G.R. No. 19892. September 06, 1923

Following the presentation of an application to be adjudged an insolvent by
the “Sociedad Mercantil, Teck Seing & Co., Ltd.,” the creditors, the Pacific
Commercial Company, Piñol & Company, Riu Hermanos, and W. H. Anderson &.
Company, filed a motion in which the Court was prayed to enter an order: “(A)
Declaring the individual partners as described in paragraph 5 parties to this
proceeding; (B) to require each of said partners to file an inventory of his
property in the manner required by section 51 of Act No. 1956; and (C) that each
of said partners be adjudicated insolvent debtors in this proceeding.” The trial
judge first granted the motion, but, subsequently, on opposition being renewed,
denied it. It is from this last order that an appeal was taken in accordance
with section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of
some importance and of some intricacy. The issue in the case relates to a
determination of the nature of the mercantile establishment which operated under
the name of Teck Seing & Co., Ltd., and this issue requires us to look into,
and analyze, the document constituting Teck Seing & Co., Ltd. It reads:

“ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

“Sepan todos por la presente:

“Que nosotros, Santiago Jo Chung Cang, mayor de edad, comerciante, vecino y
residente del municipio de Tabogon, Provincia de Cebu, Islas Filipinas, Go
Tayco, mayor de edad, comerciante, vecino y residente del municipio de Cebu,
Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante,
vecino y residente del municipio y Provincia de Cebu, Islas Filipinas, Lim
Yogsing, mayor de edad, comerciante, vecino y residente del municipio de Cebu,
Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad, comerciante,
vecino y residente del municipio de Jagna, Provincia de Bohol, Islas Filipinas,
hacemos constar por la presente, que constituimos y formamos una sociedad
mercantil limitada, bajo las leyes vigentes en las Islas Filipinas, y para ser
registrada de acuerdo con los reglamentos vigentes del Codigo de Comercio en
Filipinas.

“Que la razon social se denominara “Teck Seing & Co., Ltd.” y
tendra su domicilio principal en la Calle Magallanes No. 94, de la Ciudad de
Cebu, Provincia de Cebu, Islas Filipinas.

“Que el capital social sera de treinta mil pesos (P30,000) moneda
legal de las Islas Filipinas, dividido en cinco acciones de a P6,000 como
sigue:

Santiago Jo Chung Cang		P6,000.00
Go Tayco		6,000.00
Yap Gueco		6,000.00
Jo Ybec		6,000.00
Lim Yogsing		6,000.00
		_________
	Total	30,000.00

“Que la duracion de la sociedad sera la de seis años, a contar de la
fecha de esta escritura, pudiendo prorrogarse este tiempo a discrecion unanime
de todos los accionistas.

“El objeto de la sociedad sera la compra y venta de mercaderias en
general.

“El administrador o administradores de la sociedad podran, previa conformidad
de los accionistas, establecer cuantas sucursales o establecimientos considere
necesarios para facilitar sus negocios y el mayor desarrollo del comercio a que
se dedica la sociedad, verificando todas las operaciones que crean convenientes
para el fomento de su capital.

“Las ganancias o perdidas que resultaren durante cada año comercial, se
distribuiran proporcionalmente entre los accionistas, de acuerdo con el capital
aportado por cada uno de los mismos.

“Las ganancias que resultaren en cada año comercial, si resultaren algunas
ganancias, no podran ser retiradas por los accionistas hasta dentro del termino
de tres años, a contar de la fecha del primer balance anual del negocio,
quedando por tanto estas ganancias en reserva, para ampliar el capital aportado
por los accionistas y ampliar por tanto la esfera de accion emprendida por la
misma sociedad. Al pasar o expirar el termino de tres años, cada
accionista podra retirar o depositar en poder de la sociedad, las ganancias que
le debieran corresponder durante dicho termino de tres años.

“Que los accionistas no podran extraer ni disponer en ningun tiempo
cualesquiera cantidad o cantidades de la sociedad, que haya sido aportada por
los mismos, para atender sus gastos particulares ni aun pagando redito alguno
sobre la cantidad que intenten disponer o extraer de dicha sociedad.

“El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente
Jocson Jo, la administracion de la Compañia, quienes podran usar indistintamente
la firma social, quedando por consiguiente autorizados ambos para hacer en
nombre de ella toda clase de operaciones, negocios y especulaciones mercantiles,
practicando judicial y extrajudicialmente cuantos actos se requieran para el
bien de la sociedad, nombrar procuradores o abogados para reclamaciones y cobro
de creditos y proponer ante los tribunales las demandas, convenios,
transacciones y excepciones procedentes. En caso de ausencia, enfermedad o
cualquier otro impedimento del accionista administrador Sr. Lim Yogsing, este
podra conferir poder general o especial al accionista que crea conveniente para
que en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos
administrar convenientemente los negocios de la sociedad. Que los
administradores podran tener los empleados necesarios para el mejor manejo de
los negocios de la sociedad, y fijaran los sueldos que debieran percibir dichos
empleados por servicios rendidos a la sociedad.

“Que ambos administradores podran disponer de mil doscientos pesos
(P1,200) moneda filipina, anualmente, para sus gastos particulares, siendo dicha
cantidad de P1,200 la que corresponde a cada uno de dichos administradores, como
emolumentos o salarios que se les asigna a cada uno, por sus trabajos en la
administracion de la sociedad. Entendiendose, que, los accionistas podran
disponer cada fin de año la gratificacion que se concedera a cada administrador,
si los negocios del año fueran boyantes y justifiquen la concesion de una
gratificacion especial, aparte del salario aqui di spues to y especificado.

“Que pasado el termino de seis años, y es de la conveniencia de los
accionistas la continuacion del negocio de esta sociedad, dicho termino sera
prorrogado por igual numero de años, sin necesidad del otorgamiento de
ulteriores escrituras, quedando la presente en vigor hasta el termino dispuesto
por todos los accionistas.

“Que las diferencias que pudieran suscitarse entre los accionistas, bien sea
por razon de lo estipulado en esta escritura, ya por actos en el curso y
direccion de los negocios en ella comprendidos, se procurara arreglar entre los
mismos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de este
modo, dichos accionistas nombraran un arbitro, cuya resolucion estan todos
obligados y por la presente se comprometen y se obligan a acatarla en todas sus
partes, renunciando ulteriores recursos.

“En cuyos terminos dejamos formalizada esta escritura de sociedad mercantil
limitada, y prometemos cumplirla fiel y estrictamente segun los pactos que hemos
establecido.

“En testimonio de todo lo cual, firmamos en la Ciudad de Cebu,
Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de mil novecientos diez y
nueve.

	(Fdos.) “LIM YOGSING
	“JO YBEC por HO SENG SIAN
		“SANTIAGO JO CHUNG CANG
		“GO TAYCO
		“YAP GUECO

Firmado en presencia de:

(Fdos.) “ATILANO LEYSON
	“JULIO DIAZ

“ESTADOS UNIDOS DE AMERICA
“ISLAS FlLIPINAS
“PROVINCIA DE
CEBU

“En el Municipio de Cebu, de la Provincia antes mencionada, I. F., hoy 31 de
octubre de 1919, A. D., ante mi, Notario Publico que subscribe, comparecieron
personalmente Santiago Jo Chung Cang, ,Go Tayco, Yap Gueco, Lim Yogsing y Jo
Ybec, representado este ultimo por Ho Seng Sian, segun autorizacion hecha en
telegrama de fecha 27 de septiembre de 1919 que se me ha presentado en este
mismo acto, de quienes doy fe de que les conozco por ser las mismas personas que
otorgaron el preinserto documento, ratificando ante mi su contenido y
manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr.
Santiago Jo Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.
F. el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco tambien me
exhibio la suya expedida en Cebu, Cebu, I. F., el dia 9 de octubre de 1919 bajo
el No. G2042490, Yap Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.
F. el dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me
exhibio la suya expedida en Cebu, Cebu, I. F., el dia 26 de febrero de 1919 bajo
el No. F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su cedula
personal expedida en Cebu, Cebu, I. F. el dia 4 de febrero de 1919 bajo el No.
F1453733.

“Ante mi,

	(Fdo.) “F. V. ARIAS
	“Notario Publico
	“Hasta el 1.° de enero de 1920

“Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie
1919
Libro 2.°.

“Presentado a las diez y cuarenta y tres minutos de la mañana de hoy, segun
el asiento No. 125, pagina 9 del Tomo 1.° del Libro Diario. Cebu, 11 de febrero
de 1920.

	(Fdo.) “QUIRICO ABETO
[SELLO]	“Registrador Mercantil Ex-Officio

“Inscrito el documento que precede al folio 84 hoja No. 188, inscripcion
1.^a del Tomo 3.° del Libro Registro de Sociedades Mercantiles. Cebu,
11 de febrero de 1920. Honorarios treinta pesos con cincuenta centavos. Art.
197, Ley No. 2711, Codigo Administrativo.

	(Fdo.) “QUIRICO ABETO
[SELLO]	“Registrador Mercantil Ex-Officio“

Proceeding by process of elimination, it is self-evident that Teck Seing
& Co., Ltd., is not a corporation. Neither is it contended by any one that
Teck Seing & Co., Ltd., is the accidental partnership denominated cuenta
en participacion (joint account association).

Counsel for the petitioner and appellee described his client in one place in
his opposition to the motion of the creditors, as “una verdadera sociedad
anonima” (a true sociedad anonima). The provisions of the Code of
Commerce relating to sociedades anonimas were, however, repealed by
section 191 of the Corporation Law (Act No. 1459), with the exceptions that
sociedades anonimas lawfully organized at the time of the passage of the
Corporation Law were recognized, which is not our case.

The document providing for the partnership contract purported to form “una
sociedad mercantil limitada,” and counsel for the petitioner’s first
contention was that Teck Seing & Co., Ltd. was not “una sociedad regular
colectiva, ni siquiera comanditaria, sino una sociedad mercantil limitada.”
Let us see if the partnership contract created a “sociedad en comandita,”
or, as it is known in English, and will hereafter be spoken of, “a limited
partnership.”

To establish a limited partnership there must be, at least, one general
partner and the name of at least one of the general partners must appear in the
firm name. (Code of Commerce, arts. 122 [2], 146, 148.) But neither of these
requirements have been fulfilled. The general rule is, that those who seek to
avail themselves of the protection of laws permitting the creation of limited
partnerships must show a substantially full compliance with such laws. A limited
partnership that has not complied with the law of its creation is not considered
a limited partnership at all, but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp.
499, 595; 20 R. C. L., 1064.)

The contention of the creditors and appellants is that the partnership
contract established a general partnership.

Article 125 of the Code of Commerce provides that the articles of general
copartnership must state the names, surnames, and domiciles of the partners; the
firm name; the names, and surnames of the partners to whom the management of the
firm and the use of its signature is intrusted; the capital which each partner
contributes in cash, credits, or property, stating the value given the latter or
the basis on which their appraisement is to be made; the duration of the
copartnership; and the amounts which, in a proper case, are to be given to each
managing partner annually for his private expenses, while the succeeding article
of the Code provides that the general copartnership must transact business under
the name of all its members, of several of them, or of one only. Turning to the
document before us, it will be noted that all of the requirements of the Code
have been met, with the sole exception of that relating to the composition of
the firm name. We leave consideration of this phase of the case for later
discussion.

The remaining possibility is the revised contention of counsel for the
petitioners to the effect that Teck Seing & Co., Ltd. is “una sociedad
mercantil ‘de facto’ solamente” (only a de facto commercial
association), and that the decision of the Supreme Court in the case of
Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling.
It was this argument which convinced the trial judge, who gave effect to his
understanding of the case last cited and which here must be given serious
attention.

The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra,
discloses that the firm Kieng-Chiong-Seng was not organized by means of any
public document; that the partnership had not been recorded in the mercantile
registry; and that Kieng-Chiong-Seng was not proven to be the firm name, but
rather the designation of the partnership. The conclusion then was, that the
partnership in question was merely de facto and that, therefore, giving
effect to the provisions of article 120 of the Code of Commerce, the right of
action was against the persons in charge of the management of the
association.

Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng,
supra, side by side with the facts before us, a marked difference is at
once disclosed. In the cited case, the organization of the partnership was not
evidenced by any public document; here, it is by a public document. In the cited
case, the partnership naturally could not present a public instrument for record
in the mercantile registry; here, the contract of partnership has been duly
registered. But the two cases are similar in that the firm name failed to
include the name of any of the partners.

We come then to the ultimate question, which is, whether we should follow the
decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether
we should differentiate the two cases, holding Teck Seing & Co., Ltd., a
general copartnership, notwithstanding the failure of the firm name to include
the name of one of the partners. Let us now notice this decisive point in the
case.

Article 119 of the Code of Commerce requires every commercial association
before beginning its business to state its articles, agreements, and conditions
in a public instrument, which shall be presented for record in the mercantile
registry. Article 120, next following, provides that the persons in charge of
the management of the association who violate the provisions of the foregoing
article shall be responsible in solidum to the persons not members of the
association with whom they may have transacted business in the name of the
association. Applied to the facts before us, it would seem that Teck Seing &
Co., Ltd. has fulfilled the provisions of article 119. Moreover, to permit the
creditors only to look to the person in charge of the management of the
association, the partner Lim Yogsing, would not prove very helpful to them.

What is said in article 126 of the Code of Commerce relating to the general
copartnership transacting business under the name of all its members’ or of
several of them or of one only, is wisely included in our commercial law. It
would appear, however, that this provision was inserted more for the protection
of the creditors than of the partners themselves. A distinction could well be
drawn between the right of the alleged partnership to institute action when
failing to live up to the provisions of the law, or even the rights of the
partners as among themselves, and the right of a third person to hold
responsible a general copartnership which merely lacks a legal firm name in
order to make it a partnership de jure.

The civil law and the common law alike seem to point to a difference between
the rights of the partners who have failed to comply with the law and the rights
of third persons who have dealt with the partnership.

The supreme court of Spain has repeatedly held that notwithstanding the
obligation of the members’ to register the articles of association in the
commercial registry, agreements containing all the essential requisites are
valid as between the contracting parties, whatever the form adopted, and that,
while the failure to register in the commercial registry necessarily precludes
the members from enforcing rights acquired by them against third persons, such
failure cannot prejudice the rights of third persons. (See decisions of
December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.)
The same reasoning would be applicable to the less formal requisite pertaining
to the firm name.

The common law is to the same effect. The State of Michigan had a statute
prohibiting the transaction of business under an assumed name or any other than
the real name of the individual conducting the same, unless such person shall
file with the county clerk a certificate setting forth the name under which the
business is to be conducted and the real name of each of the partners, with
their residences and post-office addresses, and making a violation thereof a
misdemeanor. The Supreme Court of Michigan said:

“The one object of the act is manifestly to protect the public against
imposition and fraud, prohibiting persons from concealing their identity by
doing business under an assumed name, making it unlawful to use other than their
real names in transacting business without a public record of who they are,
available for use in courts, and to punish those who violate the prohibition.
The object of this act is not limited to facilitating the collection of debts,
or the protection of those giving credit to persons doing business under an
assumed name. It is not unilateral in its application. It applies to debtor and
creditor, contractor and contractee, alike. Parties doing business with those
acting under an assumed name, whether they buy or sell, have a right, under the
law, to know who they are, and who to hold responsible, in case the question of
damages for failure to perform or breach of warranty should arise.

“The general rule is well settled that, where statutes enacted to protect the
public against fraud or imposition, or to safeguard the public health or morals,
contain a prohibition and impose a penalty, all contracts in violation thereof
are void. * * *

“As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in
violation of it unlawful and unenforceable at the instance of the offending
party only, but not as designed to take away the rights of innocent parties who
may have dealt with the offenders in ignorance of their having violated the
statute.” (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas.
[1913-C], 697.)

The early decision of our Supreme Court in the case of Prautch, Scholes &
Co. vs. Hernandez ([1903], 1 Phil., 705), contains the following
pertinent observations:

“Another case may be supposed. A partnership is organized for commercial
purposes. It fails to comply with the requirements of article 119. A creditor
sues the partnership for a debt contracted by it, claiming to hold the partners
severally. They answer that their failure to com ply with the Code of
Commerce makes them a civil partnership and that they are in accordance with
article 1698 of the Civil Code only liable jointly. To allow such liberty
of action would be to permit the parties by a violation of the Code to escape a
liability which the law has seen fit to impose upon persons who organized
commercial partnerships; ‘Because it would be contrary to all legal principles
that the nonperformance of a duty should redound to the benefit of the person in
default either intentional or unintentional.’ (Mercantile Law, Eixala, fourth
ed., p. 145.)” (See also Lichauco vs. Lichauco [1916], 33 Phil.,
350, 360.)

Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes
the following comment after articles 121 and 126 of the Code:

“From the decisions cited in this and in the previous comments, the following
is deduced: 1st. Defects in the organization cannot affect relations with third
persons. 2d. Members who contract with other persons before the association is
lawfully organized are liable to these persons. 3d. The intention to form an
association is necessary, so that if the intention of mutual participation in
the profits and losses in a particular business is proved, and there are no
articles of association, there is no association. 4th. An association, the
articles of which have not been registered, is valid in favor of third persons.
5th. The private pact or agreement to form a commercial association is governed
not by the commercial law but by the civil law. 6th. Secret stipulations
expressed in a public instrument, but not inserted in the articles of
association, do not affect third persons, but are binding on the parties
themselves. 7th. An agreement made in a public instrument, other than the
articles of association, by means of which one of the partners guarantees to
another certain profits or secures him from losses, is valid between them,
without affecting the association. 8th. Contracts entered into by commercial
associations defectively organized are valid when they are voluntarily executed
by the parties, if the only controversy relates to whether or not they complied
with the agreement.

*             *             *             *             *       
     *             *

“The name of the collective merchant is called firm name. By this name, the
new being is distinguished from others, its sphere of action fixed, and the
juridical personality better determined, without constituting an exclusive
character of the general partnership to such an extent as to serve the purpose
of giving a definition of said kind of a mercantile partnership, as is the case
in our Code.

“Having in mind that these partnerships are prevailingly of a personal
character, article 126 says that they must transact business under the name of
all its members, of some of them, or of one only, the words ‘and company’ to be
added in the latter two cases.

“It is rendered impossible for the general partnership to adopt a firm name
appropriate to its commercial object; the law wants to link, and does link, the
solidary and unlimited responsibility of the members of this partnership with
the formation of its name, and imposes a limitation upon personal liberty in its
selection, not only by prescribing the requisites, but also by prohibiting
persons not members of the company from including their names in its firm name
under penalty of civil solidary responsibility.

“Of course, the form required by the Code for the adoption of the firm name
does not prevent the addition thereto of any other title connected with the
commercial purpose of the association. The reader may see our commentaries on
the mercantile registry about the business names and firm names of associations,
but it is proper to establish here that, while the business name may be
alienated by any of the means admitted by the law, it seems impossible to
separate the firm names of general partnerships from the juridical entity for
the creation of which it was formed.” (Vol. 2, pp. 197, 213.)

On the question of whether the fact that the firm name “Teck Seing & Co.,
Ltd.” does not contain the name of all or any of the partners as prescribed by
the Code of Commerce prevents the creation of a general partnership, Professor
Jose A. Espiritu, as amicus curiae, states:

“My opinion is that such a fact alone cannot and will not be a sufficient
cause of preventing the formation of a general partnership, especially if the
other requisites are present and the requisite regarding registration of the
articles of association in the Commercial Registry has been complied with, as in
the present case. I do not believe that the adoption of a wrong name is a
material fact to be taken into consideration in this case; first, because the
mere fact that a person uses a name not his own does not prevent him from being
bound in a contract or an obligation he voluntarily entered into; second,
because such a requirement of the law is merely a formal and not necessarily an
essential one to the existence of the partnership, and as long as the name
adopted sufficiently identify the firm or partnership intended to use it, the
acts and contracts done and entered into under such a name bind the firm to
third persons; and third, because the failure of the partners herein to adopt
the correct name prescribed by law cannot shield them from their personal
liabilities, as neither law nor equity will permit them to utilize their own
mistake in order to put the blame on third persons, and much less, on the firm
creditors in order to avoid their personal responsibility.”

The legal intention deducible from the acts of the parties controls in
determining the existence of a partnership. If they intend to do a thing which
in law constitutes a partnership, they are partners, although their purpose was
to avoid the creation of such relation. Here, the intention of the persons
making up Teck Seing & Co., Ltd. was to establish a partnership which they
erroneously denominated a limited partnership. If this was their purpose, all
subterfuges resorted to in order to evade liability for possible losses, while
assuming their enjoyment of the advantages to be derived from the relation, must
be disregarded. The partners who have disguised their identity under a
designation distinct from that of any of the members of the firm should be
penalized, and not the creditors who presumably have dealt with the partnership
in good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the
general copartnership liable personally and in solidum with all their
property for the results of the transactions made in the name and for the
account of the partnership. Section 51 of the Insolvency Law, likewise, makes
all the property of the partnership and also all the separate property of each
of the partners liable. In other words, if a firm be insolvent, but one or more
partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the
firm before seizing the property of the partners. (Brandenburg on Bankruptcy,
sec. 108; De los Reyes vs. Lukban and Borja [1916], 35 Phil., 757;
Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial
Co. [1922], 44 Phil., 916.)

We reach the conclusion that the contract of partnership found in the
document hereinbefore quoted established a general partnership or, to be more
exact, a partnership as this word is used in the Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be
returned to the court of origin for further proceedings pursuant to the motion
presented by the creditors, in conformity with the provisions of the Insolvency
Law. Without special finding as to the costs in this instance, it is so
ordered.

Araullo, C.J., Johnson, Street, Avanceña, Villamor, Johns,
and Romualdez, JJ., concur.