PNB vs Lo et. al.

Business Organization Partnership, Agency, Trust 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 firms 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 nonpayment. 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 firms 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).

Collector of Internal Revenue v. Isasi (G.R. No. L-9186, 29

April 1957)
Full Title: Collector of Internal Revenue vs. Juan Isasi, M. Salustiana
Aldecoa, Claudio Zuloaga, MirenZuloaga, Hugo P. Rodriguez, And
The Court Of Tax Appeals
Topic: LIMITED PARTNERSHIP
Ponente: Felix, J.Nature: Petition for
Review Doctrine: A limited partnership that has not complied with
the law of its creation is not considered alimited partnership at all,
but a general partnership in which all the members are liable.
Facts:
Juan Isasi, M. Salustiana Aldecoa, Claudio Zuloaga, Jr., and Miren
Zuloaga formed a partnership known as "Aldecoa, Zuloaga e Isasi"
for the exploitation of Haciendas Manucao and Conchita, located
inNegros, Occidental. The partnership agreement was styled
Escritura de Constitucion de la Sociedad Agricola Limitada
Aldecoa, Zuloaga e Isasi,
During its life, the firm paid P26,873.66 corporate income tax.
The partners also filed and paid their individual ITRs. The
partnership later filed a claim for income tax refund for the
P26,873.66, which was not acted upon, so a complaint was filed
with the CFI Negros Occidental.

Argument of the Partners: The partnership was a duly

registered general co-partnership (sociedadcolectiva) and
therefore not subject to income tax. It had the form and style of a
general co-partnership. They also argued that a partnership,
whether civil or commercial, would be entitled to the exemption as
long as it is a general partnership, because the Tax Code makes
qualification to this effect. [Note: This case is governed by the old
Civil Code (Art. 2253, new Civil Code) and the Code of Commerce,
where there was a distinction between civil and commercial
partnership. There are no such distinctions in the New Civil Code.
This matter is, therefore, irrelevant to class discussion.]
Argument of BIR: Aldecoa, Zuloaga e Isasi is not a general or
regular collective partnership, but a limited partnership and as
such cannot be exempt from income tax. Being a civil partnership
that adopted the form of compaias colectivas, whether registered
or not, Aldecoa, Zuloaga e Isasi could be taxed as a corporation.
CTA: the partnership was general and is not liable for income tax
as a juridical person. Refund justified.
Issue:
Was Aldecoa, Zuloaga e Isasi a limited partnership, which is
subject to corporate income tax?
Held: No.
Ratio: The terms of the partnership agreement show that it is a
general partnership. They have a firmname Aldecoa, Zuloaga e
Isasi composed of all the surnames of the partners - to which
thewords "and company" (to indicate the limited partnership
Art. 146 of the Code of Commerce) is not added; the management
of the firm was entrusted to a partner, Don Juan Isasi; there is no
person contributing a specific amount of capital to a common fund
to become liable for the business transactions of the firm executed

exclusively by others under a collective name, as is the case

inlimited partnerships; the duration of the partnership was made
to last until June 30, 1952; and it allowedits manager, Don Juan
Isasi to engage in the same kind of undertaking. It is
unmistakable, notwithstanding the title of the partnership
agreement (Escritura de Constitucion de la Socieda Agricola
Limitada Aldecoa, Zuloaga e Isasi), that the partners
intended to organize a general partnership.
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. Moreover, a limited partner in a limited partnership cannot
perform any act in the management of the partner interests and
cannot even examine the condition and state of partnership
administration except at stated times (Articles122(2), 148 and
150, Code of Commerce), unlike the partnership Aldecoa, Zuloaga
e Isasi, wherein all the partners exercised powers of management
and administration.
SC We, therefore, declare that the Partnership "Aldecoa, Zuloaga
e Isasi" was a duly registered general co-partnership (sociedad
colectiva) within the meaning and contemplation of sections 24
and 26 of the National Internal Revenue Code.

PACIFIC
COMMERCIAL
COMPANY, plaintiff-appellee,
vs.
ABOITIZ
&
MARTINEZ,
ET
AL., defendants. JOSE
MARTINEZ, defendant-appellant.
Business Organization Partnership, Agency, Trust Industrial
Partner Obligations as to Losses vs as to Liabilities
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 partnerships 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. Martinez appealed the decision.
ISSUE: Whether or not Martinez is liable for the said debt.
HELD: Yes. As held in the case of La Compaia Maritama vs
Francisco Muoz et al, all the members of a general partnership
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. 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.
The Supreme Court also emphasized that liability for losses 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 or liabilities to third parties.
NOTE: An industrial partner is not liable for losses. A provision
exempting an industrial partner from losses is naturally valid but
the same provision exempting a capitalist partner is void. A
provision making an industrial partner liable for losses is
permissible. An industrial partner may be held liable by third
persons but he may recover from the capitalist partners for after
all, he is not liable for losses.