G.R. No. 28613, October 5, 1928
ORIA HERMANOS Y COMPAÑIA EN LIQUIDACION, plaintiff-appellee, vs. GUTIERREZ HERMANOS, defendant-appellant.

FACTS

Gutierrez Hermanos (defendant) filed a collection suit against Oria Hermanos & Co. (plaintiff) in 1909. After years of litigation, final judgments were rendered in favor of Gutierrez Hermanos. In the course of the litigation, Gutierrez Hermanos, on December 29, 1911, made a journal entry (Entry No. 1654) transferring the Oria debt from the firm’s active assets to a special account titled “Accounts Receivable in Liquidation.” The entry stated that the claim was “separated from our assets” and became the “private property” of the individual partners, with the firm retaining the duty to collect it and remit the proceeds to them. Gutierrez Hermanos continued prosecuting the case in its own name. Years later, after a judgment revival proceeding, Oria Hermanos filed this action to annul all prior judgments obtained by Gutierrez Hermanos, arguing that the 1911 journal entry constituted an assignment of the claim to the individual partners. Oria contended that Gutierrez Hermanos, having ceased to be the real party in interest, committed a fraud on the court by continuing the litigation in its firm name. The trial court ruled in favor of Oria Hermanos, annulling the judgments and ordering Gutierrez Hermanos to return properties levied under execution.

ISSUE

Did the journal entry (Entry No. 1654) made by Gutierrez Hermanos on December 29, 1911, constitute an assignment of its claim against Oria Hermanos & Co. to its individual partners, thereby depriving Gutierrez Hermanos of its status as the real party in interest and rendering all subsequent judgments in its favor null and void?

RULING

NO. The Supreme Court reversed the trial court’s decision. The journal entry did not constitute an assignment that required the substitution of the individual partners as plaintiffs in the pending litigation.

The Court held that the entry was merely an internal accounting procedure to segregate a doubtful or slow-moving account from the firm’s active capital. It did not effect a legal transfer or assignment of the cause of action to the partners. The firm (Gutierrez Hermanos) expressly retained the duty to collect the debt and merely stipulated that any proceeds collected would be distributed to the partners according to their shares. The firm therefore continued to have the right and duty to represent the collective interest of the partners in the litigation. Even if the entry were construed as an assignment *pendente lite*, the failure to formally substitute parties would not nullify a final judgment, as the original plaintiff would hold the judgment proceeds for the benefit of the assignees. Such a procedural irregularity, if any, did not prejudice the debtor (Oria Hermanos) and thus constituted “error without injury.” The jurisdiction of the court was not affected, and there was no fraud committed against Oria Hermanos or the court.