Bourns vs. Carman, et al.

A business association conducted by one person in his own name, with others sharing in its profits and losses under a verbal agreement and without a corporate name, is a partnership of cuentas en participacion; third persons contracting with the manager may recover only from the manager and not from the other participants.

Lo-Chim-Lim operated a lumber yard in Calle Lemery, Manila, and Frank S. Bourns performed sawing work for it. The other defendants were joined on the theory that they were partners or joint proprietors of the lumber business conducted under Lo-Chim-Lim's name. The dispute required construction of the Code of Commerce provisions on cuentas en participacion, particularly the liability of persons interested in such a business to third persons who contracted with its manager.

Frank S. Bourns sued Lo-Chim-Lim and several codefendants to recover $437.50, United States currency, the balance due on a contract for sawing lumber for the lumber yard of Lo-Chim-Lim. The contract was entered into by Lo-Chim-Lim, acting in his own name with Bourns, and Lo-Chim-Lim personally agreed to pay for the work himself. Bourns nevertheless brought the action against Lo-Chim-Lim and his codefendants jointly, alleging that at the time the contract was made they were the joint proprietors and operators of the lumber yard engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim. Bourns apparently sought by this allegation to show that the other defendants were partners of Lo-Chim-Lim in the lumber-yard business.

The court below dismissed the action as to D. M. Carman and Fulgencio Tan-Tongco on the ground that they were not partners of Lo-Chim-Lim, and rendered judgment against the other defendants for the amount claimed in the complaint with costs. Vicente Palanca and Go-Tauco excepted to the judgment, moved for a new trial, and brought the case to the Supreme Court by bill of exceptions.

The evidence showed that Lo-Chim-Lim had a lumber yard in Calle Lemery of the city of Manila and was its manager, having ordered Bourns to do work for him at his sawmill in Manila; that Vicente Palanca was his partner and had an interest in the business as well as in its profits and losses; and that Go-Tuaco received part of the earnings of the lumber yard in the management of which he was interested. The court below found that Lo-Chim-Lim, Vicente Palanca, and Go-Tuaco had a lumber yard in Calle Lemery in 1904, participated in the profits and losses of the business, and that Lo-Chim-Lim was the managing partner of the lumber yard—in other words, that they were coparticipants with Lo-Chim-Lim in the business.

The alleged partnership between Lo-Chim-Lim and the appellants was formed by verbal agreement only; no evidence showed that the agreement was reduced to writing or recorded in a public instrument. The partnership had no corporate name. Bourns himself alleged that the partnership was engaged in business under the name and style of Lo-Chim-Lim only, which was the name of one of the defendants. No mutual agreement between the parties was shown, or if there was one, its terms were not established. The business was conducted by Lo-Chim-Lim in his own name, although he gave the appellants a share, and the contracts with Bourns were made by Lo-Chim-Lim individually in his own name; there was no evidence that the partnership contracted in any other form.

The lower court's finding that Palanca and Go-Tauco participated in the profits and losses of the business was sustained. The question presented to the Supreme Court was the legal nature of that participation and the consequent liability of the appellants to Bourns for the balance due on the contract.

• Partnership Liability: Respondent (plaintiff-appellee) sought recovery of the $437.50 balance due on the lumber-sawing contract and alleged that, at the time the contract was made, the defendants were the joint proprietors and operators of the lumber yard engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim, apparently to show that the other defendants were partners of Lo-Chim-Lim.

• Nature of the Association: Whether the alleged association among Lo-Chim-Lim, Vicente Palanca, and Go-Tauco, formed by verbal agreement, without a corporate name, and conducted by Lo-Chim-Lim in his own name, constituted an ordinary partnership or a partnership of cuentas en participacion under the Code of Commerce.
• Liability of Appellants: Whether Vicente Palanca and Go-Tauco, as persons interested in the profits and losses of Lo-Chim-Lim's lumber yard, were liable to Frank S. Bourns for the balance due on a contract entered into by Lo-Chim-Lim in his own name.

• Nature of the Association: The association was a partnership of cuentas en participacion, not an ordinary partnership. It was formed by verbal agreement, had no corporate name, and was conducted by Lo-Chim-Lim in his own name, with no mutual agreement shown.
• Liability of Appellants: No. Under Articles 239 and 242 of the Code of Commerce, one who contracts with the person under whose name a cuentas en participacion is conducted has a right of action only against that person, not against the other interested persons; the appellants were therefore absolved.

• Nature of the Association: The lower court's finding that Palanca and Go-Tauco participated in the profits and losses of the lumber yard was sustained, but the legal characterization of that participation was a question of law. The alleged partnership was formed by verbal agreement only; there was no evidence that it was reduced to writing or recorded in a public instrument. It had no corporate name, and the business was conducted under the name and style of Lo-Chim-Lim, the name of one of the defendants. No mutual agreement between the parties was shown, or if one existed, its terms were not established. The contracts with Bourns were made by Lo-Chim-Lim individually in his own name, and there was no evidence that the partnership contracted in any other form. Under these circumstances, the association was the accidental partnership of cuentas en participacion defined in Article 239 of the Code of Commerce.
• Liability of Appellants: Article 242 of the Code of Commerce provides that those who contract with the person under whose name the business of a cuentas en participacion is conducted have a right of action only against that person and not against the other persons interested; the latter also have no right of action against the third person who contracted with the manager unless the manager formally transfers his right to them. Because Lo-Chim-Lim was the only one who contracted with Bourns, Bourns had no right to demand payment from the appellants. The action therefore lacked legal foundation as against them, and the judgment appealed from was reversed.

• Cuentas en participacion — An accidental partnership under Article 239 of the Code of Commerce, constituted when a person conducts business in his own name with other persons interested in the profits and losses, the existence of the association being known only to those interested, without mutual agreements between the partners and without a corporate name indicating to the public that there are other persons besides the one who ostensibly manages and conducts the business. The Court applied this classification because the alleged partnership was verbal, had no corporate name, and was conducted by Lo-Chim-Lim in his own name.
• Liability of participants in a cuentas en participacion — Under Article 242 of the Code of Commerce, third persons who contract with the person under whose name the business of a cuentas en participacion is conducted may sue only that person, not the other participants; the participants, in turn, have no right of action against the third person unless the manager formally transfers his right to them. The Court applied this rule to absolve Vicente Palanca and Go-Tauco from liability to Bourns, since Lo-Chim-Lim alone contracted with Bourns in his own name.

• "Under such circumstances we find nothing upon which to consider this partnership other than as a partnership of cuentas en participacion." — The Court classifies the association after noting that it was verbal, had no corporate name, and was conducted in Lo-Chim-Lim's name.
• "A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same, being no mutual agreements between the partners and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en participacion defined in article 239 of the Code of Commerce." — This passage states the defining characteristics of a cuentas en participacion under Article 239.
• "Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the code Of Commerce.)" — This is the controlling liability rule under Article 242 of the Code of Commerce.
• "It follows, therefore that the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint, as Lo-Chim-Lim was the only one who contracted with him. the action of the plaintiff lacks, therefore, a legal foundation and should be accordingly dismissed." — The Court applies the rule to the facts and concludes that the action against the appellants cannot prosper.

• Article 239, Code of Commerce — Defines the accidental partnership of cuentas en participacion. The Court used this provision to classify the verbal association among Lo-Chim-Lim, Palanca, and Go-Tauco as a cuentas en participacion rather than an ordinary partnership.
• Article 242, Code of Commerce — Provides that persons who contract with the manager of a cuentas en participacion have a right of action only against the manager, not against the other interested persons, and that the participants have no right of action against the third person unless the manager formally transfers his right to them. The Court applied this provision to hold that Bourns could not recover from the appellants.

Arellano, C.J., Torres, Johnson, Carson, Willard, and Tracey, JJ.