January 17, 1908

TOMAS SUNICO, executor of the ESTATE OF TELESFORO CHUIDIAN, plaintiff-appellant,

vs.
FRANCISCO CHUIDIAN, defendant-appellee;
and
FRANCISCO CHUIDIAN, plaintiff-appellee,
vs.
THE ESTATE OF TELESFORO CHUIDIAN, et.al., defendants-appellants.
CARSON, J.:
NATURE: Appeal of a CFI decision. Original case for collection of a sum of money against a partnership
SUMMARY: Telesforo Chuidian (a filthy rich businessman), together with 3 others, were partners in a mercantile
partnership. The partners were allowed to draw credit from the partnership. Eventually the partnership became
deeply indebted to the partners, and to plaintiff Francisco who is Telesforos brother. Telesforo then died. The
partnership had to be liquidated, and the partners stipulated that outside creditors of the partnership had to be paid
first, prior to paying Francisco. Francisco therefore sued the partnership and Telesforos estate. CFI held that
Francisco was indebted to his brother, but suspended execution until the liquidation of the partnership was finished,
because the partnership was indebted to Francisco. CFI further ordered that Franciscos debt to Telesforo be set off
against the partnerships debt to Francisco in case the latter is unable to fully pay his debt. The administrator of
Telesforos estate appealed this set-off to the SC, which upheld such. SC held that the stipulation placing a lower
preference to Franciscos debt is void as against him because he was not a party to the partnership agreement, nor
did he agree to such stipulation. SC also held that the set-off of Franciscos debt against his credit on ther partnership
is proper because Telesforo is solidarily liable with the partnership anyway.
DOCTRINE: [A] condition which attempts to relieve the partners of a responsibility expressly imposed by law for the
protection and security of third persons dealing with the partnership is prohibited, and is therefore invalid and of no
effect so far as it affects them.
Under the Code of Commerce, a creditor may sue the individual partners and the partnership simultaneously, their
responsibility being solidary.
FACTS
(NOTE: The partnership herein was governed by the Code of Commerce)
- Dec. 29, 1882 TELESFORO, CANDELARIA, and RAYMUNDA, all surnamed CHUIDIAN; and Mariano
BUENAVENTURA executed a contract of partnership constituting the firm Chuidian, Buenaventura y Compaia.
- The partnership was classified as a compania regular colectiva under the Code of Commerce
- The capital was fixed at 160,000 Mexican pesos, 150,000 coming from the Chuidians and 10,000 from
Buenaventura.
- Each partner had a current account with the partnership. The accounts were treated as a credit against the
partnership, and bore interest.
- Under these current accounts, the partnership became indebted to the partners thus: to Telesforo, 277,595.04
Mexican pesos; to Candelaria, 186,551.25 2/8 Mexican pesos; to Raymunda, 106,894.412 2/8 Mexican pesos ; and
to Buenaventura, 96,588.10 5/8 Mexican pesos.
- The partnership also had a debt of 24,630.22 Mexican pesos, with 8% interest p.a. to FRANCISCO Chuidian,
Telesforos brother.
- Dec. 31, 1896 Franciscos account with the partnership was balanced. The accounting showed a credit in favor of
Francisco, amounting to 20,116 and 3/8 Mexican pesos.
- Francisco alleged that in the articles of partnership, the partners agreed to place a preference to the credits of
Francisco and another brother, JOSE over the credits of the partners, in case the partnership accounts are settled.
Francisco alleged that the partners disregarded this stipulation and paid their own accounts by withdrawing various
amounts from the partnership funds. Francisco also alleged that the partnership had become insolvent.
- 1902 Telesforo died. Defendant Tomas SUNICO was appointed administrator of his estate.
- Francisco presented his claim before the commission appointed to settle claims against Telesforos estate. The
claim was denied.
- Francisco filed a collection suit against Telesforos estate and the liquidator of the partnership, alleging that they owe
32,053.73 Mexican pesos to him
- Nov. 6, 1903 Sunico as administrator sued Francisco for 8,040.78 Mexican pesos plus interest.
- Francisco moved for the consolidation of his complaint with that of the Sunicos. The trial court granted the motion.
- PARTNERSHIPS DEFENSE
- that Franciscos preference of credit was suspended in favor of the partnerships outside creditors

- that Francisco requested the partnership to transfer 14,000 Mexican pesos of his credit to Jose
- that Franciscos credit was only 14,619.74 3/8 Mexican pesos at the time the suit was filed
- ESTATES DEFENSE
- that the responsibility of the partners was limited to their share in the partnership capital
- that Clause 19 of the articles of partnership provided that outside creditors of the partnership were to be
preferred over Francisco and Jose; and that these outside creditors were owed 17,431.06 2/8 Mexican
pesos
- that the responsibility of the partners cannot be ascertained yet as the liquidation of the partnership has not
yet been concluded
- that the partnership was never insolvent, and even had 585,256.56 7/8 Mexican pesos in assets
- CFI DECISION (Dec. 12, 1904)
- In Sunicos suit
- ordered Francisco to pay 9,236.03 Mexican pesos to the estate of Telesforo, plus 8% interest p.a.
from March 23, 1904
- Judgment will not be executed until the liquidation of the partnership and Franciscos claim thereat
has been satisfied
- If Franciscos claim against the partnership is not fully satisfied in the liquidation, the balance may
be set off against the judgment
- In Franciscos suit
- ordered the partnership liquidator to pay 13,413.58 Mexican pesos to Francisco, plus 8% interest
p.a. from April 5, 1901
- Sunico appealed the decision to the SC, on the following
ISSUES (HELD)
1) W/N the set-off of Franciscos debt in the suit against the estate of Telesforo is proper (YES)
2) W/N the partners are solidarily liable for the debt (YES)
3) W/N the award in favor of Francisco and against the partnership is proper (YES)
RATIO
1) Issues 1 and 2 decided jointly (these were the 1st and 3rd assignments of error)
SUNICOS 1st ARGUMENT: Francisco is not entitled to judgment against the estate, invoking the rule that a creditor
cannot recover from an individual partner in the same action in which judgment was rendered against the partnership
itself (based on Art. 237, Code of Commerce which states that execution will not issue on the property of the
individual partners in a compania regular colectiva until the partnership property has been exhausted)
SC: Argument is not meritorious.
Code of Commerce 127: All the members of the general copartnership, be they or be they not managing
partners of the same, are personally and jointly liable with all their property for the results of the transactions
made in the name and for the account of the partnership . . . .
CC 1144: A creditor may sue any of the joint debtors or all of them simultaneously. . . .
The foregoing provisions establish the creditors right to simultaneously sue the indivdual partners and the
partnership; and Code of Commerce 237 does not take away this right, because the judgment of the CFI
has sufficiently protected Telesforos rights under Art. 237 by providing for the offset of Franciscos debt
against Telesforos share in the partnership. This is sufficient and practical recognition of the rights of
Telesforo and Francisco, and should be upheld.
SUNICOS 2ND ARGUMENT: Code of Commerce 127 and CC 1144 do not apply herein because the partnership is
not a compania colectiva, since clause 19 of the articles of partnership expressly limits the liability of the partners to
their share of the capital; and the Code of Commerce mandates that the partners in a compania colectiva are liable
personal y solidariamente.
SC: [W]e are of opinion that if it be found on examination that in all other respects the partnership is a compaia
colectiva, Clause 19 of the articles of partnership must be held to be absolutely null and void, in so far as it affects
third persons, being in manifest conflict with the provisions of Article 127.
Article 117 of the Code of Commerce expressly provides that whatever be the form in which the article of
partnership are executed, if they comply with the legal requisites, the lawful and honest conditions thereof
shall be valid and obligatory, but only in so far as they are not expressly prohibited in that code.
Clearly, a condition which attempts to relieve the partners of a responsibility expressly imposed by law for
the protection and security of third persons dealing with the partnership is prohibited, and is therefore invalid
and of no effect so far as it affects them.
DEFN OF MERCANTILE PARTNERSHIP, CODE OF COMMERCE 116: Articles of association by which two
or more persons obligate themselves to place in a common fund any property, industry, or any of these
things, in order to obtain profit, shall be commercial, no matter what the class may be, provided the
association has been established in accordance with the provisions of this code.
CLASSIFICATION OF MERCANTILE PARTNERSHIPS:

1. The regular general copartnership in which all the partners, under a collective and commercial name, bind
themselves to participate, in the proportion which may be established, in the same rights and obligations.
(COMPANIA COLECTIVA)
2. The limited copartnership to which one or more persons contribute a specific amount of capital to a
common fund, in order to be liable for the social transactions executed exclusively by others under a
collective name. (COMPANIA COMANDITARIA)
3. The corporation, in which the members form the common fund by means of specific parts or portions,
represented by shares or in any other unquestionable manner leaving its management to removable
managers or administrators, who represents the company under an appropriate denomination according to
the purpose or undertaking the funds are destined to. (COMPANIA ANONIMA)
PARTNERSHIP IN THIS CASE: is a compania colectiva, as it clearly falls under the definition. It is not a
compania comanditaria or compania anonima, therefore clause 19 [NOTE: the case says clause 5 pero
wala naman nabanggit kung ano yun!!] of the articles of partnership should be held invalid and of no effect
as far as third persons are concerned.
2) STIPULATION IN PARTNERSHIP CONTRACT DOES NOT BIND THIRD PERSONS WHO ARE NOT
PARTNERS OR DID NOT AGREE WITH SUCH STIPULATION
STIPULATION IN ISSUE: Upon the dissolution of the company the corporate capital shall be distributed as
follows: After payment of outstanding obligations in favor of persons foreign to the society, the capital falling
to the share of the minors Jose de Marcaida y Chuidian and Francisco Chuidian will be deducted together
with interest at the rate of 8 per cent per annum, the latter to be credited in current account.
HELD: This stipulation cannot bind Francisco and Jose, since they were not partners; neither was it shown
that Francisco agreed to it.
The stipulation does not create a preference in favor of outside creditors, but merely gives express
recognition to the credits in favor Francisco and Jose.
Under the circumstances [Francisco] is not and [cannot] be bound by the provisions of the articles of
partnership relied upon by [Sunico et.al.] nor can they have the effect of postponing his right of recovery, as
contended by [Sunico et.al.].
ON THE ALLEGED ERROR IN COMPUTATION OF THE INTEREST: It was found that in the statement of
account, an item was placed under the April 5 entry when it should have been placed under the April 25
entry. Such error did not prejudice the estates rights and cannot serve as basis for modifying the judgment
herein.
DISPOSITION
The judgment of the trial court should be, and is hereby, affirmed with the costs of this instance against the appellant.
So ordered.