G.R. No. 19621 - Union Guarantee Co., Ltd. vs. Jing Kee and Co.

Union Guarantee Company, Ltd., a domestic corporation with its principal office in the City of Manila.

Jing Kee & Co., a partnership organized in Japan doing business in Japan and Manila.
Bank of Taiwan, Ltd., a corporation organized under Japanese banking laws with its principal office in Kobe.
Individuals Teng Kim Kuy and Teng Kim Tong, alleged to be members of both Jing Kee & Co. and Koon Kee & Co. (a duly organized domestic partnership).

On December 18, 1919, Jing Kee & Co. drew a draft on Koon Kee & Co. for Y5,909.47, payable sixty days after sight.
The Bank of Taiwan, Ltd. duly endorsed the draft and delivered it to the Bank of the Philippine Islands.
The draft was presented for acceptance to Koon Kee & Co. on January 6, 1920, was accepted, but was subsequently dishonored at maturity.
A similar set of allegations was made with respect to another draft amounting to P9,380.33.

The plaintiff was bound as a surety on a bond executed for the production of the bill of lading at the Customs House, Manila, covering the merchandise embodied by the draft(s).
The Collector of Customs demanded either the production of the bill of lading or the payment of the bond.
To be released from its bond liability, the plaintiff purchased the draft from the Bank of the Philippine Islands on August 3, 1920, paying its full face value (P7,845.94), thus becoming the owner and holder of the drafts.
The plaintiff subsequently sought judgment for the amount of the drafts, with interest accruing from August 3, 1920, until paid.

Initially, defendants Teng Kim Kuy and Teng Kim Tong demurred to the complaint on the ground of insufficient factual allegations.
Upon the overruling of the demurrer, the defendants filed an answer admitting material allegations of the complaint, including their membership in Jing Kee & Co. and Koon Kee & Co.
The answer further alleged that when Jing Kee & Co. delivered the drafts to the Bank of Taiwan, it concomitantly delivered the bills of lading with express instructions to release them only upon payment of the drafts.
These instructions were carried forward by the Bank of Taiwan when forwarding the documents to the Bank of the Philippine Islands.
The plaintiff, by paying the draft amounts to secure possession of the bills of lading and the merchandise, became embroiled in a dispute as to whether it actually procured the merchandise or allowed a third party to do so.
The Bank of the Philippine Islands was not made a proper party to the suit.

The decision rested on findings that the plaintiff allegedly procured the merchandise indirectly or permitted its delivery to a third party.
It held that the drafts were without consideration and dismissed the plaintiff’s complaint.

The plaintiff appealed, contesting errors in presuming it had secured the merchandise and in the legal interpretation of the acceptance of the drafts.

The acceptance of the drafts by Koon Kee & Co. placed a legal liability upon said firm for the payment of the drafts.
In the ordinary commercial course, the merchandise would have been delivered to Koon Kee & Co. upon production of the bill of lading.
The plaintiff’s purchase of the drafts, undertaken to discharge its bond obligation, transferred to it the rights and liabilities arising from the acceptance of the drafts.
No evidence was adduced by the defendants that the firm of Koon Kee & Co. was discharged or that the merchandise was delivered elsewhere.

Whether the plaintiff, by virtue of purchasing the dishonored drafts to discharge its bond obligation, acquired the legal right to enforce payment from the accepting party.
Whether the acceptance of the drafts by Koon Kee & Co. imposes legal liability on the partnership and thereby on its individual members, including non-managing partners.
Whether the commercial practice and instructions attached to the bills of lading (i.e., delivery only upon payment of the drafts) affect the liability established by the acceptance of the drafts.
Whether the defendants’ argument that a partner who is not a managing partner can be shielded from suit unless the partnership or the managing partner is joined is tenable, considering the proper pleading of the cause of action.
Whether the drawer of the drafts (Jing Kee & Co.) should also be held liable under the circumstances of the shipment and delivery instructions, or whether liability solely attaches to the acceptor.