EN BANC

[G.R. No. 45624. April 25, 1939.]

GEORGE LITTON, petitioner-appellant, vs. HILL & CERON, ET

AL., respondents-appellees.

George E. Reich for appellant.

Roy & De Guzman for appellees.
Espeleta Quijano & Liwag for appellee Hill.

SYLLABUS

1. COMMERCIAL LAW; DISSOLUTION OF A COMMERCIAL

ASSOCIATION; EFFECT UPON A THIRD PERSON. — Under article 226 of the
Code of Commerce, the dissolution of a commercial association shall not
cause any prejudice to third parties until it has been recorded in the
commercial registry. The Supreme Court of Spain held that the dissolution of
a partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons.
2. ID.; ID.; RIGHT OF THIRD PERSON TO PRESUME THAT PARTNER
WITH WHOM HE CONTRACTS HAS CONSENT OF COPARTNER. — The
stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has a
right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18,
section 334, Code of Civil Procedure), and that the law has been obeyed (No.
31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties. Unless the contrary is
shown, namely, that one of the partners did not consent to his copartner
entering into a contract with a third person, and that the latter with
knowledge thereof entered into said contract, the aforesaid presumption
with all its force and legal effects should be taken into account. There is
nothing in the case at bar which destroys this presumption.
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 3. ID.; PROHIBITION AGAINST BROKERS TO BUY AND SELL SHARES
ON THEIR OWN ACCOUNT. — The order of the Bureau of Commerce of
December 7, 1933, prohibits brokers from buying and selling shares on their
own account. The second paragraph of the articles of partnership of Hill &
Ceron reads in part: "Second: That the purpose or object for which this
copartnership is organized is to engage in the business of brokerage in
general, such as stock and bond brokers, real brokers, investment security
brokers, shipping brokers, and other activities pertaining to the business of
brokers in general." The kind of business in which the partnership Hill &
Ceron is to engage being thus determined, none of the two partners, under
article 130 of the Code of Commerce, may legally engage in the business of
brokerage in general as stock brokers, security brokers and other activities
pertaining to the business of the partnership. C. therefore, could not have
entered into the contract of sale of shares with L as a private individual, but
as a managing partner of Hill & Ceron.
4. ID.; CONTRACT WITH THIRD PERSON IN GOOD FAITH AGAINST
THE WILL OF ONE OF MANAGING PARTNERS. — Under article 130 of the
Code of Commerce, when, not only without the consent but against the will
of any of the managing partners, a contract is entered into with a third
person who acts in good faith, and the transaction is of the kind of business
in which the partnership is engaged, as in the present case, said contract
shall not be annulled, without prejudice to the liability of the guilty partner.
The reason or purpose behind these legal provisions is no other than to
protect a third person who contracts with one of the managing partners of
the partnership, thus avoiding fraud and deceit to which he may easily fall a
victim without this protection which the Code of Commerce wisely provides.

DECISION

CONCEPCION, J : p

This is a petition to review on certiorari the decision of the Court of

Appeals in a case originating from the Court of First Instance of Manila
wherein the herein petitioner George Litton was the plaintiff and the
respondents Hill & Ceron, Robert Hill Carlos Ceron and Visayan Surety
Insurance Corporation were defendants. The facts are as follows: On
February 14, 1934, the plaintiff sold and delivered to Carlos Ceron, who is
one of the managing partners of Hill & Ceron, a certain number of mining
claims, and by virtue of said transaction, the defendant Carlos Ceron
delivered to the plaintiff a document reading as follows:
"Feb. 14, 1934
"Received from Mr. George Litton share certificates Nos. 4428,
4429 and 6699 for 5,000, 5,000 and 7,000 shares respectively — total
17,000 shares of Big Wedge Mining Company, which we have sold at
P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent
brokerage.
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 "HILL & CERON
"By: (Sgd.) CARLOS CERON"
Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid balance
of P720, and unable to collect this sum either from Hill & Ceron or from its
surety Visayan Surety & Insurance Corporation, Litton filed a complaint in
the Court of First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered Carlos Ceron
personally to pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On
appeal to the Court of Appeals, the latter affirmed the decision of the court
on May 29, 1937, having reached the conclusion that Ceron did not intend to
represent and did not act for the firm Hill & Ceron in the transaction involved
in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the
Court of Appeals as to the question of fact just mentioned, namely, that
Meat Ceron individually entered into the transaction with the plaintiff, but in view,
however, of certain undisputed facts and of certain regulations and
provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law as
effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified
at the trial that he and Ceron, during the partnership, bad the same power to
buy and sell; that in said partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on the date of the transaction,
February 14, 1934, the partnership between Hill and Ceron was in existence.
After this date, or on February 19th, Hill & Ceron sold shares of the Big
Wedge; and when the transaction was entered into with Litton, it was neither
published in the newspapers nor stated in the commercial registry that the
partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a
conversation with the plaintiff in the course of which he-advised the latter
not to deliver shares for sale or on commission to Ceron because the
partnership was about to be dissolved; but what importance can be attached
to said advice if the partnership was not in fact dissolved on February 14th,
the date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties until it
has been recorded in the commercial registry. (See also Cardell vs. Mañeru,
14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March
23,1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. Said order reads:
"The stock and/or bond broker is, therefore, merely an agent or
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 an intermediary, and as such, shall not be allowed . . .
"(c) To buy or to sell shares of stock or bonds on his own
account for purposes of speculation and/or for manipulating the
market, irrespective of whether the purchase or sale is made from or to
a private individual, broker or brokerage firm."
In its decision the Court of Appeals states:
"But there is stronger objection to the plaintiff's attempt to make
the firm responsible to him. According to the articles of copartnership
of Hill & Ceron,' filed in the Bureau of Commerce:
" 'Sixth. That the management of the business affairs of the
copartnership shall be entrusted to both copartners who shall jointly
administered the business affairs, transactions and activities of the
copartnership, shall jointly open a current account or any other kind of
account in any bank or banks, shall jointly sign all checks for the
withdrawal of funds and shall jointly or singly sign, in the latter case,
with the consent of the other partner. . . "
"Under this stipulation, a written contract of the firm can only be
signed by one of the partners if the other partner consented. Without
the consent of one partner, the other cannot bind the firm by a written
contract. Now, assuming for the moment that Ceron attempted to
represent the firm in this contract with the plaintiff (the plaintiff
conceded that the firm name was not mentioned at that time), the
latter has failed to prove that Hill had consented to such contract."
It follows from the sixth paragraph of the article of partnership of Hill &
Ceron above quoted that the management of the business of the partnership
has been entrusted to both partners thereof, but we dissent from the view of
the Court of Appeals that for one of the partners to bind the partnership the
consent of the other is necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the two partners, to ascertain
made has the consent of the partner. The public need to make inquiries as to
the agreements had between the partners. Its knowledge is enough that it is
contracting with the partnership which is represented by one of the
managing partners.
"There is a general presumption that each individual partner is
an authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions." (Mills vs. Riggle, 112
Pac., 617.)
"The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of the firm
acting apparently in its behalf and within the scope of his authority."
(Le Roy vs. Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron
reads in part:
"Second: That the purpose or object for which this copartnership
is organized is to engage in the business of brokerage in general, such
as stock and bond brokers, real brokers, investment security brokers,
shipping brokers, and other activities pertaining to the business of
brokers in general."

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 The kind of business in which the partnership Hill & Ceron is to engage
being thus determined, none of the two partners, under article 130 of the
Code of Commerce, may legally engage in the business of broKerage in
general as stock brokers, security brokers and other activities pertaining to
the business of the partnership. Ceron, therefore, could not have entered
into the contract of sale of shares with Litton as a private individual, but as a
managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction similar
to that in which the partnership is engaged without binding the latter,
nevertheless there is no law which prohibits a partner in the stock brokerage
business for engaging in other transactions different from those of the
partnership, as it happens in the present case, because the transaction
made by Ceron is a mere personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do not find this alleged
corroboration because the only finding of fact made by the Court of Appeals
is to the effect that the transaction made by Ceron with the plaintiff was in
his individual capacity.
The appealed decision is reversed and the defendants are ordered to
pay to the plaintiff, jointly and severally, the sum of P720, with legal interest,
from the date of the filing of the complaint, minus the commission of one-
half per cent (½%) from the original price of P1,870, with the costs to the
respondents. So ordered.
Avanceña, C.J., Villa-Real, Imperial, Diaz, Laurel and Moran, JJ., concur.
RESOLUTION
July 13, 1939
CONCEPCION, J .:
A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. It is asked that we reconsider our decision, the said
defendant insisting that the appellant had not established that Carlos Ceron,
another of the defendants, had the consent of his copartner, the movant, to
enter with the appellant into the contract whose breach gave rise to the
complaint. It is argued that, it being stipulated in the articles of partnership
that Hill and Ceron, only partners of the firm Hill & Ceron, would, as
managers, have the management of the business of the partnership, and
that either may contract and sign for the partnership ,with the consent of the
other; the articles of partnership having been, so it is said, recorded in the
commercial registry, the appellant could not ignore the fact that the consent
of the movant was necessary for the validity of the contract which he had
with the other partner and defendant, Ceron, and there being no evidence
that said consent had been obtained, the complaint to compel compliance
with the said contract had to be, as it must be in fact, a procedural failure.
Although this question has already been considered and settled in our
decision, we nevertheless take cognizance of the motion in order to enlarge
upon our views on the matter.
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 The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the partnership
with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before
contracting for the partnership. This obligation of course is not imposed upon
a third person who contracts with the partnership. Neither is it necessary for
the third person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other. A third person
may and has a right to presume that the partner with whom he contracts
has, in the ordinary and natural course of business, the consent of his
copartner; for otherwise he would not enter into the contract. The third
person would naturally not presume that the partner with whom he enters
into the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith. And this finds support in the
legal presumption that the ordinary course of business has been followed
(No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the
partners did not consent to his copartner entering into a contract with a third
person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects should
be taken into account.
There is nothing in the case at bar which destroys this presumption;
the only thing appearing in the findings of fact of the Court of Appeals is that
the plaintiff "has failed to prove that Hill had consented to such contract".
According to this, it seems that the Court of Appeals is of the opinion that
the two partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of partnership should not
be thus understood, for it means that one of the two partners should have
the consent of the other to contract for the partnership, which is different;
because it is possible that one of the partners may not see any prospect in a
transaction, but he may nevertheless consent to the realization thereof by
his copartner in reliance upon his skill and ability or otherwise. And here we
have to hold once again that it is not the plaintiff who, under the articles of
partnership, should obtain and prove the consent of Hill, but the latter's
partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third person, the
plaintiff, who asks for it. While the said presumption stands, the plaintiff has
nothing to prove.
Passing now to another aspect of the case, had Ceron in any way
stated to the appellant at the time of the execution of the contract, or if it
could be inferred by his conduct, that he had the consent of Hill, and should
it turn out later that he did not have such consent, this alone would not
annul the contract judging from the provisions of article 130 of the Code of
Commerce reading as follows:
"No new obligation shall be contracted against the will of one of
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 the managing partners, should he have expressly stated it; but if,
however, it should be contracted it shall not be annulled for this
reason, and shall have its effects without prejudice to the liability of the
partner or partners who contracted it to reimburse the firm for any loss
occasioned by reason thereof." (Emphasis ours.)
Under the aforequoted provisions, when, not only without the consent
but against the will of any of the managing partners, a contract is entered
into with a third person who acts in good faith, and the transaction is of the
kind of business in which the partnership is engaged, as in the present case,
said contract shall not be annulled, without prejudice to the liability of the
guilty partner.
The reason or purpose behind these legal provisions is no other than to
protect a third person who contracts with one of the managing partners of
the partnership, thus avoiding fraud and deceit to which he may easily fall a
victim without this protection which the Code of Commerce wisely provides.
If we are to interpret the articles of partnership in question by holding
that it is the obligation of the third person to inquire whether the managing
copartner of the one with whom 'he contracts has given his consent to said
contract, which is practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, separate to hinder
effectively the transactions, a thing not desirable and contrary to the nature
of business which requires promptness and dispatch on the basis of good
faith and honesty which are always presumed.
In view of the foregoing, and sustaining the other views expressed in
the decision, the motion is denied. So ordered.
Avanceña, C.J., Villa-Real, Imperial, Diaz, Laurel and Moran, JJ., concur.

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