THE MANILA RAILROAD COMPANY, PLAINTIFF AND APPELLEE, VS. C. S. SALMON, DEFENDANT AND APPELLANT.

This
action was instituted on February 5, 1924, in the Court of First
Instance of the City of Manila by the Manila Railroad Company for the
purpose of recovering from the defendant, C. S. Salmon, the unpaid
balance due to the railroad company as freight charges on various
quantities of coconut shells shipped over the railroad by the
Philippine By-Products Co., which charges had been guaranteed by
Salmon. Upon the petition of Salmon, his codefendant W. G. Frisbie was
impleaded, and the cause proceeded thenceforth against the two. Upon
hearing the cause judgment was entered in favor of the plaintiff to
recover of Salmon the sum of P1,647.22, with interest from the date of
the filing of the complaint, but Frisbie was absolved with all costs of
the cause against Salmon. From this judgment Salmon appealed.

It appears in evidence that in the year 1918 W. G. Frisbie and W. J.
Allen, under the name of the Philippine By-Products Co., undertook to
buy coconut shells in the provinces for use by the Government of the
United States in the prosecution of war. Much of the material collected
by them had to be brought to Manila by rail; and Salmon, being the
agent of the American buyer with whom Frisbie and Allen had contracted,
guaranteed to the Manila Railroad Company the payment of any freight
for coconut shells shipped over the railroad by the. Philippine
By-Products Co. The note by which this obligation was created is as
follows:

“May 6, 1918

“The MANILA RAILROAD CO.,
“Manila.

“GENTLEMEN:
Relative freight charges on coconut shell shipped over your railroad by
the Philippine By-Products Co. I hereby personally guarantee payment of
same. Bills may be rendered daily or monthly at my office, 314 Kneedler
Building, at your convenience.

“Very respectfully,

(Sgd.) “C. S. SALMON”

While engaged upon the contract above-mentioned, Frisbie and Allen,
under the name of the Philippine By-Products Co., caused 846,000 kilos
of coconut shells to be transported over the plaintiff railroad to
Manila from various municipalities in the provinces of Laguna and
Tayabas. The. freight charges on these shipments amounted to P3,294.44.
To recover this debt the plaintiff instituted a prior civil action (No.
20206) in the court of the City of Manila, in the course of which both
Frisbie and Allen were brought in as codefendants with Salmon. Before
that case reached its conclusion Allen died; and upon motion of the
plaintiff showing this fact, the action was dismissed as against Allen,
in order that the claim against him might be presented through proper
channels in the proceedings for the administration of his estate. As a
consequence the case proceeded to judgment against Frisbie and Salmon
only.

Upon hearing the cause the trial judge found and
declared that the Philippine By-Products Co. was not a legal entity,
inasmuch as no articles of partnership or incorporation had been
entered into by Frisbie and Allen; and the court further found that the
two principals, Frisbie and Allen, should be held liable as partners in
a civil partnership, each being responsible for one-half of the debt.
It was further declared that Salmon, as guarantor, was liable in a
subsidiary capacity only. Judgment in favor of the plaintiff was
therefore given against Frisbie for half of the amount due and against
Salmon for the same amount in the event that it should not be made out
of Frisbie. As the action had been dismissed as against Allen nothing
was adjudicated with respect to Salmon’s subsidiary liability for the
half which pertained to Allen. Neither the plaintiff nor defendants
against whom judgment had been rendered appealed from this decision,
and Frisbie afterwards satisfied the judgment as against himself,
leaving Salmon tree from any liability under that judgment.

It further appears that the plaintiff’s claim against Allen was in due
time submitted to the committee on claims in the proceedings on Allen’s
estate, by which committee it was approved. Later, the court ordered
the claim to be paid, but Allen’s estate proved insolvent and nothing
was ever realized upon the claim. The present action was then begun by
the plaintiff to recover of Salmon the amount which the plaintiff had
unsuccessfully attempted to get out of Allen’s estate.

The
case for Salmon as presented in his brief on appeal in this court is
planted on the following line of reasoning, namely, first, that the
judgment in the first case was erroneous in that Frisbie was there held
liable only to the extent of one-half of the plaintiff’s claim, when
judgment should have been given against him for the whole; and,
secondly, that Salmon, as guarantor, has been released by the failure
of the plaintiff to obtain judgment against Frisbie for the entire
indebtedness in that action. We are of the opinion that this contention
is unsound and that the defendant Salmon is liable for the amount
awarded against him in this action whether the first action was
correctly decided or not. To make this intelligible it is necessary
first to explain why, in the former action, the Court of First Instance
declared Frisbie liable for one-half of the debt only.

In the case of Hung-Man-Yoc vs.
Kieng-Chiong-Seng (6 Phil., 498), it was held that where a partnership
engages in business without the recording of articles of partnership in
the mercantile, register, such partnership cannot be recognized as
having legal existence, and under article 120 of the Code of Commerce
only those members of the partnership who engage in the management of
its affairs are liable to its creditors. This decision, though perhaps
necessary under the provision cited, has not infrequently been invoked
to the prejudice of creditors; and the courts, in order to give
creditors all possible protection, have been inclined to hold the
individual members of such a partnership liable as members of a civil
partnership, for it will be remembered that in civil partnership all
who participate in the enterprise are liable for the acts of the
management though only to the extent of the proportionate share of
each. Thus, in Co-Pitco vs. Yulo (8 Phil., 544), it was held
that certain individuals who had engaged in the operation of a sugar
estate constituted a civil partnership, as distinguished from a
mercantile partnership and each member of the society was bound to pay
his pro rata share. In Dietrich vs. Freeman (18 Phil.,
341), three individuals operated the Manila Steam Laundry; and in an
action to recover damages caused by the enterprise, it was held that
the three associates were liable as members of a civil partnership and
that each must pay his part of the claim. Again, in Bachrach vs.
“La Protectora” (37 Phil., 441), the same doctrine was applied to the
case of various individuals who had engaged in the business of
transporting passengers and freight at Laoag, Ilocos Norte. In the
light of these decisions the action of the Court of First Instance in
declaring the Philippine By-Products Co. to be a civil partnership and
the two partners to be each liable for one-half the plaintiff’s claim
is comprehensible enough. It follows furthermore, in this view of the
case, that the present action is properly maintainable against Salmon
to recover the share for which Allen was liable but which, because of
the insolvency of Allen’s estate, could not be recovered from him. In
this connection it is to be borne in mind that Salmon, as guarantor,
has claimed the benefit of the exhaustion of the liability of his
principals; and for this reason no judgment could be entered against
Salmon in the former case for Allen’s part of the debt after the cause
was dismissed as against Allen. Indeed, no question is made in the
appellant’s brief upon the point that judgment was rightly entered
against Salmon in this case, supposing that Frisbie and Allen were each
liable only to the extent of one-half of the plaintiff’s claim.

But it is contended for the appellant that both Frisbie and Allen were
jointly and severally liable for the entire amount, in accordance with
the rule of liability in commercial partnerships (article 127, Code of
Commerce); and in this connection emphasis is placed upon the
undeniable fact that the purchase and sale of coconut shells is
commercial business. It must be remembered, however, that the
Philippine By-Products Co. had never been registered in the commercial
register; and in such case, as we have already pointed out, only the
manager, or managers, of the enterprise are solidarity liable, the
other partners not being liable at all. In the absence therefore of a
finding that both Allen and Frisbie were managers of the Philippine
By-Products Co., it could not even be said that they were both
solidarity liable even though it be admitted that the enterprise was a
commercial rather than civil partnership.

The attorney for the appellant relies upon the case of the Manila Engineering Co. vs.
Cranston and Heacock (45 Phil., 128), as having established that the
liability of persons operating as partners in an unregistered
partnership is solidary and not pro rata. It is true that in the case
mentioned both Cranston and Heacock were held jointly and severally
liable, but the facts of that case, if examined, will show, we think,
that both Cranston and Heacock were managers of the partnership and
were hence solidarity liable by the express terms of article 120 of the
Code of Commerce.

But admitting that the appellant’s view as
to the joint and several liability of Frisbie and Allen is correct and
that judgment might properly have been entered in the former case
against Frisbie (who is solvent) for the whole, it by no means follows
that Salmon was discharged by the failure of the plaintiff to prosecute
that cause with full effect against Frisbie. The fact that the lower
court in that action failed, even though erroneously, to give judgment
against Frisbie for the whole debt cannot be imputed to the plaintiff
as an act of bad faith towards Salmon. Neither can it be said that the
plaintiff owed Salmon the positive duty of bringing that case by appeal
to this court, even supposing that success might have crowned the
effort, which is doubtful. Rather it might be said to have been the
duty of Salmon to prosecute an appeal for his own protection, if he
deemed it of importance in that action, to fix primary liability for
the whole debt upon Frisbie.

One apparent anomaly in this
case there undoubtedly is, which consists in the fact that two actions
have been successfully maintained against Salmon upon a single
obligation; but this is due to the circumstance that Salmon guaranteed
a liability which has turned but to consist of the separable
obligations of two persons and Salmon, relying upon the subsidiary
character of his own undertaking, has insisted upon the exhaustion of
legal remedies against each of his principals. By his own election he
has, therefore, made it impossible for his own liability to be settled
in a single lawsuit.

Our conclusion, upon a careful
examination of all aspects of the case, is that no error was committed
in the judgment which is the subject of appeal, and the same will be
affirmed. So ordered, with costs against the appellant.

Avanceña, C. J., Malcolm, Villamor, Ostrand, and Romualdez, JJ., concur.

Johns and Villa-Real, JJ., concur in the result.