Topic: Obligations of the Partners to Third Persons

Case Title: MacDonald v. National City Bank of New

York
Date: May 21, 1956
Ponente: Paras, J.
Legal Doctrine: A person purporting to be the general
manager of an unregistered commercial partnership,
which is a de facto partnership, is fully authorized to
execute a mortgage in behalf of the partnership.
Facts:
1. Stasikinocey is a partnership formed by Alan
Gorcey, Louis Da Costa JR., William Kusik and Emma
Badong Gavino
2. It was denied registration in the SEC due to the
confusion between Stasikinocey and Cardinal Rattan,
which is treated as a co-partnership where Gorcey and
Da Costa are the general partners. It appears that
Cardinal Rattan is merely the business name or style
used by the partnership Stasikinocey
3.Stasikinocey, prior to June 3 1949, had an overdraft
account with the National City Bank of New York (a
foreign banking association licensed to do business in
the Philippines.) On June 3, 1949, the overdraft
account had a balance of P6,134.92. Due to the failure
of Stasikinocey to make payment, the balance was
converted into an ordinary loan. A promissory note
(joint, non-negotiable) was executed on the same day
by Da Costa for and in the name of Cardinal Rattan,
himself, and Gorcey.
4. On June 7, 1949, the promissory note was secured
by a chattel mortgage executed by Da Costa, the

general partner, for and in the name of Stasikinocey.

The mortgage was constituted over a Fargo truck, a
Plymouth sedan, and a Fargo Pick-Up.
5. The mortgage was registered with the Office of the
Register of Deeds at Pasig, Rizal. It is stipulated that
the mortgagor shall not sell or otherwise dispose of the
said chattels without the mortgagees written consent,
and that the mortgagee may foreclose the mortgage
at any time, after breach of any conditions thereof, the
mortgagor waiving the 30-day notice of foreclosure.
6. On the same day, Gorcey and Da Costa executed an
agreement purporting to convey and transfer all their
rights, title and participation in Stasikinocey to
Shaeffer, allegedly in consideration of the cancellation
of their indebtedness of P25,000 to Shaeffer. Said
agreement is said to be in violation of the Bulk Sales
Law.
7. Despite the mortgage lien, Statisikinocey, through
Gorcey and Da Costa transferred to MacDonald the
Fargo Truck and Plymouth Sedan. Shaeffer sold the
Fargo pick-up to MacDonald as well. MacDonald then
sold the Fargo truck and Plymouth sedan to Benjamin
Gonzales
8. When the National City Bank learned of the
transactions, it filed an action against Stasikinocey, Da
Costa, Gorcey, MacDonald and Gonzales to recover its
credit and to foreclose the chattel mortgage.
9. The CFI annulled the sale of the vehicles to
Gonzales and ordered Da Costa and gorcey to pay the
Bank jointly and severally the amount of P6, 132.92. It
also ordered Gonzales to deliver the vehicles to the

Bank for sale at a public auction if Da Costa and

Gorcey fails to make payment and ordered Da Costa,
Gorcey and MacDonald to pay the Bank jointly and
severally any deficiency that remains unpaid should
the proceeds of the auction be insufficient.
10. The CA modified the CFI decision, ruling that
MacDonald is not jointly and severally liable with
Gorcey and Da Costa to pay any deficiency.
Issues:
1. WON the partnership Stasikinocey is estopped from
asserting that it does not have a juridical personality
since it is an unregistered commercial partnership.
2. WON the mortgage executed by Da Costa is valid
Held: YES to both (1) and (2)
Ratio:
1. While an unregistered commercial partnership has
no juridical personality, nevertheless, where two or
more persons attempt to create a partnership and fails
to comply with all the legal formalities, the law
considers them as partners and the association is a
partnership insofar as it is favorable to third persons,
by reason of the equitable principle of estoppel.
Da Costa and Gorcey cannot deny that they are
partners of the partnership Stasikinocey because in all
their transactions with the Bank, they presented
themselves as such. MacDonald cannot disclaim
knowledge of the partnership because he dealt with
the said entity in purchasing two vehicles through
Gorcey and Da Costa. The sale of the vehicles to
MacDonald being void, the sale to Gonzales is likewise

void, since a buyer cannot have a better right than the

seller.
As was held in Behn Meyer & Co. v. Rosatzin, where a
partnership duly organized has been recognized as
such in its dealings with certain persons, it shall be
considered a partnership by estoppel and the
persons dealing with it are estopped from denying its
existence.
If the law recognizes a defectively organized
partnership as a de facto partnership as far as third
persons are concerned, for the purposes of its de facto
existence it should have such attribute of a
partnership such as domicile.
2. The chattel mortgage is in the form required by law,
and there is therefore the presumption of its due
execution which cannot be easily destroyed by the
biased testimony of the one who executed it.
The interested version of Da Costa that the affidavit of
good faith appearing in the Chattel Mortgage was
executed in Quezon City before a notary public for and
in the City of Manila was correctly rejected by the CFI
and CA.
In view of the conclusion that Stasikinocey is a de
facto partnership, and Da Costa appears as a comanager in the letter of Gorcey to the Bank and in the
promissory note executed by Da Costa, and that even
the parters considered him as such, the partner who
executed the chattel mortgage in question must be
deemed to be so fully authorized.
Section 6 of the Chattel Mortgage Law provides that
when a partnership is a party to the mortgage, the

affidavit may be made and subscribed by one of the

members thereof.

In this case, the affidavit was executed and subscribed

by Da Costa, not only as a partner but as a managing
partner.