Without any showing that Guy
himself acted maliciously on behalf of the company, causing damage or
injury to the complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the judgment
debtor, because he was not a party to the case.
Further, Article 1821 of the Civil Code does not state that there is no need
to implead a partner in order to be bound by the partnership liability. It
provides that:
Notice to any partner of any matter relating to partnership affairs, and
the knowledge of the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the knowledge of any other
partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership, except in
the case of fraud on the partnership, committed by or with the consent of that
partner.
[Emphases and Underscoring Supplied]
A careful reading of the provision shows that notice to any partner, under
certain circumstances, operates as notice to or knowledge to the partnership
only. Evidently, it does not provide for the reverse situation, or that notice to
the partnership is notice to the partners. Unless there is an unequivocal law
which states that a partner is automatically charged in a complaint against
the partnership, the constitutional right to due process takes precedence and
a partner must first be impleaded before he can be considered as a judgment
debtor. To rule otherwise would be a dangerous precedent, harping in favor
of the deprivation of property without ample notice and hearing, which the
Court certainly cannot countenance.
Partners liability is subsidiary and generally joint; immediate levy upon the
property of a partner cannot be made
Granting that Guy was properly impleaded in the complaint, the execution of
judgment would be improper. Article 1816 of the Civil Code governs the
liability of the partners to third persons, which states that:
Article 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
[Emphasis Supplied]
This provision clearly states that, first, the partners obligation with respect to
the partnership liabilities is subsidiary in nature. It provides that the partners
shall only be liable with their property after all the partnership assets have
been exhausted. To say that ones liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation. Resort to the properties of a partner may be
made only after efforts in exhausting partnership assets have failed or that
such partnership assets are insufficient to cover the entire obligation. The
subsidiary nature of the partners liability with the partnership is one of the
valid defenses against a premature execution of judgment directed to a
partner.
In this case, had he been properly impleaded, Guys liability would only arise
after the properties of QSC would have been exhausted. The records,
however, miserably failed to show that the partnerships properties were
exhausted. The report37 of the sheriff showed that the latter went to the main
office of the DOTC-LTO in Quezon City and verified whether Medestomas,
QSC and Guy had personal properties registered therein. Gacott then
instructed the sheriff to proceed with the attachment of one of the motor
vehicles of Guy.38 The sheriff then served the Notice of Attachment/Levy
upon Personalty to the record custodian of the DOTC-LTO of Mandaluyong
City. A similar notice was served to Guy through his housemaid at his
residence.
Clearly, no genuine efforts were made to locate the properties of QSC that
could have been attached to satisfy the judgment contrary to the clear
mandate of Article 1816. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all partnership assets had
been exhausted.
Second, Article 1816 provides that the partners obligation to third persons
with respect to the partnership liability is pro rata or joint.1wphi1 Liability
is joint when a debtor is liable only for the payment of only a proportionate
part of the debt. In contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207 does not presume
solidary liability unless: 1) the obligation expressly so states; or 2) the law
or nature requires solidarity. With regard to partnerships, ordinarily, the
liability of the partners is not solidary. 39 The joint liability of the partners is a
defense that can be raised by a partner impleaded in a complaint against the
partnership.
In other words, only in exceptional circumstances shall the partners liability
be solidary in nature. Articles 1822, 1823 and 1824 of the Civil Code provide
for these exceptional conditions, to wit:
Article 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
his co-partners, loss or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the partnership is liable therefor to
the same extent as the partner so acting or omitting to act.
Article 1823. The partnership is bound to make good the loss:
(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 the money or property so
received is misapplied by any partner while it is in the custody of the
partnership.
Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
[Emphases Supplied]
In essence, these provisions articulate that it is the act of a partner which
caused loss or injury to a third person that makes all other partners solidarily
liable with the partnership because of the words "any wrongful act or
omission of any partner acting in the ordinary course of the business," "one
partner acting within the scope of his apparent authority" and "misapplied
by any partner while it is in the custody of the partnership." The obligation is
solidary because the law protects the third person, who in good faith relied
upon the authority of a partner, whether such authority is real or apparent. 40
In the case at bench, it was not shown that Guy or the other partners did a
wrongful act or misapplied the money or property he or the partnership
received from Gacott. 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 1823.41 Gacotts claim
stemmed from the alleged defective transreceivers he bought from QSC,
through the latter's employee, Medestomas. It was for a breach of warranty in
a contractual obligation entered into in the name and for the account of QSC,
not due to the acts of any of the partners. For said reason, it is the general
rule under Article 1816 that governs the joint liability of such breach, and not
the exceptions under Articles 1822 to 1824. Thus, it was improper to hold
Guy solidarily liable for the obligation of the partnership.
Finally, Section 21 of the Corporation Code,42 as invoked by the RTC, cannot
be applied to sustain Guy's liability. The said provision states that a general
partner shall be liable for all debts, liabilities and damages incurred by an
ostensible corporation. It must be read, however, in conjunction with Article
1816 of the Civil Code, which governs the liabilities of partners against third
persons. Accordingly, whether QSC was an alleged ostensible corporation or
a duly registered partnership, the liability of Guy, if any, would remain to be
joint and subsidiary because, as previously stated, all partners shall be
liable pro rata with all their property and after all the partnership assets have
been exhausted for the contracts which may be entered into in the name and
for the account of the partnership.
WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and
the March 5, 2013 Resolution of the Court of Appeals in CA-G.R. CV No.
94816 are hereby REVERSED and SET ASIDE. Accordingly, the Regional
Trial Court, Branch 52, Puerto Princesa City, is ORDERED TO
RELEASE Michael C. Guy's Suzuki Grand Vitara subject of the Notice of
Levy/ Attachment upon Personalty. SO ORDERED.