Philippine National Bank 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 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).