PACIFIC COMMERCIAL COMPANY
ABOITIZ & MARTINEZ, ET AL
JOSE MARTINEZ,
Facts: In 1919, Arnaldo de Silva, Guillermo
Aboitiz, Vidal Aboitiz and Jose Martinez formed
a partnership. De Silva, Guillermo, and Vidal
were the capitalist partners while Martinez was
the industrial partner. The articles of
partnership contained, among others, that
Martinez may also be liable for losses but only
to the extent of his shares in the profits which
was at 30%.
The partnership incurred loans from Pacific
Commercial Company which the partnership
failed to pay. The partnership’s property was
exhausted but there remained an unpaid
balance for which PCC sued the partnership.
The trial court issued a judgment where it
ordered that the deficiency should be satisfied
by the properties of the three capitalist
partners; that in the event the properties of the
three will not be enough, the remaining balance
shall issue against the property of
Martinez. From this judgment Martinez
appealed to this court and here maintains that
under article 141 of the Code of Commerce he,
as a mere industrial partner, cannot be held
responsible for the partnership's debt.
ISSUE: Whether or not Martinez is liable for
the said debt.
HELD: Yes. As held in the case of La Compañia
Maritama vs Francisco Muñoz et al, industrial
partners are secondarily liable for the debts of
the partnership but on the strength of the
vigorous dissenting opinion of Chief Justice
Arellano in that case, that appellant argues
that the decision therein was erroneous and
should now be overruled. With all due respect
for the legal acumen of the first Chief Justice of
this Court, we are still of the opinion that the
case was correctly decided. Article 127 of the
Code of Commerce reads as follows:
All the members of the general copartnership, be
they or be they not managing partners of the
same are liable personally and in solidum with
all their property for the results of the
transaction made in the name and for the
account of the partnership, under the signature
of the later, and by a person authorized to make
use thereof.
The language of this article is clear and specific
that all the members of a general copartnership
are liable with all their property for the results
of the duly authorized transactions made in the
name and for the account of the partnership.
On the other hand, article 141, upon which the
appellants relies and which provides that
"losses shall be computed in the same
proportion among the capitalist partners
without including the industrial partners,
unless by special agreement the latter have
been constituted as participants therein," is
susceptible of two different interpretations of
which that given it in the Compania Maritima
case, supra, i. e., that it relates merely to the
distribution of losses among the partners
themselves in the settlement of the partnership
affairs and has no reference to partnership
obligations to third parties, appears to us to be
the more logical.
There is a marked distinction between a
liability and a loss and the inability of a
partnership to pay a debt to a third party at a
particular time does not necessarily mean that
the partnership business as a whole, has been
operated at a loss. The partnership may have
outstanding credits which for the moment may
have be unavailable for the payment of debts,
but which eventually may be realized upon and
yield profits more than sufficient to cover all
losses. Bearing this in mind it will be found that
there in reality is no conflict between the two
articles quoted; one speaks of liabilities, the
other of losses.
Vda De Chan vs Peng
Facts: It appears from the record that on June
13, 1925, the San Miguel Brewery, Porta Pueco
& Co., and Ruiz & Rementaria S. en C.
instituted insolvency proceedings against
Leoncia Vda. de Chan, alleged to be the owner
of a grocery store known as the store of "La
Viuda de G. G. Chan Diaco."
In their petition for the declaration of the
insolvency, the above-mentioned firms alleged,
among other things, that Leoncia was indebted
to them in the sum of P26,234.47, which debt
was incurred within thirty days prior to the
filing of said petition. It further appears that
other creditors have filed claims against the
estate to the amount of P50,000.
The petition for the declaration of insolvency
was set down for hearing. Leoncia did not
appear at the hearing, notwithstanding the fact
that she was duly notified, and the court
declared her insolvent and ordered the sheriff
to take possession of her property, the visible
part of which at that time consisting of some
merchandise, afterwards sold at public auction
for P3,300. Judge Simplicio del Rosario, in an
order appointed Ricardo Summers, as referee,
authorizing him to take further evidence in
regard to the questions of fact raised by the
motions of August 5th and 19th.
After various hearings and the taking of
considerable testimony, the referee, on
February 18, 1926, rendered a report to the
court in which he made the following
recommendations:
That the insolvent deliver to the assignee
certain amounts of money (more or less 56k)
and certain books of account.
The report was approved by Judge del Rosario,
and the merchants Cua Ico, Chan Keep, and
Simon A. Chan Bona were ordered to show
cause why they should not return that alleged
merchandise to the value of P20,000, alleged to
have been delivered to them by Leoncia,
together with P5,000 in cash alleged to have
been received from her by the merchant Chua
Ico between the 8th and 11th days of June,
1925.
On August 4, 1926, attorney for the insolvent
filed a motion asking the court to dismiss the
proceedings against her on the ground that
they should have been brought against the
partnership "Lao Liong Naw & Co.," of which
she was only a member. The alleged
partnership was evidenced by an agreement
which provides that had formed a partnership
with a capital of P21,000, of which only P4,000
was contributed by Leoncia.
In view of the aforesaid motion Judge Del
Rosario on August 7, 1926, suspended for the
time being the effects of the decision of July 23,
1926, and set the motion down for hearing on
the 14th of August, 1926. His Honor again
appointed Summers as referee.
After several hearings in which various
witnesses were examined and documents
presented on behalf of both sides, the referee,
on February 28, 1927, rendered a second
report, in which he found as facts that the
alleged partnership between the insolvent and
some of her relatives and employees was only a
fictitious organization created for the purpose
of deceiving the Bureau of Customs and enable
some of the aforesaid relatives, who were mere
coolies, to come to the Philippines under the
status of merchants. He, therefore,
recommended that the motion of the insolvent
to dismiss the proceedings against her be
denied.
A decision was rendered disapproving the
report of the referee. The court, therefore,
affirmed the suspension of the decision of
Judge Del Rosario, and dismissed the
insolvency proceedings, and ordered the
assignee to return to the sheriff all the property
of the insolvent which he, the sheriff, might
have in his possession. The decision further
provided for leave to the petitioners to file a new
petition in insolvency against the partnership
Lao Liong Naw & Co. if they so desired. A
motion for reconsideration was presented by
the assignee but was denied by the court in an
order of July 1, 1927. the assignee, thereupon,
appealed to this court and presents the
following assignments of error:
ISSUE: Is creditor entitled to collect
individually from the partners the
amount of the debt of the insolvent
partnership?
Ruling: YES
all the members of the general co-partnership,
be they or be they not managing partners of
the same, are personally and severally
liable with all their properties 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 the person authorized to
make use thereof"
It is to be observed that conceding for the sake
of the argument that the debts in question were
incurred by the alleged partnership, it clearly
appears from the record that said partnership,
as such, has no visible assets that, therefore,
the partners individually must, jointly and
severally, respond for its debts (Code of
Commerce, art. 127). As the appellee is one of
the partners and admits that she is insolvent,
we can see no reason for the dismissal of the
proceedings against her. It is further to be
noted that both the partnership and the
separate partners thereof may be joined in the
same action, though the private property of the
latter cannot be taken in payment of the
partnership debts until the common property
of the concern is exhausted (Comapnia
Maritima vs. Munoz, 9 Phil., 326) and, under
this rule, it seems clear that the alleged
partnership here in question may, if necessary,
be included in the case by amendments to the
insolvency petition.
We also call attention to the fact that the
evidence clearly shows that the business,
alleged to have been that of the partnership,
was carried on under the name "Leoncia Vda.
de Chan Diaco" or "La Vda. de G. G. Chan
Diaco," both of which are names of the appellee,
and we think it can be safely held that a
partnership may be adjudged bankrupt in the
name of an ostensible partner, when such
name is the name under which the partnership
did business.
The decision appealed from is hereby reversed,
the reports and recommendations of the referee
are approved, the order for the dismissal of the
case is set aside, and the decision of Judge
Simplicio Del Rosario dated July 23, 1926, will
remain in full force and effect. No costs will be
allowed. So ordered.
SANTIAGO SYJUCO, INC., vs. HON.
JOSE P. CASTRO
NARVASA, J.:
FACTS: Back in November 1964, Eugenio Lim and
his siblings all hereinafter collectively called the
Lims, borrowed from petitioner Santiago Syjuco,
Inc. (hereinafter, Syjuco only) the sum of
P800,000.00. The loan was given on the security of
a first mortgage on property registered in the names
of said borrowers as owners in common. Thereafter
additional loans on the same security were obtained
by the Lims from Syjuco, so that as of May 8, 1967,
the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been
augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by
the Lims.
The Lims failed to pay so an extrajudicial foreclosure
of the property monrtgaged was instituted. The
attempt to foreclose triggered off a legal battle that
has dragged on for more than twenty years now.
To stop the foreclosure, the Lims filed an action
alleging the validity of the mortgageAccording to
them it was void for being usurious because it
contains interest of 23% on top of 11 % that they
had been required to pay as "kickback." An order
restraining the auction sale was issued two days
later
The Court of First Instance rendered judgment
finding that usury tained the mortgage without,
however, rendering it void, declaring the amount
due to be only Pl,136,235.00 and allowing the
foreclosure to proceed for satisfaction of the
obligation reckoned at only said amount .7
Syjuco moved for new trial to enable it to present
additional evidence to overthrow the finding of
usury, and the Court ordered the case reopened for
that purpose. The Lims tried to negate that order of
reopening in the Court of AppealsThey failed. The
Court of Appeals upheld the Trial Court. The Lims
then sought to nullify this action of the Appellate
Court; towards that end, they filed with this Court a
petition for certiorari and prohibition, But here, too,
they failed; their petition was dismissed.8
Thereafter, trial court reversed its decision and
declared that the obligation was not usurious and
that the extrajudicial foreclosure may proceed.
Several other cases were filed by the Lims which the
court classified as sham proceedings intended to
delay the payment of the obligation that the Lims
owe to the Syjucos..
Upon the facts, the only defense to the foreclosure
that could possibly have merited the full-blown trial
and appeal proceedings it actually went through
was that of alleged usury pleaded in Civil Case No.
75180 and finally decided against the respondent
Lims. The other issues of failure to republish and
discharge of mortgage by guarantee set up in
succeeding actions were sham issues, questions
without substance raised only for purposes of delay
by the private respondents, in which they succeeded
only too well.
This time the complaint was presented, not in their
individual names, but in the name of a partnership
of which they themselves were the only partners:
"Heirs of Hugo Lim." The complaint advocated the
theory that the mortgage which they, together with
their mother, had individually constituted (and
thereafter amended during the period from 1964 to
1967) over lands standing in their names in the
Property Registry as owners pro indiviso, in fact no
longer belonged to them at that time, having been
earlier deeded over by them to the partnership,
"Heirs of Hugo Lim", more precisely, on March 30,
1959, hence, said mortgage was void because
executed by them without authority from the
partnership.
Issue: Whether or not the mortgage was void
from being executed without authority from the
partnership
Ruling: NO. The record shows that the respondent
partnership is composed exclusively of the
individual Lims in whose name all the cases herein
referred to, with the sole exception of Civil Case No.
Q-36485, were brought and prosecuted, their
contribution to the partnership consisting chiefly, if
not solely, of the property subject of the Syjuco
mortgage. It is also a fact that despite its having
been contributed to the partnership, allegedly on
March 30, 1959, the property was never registered
with the Register of Deeds in the name of the
partnership, but to this date remains registered in
the names of the Lims as owners in common. The
original mortgage deed of November 14,1964 was
executed by the Lims as such owners, as were all
subsequent amendments of the mortgage. There
can be no dispute that in those circumstances, the
respondent partnership was chargeable with
knowledge of the mortgage from the moment of its
execution. The legal fiction of a separate juridical
personality and existence will not shield it from the
conclusion of having such knowledge which
naturally and irresistibly flows from the undenied
facts. It would violate all precepts of reason,
ordinary experience and common sense to propose
that a partnership, as commonly known to all the
partners or of acts in which all of the latter, without
exception, have taken part, where such matters or
acts affect property claimed as its own by said
partnership.
If, therefore, the respondent partnership was
inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, its
silence and failure to impugn said mortgage within
a reasonable time, let alone a space of more than
seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the
mortgage as allegedly unauthorized.
The principles of equitable estoppel, sometimes
called estoppel in pais, are made part of our law by
Art. 1432 of the Civil Code. Coming under this class
is estoppel by silence, which obtains here and as to
which it has been held that:
... an estoppel may arise from silence
as well as from words. 'Estoppel by
silence' arises where a person, who
by force of circumstances is under a
duty to another to speak, refrains
from doing so and thereby leads the
other to believe in the existence of a
state of facts in reliance on which he
acts to his prejudice. Silence may
support an estoppel whether the
failure to speak is intentional or
negligent.
Inaction or silence may under some
circumstances amount to a
misrepresentation and concealment
of the facts, so as to raise an
equitable estoppel. When the silence
is of such a character and under
such circumstances that it would
become a fraud on the other party to
permit the party who has kept silent
to deny what his silence has induced
the other to believe and act on, it will
operate as an estoppel. This doctrine
rests on the principle that if one
maintains silence, when in
conscience he ought to speak, equity
will debar him from speaking when in
conscience he ought to remain silent.
He who remains silent when he
ought to speak cannot be heard to
speak when he should be silent. 40
And more to the point:
A property owner who knowingly
permits another to sell or encumber
the property, without disclosing his
title or objecting to the transaction, is
estopped to set up his title or interest
as against a person who has been
thereby misled to his injury.
xxx
An owner of real property who stands
by and sees a third person selling or
mortgaging it under claim of title
without asserting his own title or
 giving the purchaser or mortgagee
any notice thereof is estopped, as
against such purchaser or
mortgagee, afterward to assert his
title; and, although title does not
pass under these circumstances, a
conveyance will be decreed by a court
of equity. Especially is the rule
applicable where the party against
whom the estoppel is claimed, in
addition to standing by, takes part in
malting the sale or mortgage. 41
More specifically, the concept to
which that species of estoppel which
results from the non-disclosure of an
estate or interest in real property has
ordinarily been referred is fraud,
actual or constructive. ... Although
fraud is not an essential element of
the original conduct working the
estoppel, it may with perfect property
be said that it would be fraudulent
for the party to repudiate his
conduct, and to assert a right or
claim in contravention thereof. 42
Equally or even more preclusive of the respondent
partnership's claim to the mortgaged property is the
last paragraph of Article 1819 of the Civil Code,
which contemplates a situation duplicating the
circumstances that attended the execution of the
mortgage in favor of Syjuco and therefore applies
foursquare thereto:
Where the title to real property is in
the names of all the partners a
conveyance executed by all the
partners passes all their rights in
such property.
The term "conveyance" used in said provision, which
is taken from Section 10 of the American Uniform
Partnership Act, includes a mortgage. As
indisputable as the propositions and principles just
stated is that the cause of action in Civil Case No.
Q-36485 is barred by prior judgment. The right
subsumed in that cause is the negation of the
mortgage, postulated on the claim that the parcels
of land mortgaged by the Lims to Syjuco did not in
truth belong to them but to the partnership.
Assuming this to be so, the right could have been
asserted at the time that the Lims instituted their
first action on December 24, 1968 in the Manila
Court of First Instance, Civil Case No. 75180, or
when they filed their subsequent actions: also in
1983. The claim could have been set up by the Lims,
as members composing the partnership, "Heirs of
Hugo Lim." It could very well have been put forth by
the partnership itself, as co-plaintiff in the
corresponding complaints, considering that the
actions involved property supposedly belonging to it
and were being prosecuted by the entire
membership of the partnership, and therefore, the
partnership was in actuality, the real party in
interest. In fact, consistently with the Lims' theory,
they should be regarded, in all the actions presented
by them, as having sued for vindication, not of their
individual rights over the property mortgaged, but
those of the partnership. There is thus no reason to
distinguish between the Lims, as individuals, and
the partnership itself, since the former constituted
the entire membership of the latter. In other words,
despite the concealment of the existence of the
partnership, for all intents and purposes and
consistently with the Lims' own theory, it was that
partnership which was the real party in interest in
all the actions; it was actually represented in said
actions by all the individual members thereof, and
consequently, those members' acts, declarations
and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in
law, those of the partnership.
What was done by the Lims — or by the partnership
of which they were the only members-was to split
their cause of action in violation of the well known
rule that only one suit may be instituted for a single
cause of action. 44 The right sought to be enforced
by them in all their actions was, at bottom, to strike
down the mortgage constituted in favor of Syjuco, a
right which, in their view, resulted from several
circumstances, namely that the mortgage was
constituted over property belonging to the
partnership without the latter's authority; that the
principal obligation thereby secured was usurious;
that the publication of the notice of foreclosure sale
was fatally defective, circumstances which had
already taken place at the time of the institution of
the actions. They instituted four (4) actions for the
same purpose on one ground or the other, making
each ground the subject of a separate action. Upon
these premises, application of the sanction
indicated by law is caned for, i.e., the judgment on
the merits in any one is available as a bar in the
others. 45
The first judgment-rendered in Civil Case No. 75180
and affirmed by both the Court of Appeals (CA-G.R.
No. 51752) and this Court (G.R. No. L-45752)
should therefore have barred all the others, all the
requisites of res judicata being present. The
judgment was a final and executory judgment; it
had been rendered by a competent court; and there
was, between the first and subsequent cases, not
only identity of subject-matter and of cause of
action, but also of parties. As already pointed out,
the plaintiffs in the first four (4) actions, the Lims,
were representing exactly the same claims as those
of the partnership, the plaintiff in the fifth and last
action, of which partnership they were the only
members, and there was hence no substantial
difference as regards the parties plaintiff in all the
actions. Under the doctrine of res judicata, the
judgment in the first was and should have been
regarded as conclusive in all other, actions not only
"with respect to the matter directly adjudged," but
also "as to any other matter that could have been
raised in relation thereto. " 46 It being indisputable
that the matter of the partnership's being the owner
of the mortgaged properties "could have been raised
in relation" to those expressly made issuable in the
first action, it follows that that matter could not be
re-litigated in the last action, the fifth.
The undenied and undisputable facts make it
perfectly clear that the claim to the mortgaged
property belatedly and in apparent bad faith
pressed by the respondent partnership is foreclosed
by both law and equity. Further proceedings will not
make this any clearer than it already is. The Court
is clothed with ample authority, in such a case, to
call a halt to all further proceedings and pronounce
judgment on the basis of what is already manifestly
of record.
So much for the merits; the consequences that
should attend the inexcusable and indefensible
conduct of the respondents Lims, the respondent
partnership and their counsel, Atty. Paterno R.
Canlas, should now be addressed. That the Lims
and their partnership acted in bad faith and with
intent to defraud is manifest in the record of their
actuations, presenting as they did, piecemeal and in
one case after another, defenses to the foreclosure
or claims in derogation thereof that were available
to them from the very beginning — actuations that
were to stave off the liquidation of an undenied debt
for more than twenty years and culminated in the
clandestine filing and prosecution of the action
subject of the present petition.
What has happened here, it bears repeating, is
nothing less than an abuse of process, a trifling with
the courts and with the rights of access thereto, for
which Atty. Canlas must share responsibility
equally with his clients. The latter could not have
succeeded so well in obstructing the course of
justice without his aid and advice and his tireless
espousal of their claims and pretensions made in
the various cases chronicled here. That the cause to
which he lent his advocacy was less than just or
worthy could not have escaped him, if not at the
start of his engagement, in the years that followed
when with his willing assistance, if not instigation,
it was shuttled from one forum to another after each
setback. This Court merely stated what is obvious
and cannot be gainsaid when, in Surigao Mineral
Reservation Board vs. Cloribel, 55 it held that a
party's lawyer of record has control of the
proceedings and that '(w)hatever steps his client
takes should be within his knowledge and
responsibility."
Pioneer Insurance vs. CA
FACTS: Lim is an owner-operator of Southern
Airlines (SAL). Japan Domestic Airlines (JDA) and
Lim entered into a sales contract. Pioneer Insurance
and Surety Corp. as surety executed its surety bond
in favor of JDA on behalf of its principal Lim. Border
Machinery and Heacy Equipment Co, Inc.,
Francisco and Modesto Cervantes, and Constancio
Maglana contributed funds based on the
misrepresentation of Lim that they will form a new
corporation to expand his business. They executed
two separate indemnity agreements in favor of
Pioneer, one signed by Maglana and the other jointly
signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated
that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and
hold and save Pioneer from and against any/all
damages, losses, etc. of whatever kind and nature
may incur in consequence of having become surety.
Lim executed in favor of Pioneer a deed of
chattel mortgage as security. Upon default on the
payments, Pioneer paid for him and filed a petition
for the foreclosure of chattel mortgage as security.
Maglana, Bormaheco and the Cervantes’s filed
cross-claims against Lim alleging that they were not
privies to the contracts signed by Lim and for
recovery of the sum of money they advanced to Lim
for the purchase of the aircrafts. The decision was
rendered holding Lim liable to pay.
ISSUE: 1. Whether Pioneer has a cause of action
against respondents.
2. Whether failure to incorporate
automatically resulted to de facto partnership.
HELD: 1. Pioneer has no right to institute and
maintain in its own name an action for the benefit
of the reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper, and
this is so even where the name of the principal is
disclosed in the complaint. An attorney-in-fact is
not a real party in interest, that there is no law
permitting an action to be brought by an attorney-
in-fact.
 2. NO. Partnership inter se does not
necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners as between
themselves, when their purpose is that no
partnership shall exist and it should be implied only
when necessary to do justice between the parties;
thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never
legally formed does not become a partner with other
subscribers who engage in business under the
name of the pretended corporation, so as to be liable
as such in an action for settlement of the alleged
partnership and contribution.