Civil Law

Philippine National Bank vs Severo Lo

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G.R. No. L-26937 – 50 Phil. 802 – Civil Law – Partnership – Firm Name

In September 1916, Severo Eugenio Lo and Ling, together with Ping, Hun, Lam and Peng formed a commercial partnership under the name of “Tai Sing and Co.,” with a capital of P40,000 contributed by said partners. The firm name was registered in the mercantile registrar in the Province of Iloilo. Ping, in the articles of partnership, was assigned as the general manager. However, in 1917, he executed a special power of attorney in favor of Lam to act in his behalf as the manager of the firm. Subsequently, Lam obtained a loan from PNB – the loan was under the firm’s name. In the same year, Ping died in China. From 1918 to 1920, the firm, via GM Lam, incurred other loans from PNB.  The loans were not objected by any of the partners. Later, PNB sued the firm for non-payment. Lo, in his defense, argued that he cannot be liable as a partner because the partnership, according to him, is void; that it is void because the firm’s name did not comply with the requirement of the Code of Commerce that a firm name should contain the “names of all of the partners, of several of them, or only one of them”. Lo also argued that the acts of Lam after the death of Ping is not binding upon the other partners because the special power of attorney shall have already ceased.

ISSUE: Whether or not Lo is correct in both arguments.

HELD: No. 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. The object 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; it is for the protection of the creditors rather than of the partners themselves. It is unenforceable 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 a partnership firm defectively organized are valid when voluntarily executed by the parties, and the only question is whether or not they complied with the agreement. Therefore, Lo cannot invoke in his defense the anomaly in the firm name which they themselves adopted. Lo was not able to prove his second argument. But even assuming arguendo, his second contention does not deserve merit because (a) Lam, in acting as a GM, is also a partner and his actions were never objected to by the partners, and (b) it also appeared from the evidence that Lo, Lam and the other partners authorized some of the loans.

NOTE: Under the New Civil Code, a firm name may or may not include the name of one or more of the partners (Article 1815).

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