Topic: Obligations of the Partners to Third Persons

Case Title:
GEORGE O. DIETRICH, Plaintiff-Appellee,
vs.
O.K. FREEMAN, JAMES L. PIERCE, and BURTON
WHITCOMB, defendants.
BURTON WHITCOMB, Appellant.
GR No.: L-6252
Date: January 28, 1911
Ponente: TRENT, J.
Quick Facts:
Plaintiff sued to collect from the partners of Manila
Steam Laundry. The trial court held the defendants
jointly and severally liable. The Court reversed holding
that the business was a partnership of cuentas en
participacion and the liability of the partners is prorata based on their interest in the business.

Facts:
Plaintiff Dietrich was employed by defendants Freeman, and
Whitcomb as owners and operators of Manila Steam Laundry
(Whitcomb obtained his interest in the business from Pierce
who sold his interests to him). He filed the action to collect
from defendants the balance due to him for the services he
performed.
The trial court held Freeman and Whitcomb jointly and
severally liable to Dietrich.
Whitcomb appealed the decision insisting that he should not
be held jointly and severally liable with Freeman. (Note:
Freeman was the managing partner of the laundry and
Whitcomb barely had a hand on the operations of the
business).
To avoid liability it appears that the theory of Whitcomb here
is two layered. First, that the partnership was a commercial
partnership. Second that it is a partnership of cuentas en
participacion.
Issue:
WON Whitcomb is liable to Freeman.YES
What is the nature of liability? Pro rata based on his interest in
the business.

Ratio:
In determining the liability of Freeman, the Court first
identified the nature of the business.
Art 17 and 119 of the Code of Commerce then applicable,
provide the requirements for the constitution of a commercial
partnership (i.e. recording of the business agreements in the
commercial registry.) The requirements were not complied
with. The Court therefore held that no formal partnership was
entered into between Freeman and Whitcomb. As such, the
Civil Code and not the Code of Commerce must govern in
determining the liability of the partners.
Insisting that he is not liable, Whitcomb posits that the
association was one of cuentas en participation. A partnership
of cuentas en participacion is constituted in such a manner that
its existence was only known to those who had an interest in
the same, there being no mutual agreement 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. under the
provisions of article 242 of the Code of Commerce, those who
contract with the person in whose name the business of such a
partnership was conducted shall have only the right of action
against such person and not against other persons interested
However, a partnership of cuentas en participacion does not
have a corporate name. Here, the business is known as Manila
Steam Laundry and Dietrich was employed by Manila steam
Laundry and not Freeman alone.
Since the artners were doing business under this name, and
since it is not a commercial partnership, Articles 1698 and
1137 of the Civil Code should govern and the partners are not
liable individually for the entire amount due the plaintiff. The
liability is pro rata and in this case the appellant is responsible
to the plaintiff for only one-half of the debt.
DISPOSITIVE:
Judgment modified. Whitcomb liable only to half the balance
due plaintiff.

From scribd