Title
Atlas Trade Development Corp. vs. F. Limgenco Co., Ltd.
Case
G.R. No. L-7407
Decision Date
Jun 30, 1956
Partnership bound by contract for beef shipment; defendants liable for delivered meat but not undelivered due to poor quality; guarantors subsidiarily liable.
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Case Digest (G.R. No. L-7407)

Facts:

  1. Parties Involved:

    • Plaintiff: Atlas Trade Development Corporation.
    • Defendants: F. Limgenco Co., Ltd. (doing business as Williams International, Ltd.), Francisco Limgenco, Jr., William Herman, Ted Lewin, and Paul Macdonald.
  2. Background of the Transaction:

    • On July 8, 1948, William J. Herman, representing Williams International, Inc., ordered 200 tons of Australian frozen beef from Atlas Trade Development Corporation for shipment to Japan.
    • The beef was to be shipped in July, August, and September 1948.
    • The defendant, F. Limgenco Co., Ltd., was a partnership formed by William J. Herman and Francisco Limgenco, Jr., doing business as Williams International, Ltd.
  3. Defenses Raised by Defendants:

    • First Defense: The order was placed by Williams International, Inc., not by the defendant partnership. William J. Herman lacked authority to bind the partnership, and Francisco Limgenco, Jr. never ratified the order.
    • Second Defense: The contract was signed by Herman as an accommodation to Ted Lewin to secure credit, and the shipments were either unfit for human consumption or paid to Lewin.
    • Third Defense: Even if the partnership was bound, it should only be liable for the shipments actually made, not the entire 200 tons.
  4. Trial Court Findings:

    • The trial court ruled that the order was placed by the defendant partnership, not Williams International, Inc.
    • The court rejected the defenses, finding no evidence that the meat was unfit for human consumption or that the contract was for Lewin’s accommodation.
    • The court held Francisco Limgenco, Jr. and William J. Herman jointly and severally liable for P172,289.21, with legal interest and attorney’s fees. Ted Lewin and Paul Macdonald were held subsidiarily liable.
  5. Appeal:

    • Defendants argued that the transaction was personal between Herman and Lewin, not between their respective companies.
    • They also claimed the meat was unfit for human consumption and that they should not be liable for the entire 200 tons.

Issue:

  1. Whether the contract for the purchase of 200 tons of Australian frozen beef was binding on the defendant partnership, F. Limgenco Co., Ltd., or whether it was a personal transaction between William J. Herman and Ted Lewin.
  2. Whether the meat was unfit for human consumption and whether the defendants should be liable for the entire 200 tons ordered.
  3. Whether the provisions of Article 342 of the Code of Commerce (regarding hidden defects) apply to the case.

Ruling:

The Supreme Court modified the trial court’s decision:

  1. Contract Binding on the Partnership: The Court held that the contract was binding on the defendant partnership, F. Limgenco Co., Ltd., and not a personal transaction between Herman and Lewin. The bills of lading and other evidence showed that the transaction was conducted through the respective companies.
  2. Liability for Undelivered Meat: The Court ruled that the defendants were not liable for the undelivered portion of the 200 tons of beef because the meat was not saleable in Japan due to its poor quality. The vendor (plaintiff) was responsible for the deterioration of the meat under Article 334 of the Code of Commerce.
  3. Liability for Delivered Meat: The defendants were held liable for the price of the meat actually delivered (P38,427), as there was no evidence that it was unfit for human consumption or that payment was made to Ted Lewin.
  4. Subsidiary Liability: Ted Lewin and Paul Macdonald were declared subsidiarily liable for the amount, as they acted as guarantors for Williams International, Ltd.

Ratio:

  1. Agency and Partnership Liability: A contract entered into by a partner or agent on behalf of a partnership or corporation binds the entity if it is within the scope of their authority or ratified by the entity. In this case, the evidence showed that the transaction was conducted through the defendant partnership, not as a personal deal.
  2. Vendor’s Responsibility for Quality: Under Article 334 of the Code of Commerce, the vendor is responsible for the deterioration of goods if the deterioration is due to fortuitous events or unexplained causes. Since the meat was not saleable in Japan due to its poor quality, the vendor (plaintiff) bore the loss for the undelivered portion.
  3. Notice of Defects: The defendants were justified in refusing further deliveries due to the meat’s poor quality, as the plaintiff was aware of the issue. However, they remained liable for the price of the meat actually delivered.
  4. Subsidiary Liability of Guarantors: Ted Lewin and Paul Macdonald, as guarantors, were only subsidiarily liable for the amount owed by the defendant partnership.


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