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Jo Chung Cang v. Pacific Commercial Co.

Petitioner-appellee: TECK SEING & CO., LTD.

Doctrine: 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 constitute a partnership, they are partners, although their
purpose was to avoid the creation of such relation.
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CASE SUMMARY

Trigger words: limited vs general partnership vs de facto commercial association

FACTS: Creditor Pacific Commercial filed a motion (1) to require the partners Jo Chung Cang et al to file an
inventory of his property in the manner required by section 51 of Act No. 1956 (Insolvency Law) and (2) to
declare each of the partners insolvent debtors. The trial judge denied the motion based on petitioner’s
contention that it is only a de facto commercial association and that the ruling of the SC in Hung-Man-Yoc vs.
Kieng-Chiong-Seng [1906] 1is controlling. Hence, this appeal.

HELD: Order appealed from is reversed. Teck Seing & Co., Ltd. is a general partnership regardless of the fact
that the firm name does not contain the name of all or any of the partners as prescribed by the Code of
Commerce. The contract of partnership met all the requirements of the Code for the establishment of a general
partnership except the requirement as to the composition of the firm name which is a formal requisite rather
than an essential one. Moreover, it is the legal intention of the parties that is controlling in determining the
existence of a partnership. The intention of the persons making up Teck Seing & Co., Ltd. was to establish a
partnership which they erroneously denominated a limited partnership.
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ISSUES AND HELD

1. What is the nature of the establishment operating under the name Teck Seing & Co., Ltd.? – General
partnership
 Petitioner: Limited partnership or de facto commercial association
 Creditors: General partnership
 SC:
Why NOT a limited partnership
o Limited partnership, how established - 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.)
 ICAB: The above requirements were NOT fulfilled.
Why a general partnership
o General partnership, how established - Article 125 of the Code of Commerce provides that the
articles of general copartnership must state:

1
In this case, 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.
 1. the names, surnames, and domiciles of the partners;
2. the firm name;
3. the names, and surnames of the partners to whom the management of the firm and the use
of its signature is intrusted;
4. the capital which each partner contributes in cash, credits, or the basis on which their
appraisement is to be made;
5. the duration of the copartnership; and
6. the amounts which, in a proper case, are to be given to each managing partner annually for
his private expenses
 ICAB: The contract of partnership met all of the above requirements of the Code
o Article 126 of the Code of Commerce provides that the general copartnership must transact
business under the name of all its members, of several of them, or of one only.
 ICAB: Teck Seing & Co., Ltd. did not fulfill the above provision
 Note: Art. 126 is included more for the protection of the creditors than of the partners
themselves
- Following the reasoning of the SC of Spain: failure to fulfill the formal requisite
pertaining to the firm name cannot prejudice the rights of third persons.
o 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.
 ICAB: Teck Seing & Co., Ltd. has fulfilled the provisions of article 119.
o Article 120 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.
 ICAB: 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
Why NOT a de facto commercial association
o In the Hung-Man-Yoc case, the organization of the partnership was not evidenced by any public
document. The partnership could not present a public instrument for record in the mercantile
registry.
 ICAB: Organization of the partnership is by a public document. The contract of
partnership has been duly registered.
 HOWEVER, in the 2 cases, the firm name failed to include the name of any of the
partners.

2. 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 – NO
 Professor Jose Espiritu, amicus curiae:
o “..such a fact alone cannot and will not be a sufficient cause of preventing the information of a
general partnership, especially if the other requisites are present and the requisites regarding
registration of the articles of association in the Commercial has been complied with, as in
present case.”
o Adoption of wrong name IMMATERIAL because …
(1) The mere fact that a person uses a name not his own does not prevent him being bound in a
contract or an obligation he voluntarily entered into
(2) 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 to use it, the acts and contracts done
and entered into under such a name bind the firm to third persons; and
 (3) 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 constitute a partnership, they are partners,
although their purpose was to avoid the creation of such relation.
 ICAB: 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 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.
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RULING: in favor of Creditor

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 provision of the
Insolvency Law. Without special finding as to the costs in this instance, it is so ordered.
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NOTES

Other Issues

1. W/N the partners of Teck Seing & Co., Ltd. may be made liable with all their property under the Insolvency
Law – YES
 Article 127 and 237 of the Code of Commerce make all the member of the general copartnership 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. 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