Union Farmaceutica Filipina v. Icasiano
REITERATIONFacts
The Antecedents: Union Farmaceutica Filipina (plaintiff) filed an action to recover P446.18 from Francisco Icasiano (defendant) for the value of drugs and other articles sold to him. Procedural History: The Court of First Instance of Manila rendered judgment in favor of the plaintiff. The defendant appealed the decision to the Supreme Court. The Appeal: The defendant admitted purchasing the property from the plaintiff between September 9, 1904, and October 4, 1904, and that he had not paid in cash. His defense rested on the assertion that as a shareholder, he had the right to buy on credit up to two-thirds of his paid-in capital, as per Articles 8 and 9 of the company's by-laws. He claimed that by operation of Article 9, the value of the goods was automatically deducted from his capital stock, thereby settling the debt.
Issue(s)
Whether Articles 8 and 9 of the by-laws of an anonymous mercantile partnership, which allow partners to buy on credit against their capital stock and automatically deduct unpaid balances from their shares, are valid and enforceable. Whether the defendant's debt for goods purchased was extinguished by the operation of the said by-laws.
Ruling
The Supreme Court affirmed the judgment of the lower court in favor of the plaintiff. The defendant's debt was not extinguished, and he was liable for the amount owed.
Ratio Decidendi
On Issue 1: The Court ruled that Article 8 of the by-laws, which allowed partners or shareholders to keep a current account with the partnership up to two-thirds of their paid-in sum and required cash payment thereafter, was in violation of Article 167 of the Code of Commerce. Article 167 explicitly prohibits anonymous partnerships from making loans upon the security of their own shares. Therefore, Article 8 was declared void. The Court further found Article 9, which stipulated that unpaid orders by city-residing partners would be paid within the first ten days of the following month, after which interest would accrue and the unpaid amount would be deducted from the partner's share in the capital, to be in violation of Article 166 of the Code of Commerce. Article 166 permits anonymous partnerships to purchase their own shares only for the purpose of amortization, using profits or, in cases of capital reduction, with a portion of the capital under specific legal measures. The automatic deduction of unpaid balances from a partner's share constituted an effective purchase by the company of its own stock outside the permitted amortization process, thereby reducing the company's capital stock improperly. Consequently, Article 9 was also deemed void. On Issue 2: Since both Articles 8 and 9 of the by-laws were declared void for contravening mandatory provisions of the Code of Commerce, the defendant's defense that his debt was automatically paid by the deduction from his capital stock failed. The operation of these void by-laws could not extinguish his obligation to pay for the goods he purchased. The Court found that the defendant admitted to the purchase of the property and the non-payment thereof in cash, and his defense, which relied on the validity of the by-laws, was without legal basis. Therefore, the defendant remained liable for the P446.18 owed to the plaintiff.
Main Doctrine
Anonymous partnerships are prohibited from making loans upon the security of their own shares, as stipulated in Article 167 of the Code of Commerce. Furthermore, such partnerships can only purchase their own shares for the purpose of amortization, and only with profits, or with a portion of the capital under specific legal measures for capital reduction, as per Article 166 of the Code of Commerce. Any by-laws or agreements that contravene these provisions are considered void.